[dreyfus lion "d" logo] (reg.tm)
[dreyfus logo] (reg.tm)
DREYFUS APPRECIATION FUND, INC.
200 Park Avenue
New York, NY 10166
INVESTMENT ADVISER
The Dreyfus Corporation
200 Park Avenue
New York, NY 10166
SUB-INVESTMENT ADVISER
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. 141SA986
Appreciation
Fund, Inc.
Semi-Annual
Report
June 30, 1998
DREYFUS APPRECIATION FUND, INC.
- -----------------------------------------------------------------------------
LETTER TO SHAREHOLDERS
Dear Shareholder:
We are pleased to provide you with this semi-annual report for the Dreyfus
Appreciation Fund, Inc. for the six-month period ended June 30, 1998. During
that period, your Fund produced a total return of 20.94%.* During the
same period, the Standard & Poor's 500 Composite Stock Price Index provided a
total return of 17.72%.**
PORTFOLIO COMPOSITION
At the close of the period, the Fund had 2.2% of its net assets in short-term
Treasuries, and industry concentrations in consumer staples, financials and
health care. We are maintaining the Fund's fully invested posture and investing
the short-term cash equivalent assets on a timely basis.
ECONOMIC OUTLOOK
We expect average annual Gross Domestic Product (GDP) in the U.S. will expand
this year in a range of 2.5% to 3.0%, compared to 4.0% in 1997. Annual CPI
inflation should decline to 1.5% , or below, historically close to price
stability. Against the backdrop of a strong dollar and a budget surplus, we
expect long-term interest rates to decline to 5.5% or below by year-end. Sound
corporate management and vigilant monetary policy have produced an environment
where job creation remains healthy and the economy can expand, while wage
inflation can be held in check. A secular increase in productivity, which is
continuing in the eighth year of the business cycle, and global competition,
which limits pricing power, are also responsible for the positive backdrop for
financial assets.
We believe strong domestic demand will be tempered in the months ahead. We see
weakness and overcapacity in Asia continuing to restrain pricing as well. Price
deflation in producer prices has weakened growth in the manufacturing sector. We
have also seen disinflation in agricultural commodities and commodity products
such as oil, paper, chemicals and steel. Pricing weakness pressures profit
margins, and it is our belief that maintaining corporate competitiveness will
result in incremental downsizing where necessary. Continued merger and
acquisition activity should also undermine job creation in affected industries.
Accordingly, security is likely to become more of an issue, and consumer
confidence and spending may well moderate from record levels. Still, we do not
think the economy will enter a recession in the foreseeable future. A
discernible pickup in demand in continental European markets should also
continue to be a driver of global growth, offsetting weakness in other
economies.
INVESTMENT STRATEGY
The United States economy continues to reap the benefits of its ability to
identify, confront and tackle structural inefficiencies in both the public and
private sectors. Leading American global corporations, hardened by the tough
competitive environment at home, are proving to be very effective competitors
internationally as more and more economies expose their local companies to the
rigors of global competition. Particularly in the fields of brand consumer
products, pharmaceuticals, finance and technology, these global companies are
able to bring to the growing class of middle-income consumers products and
services of high quality and reasonable price. The competitive advantage of
well-managed global corporations is the result of being able to share and spread
the substantial costs of research, development, advertising and distribution
over a larger base of business than local companies can command. Furthermore, in
environments of financial panic as are currently occurring in some of the Asian
economies, the financial strength and geographic scope of the larger companies
allows for continuation of an expansion strategy as weaker competitors retrench.
Moderating growth and the prospect of continued low inflation across the
general economy provided a constructive backdrop for interest rates, as did
continued demand in the face of diminished supply. In the second half, strong
real income growth should support aggregate demand near current levels, although
we expect some weakness in job creation as growth moderates. Somewhat slower
growth among the expanding economies and continued weakness among many
developing economies should keep markets focused on high quality global
companies, which have led equity performance year-to-date. In the eighth year of
the current economic cycle, consistency of earnings growth, margin expansion and
strong cash flow are fundamentals which are driving current performance as well
as expected predictability of future earnings streams of sectors and individual
companies in the portfolio.
Market Overview
Measured broadly, the half-year ended June 30, 1998 was another period of
solid advance for large caps in general. The S&P 500 achieved a new record of
17.72% at the end of the six-month period. While the Dow Jones Industrial
Average (DJIA) didn' t reach its all-time record, it nonetheless gained 14.16%
for the six months, closing the half-year above 9000.
The first calendar quarter provided most of the strength for the six months.
In the April-June quarter, the S&P 500 gained 3.32% and the DJIA 2.15%.
Stock categories that were strongest during the half-year included financials,
particularly banks, brokerages, insurance and diversified financial services;
technology, especially communications and computer issues; and cyclical consumer
stocks such as advertising, airlines, automotive, broadcasting and home
construction.
The weak categories for the period included precious metals, oil drilling and
oilfield suppliers, and some industrial issues.
Corporate profits dropped sharply from the strong pace of last year. Based on
reports from 82% of companies in the S&P 500, First Call, the statistical
service, estimated that corporate operating profits were up about 3% in the
second quarter compared to a year earlier. Of course, there were optimists
forecasting a hefty rise in profits for later this year and early 1999, which
could potentially propel stock prices upward. Yet most investors seemed
preoccupied with the here and now, which included the strike at General Motors
plants and the continuing fallout from financial troubles in Japan and Southeast
Asia.
As expected, the Federal Reserve Board at its last meeting made no change in
interest rates, even though inflationary pressures are a constant worry for the
Fed. The reason for their inaction may well have been the precarious state of
some economies elsewhere in the world, and the desire not to precipitate a major
correction in the U.S. stock market. Even so, the Fed thought it timely to issue
a stern warning to banks not to become overextended with unwise loans, which
happened in the 1980s.
Despite warnings like this, and the fact that stock prices are extremely high
historically in relation to earnings and cash flow, investors still appeared
eager to own equities. Moreover, surveys of consumer sentiment continued to show
that the average consumer was more confident about the future than had been the
case in a generation.
INVESTMENT HIGHLIGHTS
Our outlook for financial markets remains positive, with constructive
fundamentals continuing to provide a positive backdrop. Our emphasis on the
highest quality global industry leaders has benefited total return over the
short and longer term. Although the U.S. is enjoying an extremely positive
confluence of economic and fiscal variables, markets remain volatile -- serving
as a discounting mechanism for the future, and reflecting current uncertainties
on numerous fronts. We believe our approach will continue to serve as a more
risk-averse approach to equity investing, while seeking higher relative and
absolute rates of return over a long-term investment horizon.
The Fund's performance in excess of the Index during the reporting period was
attributable to the financial services sector, which benefited from declining
interest rates and industry consolidation. Although this sector underperformed
the broad Index, correct issue selection and emphasis caused this sector to have
the most positive impact, led by shares of Associates First Capital Cl.A., Chase
Manhattan, BankAmerica and Citicorp. The health care sector was the third best
performing sector in the Index, and had the second most positive impact on the
Fund's performance, led by shares of Pfizer, Merck & Co., American Home Products
and Abbott Laboratories. The consumer staples, consumer cyclicals and technology
sectors also exhibited strength with the performance of Coca-Cola, Chrysler,
Microsoft, Ford Motor, Cisco Systems, Nestle and Walgreen.
We appreciate your investment in the Dreyfus Appreciation Fund, and we will
continue to seek rewarding returns on your behalf.
Sincerely,
[Fayez Sarofim signature logo]
Fayez Sarofim
Portfolio Manager
July 16, 1998
New York, NY
* 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.
<TABLE>
<CAPTION>
DREYFUS APPRECIATION FUND, INC.
- ------------------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS JUNE 30, 1998 (UNAUDITED)
Common Stocks--97.7% Shares Value
- ------------------------------------------------------------------------------------------ _________ __________
<S> <C> <C>
Apparel--1.3% Christian Dior........................................ 150,000 $ 18,833,837
Polo Ralph Lauren..................................... (a) 450,000 12,600,000
Warnaco Group, Cl. A.................................. 180,000 7,638,750
____________
39,072,587
____________
Automotive--5.9% Chrysler............................................. 1,100,000 62,012,500
Ford Motor........................................... 1,399,905 82,594,395
General Motors....................................... 500,000 33,406,250
____________
178,013,145
------------
Banking--8.6% BankAmerica......................................... 840,000 72,607,500
Chase Manhattan..................................... 950,000 71,725,000
Citicorp............................................ 475,000 70,893,750
HSBC Holdings, A.D.R................................ 35,000 8,505,000
Sun Trust Banks..................................... 425,000 34,557,813
____________
258,289,063
____________
Basic Materials--2.1% Dow Chemical....................................... 80,000 7,735,000
duPont (E.I.) de Nemours & Co....................... 650,000 48,506,250
Rohm & Haas......................................... 50,000 5,196,875
____________
61,438,125
____________
Capital Goods--7.1% AlliedSignal........................................ 800,000 35,500,000
Boeing.............................................. 525,900 23,435,419
Caterpillar......................................... 430,000 22,736,250
Emerson Electric.................................... 300,000 18,112,500
General Electric.................................... 850,000 77,350,000
Minnesota Mining & Manufacturing.................... 250,000 20,546,875
Rockwell International.............................. 275,000 13,217,188
___________
210,898,232
___________
Communication Services--5.0% Bell Atlantic....................................... 950,000 43,343,750
BellSouth........................................... 700,000 46,987,500
SBC Communications.................................. 1,500,192
60,007,680
___________
150,338,930
___________
Computers--5.0% Cisco Systems...................................... (a) 352,500 32,452,031
Compaq Computer.................................... 1,250,000 35,468,750
Hewlett-Packard.................................... 600,000 35,925,000
Microsoft.......................................... (a) 425,000 46,059,375
__________
149,905,156
___________
Consumer Staples--1.7% Walgreen.......................................... 1,200,000 49,575,000
___________
Electronics--2.6% Intel............................................. 1,050,000 77,831,250
___________
Energy--7.4% British Petroleum, A.D.S.......................... 650,000 57,362,500
Chevron........................................... 450,000 37,378,125
Exxon............................................. 850,000 60,615,625
DREYFUS APPRECIATION FUND, INC.
- -------------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED) JUNE 30, 1998 (UNAUDITED)
Common Stocks (continued) Shares Value
- -------------------------------------------------------------------------------------
______ ________
Energy (continued) Mobil............................................ 475,000 $ 36,396,875
Royal Dutch Petroleum (New York Shares).......... 500,000 27,406,250
_____________
219,159,375
_____________
_
Finance--6.7% American General................................. 300,000 21,356,250
Associates First Capital, Cl. A.................. 66,894 51,267,476
Federal National Mortgage Association............ 1,100,000 66,825,000
Hertz, Cl. A..................................... 350,000 15,509,375
Merrill Lynch & Co............................... 490,000 45,202,500
_______________
200,160,601
_______________
Food, Beverage & Tobacco--10.6% Anheuser-Busch................................... 140,000 6,606,250
Coca-Cola........................................ 1,450,000 123,975,000
Kellogg.......................................... 250,000 9,390,625
Nestle, A.D.R.................................... 350,000 37,362,500
PepsiCo.......................................... 1,275,000 52,514,062
Philip Morris.................................... 1,950,000 76,781,250
Unilever, N.V. (New York Shares)................. 100,000 7,893,750
______________
314,523,437
______________
Health Care--18.8% Abbott Laboratories.............................. 1,250,000 51,093,750
American Home Products........................... 1,150,000 59,512,500
Bristol-Myers Squibb............................. 525,000 60,342,187
Johnson & Johnson................................ 1,150,000 84,812,500
Merck & Co....................................... 800,000 107,000,000
Pfizer........................................... 1,450,000 157,596,875
Roche Holdings, A.D.R............................ 325,000 31,809,375
Schering-Plough.................................. 75,000 6,871,875
_______________
559,039,062
_______________
Household Products--7.0% Colgate-Palmolive................................ 500,000 44,000,000
Gillette......................................... 1,300,000 73,693,750
Lauder (Estee)................................... 250,000 17,421,875
Procter & Gamble................................. 800,000 72,850,000
_______________
207,965,625
_______________
Insurance--3.6% Berkshire Hathaway, Cl. A........................ (a) 700 54,813,500
General Re....................................... 60,000 15,210,000
Marsh & McLennan................................. 600,000 36,262,500
_______________
106,286,000
_______________
Media/Entertainment--1.7% Disney (Walt).................................... 120,000 12,607,500
McDonald's....................................... 450,000 31,050,000
Tricon Global Restaurants........................ (a) 250,000 7,921,875
_______________
51,579,375
_______________
Photography--.6% Eastman Kodak.................................... 250,000 18,265,625
_______________
Publishing--.4% McGraw-Hill Cos.................................. 100,000 8,156,250
News Corp, A.D.R................................. 120,000 3,855,000
_______________
12,011,250
_______________
DREYFUS APPRECIATION FUND, INC.
- -------------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED) JUNE 30, 1998 (UNAUDITED)
Common Stocks (continued) Shares Value
- ------------------------------------------------------------------------------------- _______________ ______________
Retail--.6% Wal-Mart Stores.................................. 300,000 $ 18,225,000
_______________
Transportation--1.0% Norfolk Southern................................. 1,000,000 29,812,500
_______________
TOTAL COMMON STOCKS
(cost $1,897,462,628)........................ $ 2,912,389,338
===============
Preferred Stocks--.4%
- -------------------------------------------------------------------------------------
Publishing; News Corp, A.D.R.
(cost $7,781,484)............................ 450,000 $ 12,712,500
==============
</TABLE>
<TABLE>
<CAPTION>
Principal
Short-Term Investments--2.2% Amount
- ------------------------------------------------------------------------------------------
_______________
<S> <C> <C>
U.S. Treasury Bills: 5.02%, 9/10/1998................................ $ 6,223,000 $ 6,163,072
4.98%, 9/17/1998................................ 27,045,000 26,758,864
4.88%, 9/24/1998................................ 5,869,000 5,801,917
4.95%, 10/1/1998................................ 100,000 98,729
4.97%, 10/8/1998................................ 100,000 98,633
4.97%, 10/15/1998............................... 27,262,000 26,860,431
_____________
TOTAL SHORT-TERM INVESTMENTS
(cost $65,776,028)......................... $ 65,781,646
===============
TOTAL INVESTMENTS (cost $1,971,020,140)............................................ 100.3% $ 2,990,883,484
======= ===============
LIABILITIES, LESS CASH AND RECEIVABLES (.3%) $ (10,263,628)
======= ===============
NET ASSETS 100.0% $ 2,980,619,856
======= ===============
Notes to Statement of Investments:
</TABLE>
- -----------------------------------------------------------------------------
(a) Non-income producing.
SEE NOTES TO FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
DREYFUS APPRECIATION FUND, INC.
- -----------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1998 (UNAUDITED)
Cost Value
_______________ ______________
<S> <C> <C>
ASSETS: Investments in securities--See Statement of
Investments...................................... $1,971,020,140 $2,990,883,484
Cash............................................. 3,036,095
Dividends and interest receivable................ 3,163,833
Receivable for shares of Common Stock
subscribed....................................... 2,635,069
Prepaid expenses................................. 246,594
______________
2,999,965,075
_______________
LIABILITIES: Due to The Dreyfus Corporation and affiliates..... 738,544
Due to Fayez Sarofim & Co......................... 631,553
Due to Distributor................................ 587,028
Payable for investment securities purchased....... 16,601,208
Payable for shares of Common Stock redeemed....... 454,101
Accrued expenses.................................. 332,785
_______________
19,345,219
_______________
NET ASSETS........................................................................ $2,980,619,856
===============
REPRESENTED BY: Paid-in capital.................................. $1,946,896,393
Accumulated undistributed investment
income--net...................................... 9,502,266
Accumulated net realized gain (loss) on investments
and foreign currency transactions.............. 4,366,414
Accumulated net unrealized appreciation (depreciation)
on investments and foreign currency
transations.................................... 1,019,854,783
_______________
NET ASSETS........................................................................ $2,980,619,856
================
SHARES OUTSTANDING
(100 MILLION SHARES OF $.01 PAR VALUE COMMON STOCK AUTHORIZED).................... 76,118,163
NET ASSET VALUE, offering and redemption price per share.......................... $39.16
=======
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
DREYFUS APPRECIATION FUND, INC.
- -----------------------------------------------------------------------------
STATEMENT OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
INVESTMENT INCOME
INCOME: Cash dividends (net of $387,191 foreign taxes
<S> <C> <C>
withheld at source)........................... $ 19,835,698
Interest......................................... 808,331
_____________
Total Income.............................. $ 20,644,029
EXPENSES: Investment advisory fee--Note 3(a)............... 3,500,593
Sub-investment advisory fee--Note 3(a)........... 3,329,510
Shareholder servicing costs--Note 3(b)........... 3,792,113
Registration fees................................ 227,384
Custodian fees--Note 3(b)........................ 76,021
Prospectus and shareholders' reports............. 68,707
Directors' fees and expenses--Note 3(c).......... 19,409
Professional fees................................ 15,510
Loan commitment fees--Note 2..................... 4,400
Miscellaneous.................................... 9,888
____________
Total Expenses............................ 11,043,535
___________
INVESTMENT INCOME--NET............................................................ 9,600,494
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--Note 4:
Net realized gain (loss) on investments
and foreign currency transactions............. $ 4,025,576
Net unrealized appreciation (depreciation) on
investments and foreign currency
transactions.................................. 442,054,777
___________
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS............................ 446,080,353
_____________
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................. $455,680,847
=============
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
DREYFUS APPRECIATION FUND, INC.
- -----------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended
June 30, 1998 Year Ended
(Unaudited) December 31, 1997
________________ _______________
<S> <C> <C>
OPERATIONS:
Investment income--net......................................................... $ 9,600,494 $ 15,471,076
Net realized gain (loss) on investments........................................ 4,025,576 4,286,731
Net unrealized appreciation (depreciation) on investments...................... 442,054,777 317,934,827
________________ _____________
Net Increase (Decrease) in Net Assets Resulting from Operations............. 455,680,847 337,692,634
________________ _____________
DIVIDENDS TO SHAREHOLDERS:
From investment income--net................................................... -- (15,585,302)
In excess of investment income--net........................................... -- (98,228)
From net realized gain on investments......................................... -- (3,671,898)
________________ _______________
Total Dividends............................................................. -- (19,355,428)
________________ _______________
CAPITAL STOCK TRANSACTIONS:
Net proceeds from shares sold................................................. 1,342,507,470 3,038,700,676
Dividends reinvested.......................................................... -- 17,226,988
Cost of shares redeemed....................................................... (795,206,494) (2,242,123,459)
________________ _______________
Increase (Decrease) in Net Assets from Capital Stock Transactions........... 547,300,976 813,804,205
________________ _______________
Total Increase (Decrease) in Net Assets.................................. 1,002,981,823 1,132,141,411
NET ASSETS:
Beginning of Period........................................................... 1,977,638,033 845,496,622
________________ _______________
End of Period................................................................. $ 2,980,619,856 $ 1,977,638,033
================ ===============
UNDISTRIBUTED INVESTMENT INCOME (DISTRIBUTION IN EXCESS OF INVESTMENT INCOME)--NET $ 9,502,266 $ (98,228)
________________ _______________
CAPITAL SHARE TRANSACTIONS: Shares Shares
________________ _______________
Shares sold................................................................... 36,858,517 102,660,433
Shares issued for dividends reinvested........................................ -- 538,558
Shares redeemed............................................................... (21,811,039) (75,178,590)
________________ _______________
Net Increase (Decrease) in Shares Outstanding.............................. 15,047,478 28,020,401
================ ================
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
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>
Six Months Ended
June 30, 1998 Year Ended December 31,
_______________________________________________________
PER SHARE DATA: (Unaudited) 1997 1996 1995 1994 1993
__________ ______ ______ ______ ______ ______
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period............ $32.38 $25.58 $20.55 $15.17 $14.92 $15.15
_______ ______ _______ _______ _______ _______
Investment Operations:
Investment income--net.......................... .13 .25 .25 .33 .28 .24
Net realized and unrealized gain (loss)
on investments.............................. 6.65 6.87 5.03 5.42 .26 (.14)
_______ ______ _______ _______ _______ _______
Total from Investment Operations................ 6.78 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................... $39.16 $32.38 $25.58 $20.55 $15.17 $14.92
======= ======= ======= ======= ======= =======
TOTAL INVESTMENT RETURN............................. 20.94%(2) 27.85% 25.68% 37.89% 3.62% .71%
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net assets.......... .44%(2) .87% .91% .92% .96% 1.07%
Ratio of net investment income
to average net assets........................ .38%(2) .99% 1.34% 2.28% 1.86% 1.66%
Portfolio Turnover Rate.......................... 1.37%(2) 1.23% 4.84% 4.51% 6.58% 9.65%
Net Assets, end of period (000's Omitted)........ $2,980,620 $1,977,638 $845,497 $457,267 $233,459 $237,018
- ------------------------
(1) Amount represents less than $.01 per share.
(2) Not annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
DREYFUS APPRECIATION FUND, INC.
- -----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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.
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.
(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. Under the terms of the custodian agreement, the Fund received net
earnings credits of $825 during the period ended June 30, 1998 based on
available cash balances left on deposit. Income earned under this arrangement is
included in interest income.
DREYFUS APPRECIATION FUND, INC.
- -----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(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, if any, 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.
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 June
30, 1998, the fund did not borrow under the Facility.
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) Under the 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 ended
June 30, 1998, the Fund was charged $3,104,592 pursuant to the Shareholder
Services Plan.
DREYFUS APPRECIATION FUND, INC.
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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 June 30, 1998, the Fund was charged $381,759 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 June 30, 1998, the Fund was
charged $76,021 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 June 30, 1998 amounted
to $542,299,319 and $33,761,304, respectively.
At June 30, 1998, accumulated net unrealized appreciation on investments was
$1,019,863,344, consisting of $1,030,302,338 gross unrealized appreciation and
$10,438,994 gross unrealized depreciation.
At June 30, 1998, the cost of investments for Federal income tax purposes was
substantially the same as the cost for financial reporting purposes (see the
Statement of Investments).
