Dreyfus
Appreciation Fund, Inc.
ANNUAL REPORT December 31, 1999
(reg.tm)
The views expressed herein are current to the date of this report. These views
and the composition of the fund's portfolio are subject to change at any time
based on market and other conditions.
* Not FDIC-Insured
* Not Bank-Guaranteed
* May Lose Value
Year 2000 Issues (Unaudited)
The fund could be adversely affected if the computer systems used by Dreyfus and
the fund's other service providers do not properly process and calculate
date-related information from and after January 1, 2000. Dreyfus has taken steps
designed to avoid year 2000-related problems in its systems and to monitor the
readiness of other service providers. In addition, issuers of securities in
which the fund invests may be adversely affected by year 2000-related problems.
This could have an impact on the value of the fund's investments and its share
price.
Contents
THE FUND
- --------------------------------------------------
2 Letter from the President
3 Discussion of Fund Performance
6 Fund Performance
7 Statement of Investments
10 Statement of Assets and Liabilities
11 Statement of Operations
12 Statement of Changes in Net Assets
13 Financial Highlights
14 Notes to Financial Statements
18 Report of Independent Auditors
19 Important Tax Information
FOR MORE INFORMATION
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Back Cover
The Fund
Dreyfus Appreciation Fund, Inc.
LETTER FROM THE PRESIDENT
Dear Shareholder:
We are pleased to present this annual report for Dreyfus Appreciation Fund,
Inc., covering the 12-month period from January 1, 1999 through December 31,
1999. Inside, you'll find valuable information about how the fund was managed,
including a discussion with the fund's portfolio manager, Fayez Sarofim of Fayez
Sarofim & Co., the fund's sub-investment adviser.
The past year has been both highly volatile and rewarding for many investors in
U.S. stocks. On December 31, the last trading day of 1999, most major stock
market indices hit new highs, including the Dow Jones Industrial Average, the S&
P 500 Index of large-cap stocks, the technology-heavy Nasdaq 100 and the Russell
2000 Index of small-capitalization stocks.
These simultaneous highs masked the remarkable narrowness of the stock market's
advance in 1999, however. Following the trend established over the past several
years, growth-oriented stocks handily outperformed value-oriented stocks.
Indeed, until a more broad-based rally in the fourth quarter, stellar
performance was generally limited to a handful of highly valued technology and
telecommunications companies. In our view, many fundamentally sound companies in
other market sectors may be selling at attractive valuations.
We appreciate your confidence over the past year, and we look forward to your
continued participation in Dreyfus Appreciation Fund, Inc.
Sincerely,
/s/Stephen E. Canter
Stephen E. Canter
President and Chief Investment Officer
The Dreyfus Corporation
January 14, 2000
2
DISCUSSION OF FUND PERFORMANCE
Fayez Sarofim, Portfolio Manager
Fayez Sarofim & Co., Sub-Investment Adviser
How did Dreyfus Appreciation Fund, Inc. perform relative to its benchmark?
For the 12-month period ended December 31, 1999, the fund's total return was
9.97% .(1) For the same period, the total return of the Standard & Poor's
500((reg.tm) ) Composite Stock Price Index ("S&P 500 Index"), the fund's
benchmark was 21.03%.(2)
We attribute the fund's relative underperformance to the narrow base of stocks
that supported the S&P 500 Index's rise. Much of the Index's advance during the
period was driven by strong performance among a relative handful of
technology-related stocks. Since, as of December 31, 1999 technology stocks
comprised 24% of the Index, but just 17% of the fund, the Index produced higher
returns than the fund.
What is the fund's investment approach?
The fund invests primarily in large, well-established, multinational growth
companies that we believe are well positioned to weather difficult economic
climates and thrive during favorable times. We focus on purchasing growth stocks
at a price we consider to be justified by a company's fundamentals. The result
is a portfolio of stocks in prominent companies selected for their sustained
patterns of profitability, strong balance sheets, expanding global presence and
above-average growth potential.
At the same time, we manage the fund in a manner particularly well suited to
long-term investors. Our investment approach is based on targeting long-term
growth rather than short-term profit. We buy and sell relatively few stocks
during the course of the year, helping to minimize investors' tax liabilities
and reduce trading costs. For the 12-month period ended December 31, 1999, the
fund's portfolio turnover rate was 11.77%, well within our goal of an annual
turnover rate below 15% during normal market conditions.
The Fund 3
DISCUSSION OF FUND PERFORMANCE (CONTINUED)
What other factors influenced the fund's performance?
As we mentioned earlier, most of the benchmark's strong rise was driven by the
performance of an extremely narrow group of technology-related companies. Only a
handful of stocks in the S&P 500 Index accounted for most of the Index's return
in 1999. While the fund benefited from owning significant positions in a few of
these stocks -- such as technology leaders Intel, Microsoft and Cisco Systems --
our performance relative to our benchmark suffered because we held fewer of
these stocks than the S&P 500 Index.
A wide range of global, domestic and company-specific issues also affected the
fund's performance. During the first half of the period, global economic
difficulties and weak consumer spending in many foreign markets created
challenging conditions for multinational consumer products companies such as
Gillette. During the second half of the period, rising interest rates took a
toll on interest-rate-sensitive sectors, including financials. Because we
allocated more of the fund' s assets to consumer staples and financials than
other sectors, these conditions hurt the fund's overall performance.
What is the fund's current strategy?
Much of the fund's performance results from our sector selection process, an
analysis designed to identify industries likely to enjoy long-term growth.
During the reporting period, this process led us to maintain the fund's emphasis
on the health care, consumer staple and financial industries, and to
de-emphasize commodities and basic industries. Our investment discipline also
led us away from technology companies with stock prices higher than we judged to
be warranted by their financial strength and growth rates.
While our emphasis on health care and consumer staple stocks constrained the
fund's ability to keep pace with the S&P 500 Index due to the factors described
above, many individual holdings in these sectors performed well. The fund's top
performers included capital goods giant General Electric, which has been the
fund's largest single posi-
4
tion. Other winners included pharmaceutical companies Johnson & Johnson and
Bristol-Myers Squibb and consumer products companies Wal-Mart Stores and
Colgate-Palmolive. Furthermore, despite the challenging interest-rate
environment and weakness in the overall financial sector, our individual
holdings of financial stocks boosted the fund's performance relative to the S&P
500 Index, as did our underweighting of the troubled commodities and basic
industry sectors.
As of December 31, 1999, long-term economic trends have led us to emphasize
large companies with global operations, established track records, predictable
business models and products that are sold directly to end-users. Specifically,
both the domestic and overseas economies have continued to perform well. Despite
rising interest rates, inflation has remained low while consumer confidence has
remained high. Overseas, recovering economies in Japan and Asia as well as
continuing growth in Europe should support the earnings of large, global
companies. As a result, we have seen little reason to alter our asset allocation
strategy. Nor have we observed changes in company fundamentals that might lead
us to make significant changes among our individual holdings.
January 14, 2000
(1) TOTAL RETURN INCLUDES REINVESTMENT OF DIVIDENDS AND ANY CAPITAL GAINS PAID.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE AND
INVESTMENT RETURN FLUCTUATE SUCH THAT UPON REDEMPTION, FUND SHARES MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
(2) SOURCE: LIPPER ANALYTICAL SERVICES, INC. -- REFLECTS THE REINVESTMENT OF
INCOME DIVIDENDS AND, WHERE APPLICABLE, CAPITAL GAIN DISTRIBUTIONS. THE
STANDARD & POOR'S 500((reg.tm)) COMPOSITE STOCK PRICE INDEX IS A WIDELY
ACCEPTED, UNMANAGED INDEX OF U.S. STOCK MARKET PERFORMANCE.
The Fund 5
<TABLE>
<CAPTION>
FUND PERFORMANCE
Comparison of change in value of $10,000 investment in Dreyfus Appreciation
Fund, Inc. and the Standard & Poor's 500 Composite Stock Price Index
- --------------------------------------------------------------------------------
Average Annual Total Returns AS OF 12/31/99
Inception From
Date 1 Year 5 Years 10 Years Inception
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FUND 1/18/84 9.97% 26.10% 16.81% 17.44%
</TABLE>
(+) SOURCE: LIPPER ANALYTICAL SERVICES, INC.
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 $10,000 INVESTMENT MADE IN THE STANDARD &
POOR'S 500 COMPOSITE STOCK PRICE INDEX ON THAT DATE. FOR COMPARATIVE PURPOSES,
THE VALUE OF THE INDEX ON 1/31/84 IS USED AS THE BEGINNING VALUE ON 1/18/84. ALL
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS ARE REINVESTED.
THE FUND'S PERFORMANCE SHOWN IN THE LINE GRAPH TAKES INTO ACCOUNT ALL APPLICABLE
FEES AND EXPENSES. THE STANDARD AND POOR'S 500 COMPOSITE STOCK PRICE INDEX IS A
WIDELY ACCEPTED, UNMANAGED INDEX OF U.S. STOCK MARKET PERFORMANCE, WHICH DOES
NOT TAKE INTO ACCOUNT CHARGES, FEES AND OTHER EXPENSES. FURTHER INFORMATION
RELATING TO FUND PERFORMANCE, INCLUDING EXPENSE REIMBURSEMENTS, IF APPLICABLE,
IS CONTAINED IN THE FINANCIAL HIGHLIGHTS SECTION OF THE PROSPECTUS AND ELSEWHERE
IN THIS REPORT.
<TABLE>
<CAPTION>
6
STATEMENT OF INVESTMENTS
December 31, 1999
COMMON STOCKS--99.1% Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
APPAREL--.9%
<S> <C> <C>
Christian Dior 150,000 37,187,820
Polo Ralph Lauren 450,000 (a) 7,678,125
44,865,945
AUTOMOTIVE--2.4%
Ford Motor 2,124,905 113,549,611
BANKING--4.2%
Chase Manhattan 1,425,000 110,704,687
SunTrust Banks 1,300,000 89,456,250
200,160,937
CAPITAL GOODS--9.2%
Emerson Electric 1,000,000 57,375,000
General Electric 1,500,000 232,125,000
Honeywell International 1,525,000 87,973,438
Rockwell International 1,210,000 57,928,750
435,402,188
COMMUNICATIONS SERVICES--5.9%
Bell Atlantic 1,000,000 61,562,500
BellSouth 2,375,000 111,179,687
SBC Communications 2,225,192 108,478,110
281,220,297
COMPUTERS--12.1%
Cisco Systems 2,000,500 (a) 214,303,563
Hewlett-Packard 1,000,000 113,937,500
International Business Machines 150,000 16,200,000
Microsoft 1,950,000 (a) 227,662,500
572,103,563
ELECTRONICS--7.9%
Conexant Systems 775,000 (a) 51,440,625
Intel 3,950,000 325,134,375
376,575,000
ENERGY--6.2%
BP Amoco, ADS 1,640,000 97,272,500
Chevron 400,000 34,650,000
Exxon Mobil 1,646,299 132,629,963
Royal Dutch Petroleum, ADR 450,000 27,196,875
291,749,338
The Fund 7
STATEMENT OF INVESTMENTS (CONTINUED)
COMMON STOCKS (CONTINUED) Shares Value ($)
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FINANCE-MISC.--8.9%
American Express 300,000 49,875,000
Associates First Capital, Cl. A 1,901,788 52,180,308
Citigroup 2,666,250 148,143,516
Federal National Mortgage Association 1,925,000 120,192,187
Hertz, Cl. A 150,000 7,518,750
Merrill Lynch 500,000 41,750,000
419,659,761
FOOD & DRUGS--2.0%
Walgreen 3,300,000 96,525,000
FOOD, BEVERAGE & TOBACCO--6.8%
Anheuser-Busch Cos. 140,000 9,922,500
Coca-Cola 2,400,000 139,800,000
Nestle, ADR 340,000 31,110,000
PepsiCo 2,050,000 72,262,500
Philip Morris Cos. 3,000,000 69,562,500
322,657,500
HEALTH CARE--15.2%
Abbott Laboratories 1,650,000 59,915,625
American Home Products 500,000 19,718,750
Bristol-Myers Squibb 1,550,000 99,490,625
Johnson & Johnson 1,600,000 149,000,000
Merck & Co. 2,100,000 140,831,250
Pfizer 6,300,000 204,356,250
Roche Holdings, ADR 325,000 38,553,125
Schering-Plough 150,000 6,328,125
718,193,750
HOUSEHOLD PRODUCTS-MISC.--6.3%
Colgate-Palmolive 1,325,000 86,125,000
Estee Lauder, Cl. A 520,000 26,227,500
Gillette 1,900,000 78,256,250
Procter & Gamble 1,000,000 109,562,500
300,171,250
INSURANCE--4.6%
American General 316,000 23,976,500
Berkshire Hathaway, Cl. A 1,507 (a) 84,542,700
Berkshire Hathaway, Cl. B 15 (a) 27,450
8
COMMON STOCKS (CONTINUED) Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
INSURANCE (CONTINUED)
Marsh & McLennan Cos. 1,150,000 110,040,625
218,587,275
MEDIA/ENTERTAINMENT--2.1%
Fox Entertainment Group, Cl. A 1,457,700 (a) 36,351,394
McDonald's 1,550,000 62,484,375
98,835,769
PUBLISHING--1.5%
McGraw-Hill Cos. 1,075,000 66,246,875
News Corp, ADR 120,000 4,590,000
70,836,875
RETAIL--2.1%
Wal-Mart Stores 1,450,000 100,231,250
TRANSPORTATION--.8%
Norfolk Southern 1,800,000 36,900,000
TOTAL COMMON STOCKS
(cost $3,004,135,709) 4,698,225,309
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PREFERRED STOCKS--.5%
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PUBLISHING;
News Corp, ADS, Cum. $.4428
(cost $15,964,941) 800,000 26,750,000
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Principal
SHORT-TERM INVESTMENTS--.7% Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. TREASURY BILLS:
4.90%, 1/20/2000 3,108,000 3,101,193
4.97%, 3/30/2000 29,322,000 28,956,355
TOTAL SHORT-TERM INVESTMENTS
(cost $32,061,685) 32,057,548
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TOTAL INVESTMENTS (cost $3,052,162,335) 100.3% 4,757,032,857
LIABILITIES, LESS CASH AND RECEIVABLES (.3%) (14,951,781)
NET ASSETS 100.0% 4,742,081,076
(A) NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
The Fund 9
</TABLE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
Cost Value
- --------------------------------------------------------------------------------
ASSETS ($):
Investments in securities--See Statement of
Investments 3,052,162,335 4,757,032,857
Cash 3,525,830
Dividends receivable 3,292,400
Receivable for shares of Common Stock subscribed 2,793,761
Prepaid expenses 111,499
4,766,756,347
- --------------------------------------------------------------------------------
LIABILITIES ($):
Due to The Dreyfus Corporation and affiliates 1,526,214
Due to Fayez Sarofim & Co. 1,100,141
Due to Distributor 1,006,920
Payable for shares of Common Stock redeemed 20,482,827
Accrued expenses 559,169
24,675,271
- --------------------------------------------------------------------------------
NET ASSETS ($) 4,742,081,076
- --------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS ($):
Paid-in capital 2,998,769,657
Accumulated undistributed investment income--net 485,701
Accumulated net realized gain (loss) on investments
and foreign currency transactions 37,956,375
Accumulated net unrealized appreciation (depreciation)
on investments and foreign currency transactions 1,704,869,343
- --------------------------------------------------------------------------------
NET ASSETS ($) 4,742,081,076
- --------------------------------------------------------------------------------
SHARES OUTSTANDING
(300 million shares of $.01 par value Common Stock authorized) 103,693,657
NET ASSET VALUE, offering and redemption price per share ($) 45.73
SEE NOTES TO FINANCIAL STATEMENTS.
10
STATEMENT OF OPERATIONS
Year Ended December 31, 1999
- --------------------------------------------------------------------------------
INVESTMENT INCOME ($):
INCOME:
Cash dividends (net of $722,226 foreign taxes withheld at source) 65,646,642
Interest 1,089,939
TOTAL INCOME 66,736,581
EXPENSES:
Investment advisory fee--Note 3(a) 13,290,398
Sub-Investment advisory fee--Note 3(a) 12,945,398
Shareholder servicing costs--Note 3(b) 14,577,790
Interest expense--Note 2 481,675
Prospectus and shareholders' reports 438,425
Custodian fees--Note 3(b) 219,948
Registration fees 217,516
Loan commitment fees--Note 2 41,404
Directors' fees and expenses--Note 3(c) 37,995
Professional fees 53,691
Miscellaneous 86,047
TOTAL EXPENSES 42,390,287
INVESTMENT INCOME--NET 24,346,294
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--NOTE 4 ($):
Net realized gain (loss) on investments and foreign currency
transactions 69,316,684
Net unrealized appreciation (depreciation) on investments 347,343,155
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 416,659,839
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 441,006,133
SEE NOTES TO FINANCIAL STATEMENTS.
The Fund 11
STATEMENT OF CHANGES IN NET ASSETS
Year Ended December 31,
----------------------------
1999 1998
- --------------------------------------------------------------------------------
OPERATIONS ($):
Investment income--net 24,346,294 22,086,845
Net realized gain (loss) on investments 69,316,684 6,832,495
Net unrealized appreciation (depreciation)
on investments 347,343,155 779,726,182
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 441,006,133 808,645,522
- --------------------------------------------------------------------------------
DIVIDENDS TO SHAREHOLDERS FROM ($):
Investment income--net (23,860,593) (22,227,913)
Net realized gain on investments (31,629,698) (6,915,626)
TOTAL DIVIDENDS (55,490,291) (29,143,539)
- --------------------------------------------------------------------------------
CAPITAL STOCK TRANSACTIONS ($):
Net proceeds from shares sold 2,920,671,160 3,227,561,253
Dividends reinvested 49,185,985 23,885,824
Cost of shares redeemed (2,775,307,800) (1,846,571,204)
INCREASE (DECREASE) IN NET ASSETS
FROM CAPITAL STOCK TRANSACTIONS 194,549,345 1,404,875,873
TOTAL INCREASE (DECREASE) IN NET ASSETS 580,065,187 2,184,377,856
- --------------------------------------------------------------------------------
NET ASSETS ($):
Beginning of Period 4,162,015,889 1,977,638,033
END OF PERIOD 4,742,081,076 4,162,015,889
Undistributed investment income--net 485,701 --
- --------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (SHARES):
Shares sold 66,761,307 86,769,924
Shares issued for dividends reinvested 1,068,187 569,180
Shares redeemed (63,059,964) (49,485,662)
NET INCREASE (DECREASE) IN SHARES OUTSTANDING 4,769,530 37,853,442
SEE NOTES TO FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
12
FINANCIAL HIGHLIGHTS
The following table describes the performance for the fiscal periods indicated.
Total return shows how much your investment in the fund would have increased (or
decreased) during each period, assuming you had reinvested all dividends and
distributions. These figures have been derived from the fund's financial
statements.
Year Ended December 31,
-------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA ($):
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period 42.07 32.38 25.58 20.55 15.17
Investment Operations:
Investment income--net .23(a) .23 .25 .25 .33
Net realized and unrealized
gain (loss) on investments 3.97 9.76 6.87 5.03 5.42
Total from Investment Operations 4.20 9.99 7.12 5.28 5.75
Distributions:
Dividends from investment income--net (.23) (.23) (.26) (.25) (.34)
Dividends from net realized gain
on investments (.31) (.07) (.06) -- (.03)
Total Distributions (.54) (.30) (.32) (.25) (.37)
Net asset value, end of period 45.73 42.07 32.38 25.58 20.55
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) 9.97 30.85 27.85 25.68 37.89
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RATIOS/SUPPLEMENTAL DATA (%):
Ratio of operating expenses
to average net assets .88 .89 .87 .91 .92
Ratio of interest expense and loan
commitment fee to
average net assets .01 -- -- -- --
Ratio of net investment income
to average net assets .51 .75 .99 1.34 2.28
Portfolio Turnover Rate 11.77 1.40 1.23 4.84 4.51
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets, end of period ($ x 1,000) 4,742,081 4,162,016 1,977,638 845,497 457,267
(A) BASED ON AVERAGE SHARES OUTSANDING AT EACH MONTH END.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
The Fund 13
NOTES TO FINANCIAL STATEMENTS
NOTE 1--Significant Accounting Policies:
Dreyfus Appreciation Fund, Inc. (the "fund") is registered under the Investment
Company Act of 1940, as amended (the "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"), which
is a wholly-owned subsidiary of Mellon Financial Corporation. 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 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.
(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.
14
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 discounts on investments, is recognized on the
accrual basis. Under the terms of the custody agreement, the fund receives net
earnings credits based on available cash balances left on deposit.
(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 of 1986, as amended (the "Code"). To
the extent that net realized capital gain can be offset by capital loss
carryovers, if any, it is the policy of the fund not to distribute such gain.
(e) Federal income taxes: It is the policy of the fund to continue to qualify as
a regulated investment company, if such qualification is in the best interests
of its shareholders, by complying with the applicable provisions of the Code,
and to make distributions of taxable income sufficient to relieve it from
substantially all Federal income and excise taxes.
The Fund 15
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--Bank Line of Credit:
The fund participates with other Dreyfus-managed funds in a $500 million
redemption credit facility (the "Facility") to be utilized for temporary or
emergency purposes, including the financing of redemptions. In connection
therewith, the fund has agreed to pay commitment fees on its pro rata portion of
the Facility. Interest is charged to the fund 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, 1999 was approximately $8,493,000 with a related weighted average
annualized interest rate of 5.67%.
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 million up to $75 million. . . . . . . . . . . . . .37 of 1%
.18 of 1%
$75 million up to $200 million . . . . . . . . . . . . .33 of 1%
.22 of 1%
$200 million 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
16
Distributor determines the amounts to be paid to Service Agents. During the
period ended December 31, 1999, the fund was charged $11,925,362 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, 1999, the fund was charged $1,450,871 pursuant to the
transfer agency agreement.
The fund compensates Mellon under a custody agreement for providing custodial
services for the fund. During the period ended December 31, 1999, the fund was
charged $219,948 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.
(d) During the period ended December 31, 1999, the fund incurred total brokerage
commissions of $1,080,604, of which $73,000 was paid to Dreyfus Brokerage
Services, a wholly-owned subsidiary of Mellon Financial Corporation.
NOTE 4--Securities Transactions:
The aggregate amount of purchases and sales of investment securities, excluding
short-term securities, during the period ended December 31, 1999, amounted to
$737,841,673 and $553,606,014, respectively.
At December 31, 1999, accumulated net unrealized appreciation on investments was
$1,704,870,522, consisting of $1,768,680,388 gross unrealized appreciation and
$63,809,866 gross unrealized depreciation.
At December 31, 1999, 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).
The Fund 17
REPORT OF 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, 1999, 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 auditing standards generally accepted
in the United States. 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, 1999 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, 1999, 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 accounting principles generally accepted
in the United States.
[ERNST & YOUNG LLP Signature logo]
New York, New York
February 7, 2000
18
IMPORTANT TAX INFORMATION (Unaudited)
For Federal tax purposes, the fund hereby designates $.3030 per share as a
long-term capital gain distribution of the $.5340 per share paid on December 23,
1999 and also designates $.0030 per share as a long-term capital gain
distribution paid on March 31, 1999.
The fund also designates 100.0% of the ordinary dividends paid during the fiscal
year ended December 31, 1999 as qualifying for the corporate dividends received
deduction.
The Fund 19
NOTE
For More Information
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
Distributor
Premier Mutual Fund Services, Inc.
60 State Street
Boston, MA 02109
To obtain information:
BY TELEPHONE
Call 1-800-645-6561
BY MAIL Write to:
The Dreyfus Family of Funds
144 Glenn Curtiss Boulevard
Uniondale, NY 11556-0144
BY E-MAIL Send your request
to [email protected]
ON THE INTERNET Information can be viewed online or downloaded from:
http://www.dreyfus.com
(c) 2000 Dreyfus Service Corporation 141AR9912
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, INC.
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
12/31/98 118,588 118,129
12/31/99 143,531 129,903
*Source: Lipper Analytical Services, Inc.
