UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number | 811 - 3081 | |||||
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| Dreyfus Appreciation Fund, Inc. |
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| (Exact name of Registrant as specified in charter) |
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c/o The Dreyfus Corporation 200 Park Avenue New York, New York 10166 |
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| (Address of principal executive offices) (Zip code) |
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| John Pak, Esq. 200 Park Avenue New York, New York 10166 |
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| (Name and address of agent for service) |
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Registrant's telephone number, including area code: | (212) 922-6000 | |||||
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Date of fiscal year end:
| 12/31 |
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Date of reporting period: | 06/30 /14 |
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Dreyfus |
Appreciation Fund, Inc. |
SEMIANNUAL REPORT June 30, 2014
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The views expressed in this report reflect those of the portfolio manager only through the end of the period covered and do not necessarily represent the views of Dreyfus or any other person in the Dreyfus organization. Any such views are subject to change at any time based upon market or other conditions and Dreyfus disclaims any responsibility to update such views.These views may not be relied on as investment advice and, because investment decisions for a Dreyfus fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Dreyfus fund.
Contents | |
THE FUND | |
2 | A Letter from the President |
3 | Discussion of Fund Performance |
6 | Understanding Your Fund’s Expenses |
6 | Comparing Your Fund’s Expenses With Those of Other Funds |
7 | Statement of Investments |
11 | Statement of Assets and Liabilities |
12 | Statement of Operations |
13 | Statement of Changes in Net Assets |
15 | Financial Highlights |
17 | Notes to Financial Statements |
FOR MORE INFORMATION | |
Back Cover |
Dreyfus Appreciation Fund, Inc.
The Fund
A LETTER FROM THE PRESIDENT
Dear Shareholder:
We are pleased to present this semiannual report for Dreyfus Appreciation Fund, Inc., covering the six-month period from January 1, 2014, through June 30, 2014. For information about how the fund performed during the reporting period, as well as general market perspectives, we provide a Discussion of Fund Performance on the pages that follow.
U.S. equities defied many analysts’ expectations over the first half of 2014 when some broad measures of stock market performance continued to achieve new record highs in the wake of very robust performance in 2013. Strong corporate earnings and rising business and consumer confidence more than offset concerns regarding geopolitical tensions in overseas markets and a weather-related domestic economic contraction during the first quarter of the year.
We believe we already have seen signs that the economy’s winter contraction will likely prove temporary, including stronger labor markets, greater manufacturing activity, rebounding housing starts, and rising household wealth. While these developments portend well for corporate earnings over the remainder of the year, our portfolio managers are aware that some stocks and industry groups have reached richer valuations, which suggests that selectivity and a long-term perspective could become more important determinants of potential investment success.As always, we encourage you to talk with your financial advisor about our observations and their implications for your investments.
Thank you for your continued confidence and support.
J. Charles Cardona
President
The Dreyfus Corporation
July 15, 2014
2
DISCUSSION OF FUND PERFORMANCE
For the period of January 1, 2014, through June 30, 2014, as provided by Fayez Sarofim, Portfolio Manager of Fayez Sarofim & Co., Sub-Investment Adviser
Fund and Market Performance Overview
For the six-month period ended June 30, 2014, Dreyfus Appreciation Fund’s Investor shares produced a total return of 7.14%, and its Class Y shares produced a total return of 7.30%.1 In comparison, the fund’s benchmark, the Standard & Poor’s 500® Composite Stock Price Index (“S&P 500 Index”), produced a total return of 7.12% for the same period.2
Despite an economic contraction during the first quarter of 2014, improved U.S. economic conditions generally helped support stock market gains over the first six months of the year. The fund’s returns were slightly higher than its benchmark, as strength in the consumer discretionary and health care sectors was balanced by shortfalls in the consumer staples sector and a lack of positions among utilities.
The Fund’s Investment Approach
The fund seeks long-term capital growth consistent with the preservation of capital. Its secondary goal is current income.To pursue these goals, the fund normally invests at least 80% of its assets in common stocks.The fund focuses on blue-chip companies with total market capitalizations of more than $5 billion at the time of purchase, including multinational companies.These are established companies that have demonstrated sustained patterns of profitability, strong balance sheets, an expanding global presence and the potential to achieve predictable, above-average earnings growth.
In choosing stocks, the fund first identifies economic sectors it believes will expand over the next three to five years or longer. Using fundamental analysis, the fund then seeks companies within these sectors that have proven track records and dominant positions in their industries. The fund employs a “buy-and-hold” investment strategy, which generally has resulted in an annual portfolio turnover of below 15%. A low portfolio turnover rate helps reduce the fund’s trading costs and minimizes tax liability by limiting the distribution of capital gains.3
The Fund 3
DISCUSSION OF FUND PERFORMANCE (continued)
Recovering Economy Fueled Market’s Gains
The S&P 500 Index recovered over the first half of 2014 after a steep sell-off in January in the face of severe winter weather, surprisingly weak economic data, the tapering of the Federal Reserve Board’s quantitative easing program, and concerns regarding economic and political instability in the emerging markets. However, U.S. stocks subsequently rebounded, climbing to a series of new highs through the end of June as investors responded positively to better domestic economic data in the spring, including robust jobs statistics and higher levels of manufacturing activity.
The steady advance of the S&P 500 Index, however, masked shifts in investors’ attitude toward risk during the reporting period. Market sentiment during the renewed rally shifted away from the smaller, more speculative companies that had led the 2013 rally. Instead, investors began to favor well-established, large-cap stocks with generous dividend yields.
Consumer Staples Stocks Weighed on Relative Results
Our emphasis on large, high-quality, globally dominant companies positioned the fund well for the first-half rally.The fund’s security selection strategy in the consumer discretionary sector added significant value, as did an emphasis on stocks such as The Walt Disney Company and Time Warner Cable. Avoidance of specialty and apparel retailers also bolstered relative results in the consumer discretionary sector.The fund’s already limited exposure to the industrials sector was reduced further during the reporting period, and both an underweighted allocation and strong stock selections contributed to above-average results. In the health care sector, the fund’s focus on pharmaceutical developers, one of the sector’s better performing segments, also proved constructive. Individual stocks making the greatest absolute contributions to returns included Apple, Novo Nordisk, Johnson & Johnson, ConocoPhillips, Walgreen, Altria Group, and Canadian Pacific Railway.
On a more negative note, the fund’s relative performance was constrained by a substantially overweighted allocation to and disappointing stock selections within the lagging consumer staples sector. Lack of exposure to the utilities sector also impeded the fund’s relative results.While an overweighted position in the relatively strong energy sector contributed positively to absolute performance, the fund’s focus
4
on major integrated oil companies undermined results. Individual positions that detracted from performance during the reporting period included Whole Foods Market, Target, Philip Morris International, Wal-Mart Stores, Freeport-McMoRan Copper & Gold, and Procter & Gamble.
Positioned for a Quality-Led Rally
Recent economic data suggest that the U.S. recovery is back on track.The combination of low interest rates, low inflation, slow but persistent growth, and lack of attractive investment alternatives has provided a favorable environment for stocks and, potentially, support for additional equity gains. This backdrop, however, may be increasingly vulnerable to shifts in interest rate and inflation expectations or further flare-ups in geopolitical conflicts.At this stage in the cycle, when economic uncertainty persists and stocks are more richly valued, we expect investors to favor the kinds of companies in which the fund invests: those with current earnings visibility, ample financial resources, and proven records of increasing shareholder value.
July 15, 2014
Please note, the position in any security highlighted with italicized typeface was sold during the reporting period. Equity funds are subject generally to market, market sector, market liquidity, issuer, and investment style risks, among other factors, to varying degrees, all of which are more fully described in the fund’s prospectus.
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 INC. — Reflects reinvestment of dividends and, where applicable, capital gain distributions. |
The Standard & Poor’s 500® Composite Stock Price Index is a widely accepted, unmanaged index of U.S. stock |
market performance. Investors cannot invest directly in an index. |
3 Achieving tax efficiency is not a part of the fund’s investment objective, and there can be no guarantee that the fund |
will achieve any particular level of taxable distributions in future years. In periods when the manager has to sell |
significant amounts of securities (e.g., during periods of significant net redemptions or changes in index components), |
funds can be expected to be less tax efficient than during periods of more stable market conditions and asset flows. |
The Fund 5
UNDERSTANDING YOUR FUND’S EXPENSES (Unaudited)
As a mutual fund investor, you pay ongoing expenses, such as management fees and other expenses. Using the information below, you can estimate how these expenses affect your investment and compare them with the expenses of other funds.You also may pay one-time transaction expenses, including sales charges (loads) and redemption fees, which are not shown in this section and would have resulted in higher total expenses. For more information, see your fund’s prospectus or talk to your financial adviser.
Review your fund’s expenses
The table below shows the expenses you would have paid on a $1,000 investment in Dreyfus Appreciation Fund, Inc. from January 1, 2014 to June 30, 2014. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.
Expenses and Value of a $1,000 Investment
assuming actual returns for the six months ended June 30, 2014
Investor Shares | Class Y | |||
Expenses paid per $1,000† | $ 4.83 | $ 3.91 | ||
Ending value (after expenses) | $ 1,071.40 | $ 1,073.00 |
COMPARING YOUR FUND’S EXPENSES
WITH THOSE OF OTHER FUNDS (Unaudited)
Using the SEC’s method to compare expenses
The Securities and Exchange Commission (SEC) has established guidelines to help investors assess fund expenses. Per these guidelines, the table below shows your fund’s expenses based on a $1,000 investment, assuming a hypothetical 5% annualized return. You can use this information to compare the ongoing expenses (but not transaction expenses or total cost) of investing in the fund with those of other funds.All mutual fund shareholder reports will provide this information to help you make this comparison. Please note that you cannot use this information to estimate your actual ending account balance and expenses paid during the period.
Expenses and Value of a $1,000 Investment
assuming a hypothetical 5% annualized return for the six months ended June 30, 2014
Investor Shares | Class Y | |||
Expenses paid per $1,000† | $ 4.71 | $ 3.81 | ||
Ending value (after expenses) | $ 1,020.13 | $ 1,021.03 |
† Expenses are equal to the fund’s annualized expense ratio of .94% for Investor shares and .76% for ClassY, |
multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
6
STATEMENT OF INVESTMENTS |
June 30, 2014 (Unaudited) |
Common Stocks—99.7% | Shares | Value ($) | |
Banks—1.1% | |||
Wells Fargo & Co. | 1,246,200 | 65,500,272 | |
Capital Goods—3.5% | |||
Berkshire Hathaway, Cl. A | 302 | a | 57,349,951 |
Caterpillar | 544,400 | 59,159,948 | |
United Technologies | 809,150 | 93,416,367 | |
209,926,266 | |||
Consumer Durables & Apparel—1.1% | |||
Christian Dior | 314,050 | 62,483,178 | |
Consumer Services—2.7% | |||
McDonald’s | 1,605,400 | 161,727,996 | |
Diversified Financials—6.2% | |||
American Express | 482,950 | 45,817,466 | |
BlackRock | 302,650 | 96,726,940 | |
Franklin Resources | 1,553,750 | 89,868,900 | |
JPMorgan Chase & Co. | 2,357,850 | 135,859,317 | |
368,272,623 | |||
Energy—18.8% | |||
Canadian Natural Resources | 672,200 | 30,860,702 | |
Chevron | 1,843,900 | 240,721,145 | |
ConocoPhillips | 1,397,700 | 119,824,821 | |
EOG Resources | 191,200 | 22,343,632 | |
Exxon Mobil | 2,933,498 | b | 295,344,579 |
Imperial Oil | 1,293,850 | b | 68,095,326 |
Occidental Petroleum | 1,616,900 | 165,942,447 | |
Phillips 66 | 774,300 | 62,276,949 | |
Total, ADR | 1,526,900 | b | 110,242,180 |
1,115,651,781 | |||
Food & Staples Retailing—2.4% | |||
Walgreen | 1,746,450 | 129,464,338 | |
Whole Foods Market | 303,650 | 11,730,000 | |
141,194,338 | |||
Food, Beverage & Tobacco—19.7% | |||
Altria Group | 3,311,650 | 138,890,601 | |
Coca-Cola | 6,425,500 | 272,184,180 | |
Diageo, ADR | 481,300 | b | 61,255,051 |
The Fund 7
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Common Stocks (continued) | Shares | Value ($) | ||
Food, Beverage & Tobacco (continued) | ||||
Kraft Foods Group | 459,356 | 27,538,392 | ||
Mondelez International, Cl. A | 1,734,968 | 65,252,146 | ||
Nestle, ADR | 2,263,350 | 175,794,395 | ||
PepsiCo | 967,700 | 86,454,318 | ||
Philip Morris International | 3,301,750 | 278,370,542 | ||
SABMiller | 1,110,700 | 64,400,527 | ||
1,170,140,152 | ||||
Health Care Equipment & Services—1.4% | ||||
Abbott Laboratories | 1,965,200 | 80,376,680 | ||
Household & Personal Products—4.3% | ||||
Estee Lauder, Cl. A | 1,281,750 | 95,182,755 | ||
Procter & Gamble | 1,996,600 | 156,912,794 | ||
252,095,549 | ||||
Insurance—.6% | ||||
ACE | 368,000 | 38,161,600 | ||
Materials—3.1% | ||||
Air Products & Chemicals | 378,250 | 48,650,515 | ||
Freeport-McMoRan Copper & Gold | 1,570,250 | 57,314,125 | ||
Praxair | 600,350 | 79,750,494 | ||
185,715,134 | ||||
Media—6.0% | ||||
Comcast, Cl. A | 1,246,200 | 66,896,016 | ||
McGraw-Hill Financial | 630,050 | 52,313,051 | ||
News Corp., Cl. A | 532,077 | a | 9,545,461 | |
News Corp., Cl. B | 23,475 | a | 409,639 | |
Time Warner Cable | 308,950 | 45,508,335 | ||
Twenty-First Century Fox, Cl. A | 2,121,658 | 74,576,279 | ||
Twenty-First Century Fox, Cl. B | 159,650 | 5,464,819 | ||
Walt Disney | 1,150,950 | 98,682,453 | ||
353,396,053 | ||||
Pharmaceuticals, Biotech & | ||||
Life Sciences—10.6% | ||||
AbbVie | 1,915,250 | 108,096,710 | ||
Gilead Sciences | 200,000 | a | 16,582,000 |
8
Common Stocks (continued) | Shares | Value ($) | |
Pharmaceuticals, Biotech & | |||
Life Sciences (continued) | |||
Johnson & Johnson | 2,117,100 | 221,491,002 | |
Novartis, ADR | 386,000 | 34,944,580 | |
Novo Nordisk, ADR | 2,656,500 | 122,703,735 | |
Roche Holding, ADR | 3,400,100 | 126,823,730 | |
630,641,757 | |||
Retailing—1.8% | |||
Wal-Mart Stores | 1,390,150 | 104,358,560 | |
Semiconductors & Semiconductor | |||
Equipment—3.4% | |||
Intel | 2,399,650 | 74,149,185 | |
Texas Instruments | 2,131,400 | 101,859,606 | |
Xilinx | 479,000 | 22,661,490 | |
198,670,281 | |||
Software & Services—4.7% | |||
Automatic Data Processing | 951,300 | 75,419,064 | |
International Business Machines | 738,150 | 133,804,451 | |
Oracle | 1,774,050 | 71,902,247 | |
281,125,762 | |||
Technology Hardware & | |||
Equipment—6.9% | |||
Apple | 3,672,900 | 341,322,597 | |
QUALCOMM | 838,400 | 66,401,280 | |
407,723,877 | |||
Transportation—1.4% | |||
Canadian Pacific Railway | 455,400 | b | 82,491,156 |
Total Common Stocks | |||
(cost $3,071,654,007) | 5,909,653,015 | ||
Other Investment—.0% | |||
Registered Investment Company; | |||
Dreyfus Institutional Preferred | |||
Plus Money Market Fund | |||
(cost $94,973) | 94,973 | c | 94,973 |
The Fund 9
STATEMENT OF INVESTMENTS (Unaudited) (continued)
Investment of Cash Collateral | ||||
for Securities Loaned—1.5% | Shares | Value ($) | ||
Registered Investment Company; | ||||
Dreyfus Institutional Cash Advantage Fund | ||||
(cost $88,547,661) | 88,547,661 | c | 88,547,661 | |
Total Investments (cost $3,160,296,641) | 101.2 | % | 5,998,295,649 | |
Liabilities, Less Cash and Receivables | (1.2 | %) | (68,896,436 | ) |
Net Assets | 100.0 | % | 5,929,399,213 |
ADR—American Depository Receipts
a Non-income producing security. |
b Security, or portion thereof, on loan.At June 30, 2014, the value of the fund’s securities on loan was $149,754,903 |
and the value of the collateral held by the fund was $153,241,669, consisting of cash collateral of $88,547,661 and |
U.S. Government and Agency securities valued at $64,694,008. |
c Investment in affiliated money market mutual fund. |
Portfolio Summary (Unaudited)† | |||
Value (%) | Value (%) | ||
Food, Beverage & Tobacco | 19.7 | Materials | 3.1 |
Energy | 18.8 | Consumer Services | 2.7 |
Pharmaceuticals, | Food & Staples Retailing | 2.4 | |
Biotech & Life Sciences | 10.6 | Retailing | 1.8 |
Technology Hardware & Equipment | 6.9 | Money Market Investments | 1.5 |
Diversified Financials | 6.2 | Transportation | 1.4 |
Media | 6.0 | Health Care Equipment & Services | 1.4 |
Software & Services | 4.7 | Banks | 1.1 |
Household & Personal Products | 4.3 | Consumer Durables & Apparel | 1.1 |
Capital Goods | 3.5 | Insurance | .6 |
Semiconductors & | |||
Semiconductor Equipment | 3.4 | 101.2 | |
† Based on net assets. | |||
See notes to financial statements. |
10
STATEMENT OF ASSETS AND LIABILITIES |
June 30, 2014 (Unaudited) |
Cost | Value | |
Assets ($): | ||
Investments in securities—See Statement of Investments (including | ||
securities on loan, valued at $149,754,903)—Note 1(b): | ||
Unaffiliated issuers | 3,071,654,007 | 5,909,653,015 |
Affiliated issuers | 88,642,634 | 88,642,634 |
Cash | 555,008 | |
Receivable for investment securities sold | 21,241,166 | |
Dividends and securities lending income receivable | 12,151,798 | |
Receivable for shares of Common Stock subscribed | 1,749,072 | |
Prepaid expenses | 93,897 | |
6,034,086,590 | ||
Liabilities ($): | ||
Due to The Dreyfus Corporation and affiliates—Note 3(b) | 3,029,861 | |
Due to Fayez Sarofim & Co. | 1,065,673 | |
Liability for securities on loan—Note 1(b) | 88,547,661 | |
Payable for shares of Common Stock redeemed | 9,959,172 | |
Bank loan payable—Note 2 | 1,000,000 | |
Interest payable—Note 2 | 3,677 | |
Accrued expenses | 1,081,333 | |
104,687,377 | ||
Net Assets ($) | 5,929,399,213 | |
Composition of Net Assets ($): | ||
Paid-in capital | 3,017,900,846 | |
Accumulated undistributed investment income—net | 852,613 | |
Accumulated net realized gain (loss) on investments | 72,646,746 | |
Accumulated net unrealized appreciation | ||
(depreciation) on investments | 2,837,999,008 | |
Net Assets ($) | 5,929,399,213 | |
Net Asset Value Per Share | ||
Investor Shares | Class Y | |
Net Assets ($) | 5,906,038,985 | 23,360,228 |
Shares Outstanding | 106,092,247 | 419,787 |
Net Asset Value Per Share ($) | 55.67 | 55.65 |
See notes to financial statements. |
The Fund 11
STATEMENT OF OPERATIONS | ||
Six Months Ended June 30, 2014 (Unaudited) | ||
Investment Income ($): | ||
Income: | ||
Cash dividends (net of $3,916,617 foreign taxes withheld at source): | ||
Unaffiliated issuers | 79,245,738 | |
Affiliated issuers | 1,333 | |
Income from securities lending—Note 1(b) | 186,679 | |
Total Income | 79,433,750 | |
Expenses: | ||
Investment advisory fee—Note 3(a) | 9,580,154 | |
Sub-investment advisory fee—Note 3(a) | 6,266,717 | |
Shareholder servicing costs—Note 3(b) | 10,235,310 | |
Prospectus and shareholders’ reports | 243,659 | |
Directors’ fees and expenses—Note 3(c) | 155,621 | |
Custodian fees—Note 3(b) | 107,580 | |
Professional fees | 104,617 | |
Registration fees | 66,819 | |
Loan commitment fees—Note 2 | 9,211 | |
Interest expense—Note 2 | 9,158 | |
Miscellaneous | 192,155 | |
Total Expenses | 26,971,001 | |
Less—reduction in fees due to earnings credits—Note 3(b) | (1,249 | ) |
Net Expenses | 26,969,752 | |
Investment Income—Net | 52,463,998 | |
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): | ||
Net realized gain (loss) on investments | 92,035,714 | |
Net unrealized appreciation (depreciation) on investments | 256,373,745 | |
Net Realized and Unrealized Gain (Loss) on Investments | 348,409,459 | |
Net Increase in Net Assets Resulting from Operations | 400,873,457 | |
See notes to financial statements. |
12
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended | ||||
June 30, 2014 | Year Ended | |||
(Unaudited) | December 31, 2013a | |||
Operations ($): | ||||
Investment income—net | 52,463,998 | 101,649,133 | ||
Net realized gain (loss) on investments | 92,035,714 | (10,691,891 | ) | |
Net unrealized appreciation | ||||
(depreciation) on investments | 256,373,745 | 1,028,442,467 | ||
Net Increase (Decrease) in Net Assets | ||||
Resulting from Operations | 400,873,457 | 1,119,399,709 | ||
Dividends to Shareholders from ($): | ||||
Investment income—net: | ||||
Investor Shares | (52,699,699 | ) | (101,436,693 | ) |
Class Y | (114,941 | ) | (10 | ) |
Total Dividends | (52,814,640 | ) | (101,436,703 | ) |
Capital Stock Transactions ($): | ||||
Net proceeds from shares sold: | ||||
Investor Shares | 411,689,668 | 1,235,382,979 | ||
Class Y | 23,288,350 | 1,000 | ||
Dividends reinvested: | ||||
Investor Shares | 41,810,357 | 78,433,533 | ||
Class Y | 114,929 | — | ||
Cost of shares redeemed: | ||||
Investor Shares | (847,582,882 | ) | (1,840,706,950 | ) |
Class Y | (373,799 | ) | — | |
Increase (Decrease) in Net Assets | ||||
from Capital Stock Transactions | (371,053,377 | ) | (526,889,438 | ) |
Total Increase (Decrease) in Net Assets | (22,994,560 | ) | 491,073,568 | |
Net Assets ($): | ||||
Beginning of Period | 5,952,393,773 | 5,461,320,205 | ||
End of Period | 5,929,399,213 | 5,952,393,773 | ||
Undistributed investment income—net | 852,613 | 1,203,255 |
The Fund 13
STATEMENT OF CHANGES IN NET ASSETS (continued)
Six Months Ended | ||||
June 30, 2014 | Year Ended | |||
(Unaudited) | December 31, 2013a | |||
Capital Share Transactions: | ||||
Investor Shares | ||||
Shares sold | 7,835,051 | 25,848,065 | ||
Shares issued for dividends reinvested | 775,035 | 1,626,881 | ||
Shares redeemed | (16,042,655 | ) | (38,258,491 | ) |
Net Increase (Decrease) in Shares Outstanding | (7,432,569 | ) | (10,783,545 | ) |
Class Y | ||||
Shares sold | 424,398 | 21.32 | ||
Shares issued for dividends reinvested | 2,065 | — | ||
Shares redeemed | (6,697 | ) | — | |
Net Increase (Decrease) in Shares Outstanding | 419,766 | 21.32 | ||
a Effective July 1, 2013, the fund commenced offering ClassY shares. | ||||
See notes to financial statements. |
14
FINANCIAL HIGHLIGHTS
The following tables describe the performance for each share class for the fiscal periods indicated.All information (except portfolio turnover rate) reflects financial results for a single fund share.Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions.These figures have been derived from the fund’s financial statements.
Six Months Ended | |||||||||||||
June 30, 2014 | Year Ended December 31, | ||||||||||||
Investor Shares | (Unaudited) | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||
Per Share Data ($): | |||||||||||||
Net asset value, | |||||||||||||
beginning of period | 52.43 | 43.93 | 40.53 | 38.20 | 33.52 | 28.23 | |||||||
Investment Operations: | |||||||||||||
Investment income—neta | .48 | .84 | .74 | .65 | .57 | .56 | |||||||
Net realized and | |||||||||||||
unrealized gain (loss) | |||||||||||||
on investments | 3.25 | 8.50 | 3.38 | 2.26 | 4.54 | 5.37 | |||||||
Total from | |||||||||||||
Investment Operations | 3.73 | 9.34 | 4.12 | 2.91 | 5.11 | 5.93 | |||||||
Distributions: | |||||||||||||
Dividends from | |||||||||||||
investment income—net | (.49 | ) | (.84 | ) | (.72 | ) | (.58 | ) | (.43 | ) | (.64 | ) | |
Net asset value, | |||||||||||||
end of period | 55.67 | 52.43 | 43.93 | 40.53 | 38.20 | 33.52 | |||||||
Total Return (%) | 7.14 | b | 21.44 | 10.18 | 7.62 | 15.26 | 21.01 | ||||||
Ratios/Supplemental | |||||||||||||
Data (%): | |||||||||||||
Ratio of total expenses | |||||||||||||
to average net assets | .94 | c | .94 | .97 | .97 | .99 | 1.09 | ||||||
Ratio of net expenses | |||||||||||||
to average net assets | .94 | c | .94 | .97 | .97 | .99 | 1.07 | ||||||
Ratio of net investment | |||||||||||||
income to average | |||||||||||||
net assets | 1.82 | c | 1.74 | 1.71 | 1.63 | 1.66 | 1.95 | ||||||
Portfolio Turnover Rate | .27 | b | 6.33 | .50 | 2.59 | 28.73 | .92 | ||||||
Net Assets, | |||||||||||||
end of period | |||||||||||||
($ x 1,000) | 5,906,039 | 5,952,393 | 5,461,320 | 4,183,534 | 3,227,795 | 2,323,522 |
a | Based on average shares outstanding at each month end. |
b | Not annualized. |
c | Annualized. |
See notes to financial statements.
The Fund 15
FINANCIAL HIGHLIGHTS (continued)
Six Months Ended | ||||
June 30, 2014 | Period Ended | |||
Class Y | (Unaudited) | December 31, 2013a | ||
Per Share Data ($): | ||||
Net asset value, beginning of period | 52.43 | 46.90 | ||
Investment Operations: | ||||
Investment income—netb | .55 | .47 | ||
Net realized and unrealized | ||||
gain (loss) on investments | 3.25 | 5.55 | ||
Total from Investment Operations | 3.80 | 6.02 | ||
Distributions: | ||||
Dividends from investment income—net | (.58 | ) | (.49 | ) |
Net asset value, end of period | 55.65 | 52.43 | ||
Total Return (%)c | 7.30 | 12.86 | ||
Ratios/Supplemental Data (%): | ||||
Ratio of total expenses to average net assetsd | .76 | .65 | ||
Ratio of net expenses to average net assetsd | .76 | .65 | ||
Ratio of net investment income | ||||
to average net assetsd | 1.76 | 1.90 | ||
Portfolio Turnover Rate | .27 | c | 6.33 | |
Net Assets, end of period ($ x 1,000) | 23,360 | 1 |
a From the close of business on July 1, 2013 (commencement of initial offering) to December 31, 2013. |
b Based on average shares outstanding at each month end. |
c Not annualized. |
d Annualized. |
See notes to financial statements.
16
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, as amended (the “Act”), as a diversified open-end management investment company.The fund’s investment objective is to seek long-term capital appreciation consistent with the preservation of capital.The Dreyfus Corporation (the “Manager” or “Dreyfus”), a wholly-owned subsidiary of The Bank of New York Mellon Corporation (“BNY Mellon”), serves as the fund’s investment adviser. Fayez Sarofim & Co. (“Sarofim & Co.”) serves as the fund’s sub-investment adviser.
MBSC Securities Corporation (the “Distributor”), a wholly-owned subsidiary of Dreyfus, is the distributor of the fund’s shares, which are sold to the public without a sales charge.The fund is authorized to issue 400 million shares of $.001 par value Common Stock. The fund currently offers two classes of shares: Investor (300 million shares authorized) and Class Y (100 million shares authorized). Investor shares are sold primarily to retail investors through financial intermediaries and bear Shareholder Services Plan fees. Class Y shares are sold at net asset value per share generally to institutional investors. Other differences between the classes include the services offered to and the expenses borne by each class, the allocation of certain transfer agency costs, and certain voting rights. Income, expenses (other than expenses attributable to a specific class), and realized and unrealized gains or losses on investments are allocated to each class of shares based on its relative net assets.
The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification is the exclusive reference of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal laws are also sources of authoritative GAAP for SEC
The Fund 17
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
registrants. The fund’s financial statements are prepared in accordance with GAAP, which may require the use of management estimates and assumptions.Actual results could differ from those estimates.
The fund enters into contracts that contain a variety of indemnifications. The fund’s maximum exposure under these arrangements is unknown.The fund does not anticipate recognizing any loss related to these arrangements.
(a) Portfolio valuation: The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., the exit price). GAAP establishes a fair value hierarchy that prioritizes the inputs of valuation techniques used to measure fair value. This hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
Additionally, GAAP provides guidance on determining whether the volume and activity in a market has decreased significantly and whether such a decrease in activity results in transactions that are not orderly. GAAP requires enhanced disclosures around valuation inputs and techniques used during annual and interim periods.
Various inputs are used in determining the value of the fund’s investments relating to fair value measurements.These inputs are summarized in the three broad levels listed below:
Level 1—unadjusted quoted prices in active markets for identical investments.
Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.).
Level 3—significant unobservable inputs (including the fund’s own assumptions in determining the fair value of investments).
18
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. Valuation techniques used to value the fund’s investments are as follows:
Investments in securities are valued at the last sales price on the securities exchange or national securities market on which such securities are primarily traded. Securities listed on the National Market System for which market quotations are available are valued at the official closing price or, if there is no official closing price that day, at the last sales price. 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, except for open short positions, where the asked price is used for valuation purposes. Bid price is used when no asked price is available. Registered investment companies that are not traded on an exchange are valued at their net asset value. All of the preceding securities are generally categorized within Level 1 of the fair value hierarchy.
Fair valuing of securities may be determined with the assistance of a pricing service using calculations based on indices of domestic securities and other appropriate indicators, such as prices of relevant ADRs and financial futures. Utilizing these techniques may result in transfers between Level 1 and Level 2 of the fair value hierarchy.
When market quotations or official closing prices are not readily available, or are determined not to reflect accurately fair value, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded (for example, a foreign exchange or market), but before the fund calculates its net asset value, the fund may value these investments at fair value as determined in accordance with the procedures approved by the
The Fund 19
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
fund’s Board of Directors (the “Board”). Certain factors may be considered when fair valuing investments such as: fundamental analytical data, the nature and duration of restrictions on disposition, an evaluation of the forces that influence the market in which the securities are purchased and sold, and public trading in similar securities of the issuer or comparable issuers.These securities are either categorized within Level 2 or 3 of the fair value hierarchy depending on the relevant inputs used.
For restricted securities where observable inputs are limited, assumptions about market activity and risk are used and are generally categorized within Level 3 of the fair value hierarchy.
The following is a summary of the inputs used as of June 30, 2014 in valuing the fund’s investments:
Level 2—Other | Level 3— | |||
Level 1— | Significant | Significant | ||
Unadjusted | Observable Unobservable | |||
Quoted Prices | Inputs | Inputs | Total | |
Assets ($) | ||||
Investments in Securities: | ||||
Equity Securities— | ||||
Domestic | ||||
Common | ||||
Stocks† | 4,969,558,455 | — | — | 4,969,558,455 |
Equity Securities— | ||||
Foreign | ||||
Common Stocks† | 940,094,560 | — | — | 940,094,560 |
Mutual Funds | 88,642,634 | — | — | 88,642,634 |
† See Statement of Investments for additional detailed categorizations. |
At June 30, 2014, there were no transfers between Level 1 and Level 2 of the fair value hierarchy.
(b) Securities transactions and investment income: Securities transactions are recorded on a trade date basis. Realized gains and losses 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, accretion of discount and amortization of premium on investments, is recognized on the accrual basis.
20
Pursuant to a securities lending agreement with The Bank of NewYork Mellon, a subsidiary of BNY Mellon and an affiliate of Dreyfus, the fund may lend securities to qualified institutions. It is the fund’s policy that, at origination, all loans are secured by collateral of at least 102% of the value of U.S. securities loaned and 105% of the value of foreign securities loaned. Collateral equivalent to at least 100% of the market value of securities on loan is maintained at all times. Collateral is either in the form of cash, which can be invested in certain money market mutual funds managed by Dreyfus or U.S. Government and Agency securities. The fund is entitled to receive all dividends, interest and distributions on securities loaned, in addition to income earned as a result of the lending transaction. Should a borrower fail to return the securities in a timely manner,The Bank of NewYork Mellon is required to replace the securities for the benefit of the fund or credit the fund with the market value of the unreturned securities and is subrogated to the fund’s rights against the borrower and the collateral. During the period ended June 30, 2014, The Bank of NewYork Mellon earned $55,893 from lending portfolio securities, pursuant to the securities lending agreement.
(c) Affiliated issuers: Investments in other investment companies advised by Dreyfus are defined as “affiliated” under the Act. Investments in affiliated investment companies during the period ended June 30, 2014 were as follows:
Affiliated | |||||
Investment | Value | Value | Net | ||
Company | 12/31/2013 ($) | Purchases ($) | Sales ($) | 6/30/2014($) | Assets (%) |
Dreyfus | |||||
Institutional | |||||
Preferred | |||||
Plus Money | |||||
Market | |||||
Fund | 7,481,617 | 110,644,702 | 118,031,346 | 94,973 | .0 |
Dreyfus | |||||
Institutional | |||||
Cash | |||||
Advantage | |||||
Fund | 18,771,038 | 639,902,603 | 570,125,980 | 88,547,661 | 1.5 |
Total | 26,252,655 | 750,547,305 | 688,157,326 | 88,642,634 | 1.5 |
The Fund 21
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
(d) Dividends to shareholders: Dividends are recorded on the ex-dividend date. Dividends from investment income-net are normally declared and paid quarterly. Dividends from net realized capital gains, if any, 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 gains can be offset by capital loss carryovers, it is the policy of the fund not to distribute such gains. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP.
(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.
As of and during the period ended June 30, 2014, the fund did not have any liabilities for any uncertain tax positions.The fund recognizes interest and penalties, if any, related to uncertain tax positions as income tax expense in the Statement of Operations. During the period ended June 30, 2014, the fund did not incur any interest or penalties.
Each tax year in the three-year period ended December 31, 2013 remains subject to examination by the Internal Revenue Service and state taxing authorities.
Under the Regulated Investment Company Modernization Act of 2010 (the “2010 Act”), the fund is permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 (“post-enactment losses”) for an unlimited period. Furthermore, post-enactment capital loss carryovers retain their character as either short-term or long-term capital losses rather than short-term as they were under previous statute.The 2010 Act requires post-enactment losses to be utilized before the utilization of losses incurred in taxable years prior to the effective date of the 2010 Act (“pre-enactment losses”).As a result of this ordering rule, pre-enactment losses may be more likely to expire unused.
22
The fund has an unused capital loss carryover of $18,801,278 available for federal income tax purposes to be applied against future net realized capital gains, if any, realized subsequent to December 31, 2013. If not applied, $4,637,980 of the carryover expires in fiscal year 2017. The fund has $14,163,298 of post-enactment long-term capital losses which can be carried forward for an unlimited period.
The tax character of distributions paid to shareholders during the fiscal year ended December 31, 2013 was as follows: ordinary income $101,436,703. The tax character of current year distributions will be determined at the end of the current fiscal year.
NOTE 2—Bank Lines of Credit:
The fund participates with other Dreyfus-managed funds in a $265 million unsecured credit facility led by Citibank, N.A. and a $300 million unsecured credit facility provided by The Bank of New York Mellon (each, a “Facility”), each to be utilized primarily for temporary or emergency purposes, including the financing of redemptions. In connection therewith, the fund has agreed to pay its pro rata portion of commitment fees for each Facility. Interest is charged to the fund based on rates determined pursuant to the terms of the respective Facility at the time of borrowing.
The average amount of borrowings outstanding under the Facilities during the period ended June 30, 2014 was approximately $1,693,400 with a related weighted average annualized interest rate of 1.09%.
NOTE 3—Investment Advisory Fee, Sub-Investment Advisory Fee and Other Transactions with Affiliates:
(a) Fees payable by the fund pursuant to an investment advisory agreement with Dreyfus and a sub-investment advisory agreement with Sarofim & Co. are payable monthly, at the annual rates of .3325% and .2175%, respectively, of the value of the fund’s average daily net assets.
(b) Under the Shareholder Services Plan, Investor shares pay the Distributor at an annual rate of .25% of the value of its average daily
The Fund 23
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
net assets for the provision of certain services. 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 (securities dealers, financial institutions or other industry professionals) with respect to these services.The Distributor determines the amounts to be paid to Service Agents. During the period ended June 30, 2014, the fund was charged $7,198,471 pursuant to the Shareholder Services Plan.
The fund has arrangements with the transfer agent and the custodian whereby the fund may receive earnings credits when positive cash balances are maintained, which are used to offset transfer agency and custody fees. For financial reporting purposes, the fund includes net earnings credits as an expense offset in the Statement of Operations.
The fund compensates DreyfusTransfer, Inc., a wholly-owned subsidiary of Dreyfus, under a transfer agency agreement for providing transfer agency and cash management services for the fund. The majority of transfer agency fees are comprised of amounts paid on a per account basis, while cash management fees are related to fund subscriptions and redemptions. During the period ended June 30, 2014, the fund was charged $232,075 for transfer agency services and $14,801 for cash management services.These fees are included in Shareholder servicing costs in the Statement of Operations. Cash management fees were partially offset by earnings credits of $1,249.
The fund compensates The Bank of NewYork Mellon under a custody agreement for providing custodial services for the fund.These fees are determined based on net assets, geographic region and transaction activity. During the period ended June 30, 2014, the fund was charged $107,580 pursuant to the custody agreement.
24
During the period ended June 30, 2014, the fund was charged $4,593 for services performed by the Chief Compliance Officer and his staff.
The components of “Due to The Dreyfus Corporation and affiliates” in the Statement of Assets and Liabilities consist of: investment advisory fees $1,629,132, Shareholder Services Plan fees $1,220,261, custodian fees $72,013, Chief Compliance Officer fees $2,209 and transfer agency fees $106,246.
(c) Each Board member also serves as a Board member of other funds within the Dreyfus complex. Annual retainer fees and attendance fees are allocated to each fund based on net assets.
NOTE 4—Securities Transactions:
The aggregate amount of purchases and sales of investment securities, excluding short-term securities, during the period ended June 30, 2014, amounted to $15,918,733 and $402,763,667, respectively.
At June 30, 2014, accumulated net unrealized appreciation on investments was $2,837,999,008, consisting of $2,850,656,348 gross unrealized appreciation and $12,657,340 gross unrealized depreciation.
At June 30, 2014, 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 25
For More Information
Telephone 1-800-DREYFUS |
Mail The Dreyfus Family of Funds, 144 Glenn Curtiss Boulevard, Uniondale, NY 11556-0144 |
E-mail Send your request to info@dreyfus.com |
Internet Information can be viewed online or downloaded at: http://www.dreyfus.com |
Item 2. Code of Ethics.
Not applicable.
Item 3. Audit Committee Financial Expert.
Not applicable.
Item 4. Principal Accountant Fees and Services.
Not applicable.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Investments.
(a) Not applicable.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Companies and Affiliated Purchasers.
Not applicable. [CLOSED END FUNDS ONLY]
Item 10. Submission of Matters to a Vote of Security Holders.
There have been no material changes to the procedures applicable to Item 10.
Item 11. Controls and Procedures.
(a) The Registrant's principal executive and principal financial officers have concluded, based on their evaluation of the Registrant's disclosure controls and procedures as of a date within 90 days of the filing date of this report, that the Registrant's disclosure controls and procedures are reasonably designed to ensure that information required to be disclosed by the Registrant on Form N-CSR is recorded, processed, summarized and reported within the required time periods and that information required to be disclosed by the Registrant in the reports that it files or submits on Form N-CSR is accumulated and communicated to the Registrant's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
(b) There were no changes to the Registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Registrant's internal control over financial reporting.
Item 12. Exhibits.
(a)(1) Not applicable.
(a)(2) Certifications of principal executive and principal financial officers as required by Rule 30a-2(a) under the Investment Company Act of 1940.
(a)(3) Not applicable.
(b) Certification of principal executive and principal financial officers as required by Rule 30a-2(b) under the Investment Company Act of 1940.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dreyfus Appreciation Fund, Inc.
By: /s/ Bradley J. Skapyak
Bradley J. Skapyak,
President
Date: August 21, 2014
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
By: /s/ Bradley J. Skapyak
Bradley J. Skapyak,
President
Date: August 21, 2014
By: /s/ James Windels
James Windels,
Treasurer
Date: August 21, 2014
EXHIBIT INDEX
(a)(2) Certifications of principal executive and principal financial officers as required by Rule 30a-2(a) under the Investment Company Act of 1940. (EX-99.CERT)
(b) Certification of principal executive and principal financial officers as required by Rule 30a-2(b) under the Investment Company Act of 1940. (EX-99.906CERT)