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BNY Mellon Appreciation Fund

Filed: 1 Mar 21, 10:21am

 

 

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

811-03081

 

 

 

BNY Mellon Appreciation Fund, Inc.

 

 

(Exact name of Registrant as specified in charter)

 

 

 

 

 

 

c/o BNY Mellon Investment Adviser, Inc.

240 Greenwich Street

New York, New York  10286

 

 

(Address of principal executive offices)        (Zip code)

 

 

 

 

 

Bennett A. MacDougall, Esq.

240 Greenwich Street

New York, New York  10286

 

 

(Name and address of agent for service)

 

 

Registrant's telephone number, including area code: 

(212) 922-6400

 

 

Date of fiscal year end:

 

12/31

 

Date of reporting period:

12/31/2020

 

 

 

 

       

 

 


 

FORM N-CSR

Item 1.             Reports to Stockholders.

 

 

 


 

BNY Mellon Appreciation Fund, Inc.

 

ANNUAL REPORT

December 31, 2020

 

 

 

Save time. Save paper. View your next shareholder report online as soon as it’s available. Log into www.im.bnymellon.com and sign up for eCommunications. It’s simple and only takes a few minutes.

 

The views expressed in this report reflect those of the portfolio manager(s) only through the end of the period covered and do not necessarily represent the views of BNY Mellon Investment Adviser, Inc. or any other person in the BNY Mellon Investment Adviser, Inc. organization. Any such views are subject to change at any time based upon market or other conditions and BNY Mellon Investment Adviser, Inc. disclaims any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for a fund in the BNY Mellon Family of Funds are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any fund in the BNY Mellon Family of Funds.

 

Not FDIC-Insured • Not Bank-Guaranteed • May Lose Value

 

Contents

THE FUND

FOR MORE INFORMATION

 

Back Cover

 

DISCUSSION OF FUND PERFORMANCE (Unaudited)

For the period from January 1, 2020 through December 31, 2020, as provided by portfolio managers Alan Christensen, Catherine Crain, Gentry Lee, Christopher Sarofim, Charles Sheedy and Fayez Sarofim of Fayez Sarofim & Co., Sub-Investment Adviser

Market and Fund Performance Overview

For the 12-month period ended December 31, 2020, BNY Mellon Appreciation Fund, Inc.’s Investor shares produced a total return of 24.01%, its Class I shares returned 24.30%, and its Class Y shares returned 24.41%.1 In comparison, the fund’s benchmark, the S&P 500® Index (the “Index”), produced a total return of 18.40% for the same period.2

The reporting period was characterized by market volatility as the world confronted the COVID-19 pandemic with a global shutdown to contain the spread. The fund outperformed the Index, largely due to a favorable stock selection in the financials sector and to favorable sector allocation and stock selection in the information technology and health care sectors.

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 net assets, plus any borrowings for investment purposes, 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, we identify economic sectors we believe will expand over the next three to five years or longer. Using fundamental analysis, we then seek 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 rate of below 15%. A low portfolio turnover rate helps reduce the fund’s trading costs and can help limit the distribution of capital gains generated due to portfolio turnover.3

Stocks Recover in Response to Policy Measures and Vaccine Progress

The 12-month period ended December 31, 2020 was characterized by market volatility as the world confronted the COVID-19 pandemic with a global shutdown to contain the spread. The Index peaked on February 19, 2020 at 3,386 and then entered a bear market as shares dropped precipitously to bottom out at 2,237 on March 23, 2020, and the dominant market narrative shifted from steady economic growth to worldwide economic shutdown by first quarter’s end. The U.S. government implemented travel restrictions, business closures and stay-at-home mandates. Congress passed the bipartisan Coronavirus Aid, Relief and Economic Security (CARES) Act, a $2 trillion stimulus package, which included direct payments of up to $1,200 to individuals and emergency lending facilities for small businesses, corporations and states. The Federal Reserve (the “Fed”) cut the federal funds rate twice to 0-25 bps, increased bond purchases, and formed lending facilities to maintain

2

 

liquidity in the markets. The Index finished the first quarter down -19.6% as uncertainty around the economic impact of the coronavirus weighed on investors.

From April through the end of 2020, the Index recovered its losses as a combination of accommodative Fed policy, vaccine development news and successful social distancing measures turned sentiment positive. As the year progressed, the U.S. began to report improved virus statistics as a result of social distancing and shelter-in-place mandates. Throughout the country, states began the phased reopening of businesses, and oil prices recovered as driving and flight activity picked up.

The Index concluded the year on a positive note, driven by the conclusion of a contentious presidential election in the U.S. and multiple, positive vaccine development headlines. The U.S. election concluded with former Vice President Joseph Biden defeating incumbent Donald Trump after winning a number of battleground states. Markets remained volatile over the course of the month as Mr. Trump did not concede, but official recounts and certifications reaffirmed Mr. Biden’s victory. Markets reacted positively to Mr. Biden’s more moderate policy stances on international trade and foreign policy. Shifting to COVID-19 headlines, Pfizer-BioNTech announced a 90% efficacy rate for its successful vaccine trial. Further boosting positive sentiment, AstraZeneca and Moderna announced their own successful vaccine trial data shortly thereafter. Positive sentiment took hold as investors began to think about a timeline for vaccine distribution and a path to normalization.

The Index’s strong performance in 2020 is attributed to the technology companies that benefited from citizens staying at home, including social media, e-commerce and software, while energy, airlines and retailers felt the negative impact of reduced travel. The best performing sectors of the Index included information technology, consumer discretionary and communication services. The laggards for the period included the financials and real estate sectors along with the energy sector, which bore the brunt of the travel restriction impacts.

Sector Allocations and Stock Selection Drove Performance

The fund outperformed the Index in 2020, driven by the dual impact of strong stock selection and strategic sector allocation. Within the financials sector, the fund benefited from overweighting the capital markets subsector and underweighting the challenged banking subsector. The fund’s underweight allocation in the health care sector, coupled with an advantageous stock selection, contributed positively to results for the period. The dual impact of a positive allocation and positive selection effect across the portfolio’s holdings in the information technology, consumer discretionary and communication services sectors added value for the period. Holdings across these three sectors benefited from the shift in consumer spending towards productivity software and hardware, social media, and e-commerce as a result of the work-from-home and shelter-in-place mandates. The top contributors to relative returns include Apple, Microsoft, Amazon.com, Facebook and ASML Holding.

Conversely, the fund’s overweight allocation and inopportune stock selection in the consumer staples sector detracted from results for the period. Certain stock selections in other sectors also detracted from performance, including Exxon Mobil, Raytheon Technologies, JPMorgan Chase & Co., American Express and Chevron.

3

 

DISCUSSION OF FUND PERFORMANCE (Unaudited) (continued)

Focused on Companies That We Believe Have Resilient Cash Flows, Healthy Balance Sheets and Diversified Revenue Streams

Rather than try to predict the sentiment shifts that will continue to characterize this unusual time in the financial markets, the fund’s investment approach remains focused on the long term. While COVID-19 remains a significant threat to economic activity and corporate profits in the shorter term, the portfolio emphasizes companies that we believe possess resilient cash flows, solid balance sheets and geographically diverse revenue streams. Those characteristics may offer protection against uncertainty associated with additional waves of infections, high unemployment and rising geopolitical tensions. We expect continued volatility, as certain industries face impacts from the virus or a slowdown in economic activity. At the same time we believe that the portfolio’s simultaneous focus on quality businesses operating in attractive, growing industries and led by management teams whom we consider to be allocators of capital, position the portfolio to attempt to consistently deliver revenue and earnings growth over the long term.

January 15, 2021

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. — The S&P 500® Index is widely regarded as the best single gauge of large-cap U.S. equities. The Index includes 500 leading companies and captures approximately 80% coverage of available market capitalization. Investors cannot invest directly in any 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.

Please note: the position in any security highlighted with italicized typeface was sold during the reporting period.

The fund may, but is not required to, use derivative instruments. A small investment in derivatives could have a potentially large impact on the fund’s performance. The use of derivatives involves risks different from, or possibly greater than, the risks associated with investing directly in the underlying assets

Equities 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.

Investing in foreign denominated and/or domiciled securities involves special risks, including changes in currency exchange rates, political, economic, and social instability, limited company information, differing auditing and legal standards, and less market liquidity. These risks generally are greater with emerging market countries.

Recent market risks include pandemic risks related to COVID-19. The effects of COVID-19 have contributed to increased volatility in global markets and will likely affect certain countries, companies, industries and market sectors more dramatically than others. To the extent the fund may overweight its investments in certain countries, companies, industries or market sectors, such positions will increase the fund’s exposure to risk of loss from adverse developments affecting those countries, companies, industries or sectors.

4

 

FUND PERFORMANCE (Unaudited)

 
Comparison of change in value of a $10,000 investment in Investor shares and Class I shares of BNY Mellon Appreciation Fund, Inc. with a hypothetical investment of $10,000 made in the S&P 500® Index (the “Index”).

 Source: Lipper Inc.

†† The total return figures presented for Class I shares of the fund reflect the performance of the fund’s Investor shares for the period prior to 8/31/16 (the inception date for Class I shares).

Past performance is not predictive of future performance.

The above graphs compare a hypothetical investment of $10,000 made in Investor and Class I shares of BNY Mellon Appreciation Fund, Inc. on 12/31/10 to a hypothetical investment of $10,000 made in the Index on that date. All dividends and capital gain distributions are reinvested.

The fund’s performance shown in the line graph above takes into account all applicable fees and expenses on Investor shares and Class I shares. The Index is widely regarded as the best single gauge of large-cap U.S. equities. The Index includes 500 leading companies and captures approximately 80% coverage of available market capitalization. Unlike a mutual fund, the Index is not subject to charges, fees and other expenses. Investors cannot invest directly in any index. 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.

5

 

FUND PERFORMANCE (Unaudited) (continued)

 
Comparison of change in value of a $1,000,000 investment in Class Y shares of BNY Mellon Appreciation Fund, Inc. with a hypothetical investment of $1,000,000 made in the S&P 500® Index (the “Index”).

 Source: Lipper Inc.

†† The total return figures presented for Class Y shares of the fund reflect the performance of the fund’s Investor shares for the period prior to 7/1/13 (the inception date for Class Y shares).

Past performance is not predictive of future performance.

The above graphs compare a hypothetical investment of $1,000,000 made in Class Y shares of BNY Mellon Appreciation Fund, Inc. on 12/31/10 to a hypothetical investment of $1,000,000 made in the Index on that date. All dividends and capital gain distributions are reinvested.

The fund’s performance shown in the line graph above takes into account all applicable fees and expenses on Class Y shares. The Index is widely regarded as the best single gauge of large-cap U.S. equities. The Index includes 500 leading companies and captures approximately 80% coverage of available market capitalization. Unlike a mutual fund, the Index is not subject to charges, fees and other expenses. Investors cannot invest directly in any index. 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.

6

 

        

Average Annual Total Returns as of 12/31/2020

 

Inception
Date

1 Year

5 Years

10 Years

Investor shares

1/18/84

24.01%

16.33%

 

12.47%

 

Class I shares

8/31/16

24.30%

 

16.57%

††

12.58%

††

Class Y shares

7/1/13

24.41%

16.71%

 

12.75%

S&P 500® Index

 

18.40%

15.21%

 

13.87%

 

 The total return performance figures presented for Class Y shares of the fund reflect the performance of the fund’s Investor shares for the period prior to 7/1/13 (the inception date for Class Y shares).

†† The total return performance figures presented for Class I shares of the fund reflect the performance of the fund’s Investor shares for the period prior to 8/31/16 (the inception date for Class I shares).

The performance data quoted represents past performance, which is no guarantee of future results. Share price and investment return fluctuate and an investor’s shares may be worth more or less than original cost upon redemption. Current performance may be lower or higher than the performance quoted. Go to www.im.bnymellon.com for the fund’s most recent month-end returns.

The fund’s performance shown in the graphs and table does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.

7

 

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 BNY Mellon Appreciation Fund, Inc. from July 1, 2020 to December 31, 2020. 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

 

Assume actual returns for the six months ended December 31, 2020

 

 

 

 

 

 

 

 

 

Investor Shares

Class I

Class Y

 

Expense paid per $1,000

$4.98

$3.64

$3.30

 

Ending value (after expenses)

$1,224.00

$1,225.60

$1,225.90

 

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 December 31, 2020

 

 

 

 

 

 

 

 

 

Investor Shares

Class I

Class Y

 

Expense paid per $1,000

$4.52

$3.30

$3.00

 

Ending value (after expenses)

$1,020.66

$1,021.87

$1,022.17

 

Expenses are equal to the fund’s annualized expense ratio of .89% for Investor Shares, .65% for Class I and .59% for Class Y, multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).

8

 

STATEMENT OF INVESTMENTS

December 31, 2020

        
 

Description

   

Shares

 

Value ($)

 

Common Stocks - 99.4%

     

Banks - 2.2%

     

JPMorgan Chase & Co.

   

364,465

 

46,312,568

 

Capital Goods - 1.0%

     

Otis Worldwide

   

99,020

 

6,688,801

 

Raytheon Technologies

   

195,890

 

14,008,094

 
    

20,696,895

 

Commercial & Professional Services - 1.7%

     

IHS Markit

   

180,000

 

16,169,400

 

Verisk Analytics

   

100,525

 

20,867,985

 
    

37,037,385

 

Consumer Durables & Apparel - 4.1%

     

Hermes International

   

11,300

 

12,151,515

 

LVMH

   

71,025

 

44,378,598

 

NIKE, Cl. B

   

216,675

 

30,653,012

 
    

87,183,125

 

Consumer Services - 1.4%

     

McDonald's

   

143,430

 

30,777,209

 

Diversified Financials - 8.1%

     

Berkshire Hathaway, Cl. A

   

111

a,b

38,607,465

 

BlackRock

   

75,480

 

54,461,839

 

Intercontinental Exchange

   

300,695

 

34,667,127

 

S&P Global

   

138,595

 

45,560,334

 
    

173,296,765

 

Energy - 1.1%

     

Chevron

   

285,345

 

24,097,385

 

Food, Beverage & Tobacco - 7.9%

     

Altria Group

   

491,495

 

20,151,295

 

Nestle, ADR

   

289,515

 

34,104,867

 

PepsiCo

   

229,525

 

34,038,557

 

Philip Morris International

   

482,250

 

39,925,477

 

The Coca-Cola Company

   

737,050

 

40,419,822

 
    

168,640,018

 

Health Care Equipment & Services - 6.7%

     

Abbott Laboratories

   

387,125

 

42,386,316

 

Intuitive Surgical

   

33,000

b

26,997,300

 

Masimo

   

80,725

b

21,664,975

 

UnitedHealth Group

   

147,800

 

51,830,504

 
    

142,879,095

 

Household & Personal Products - 3.2%

     

The Estee Lauder Companies, Cl. A

   

256,445

 

68,263,095

 

Insurance - 2.9%

     

Chubb

   

126,185

 

19,422,395

 

9

 

STATEMENT OF INVESTMENTS (continued)

        
 

Description

   

Shares

 

Value ($)

 

Common Stocks - 99.4% (continued)

     

Insurance - 2.9% (continued)

     

The Progressive

   

430,000

 

42,518,400

 
    

61,940,795

 

Materials - 3.7%

     

Air Products & Chemicals

   

199,740

 

54,572,963

 

The Sherwin-Williams Company

   

32,875

 

24,160,166

 
    

78,733,129

 

Media & Entertainment - 12.7%

     

Alphabet, Cl. C

   

52,882

b

92,642,918

 

Comcast, Cl. A

   

877,865

 

46,000,126

 

Facebook, Cl. A

   

386,430

b

105,557,219

 

The Walt Disney Company

   

151,770

b

27,497,689

 
    

271,697,952

 

Pharmaceuticals Biotechnology & Life Sciences - 4.5%

     

AbbVie

   

212,335

 

22,751,695

 

Johnson & Johnson

   

107,615

 

16,936,449

 

Novo Nordisk, ADR

   

458,255

a

32,009,112

 

Roche Holding, ADR

   

589,500

 

25,843,680

 
    

97,540,936

 

Retailing - 5.5%

     

Amazon.com

   

36,035

b

117,363,472

 

Semiconductors & Semiconductor Equipment - 5.5%

     

ASML Holding

   

102,210

 

49,849,861

 

Texas Instruments

   

412,880

 

67,765,994

 
    

117,615,855

 

Software & Services - 16.7%

     

Adobe

   

74,500

b

37,258,940

 

Automatic Data Processing

   

61,015

 

10,750,843

 

Broadridge Financial Solutions

   

54,900

 

8,410,680

 

Intuit

   

99,200

 

37,681,120

 

Mastercard, Cl. A

   

60,000

 

21,416,400

 

Microsoft

   

723,490

 

160,918,646

 

Visa, Cl. A

   

370,220

a

80,978,221

 
    

357,414,850

 

Technology Hardware & Equipment - 7.9%

     

Apple

   

1,274,650

 

169,133,308

 

Transportation - 2.6%

     

Canadian Pacific Railway

   

115,965

 

40,203,906

 

Union Pacific

   

72,525

 

15,101,156

 
    

55,305,062

 

Total Common Stocks (cost $684,859,632)

   

2,125,928,899

 

10

 

        
 

Description

 

1-Day
Yield (%)

 

Shares

 

Value ($)

 

Investment Companies - .6%

     

Registered Investment Companies - .6%

     

Dreyfus Institutional Preferred Government Plus Money Market Fund, Institutional Shares
(cost $12,563,732)

 

0.09

 

12,563,732

c

12,563,732

 
        

Investment of Cash Collateral for Securities Loaned - .3%

     

Registered Investment Companies - .3%

     

Dreyfus Institutional Preferred Government Plus Money Market Fund, SL Shares
(cost $7,391,937)

 

0.05

 

7,391,937

c

7,391,937

 

Total Investments (cost $704,815,301)

 

100.3%

 

2,145,884,568

 

Liabilities, Less Cash and Receivables

 

(.3%)

 

(6,321,350)

 

Net Assets

 

100.0%

 

2,139,563,218

 

ADR—American Depository Receipt

aSecurity, or portion thereof, on loan. At December 31, 2020, the value of the fund’s securities on loan was $79,371,052 and the value of the collateral was $80,832,972, consisting of cash collateral of $7,391,937 and U.S. Government & Agency securities valued at $73,441,035.

bNon-income producing security.

cInvestment in affiliated issuer. The investment objective of this investment company is publicly available and can be found within the investment company’s prospectus.

 

  

Portfolio Summary (Unaudited)

Value (%)

Information Technology

30.1

Financials

13.2

Communication Services

12.7

Health Care

11.2

Consumer Staples

11.1

Consumer Discretionary

11.0

Industrials

5.3

Materials

3.7

Energy

1.1

Investment Companies

.9

 

100.3

 Based on net assets.

See notes to financial statements.

11

 

STATEMENT OF INVESTMENTS IN AFFILIATED ISSUERS

       

Investment Companies

Value
12/31/19($)

Purchases($)

Sales ($)

Value
12/31/20($)

Net
Assets(%)

Dividends/
Distributions($)

Registered

Investment
Companies;

    

Dreyfus Institutional Preferred Government Plus Money Market Fund, Institutional Shares

11,311,190

138,716,909

(137,464,367)

12,563,732

.6

68,099

Investment
of Cash
Collateral
for Securities
Loaned:††

  

Dreyfus Institutional Preferred Government Plus Money Market Fund, Institutional Shares

-

147,453,431

(147,453,431)

-

-

74,553†††

Dreyfus Institutional Preferred Government Plus Money Market Fund, SL Shares

-

7,391,937

-

7,391,937

.3

17,830†††

Total

11,311,190

293,562,277

(284,917,798)

19,955,669

.9

160,482

 Includes reinvested dividends/distributions.

††  Effective November 9, 2020, cash collateral for securities lending was transferred from Dreyfus Institutional Preferred Government Plus Money Market Fund, Institutional Shares to Dreyfus Institutional Preferred Government Plus Money Market Fund, SL Shares.

†††  Represents securities lending income earned from the reinvestment of cash collateral from loaned securities, net of fees and collateral investment expenses, and other payments to and from borrowers of securities.

See notes to financial statements.

12

 

STATEMENT OF ASSETS AND LIABILITIES

December 31, 2020

       

 

 

 

 

 

 

 

 

 

 

Cost

 

Value

 

Assets ($):

 

 

 

 

Investments in securities—See Statement of Investments
(including securities on loan, valued at $79,371,052)—Note 1(c):

 

 

 

Unaffiliated issuers

684,859,632

 

2,125,928,899

 

Affiliated issuers

 

19,955,669

 

19,955,669

 

Receivable for investment securities sold

 

6,060,778

 

Receivable for shares of Common Stock subscribed

 

2,319,808

 

Dividends and securities lending income receivable

 

1,802,073

 

Tax reclaim receivable

 

835,103

 

Prepaid expenses

 

 

 

 

71,043

 

 

 

 

 

 

2,156,973,373

 

Liabilities ($):

 

 

 

 

Due to BNY Mellon Investment Adviser, Inc. and affiliates—Note 3(b)

 

1,004,971

 

Due to Fayez Sarofim & Co.

 

 

 

 

386,320

 

Liability for securities on loan—Note 1(c)

 

7,391,937

 

Payable for investment securities purchased

 

6,165,123

 

Payable for shares of Common Stock redeemed

 

2,217,176

 

Directors’ fees and expenses payable

 

4,522

 

Other accrued expenses

 

 

 

 

240,106

 

 

 

 

 

 

17,410,155

 

Net Assets ($)

 

 

2,139,563,218

 

Composition of Net Assets ($):

 

 

 

 

Paid-in capital

 

 

 

 

691,910,655

 

Total distributable earnings (loss)

 

 

 

 

1,447,652,563

 

Net Assets ($)

 

 

2,139,563,218

 

     

Net Asset Value Per Share

Investor Shares

Class I

Class Y

 

Net Assets ($)

1,695,878,116

291,289,015

152,396,087

 

Shares Outstanding

43,039,165

7,445,283

3,884,974

 

Net Asset Value Per Share ($)

39.40

39.12

39.23

 

 

 

 

 

 

See notes to financial statements.

 

 

 

 

13

 

STATEMENT OF OPERATIONS

Year Ended December 31, 2020

       

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment Income ($):

 

 

 

 

Income:

 

 

 

 

Cash dividends (net of $423,371 foreign taxes withheld at source):

 

Unaffiliated issuers

 

 

27,531,061

 

Affiliated issuers

 

 

66,521

 

Income from securities lending—Note 1(c)

 

 

92,383

 

Interest

 

 

87,711

 

Total Income

 

 

27,777,676

 

Expenses:

 

 

 

 

Investment advisory fee—Note 3(a)

 

 

5,939,082

 

Shareholder servicing costs—Note 3(b)

 

 

4,908,520

 

Sub-investment advisory fee—Note 3(a)

 

 

3,884,963

 

Directors’ fees and expenses—Note 3(c)

 

 

138,027

 

Professional fees

 

 

105,395

 

Registration fees

 

 

93,493

 

Prospectus and shareholders’ reports

 

 

92,615

 

Loan commitment fees—Note 2

 

 

69,540

 

Custodian fees—Note 3(b)

 

 

47,800

 

Chief Compliance Officer fees—Note 3(b)

 

 

13,982

 

Miscellaneous

 

 

32,042

 

Total Expenses

 

 

15,325,459

 

Investment Income—Net

 

 

12,452,217

 

Realized and Unrealized Gain (Loss) on Investments—Note 4 ($):

 

 

Net realized gain (loss) on investments and foreign currency transactions

80,299,222

 

Net realized gain (loss) on forward foreign currency exchange contracts

(1,718)

 

Capital gain distributions from affiliated issuers

1,578

 

Net Realized Gain (Loss)

 

 

80,299,082

 

Net change in unrealized appreciation (depreciation) on investments
and foreign currency transactions

317,211,768

 

Net Realized and Unrealized Gain (Loss) on Investments

 

 

397,510,850

 

Net Increase in Net Assets Resulting from Operations

 

409,963,067

 

 

 

 

 

 

 

 

See notes to financial statements.

     

14

 

STATEMENT OF CHANGES IN NET ASSETS

          

 

 

 

 

Year Ended December 31,

 

 

 

 

2020

 

2019

 

Operations ($):

 

 

 

 

 

 

 

 

Investment income—net

 

 

12,452,217

 

 

 

16,246,133

 

Net realized gain (loss) on investments

 

80,299,082

 

 

 

130,530,443

 

Net change in unrealized appreciation
(depreciation) on investments

 

317,211,768

 

 

 

336,329,291

 

Net Increase (Decrease) in Net Assets
Resulting from Operations

409,963,067

 

 

 

483,105,867

 

Distributions ($):

 

Distributions to shareholders:

 

 

 

 

 

 

 

 

Investor Shares

 

 

(88,411,575)

 

 

 

(154,046,791)

 

Class I

 

 

(13,499,112)

 

 

 

(14,170,844)

 

Class Y

 

 

(6,886,433)

 

 

 

(6,367,030)

 

Total Distributions

 

 

(108,797,120)

 

 

 

(174,584,665)

 

Capital Stock Transactions ($):

 

Net proceeds from shares sold:

 

 

 

 

 

 

 

 

Investor Shares

 

 

123,245,077

 

 

 

54,242,215

 

Class I

 

 

165,798,077

 

 

 

25,443,032

 

Class Y

 

 

84,131,890

 

 

 

4,081,446

 

Distributions reinvested:

 

 

 

 

 

 

 

 

Investor Shares

 

 

83,902,608

 

 

 

146,503,110

 

Class I

 

 

10,470,243

 

 

 

9,581,260

 

Class Y

 

 

6,574,479

 

 

 

6,362,931

 

Cost of shares redeemed:

 

 

 

 

 

 

 

 

Investor Shares

 

 

(294,694,768)

 

 

 

(229,292,061)

 

Class I

 

 

(45,479,539)

 

 

 

(46,817,539)

 

Class Y

 

 

(13,534,583)

 

 

 

(17,711,015)

 

Increase (Decrease) in Net Assets
from Capital Stock Transactions

120,413,484

 

 

 

(47,606,621)

 

Total Increase (Decrease) in Net Assets

421,579,431

 

 

 

260,914,581

 

Net Assets ($):

 

Beginning of Period

 

 

1,717,983,787

 

 

 

1,457,069,206

 

End of Period

 

 

2,139,563,218

 

 

 

1,717,983,787

 

Capital Share Transactions (Shares):

 

Investor Sharesa

 

 

 

 

 

 

 

 

Shares sold

 

 

3,621,933

 

 

 

1,658,538

 

Shares issued for distributions reinvested

 

 

2,405,505

 

 

 

4,509,794

 

Shares redeemed

 

 

(8,327,947)

 

 

 

(7,148,829)

 

Net Increase (Decrease) in Shares Outstanding

(2,300,509)

 

 

 

(980,497)

 

Class Ia

 

 

 

 

 

 

 

 

Shares sold

 

 

4,555,065

 

 

 

818,274

 

Shares issued for distributions reinvested

 

 

288,932

 

 

 

297,103

 

Shares redeemed

 

 

(1,329,981)

 

 

 

(1,476,790)

 

Net Increase (Decrease) in Shares Outstanding

3,514,016

 

 

 

(361,413)

 

Class Ya

 

 

 

 

 

 

 

 

Shares sold

 

 

2,332,916

 

 

 

128,882

 

Shares issued for distributions reinvested

 

 

182,147

 

 

 

197,187

 

Shares redeemed

 

 

(386,529)

 

 

 

(554,386)

 

Net Increase (Decrease) in Shares Outstanding

2,128,534

 

 

 

(228,317)

 

 

 

 

 

 

 

 

 

 

 

aDuring the period ended December 31, 2020, 98 Class Y shares representing $3,804 were exchanged for 97 Investor shares and during the period ended December 31, 2019, 261 Investor shares representing $8,309 were exchanged for 262 Class I shares.

 


See notes to financial statements.

        

15

 

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. Net asset value total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption at net asset value on the last day of the period. Net asset value total return includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. These figures have been derived from the fund’s financial statements.

            
       
   

Investor Shares

 

Year Ended December 31,

 

2020

2019

2018

2017

2016

Per Share Data ($):

      

Net asset value, beginning of period

 

33.69

27.72

36.07

33.43

39.96

Investment Operations:

      

Investment income—neta

 

.23

.31

.40

.42

.56

Net realized and unrealized
gain (loss) on investments

 

7.56

9.20

(2.74)

8.06

2.18

Total from Investment Operations

 

7.79

9.51

(2.34)

8.48

2.74

Distributions:

      

Dividends from
investment income—net

 

(.23)

(.32)

(.41)

(.43)

(.57)

Dividends from net realized
gain on investments

 

(1.85)

(3.22)

(5.60)

(5.41)

(8.70)

Total Distributions

 

(2.08)

(3.54)

(6.01)

(5.84)

(9.27)

Net asset value, end of period

 

39.40

33.69

27.72

36.07

33.43

Total Return (%)

 

24.01

35.14

(6.38)

26.65

7.23

Ratios/Supplemental Data (%):

      

Ratio of total expenses
to average net assets

 

.89

.89

.90

.91

.94

Ratio of net expenses
to average net assets

 

.89

.89

.90

.91

.94

Ratio of net investment income
to average net assets

 

.66

.97

1.14

1.18

1.48

Portfolio Turnover Rate

 

9.52

4.73

5.12

3.52

6.43

Net Assets, end of period ($ x 1,000)

 

1,695,878

1,527,482

1,283,979

1,634,721

1,816,298

a Based on average shares outstanding.

See notes to financial statements.

16

 

           
      
     

Class I Shares

 

Year Ended December 31,

 

2020

2019

2018

2017

2016a

Per Share Data ($):

      

Net asset value, beginning of period

 

33.47

27.55

35.89

33.39

38.54

Investment Operations:

      

Investment income—netb

 

.30

.39

.49

.52

.18

Net realized and unrealized
gain (loss) on investments

 

7.52

9.15

(2.73)

8.02

.30

Total from Investment Operations

 

7.82

9.54

(2.24)

8.54

.48

Distributions:

      

Dividends from
investment income—net

 

(.32)

(.40)

(.50)

(.63)

(.30)

Dividends from net realized
gain on investments

 

(1.85)

(3.22)

(5.60)

(5.41)

(5.33)

Total Distributions

 

(2.17)

(3.62)

(6.10)

(6.04)

(5.63)

Net asset value, end of period

 

39.12

33.47

27.55

35.89

33.39

Total Return (%)

 

24.30

35.50

(6.16)

26.91

1.23c

Ratios/Supplemental Data (%):

      

Ratio of total expenses
to average net assets

 

.66

.65

.66

.74

.67d

Ratio of net expenses
to average net assets

 

.66

.65

.66

.73

.67d

Ratio of net investment income
to average net assets

 

.88

1.21

1.38

1.47

1.91d

Portfolio Turnover Rate

 

9.52

4.73

5.12

3.52

6.43

Net Assets, end of period ($ x 1,000)

 

291,289

131,573

118,283

172,475

25,547

a From August 31, 2016 (commencement of initial offering) to December 31, 2016.

b Based on average shares outstanding.

c Not annualized.

d Annualized.

See notes to financial statements.

17

 

FINANCIAL HIGHLIGHTS (continued)

          
       
   

Class Y Shares

 

Year Ended December 31,

 

2020

2019

2018

2017

2016

Per Share Data ($):

      

Net asset value, beginning of period

 

33.55

27.61

35.96

33.43

39.96

Investment Operations:

      

Investment income—neta

 

.32

.41

.53

.52

.66

Net realized and unrealized
gain (loss) on investments

 

7.55

9.17

(2.75)

8.07

2.21

Total from Investment Operations

 

7.87

9.58

(2.22)

8.59

2.87

Distributions:

      

Dividends from
investment income—net

 

(.34)

(.42)

(.53)

(.65)

(.70)

Dividends from net realized
gain on investments

 

(1.85)

(3.22)

(5.60)

(5.41)

(8.70)

Total Distributions

 

(2.19)

(3.64)

(6.13)

(6.06)

(9.40)

Net asset value, end of period

 

39.23

33.55

27.61

35.96

33.43

Total Return (%)

 

24.41

35.58

(6.10)

27.03

7.63

Ratios/Supplemental Data (%):

      

Ratio of total expenses
to average net assets

 

.59

.59

.59

.62

.65

Ratio of net expenses
to average net assets

 

.59

.59

.59

.61

.65

Ratio of net investment income
to average net assets

 

.92

1.28

1.50

1.45

1.95

Portfolio Turnover Rate

 

9.52

4.73

5.12

3.52

6.43

Net Assets, end of period ($ x 1,000)

 

152,396

58,929

54,808

188,851

59,875

a Based on average shares outstanding.

See notes to financial statements.

18

 

NOTES TO FINANCIAL STATEMENTS

NOTE 1—Significant Accounting Policies:

BNY Mellon Appreciation Fund, Inc. (the “fund”), which is registered under the Investment Company Act of 1940, as amended (the “Act”), is a diversified open-end management investment company. The fund’s investment objective is to seek long-term capital growth consistent with the preservation of capital. BNY Mellon Investment Adviser, Inc. (the “Adviser”), a wholly-owned subsidiary of The Bank of New York Mellon Corporation (“BNY Mellon”), serves as the fund’s investment adviser. Fayez Sarofim & Co. (the “Sub-Adviser”), serves as the fund’s sub-investment adviser.

BNY Mellon Securities Corporation (the “Distributor”), a wholly-owned subsidiary of the Adviser, is the distributor of the fund’s shares, which are sold to the public without a sales charge. The fund is authorized to issue 500 million shares of $.001 par value Common Stock. The fund currently has authorized three classes of shares: Investor (300 million shares authorized), Class I (100 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 I and 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 (“ASC”) 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 registrants. The fund is an investment company and applies the accounting and reporting guidance of the FASB ASC Topic 946 Financial Services-Investment Companies. 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

19

 

NOTES TO FINANCIAL STATEMENTS (continued)

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).

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 equity 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. For open short positions, asked prices are 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

20

 

value. All of the preceding securities are generally categorized within Level 1 of the fair value hierarchy.

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. These securities are generally categorized within Level 2 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 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 accurately reflect 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 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 securities where observable inputs are limited, assumptions about market activity and risk are used and such securities are generally categorized within Level 3 of the fair value hierarchy.

Investments denominated in foreign currencies are translated to U.S. dollars at the prevailing rates of exchange.

The following is a summary of the inputs used as of December 31, 2020 in valuing the fund’s investments:

21

 

NOTES TO FINANCIAL STATEMENTS (continued)

       
 

Level 1-Unadjusted Quoted Prices

Level 2- Other Significant Observable Inputs

 

Level 3-Significant Unobservable Inputs

Total

 

Assets ($)

  

Investments In Securities:

  

Equity Securities - Common Stocks

2,069,398,786

56,530,113

††

-

2,125,928,899

 

Investment Companies

19,955,669

-

 

-

19,955,669

 

 See Statement of Investments for additional detailed categorizations, if any.

†† Securities classified within Level 2 at period end as the values were determined pursuant to the fund’s fair valuation procedures.

(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 the market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss on investments.

Net realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized on securities transactions between trade and settlement date, 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 resulting from changes in exchange rates. Foreign currency gains and losses on foreign currency transactions are also included with net realized and unrealized gain or loss on investments.

Foreign Taxes: The fund may be subject to foreign taxes (a portion of which may be reclaimable) on income, stock dividends, realized and unrealized capital gains on investments or certain foreign currency transactions. Foreign taxes are recorded in accordance with the applicable foreign tax regulations and rates that exist in the foreign jurisdictions in which the fund invests. These foreign taxes, if any, are paid by the fund and are reflected in the Statement of Operations, if applicable. Foreign taxes payable or deferred or those subject to reclaims as of December 31, 2020, if any, are disclosed in the fund’s Statement of Assets and Liabilities.

(c) 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.

22

 

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.

Pursuant to a securities lending agreement with The Bank of New York Mellon, a subsidiary of BNY Mellon and an affiliate of the Adviser, 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 the Adviser, 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 New York 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. Additionally, the contractual maturity of security lending transactions are on an overnight and continuous basis. During the period ended December 31, 2020, The Bank of New York Mellon earned $17,169 from the lending of the fund’s portfolio securities, pursuant to the securities lending agreement.

(d) Affiliated issuers: Investments in other investment companies advised by the Adviser are considered “affiliated” under the Act.

(e) Risk: Certain events particular to the industries in which the fund’s investments conduct their operations, as well as general economic, political and public health conditions, may have a significant negative impact on the investee’s operations and profitability. In addition, turbulence in financial markets and reduced liquidity in equity, credit and/or fixed income markets may negatively affect many issuers, which could adversely affect the fund. Global economies and financial markets are becoming increasingly interconnected, and conditions and events in one country, region or financial market may adversely impact issuers in a different country, region or financial market. These risks may be magnified if certain events or developments adversely interrupt the global supply chain; in these and other circumstances, such risks might affect companies world-wide.  Recent examples include pandemic risks related to COVID-19 and aggressive measures taken world-wide in response by governments, including closing borders, restricting international and domestic travel, and

23

 

NOTES TO FINANCIAL STATEMENTS (continued)

the imposition of prolonged quarantines of large populations, and by businesses, including changes to operations and reducing staff. To the extent the fund may overweight its investments in certain countries, companies, industries or market sectors, such positions will increase the fund’s exposure to risk of loss from adverse developments affecting those countries, companies, industries or sectors.

(f) Dividends and distributions to shareholders: Dividends and distributions 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.

(g) 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 and net realized capital gain sufficient to relieve it from substantially all federal income and excise taxes.

As of and during the period ended December 31, 2020, 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 December 31, 2020, the fund did not incur any interest or penalties.

Each tax year in the four-year period ended December 31, 2020 remains subject to examination by the Internal Revenue Service and state taxing authorities.

At December 31, 2020, the components of accumulated earnings on a tax basis were as follows: undistributed ordinary income $1,085,070, undistributed capital gains $5,508,920 and unrealized appreciation $1,441,058,573.

The tax character of distributions paid to shareholders during the fiscal periods ended December 31, 2020 and December 31, 2019 were as follows: ordinary income $12,647,401 and $16,800,390, and long-term capital gains $96,149,719 and $157,784,275, respectively.

24

 

NOTE 2—Bank Lines of Credit:

The fund participates with other long-term open-end funds managed by the Adviser in a $823.5 million unsecured credit facility led by Citibank, N.A. (the “Citibank Credit Facility”) and a $300 million unsecured credit facility provided by The Bank of New York Mellon (the “BNYM Credit Facility”), each to be utilized primarily for temporary or emergency purposes, including the financing of redemptions (each, a “Facility”). The Citibank Credit Facility is available in two tranches: (i) Tranche A is in an amount equal to $688.5 million and is available to all long-term open-ended funds, including the fund, and (ii) Tranche B is an amount equal to $135 million and is available only to BNY Mellon Floating Rate Income Fund, a series of BNY Mellon Investment Funds IV, Inc. Prior to September 30, 2020, the Citibank Credit Facility was $927 million with Tranche A available in an amount equal to $747 million and Tranche B available in an amount equal to $180 million. Prior to March 11, 2020, the Citibank Credit Facility was $1.030 billion with Tranche A available in an amount equal to $830 million and Tranche B available in an amount equal to $200 million. In connection therewith, the fund has agreed to pay its pro rata portion of commitment fees for Tranche A of the Citibank Credit Facility and the BNYM Credit Facility. Interest is charged to the fund based on rates determined pursuant to the terms of the respective Facility at the time of borrowing. During the period ended December 31, 2020, the fund did not borrow under the Facilities.

NOTE 3—Investment Advisory Fee, Sub-Investment Advisory Fee and Other Transactions with Affiliates:

(a) Pursuant to an investment advisory agreement with the Adviser, the investment advisory fee is computed at the annual rate of .3325% of the value of the fund’s average daily net assets. Pursuant to a sub-investment advisory agreement with the Sub-Adviser, the fund pays the Sub-Adviser a monthly sub-investment advisory fee at the annual rate of .2175% of the value of the fund’s average daily net assets. Both fees are payable monthly.

(b) Under the Shareholder Services Plan, Investor shares pay the Distributor at an annual rate of .25% of the value of its average daily 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, such as recordkeeping and sub-accounting services. 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

25

 

NOTES TO FINANCIAL STATEMENTS (continued)

Agents. During the period ended December 31, 2020, the fund was charged $3,839,476 pursuant to the Shareholder Services Plan.

The fund has an arrangement with the transfer agent whereby the fund may receive earnings credits when positive cash balances are maintained, which are used to offset transfer agency fees. For financial reporting purposes, the fund includes net earnings credits, if any, as shareholder servicing costs in the Statement of Operations.

The fund has an arrangement with the custodian whereby the fund will receive interest income or be charged an overdraft fees when cash balances are maintained. For financial reporting purposes, the fund includes this interest income and overdraft fees, if any, as interest income in the Statement of Operations.

The fund compensates BNY Mellon Transfer, Inc., a wholly-owned subsidiary of the Adviser, under a transfer agency agreement for providing transfer agency and cash management services inclusive of earnings credits, if any, 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 December 31, 2020, the fund was charged $253,798 for transfer agency services, inclusive of earnings credit, if any. These fees are included in Shareholder servicing costs in the Statement of Operations.

The fund compensates The Bank of New York 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 December 31, 2020, the fund was charged $47,800 pursuant to the custody agreement.

During the period ended December 31, 2020, the fund was charged $13,982 for services performed by the Chief Compliance Officer and his staff. These fees are included in Chief Compliance Officer fees in the Statement of Operations.

The components of “Due to BNY Mellon Investment Adviser, Inc. and affiliates” in the Statement of Assets and Liabilities consist of: investment advisory fees of $590,582, Shareholder Services Plan fees of $353,058, custodian fees of $11,798, Chief Compliance Officer fees of $2,903 and transfer agency fees of $46,630.

(c) Each Board member also serves as a Board member of other funds in the BNY Mellon Family of Funds complex. Annual retainer fees and attendance fees are allocated to each fund based on net assets.

26

 

NOTE 4—Securities Transactions:

The aggregate amount of purchases and sales of investment securities, excluding short-term securities and forward foreign currency exchange contracts (“forward contracts”), during the period ended December 31, 2020, amounted to $191,619,170 and $168,282,116, respectively.

Derivatives: A derivative is a financial instrument whose performance is derived from the performance of another asset. The fund enters into International Swaps and Derivatives Association, Inc. Master Agreements or similar agreements (collectively, “Master Agreements”) with its over-the-counter (“OTC”) derivative contract counterparties in order to, among other things, reduce its credit risk to counterparties. Master Agreements include provisions for general obligations, representations, collateral and events of default or termination. Under a Master Agreement, the fund may offset with the counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment in the event of default or termination.

Each type of derivative instrument that was held by the fund during the period ended December 31, 2020 is discussed below.

Forward Foreign Currency Exchange Contracts: The fund enters into forward contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to settle foreign currency transactions or as a part of its investment strategy. When executing forward contracts, the fund is obligated to buy or sell a foreign currency at a specified rate on a certain date in the future. With respect to sales of forward contracts, the fund incurs a loss if the value of the contract increases between the date the forward contract is opened and the date the forward contract is closed. The fund realizes a gain if the value of the contract decreases between those dates. With respect to purchases of forward contracts, the fund incurs a loss if the value of the contract decreases between the date the forward contract is opened and the date the forward contract is closed. The fund realizes a gain if the value of the contract increases between those dates. Any realized or unrealized gains or losses which occurred during the period are reflected in the Statement of Operations. The fund is exposed to foreign currency risk as a result of changes in value of underlying financial instruments. The fund is also exposed to credit risk associated with counterparty nonperformance on these forward contracts, which is generally limited to the unrealized gain on each open contract. This risk may be mitigated by Master Agreements, if any, between the fund and the counterparty and the posting of collateral, if any, by the counterparty to the fund to cover the fund’s exposure to the

27

 

NOTES TO FINANCIAL STATEMENTS (continued)

counterparty. At December 31, 2020, there were no forward contracts outstanding.

The following summarizes the average market value of derivatives outstanding during the period ended December 31, 2020:

   

 

 

Average Market Value ($)

Forward contracts

 

2,526

 

 

 

At December 31, 2020, the cost of investments for federal income tax purposes was $704,825,995; accordingly, accumulated net unrealized appreciation on investments was $1,441,058,573, consisting of all gross unrealized appreciation.

28

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of BNY Mellon Appreciation Fund, Inc.

Opinion on the Financial Statements

We have audited the accompanying statement of assets and liabilities of BNY Mellon Appreciation Fund, Inc. (the “Fund”), including the statements of investments and investments in affiliated issuers, as of December 31, 2020, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund at December 31, 2020, 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 its financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of the Fund’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2020, by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

We have served as the auditor of one or more investment companies in the BNY Mellon Family of Funds since at least 1957, but we are unable to determine the specific year.

New York, New York
February 25, 2021

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IMPORTANT TAX INFORMATION (Unaudited)

In accordance with federal tax law, the fund hereby reports 100% of the ordinary dividends paid during the fiscal year ended December 31, 2020 as qualifying for the corporate dividends received deduction. For the fiscal year ended December 31, 2020, certain dividends paid by the fund may be subject to a maximum tax rate of 15%, as provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003. Of the distributions paid during the fiscal year, $12,647,401 represents the maximum amount that may be considered qualified dividend income. Shareholders will receive notification in early 2021 of the percentage applicable to the preparation of their 2020 income tax returns. Also, the fund hereby reports $.4273 per share as a long-term capital gain distribution paid on March 31, 2020 and the fund also reports $1.4228 per share as a long-term capital gain distribution paid on December 21, 2020.

30

 

INFORMATION ABOUT THE RENEWAL OF THE FUND’S INVESTMENT ADVISORY AND SUB-INVESTMENT ADVISORY AGREEMENTS (Unaudited)

At a meeting of the fund’s Board of Directors held on July 30, 2020, the Board considered the renewal of the fund’s Management Agreement pursuant to which the Adviser provides the fund with investment advisory and administrative services (the “Agreement”), and the Sub-Investment Advisory Agreement (together, the “Agreements”), pursuant to which Fayez Sarofim & Co. (the “Subadviser”) provides day-to-day management of the fund’s investments. The Board members, none of whom are “interested persons” (as defined in the Investment Company Act of 1940, as amended) of the fund, were assisted in their review by independent legal counsel and met with counsel in executive session separate from representatives of the Adviser and the Subadviser. In considering the renewal of the Agreements, the Board considered several factors that it believed to be relevant, including those discussed below. The Board did not identify any one factor as dispositive, and each Board member may have attributed different weights to the factors considered.

Analysis of Nature, Extent, and Quality of Services Provided to the Fund. The Board considered information provided to it at the meeting and in previous presentations from representatives of the Adviser regarding the nature, extent, and quality of the services provided to funds in the BNY Mellon fund complex, including the fund. The Adviser provided the number of open accounts in the fund, the fund’s asset size and the allocation of fund assets among distribution channels. The Adviser also had previously provided information regarding the diverse intermediary relationships and distribution channels of funds in the BNY Mellon fund complex (such as retail direct or intermediary, in which intermediaries typically are paid by the fund and/or the Adviser) and the Adviser’s corresponding need for broad, deep, and diverse resources to be able to provide ongoing shareholder services to each intermediary or distribution channel, as applicable to the fund.

The Board also considered research support available to, and portfolio management capabilities of, the fund’s portfolio management personnel and that the Adviser also provides oversight of day-to-day fund operations, including fund accounting and administration and assistance in meeting legal and regulatory requirements. The Board also considered the Adviser’s extensive administrative, accounting and compliance infrastructures, as well as the Adviser’s supervisory activities over the Subadviser. The Board also considered portfolio management’s brokerage policies and practices (including policies and practices regarding soft dollars) and the standards applied in seeking best execution.

Comparative Analysis of the Fund’s Performance and Management Fee and Expense Ratio. The Board reviewed reports prepared by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent provider of investment company data based on classifications provided by Thomson Reuters Lipper, which included information comparing (1) the performance of the fund’s Investor shares with the performance of a group of retail no load large-cap core funds selected by Broadridge as comparable to the

31

 

INFORMATION ABOUT THE RENEWAL OF THE FUND’S INVESTMENT ADVISORY AND SUB-INVESTMENT ADVISORY AGREEMENTS (Unaudited) (continued)

fund (the “Performance Group”) and with a broader group of funds consisting of all retail and institutional large-cap core funds (the “Performance Universe”), all for various periods ended June 30, 2020, and (2) the fund’s actual and contractual management fees and total expenses with those of the same group of funds in the Performance Group (the “Expense Group”) and with a broader group of all other retail no-load large-cap core funds, excluding outliers (the “Expense Universe”), the information for which was derived in part from fund financial statements available to Broadridge as of the date of its analysis. The Adviser previously had furnished the Board with a description of the methodology Broadridge used to select the Performance Group and Performance Universe and the Expense Group and Expense Universe.

Performance Comparisons. Representatives of the Adviser stated that the usefulness of performance comparisons may be affected by a number of factors, including different investment limitations and policies that may be applicable to the fund and comparison funds and the end date selected. The Board discussed with representatives of the Adviser and the Subadviser the results of the comparisons and considered that the fund’s total return performance was above the Performance Group and Performance Universe medians for all periods, except the ten-year period when it was slightly below the Performance Universe median. The Adviser also provided a comparison of the fund’s calendar year total returns to the returns of the fund’s benchmark index.

Management Fee and Expense Ratio Comparisons. The Board reviewed and considered the contractual management fee rate payable by the fund to the Adviser in light of the nature, extent and quality of the management and sub-advisory services provided by the Adviser and the Subadviser, respectively. In addition, the Board reviewed and considered the actual management fee rate paid by the fund over the fund’s last fiscal year. The Board also reviewed the range of actual and contractual management fees and total expenses as a percentage of average net assets of the Expense Group and Expense Universe funds and discussed the results of the comparisons. The Board considered that the fund’s contractual management fee was equal to the Expense Group median contractual management fee, the fund’s actual management fee was equal to the Expense Group median and lower than the Expense Universe median actual management fee and the fund’s total expenses were higher than the Expense Group median and Expense Universe median total expenses.

Representatives of the Adviser reviewed with the Board the management or investment advisory fees (1) paid by funds advised or administered by the Adviser that are in the same Lipper category as the fund and (2) paid to the Adviser or the Subadviser or its affiliates for advising any separate accounts and/or other types of client portfolios that are considered to have similar investment strategies and policies as the fund (the “Similar Clients”), and explained the nature of the Similar Clients. They discussed differences in fees paid and the relationship of the fees paid in light of any differences in the services provided and other relevant factors. The Board considered the relevance of the fee information provided for the Similar Clients to evaluate the appropriateness of the fund’s management fee.

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The Board considered the fee to the Subadviser in relation to the fee paid to the Adviser by the fund and the respective services provided by the Subadviser and the Adviser.

Analysis of Profitability and Economies of Scale. Representatives of the Adviser reviewed the expenses allocated and profit received by the Adviser and its affiliates and the resulting profitability percentage for managing the fund and the aggregate profitability percentage to the Adviser and its affiliates for managing the funds in the BNY Mellon fund complex, and the method used to determine the expenses and profit. The Board concluded that the profitability results were not excessive, given the services rendered and service levels provided by the Adviser and its affiliates. The Board also had been provided with information prepared by an independent consulting firm regarding the Adviser’s approach to allocating costs to, and determining the profitability of, individual funds and the entire BNY Mellon fund complex. The consulting firm also had analyzed where any economies of scale might emerge in connection with the management of a fund.

The Board considered, on the advice of its counsel, the profitability analysis (1) as part of its evaluation of whether the fees under the Agreements, considered in relation to the mix of services provided by the Adviser and the Subadviser, including the nature, extent and quality of such services, supported the renewal of the Agreements and (2) in light of the relevant circumstances for the fund and the extent to which economies of scale would be realized if the fund grows and whether fee levels reflect these economies of scale for the benefit of fund shareholders. Representatives of the Adviser stated that a discussion of economies of scale is predicated on a fund having achieved a substantial size with increasing assets and that, if a fund’s assets had been stable or decreasing, the possibility that the Adviser may have realized any economies of scale would be less. Representatives of the Adviser also stated that, as a result of shared and allocated costs among funds in the BNY Mellon fund complex, the extent of economies of scale could depend substantially on the level of assets in the complex as a whole, so that increases and decreases in complex-wide assets can affect potential economies of scale in a manner that is disproportionate to, or even in the opposite direction from, changes in the fund’s asset level. The Board also considered potential benefits to the Adviser and the Subadviser from acting as investment adviser and sub-investment adviser, respectively, and took into consideration the soft dollar arrangements in effect for trading the fund’s investments.

At the conclusion of these discussions, the Board agreed that it had been furnished with sufficient information to make an informed business decision with respect to the renewal of the Agreements. Based on the discussions and considerations as described above, the Board concluded and determined as follows.

· The Board concluded that the nature, extent and quality of the services provided by the Adviser and the Subadviser are adequate and appropriate.

· The Board was satisfied with the fund’s performance.

33

 

INFORMATION ABOUT THE RENEWAL OF THE FUND’S INVESTMENT ADVISORY AND SUB-INVESTMENT ADVISORY AGREEMENTS (Unaudited) (continued)

· The Board concluded that the fees paid to the Adviser and the Subadviser continued to be appropriate under the circumstances and in light of the factors and the totality of the services provided as discussed above.

· The Board determined that the economies of scale which may accrue to the Adviser and its affiliates in connection with the management of the fund had been adequately considered by the Adviser in connection with the fee rate charged to the fund pursuant to the Agreement and that, to the extent in the future it were determined that material economies of scale had not been shared with the fund, the Board would seek to have those economies of scale shared with the fund.

In evaluating the Agreements, the Board considered these conclusions and determinations and also relied on its previous knowledge, gained through meetings and other interactions with the Adviser and its affiliates and the Subadviser, of the Adviser and the Subadviser and the services provided to the fund by the Adviser and the Subadviser. The Board also relied on information received on a routine and regular basis throughout the year relating to the operations of the fund and the investment management and other services provided under the Agreements, including information on the investment performance of the fund in comparison to similar mutual funds and benchmark performance indices; general market outlook as applicable to the fund; and compliance reports. In addition, the Board’s consideration of the contractual fee arrangements for the fund had the benefit of a number of years of reviews of the Agreements for the fund, or substantially similar agreements for other BNY Mellon funds that the Board oversees, during which lengthy discussions took place between the Board and representatives of the Adviser. Certain aspects of the arrangements may receive greater scrutiny in some years than in others, and the Board’s conclusions may be based, in part, on their consideration of the fund’s arrangements, or substantially similar arrangements for other BNY Mellon funds that the Board oversees, in prior years. The Board determined to renew the Agreements.

34

 

BOARD MEMBERS INFORMATION (Unaudited)

INDEPENDENT BOARD MEMBERS

Joseph S. DiMartino (77)

Chairman of the Board (1995)

Principal Occupation During Past 5 Years:

· Director or Trustee of funds in the BNY Mellon Family of Funds and certain other entities (as described in the fund’s Statement of Additional Information) (1995-Present)

Other Public Company Board Memberships During Past 5 Years:

· CBIZ, Inc., a public company providing professional business services, products and solutions, Director (1997-Present)

No. of Portfolios for which Board Member Serves: 109

———————

Francine J. Bovich (69)

Board Member (2012)

Principal Occupation During Past 5 Years:

· Trustee, The Bradley Trusts, private trust funds (2011-Present)

Other Public Company Board Memberships During Past 5 Years:

· Annaly Capital Management, Inc., a real estate investment trust, Director (2014-Present)

No. of Portfolios for which Board Member Serves: 66

———————

Peggy C. Davis (77)

Board Member (1990)

Principal Occupation During Past 5 Years:

· Shad Professor of Law, New York University School of Law (1983-present)

No. of Portfolios for which Board Member Serves: 39

———————

Nathan Leventhal (77)

Board Member (1989)

Principal Occupation During Past 5 Years:

· President Emeritus of Lincoln Center for the Performing Arts (2001-Present)

· President of the Palm Beach Opera (2016-Present)

Other Public Company Board Memberships During Past 5 Years:

· Movado Group, Inc., a public company that designs, markets and distributes watches, Director (2003-Present)

No. of Portfolios for which Board Member Serves: 44

———————

35

 

BOARD MEMBERS INFORMATION (Unaudited) (continued)
INDEPENDENT BOARD MEMBERS (continued)

Robin A. Melvin (57)

Board Member (2012)

Principal Occupation During Past 5 Years:

· Co-chairman, Mentor Illinois, a non-profit organization dedicated to increasing the quality of mentoring services in Illinois (2014 – 2020); Board member, Mentor Illinois (2013-2020)

· Trustee, Westover School, a private girls’ boarding school in Middlebury, Connecticut (2019-Present)

No. of Portfolios for which Board Member Serves: 87

———————

Once elected all Board Members serve for an indefinite term, but achieve Emeritus status upon reaching age 80. The address of the Board Members and Officers is c/o BNY Mellon Investment Adviser, Inc. 240 Greenwich Street, New York, New York 10286. Additional information about the Board Member is available in the fund’s Statement of Additional Information which can be obtained from the Adviser free of charge by calling this toll free number: 1-800-373-9387.

Clifford L. Alexander, Jr., Emeritus Board Member
Diane Dunst, Emeritus Board Member
Ernest Kafka, Emeritus Board Member

36

 

OFFICERS OF THE FUND (Unaudited)

DAVID DIPETRILLO, President since January 2021.

Head of North America Product, BNY Mellon Investment Management since January 2018, Director of Product Strategy, BNY Mellon Investment Management from January 2016 to December 2017; Head of US Retail Product and Channel Marketing, BNY Mellon Investment Management from January 2014 to December 2015. He is an officer of 62 investment companies (comprised of 117 portfolios) managed by the Adviser or an affiliate of the Adviser. He is 42 years old and has been an employee of BNY Mellon since 2005.

JAMES WINDELS, Treasurer since November 2001.

Director-BNY Mellon Fund Administration, and an officer of 63 investment companies (comprised of 140 portfolios) managed by the Adviser or an affiliate of the Adviser. He is 62 years old and has been an employee of the Adviser since April 1985.

BENNETT A. MACDOUGALL, Chief Legal Officer since October 2015.

Chief Legal Officer of the Adviser and Associate General Counsel and Managing Director of BNY Mellon since June 2015; Director and Associate General Counsel of Deutsche Bank–Asset & Wealth Management Division from June 2005 to June 2015, and as Chief Legal Officer of Deutsche Investment Management Americas Inc. from June 2012 to May 2015. He is an officer of 63 investment companies (comprised of 140 portfolios) managed by the Adviser or an affiliate of the Adviser. He is 49 years old and has been an employee of the Adviser since June 2015.

JAMES BITETTO, Vice President since August 2005 and Secretary since February 2018.

Senior Managing Counsel of BNY Mellon since December 2019; Managing Counsel of BNY Mellon from April 2014 to December 2019; Secretary of the Adviser, and an officer of 63 investment companies (comprised of 140 portfolios) managed by the Adviser or an affiliate of the Adviser. He is 54 years old and has been an employee of the Adviser since December 1996.

DEIRDRE CUNNANE, Vice President and Assistant Secretary since March 2019.

Counsel of BNY Mellon since August 2018; Senior Regulatory Specialist at BNY Mellon Investment Management Services from February 2016 to August 2018; Trustee Associate at BNY Mellon Trust Company (Ireland) Limited from August 2013 to February 2016. She is an officer of 63 investment companies (comprised of 140 portfolios) managed by the Adviser or an affiliate of the Adviser. She is 30 years old and has been an employee of the Adviser since August 2018.

SARAH S. KELLEHER, Vice President and Assistant Secretary since April 2014.

Managing Counsel of BNY Mellon since December 2017, Senior Counsel of BNY Mellon from March 2013 to December 2017. She is an officer of 63 investment companies (comprised of 140 portfolios) managed by the Adviser or an affiliate of the Adviser. She is 45 years old and has been an employee of the Adviser since March 2013.

JEFF PRUSNOFSKY, Vice President and Assistant Secretary since August 2005.

Senior Managing Counsel of BNY Mellon, and an officer of 63 investment companies (comprised of 140 portfolios) managed by the Adviser or an affiliate of the Adviser. He is 55 years old and has been an employee of the Adviser since October 1990.

AMANDA QUINN, Vice President and Assistant Secretary since March 2020.

Counsel of BNY Mellon since June 2019; Regulatory Administration Manager at BNY Mellon Investment Management Services from September 2018 to May 2019; Senior Regulatory Specialist at BNY Mellon Investment Management Services from April 2015 to August 2018. She is an officer of 63 investment companies (comprised of 140 portfolios) managed by the Adviser or an affiliate of the Adviser. She is 35 years old and has been an employee of the Adviser since June 2019.

PETER M. SULLIVAN, Vice President and Assistant Secretary since March 2019.

Senior Managing Counsel of BNY Mellon since December 2020; Managing Counsel of BNY Mellon from March 2009 to December 2020, and an officer of 63 investment companies (comprised of 140 portfolios) managed by the the Adviser or an affiliate of the the Adviser. He is 52 years old and has been an employee of BNY Mellon since April 2004.

37

 

OFFICERS OF THE FUND (Unaudited) (continued)

NATALYA ZELENSKY, Vice President and Assistant Secretary since March 2017.

Managing Counsel of BNY Mellon since December 2019; Counsel of BNY Mellon from May 2016 to December 2019; Assistant Secretary of the Adviser since 2018; Attorney at Wildermuth Endowment Strategy Fund/Wildermuth Advisory, LLC from November 2015 to May 2016 and Assistant General Counsel at RCS Advisory Services from July 2014 to November 2015. She is an officer of 63 investment companies (comprised of 140 portfolios) managed by the Adviser or an affiliate of the Adviser. She is 35 years old and has been an employee of the Adviser since May 2016.

GAVIN C. REILLY, Assistant Treasurer since December 2005.

Tax Manager-BNY Mellon Fund Administration, and an officer of 63 investment companies (comprised of 140 portfolios) managed by the Adviser or an affiliate of the Adviser. He is 52 years old and has been an employee of the Adviser since April 1991.

ROBERT S. ROBOL, Assistant Treasurer since December 2002.

Senior Accounting Manager-BNY Mellon Fund Administration, and an officer of 63 investment companies (comprised of 141 portfolios) managed by the Adviser or an affiliate of the Adviser. He is 56 years old and has been an employee of the Adviser since October 1988.

ROBERT SALVIOLO, Assistant Treasurer since July 2007.

Senior Accounting Manager–BNY Mellon Fund Administration, and an officer of 63 investment companies (comprised of 140 portfolios) managed by the Adviser or an affiliate of the Adviser. He is 53 years old and has been an employee of the Adviser since June 1989.

ROBERT SVAGNA, Assistant Treasurer since December 2002.

Senior Accounting Manager–BNY Mellon Fund Administration, and an officer of 63 investment companies (comprised of 140 portfolios) managed by the Adviser or an affiliate of the Adviser. He is 53 years old and has been an employee of the Adviser since November 1990.

JOSEPH W. CONNOLLY, Chief Compliance Officer since October 2004.

Chief Compliance Officer of the Adviser, the BNY Mellon Family of Funds and BNY Mellon Funds Trust (62 investment companies, comprised of 132 portfolios). He is 63 years old and has served in various capacities with the Adviser since 1980, including manager of the firm’s Fund Accounting Department from 1997 through October 2001.

CARIDAD M. CAROSELLA, Anti-Money Laundering Compliance Officer since January 2016.

Anti-Money Laundering Compliance Officer of the BNY Mellon Family of Funds and BNY Mellon Funds Trust since January 2016; from May 2015 to December 2015, Interim Anti-Money Laundering Compliance Officer of the BNY Mellon Family of Funds and BNY Mellon Funds Trust and the Distributor; from January 2012 to May 2015, AML Surveillance Officer of the Distributor. She is an officer of 56 investment companies (comprised of 133 portfolios) managed by the Adviser or an affiliate of the Adviser. She is 52 years old and has been an employee of the Distributor since 1997.

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For More Information

BNY Mellon Appreciation Fund, Inc.

240 Greenwich Street

New York, NY 10286

Adviser

BNY Mellon Investment Adviser, Inc.

240 Greenwich Street

New York, NY 10286

Sub-Adviser

Fayez Sarofim & Co.
Two Houston Center
Suite 2907
Houston, TX 77010

Custodian

The Bank of New York Mellon

240 Greenwich Street

New York, NY 10286

Transfer Agent &
Dividend Disbursing Agent

BNY Mellon Transfer, Inc.

240 Greenwich Street

New York, NY 10286

Distributor

BNY Mellon Securities Corporation

240 Greenwich Street

New York, NY 10286

 

  

Ticker Symbols:

Investor: DGAGX      Class I: DGIGX      Class Y: DGYGX

Telephone Call your financial representative or 1-800-373-9387

Mail The BNY Mellon Family of Funds, 144 Glenn Curtiss Boulevard, Uniondale, NY 11556-0144

E-mail Send your request to info@bnymellon.com

Internet Information can be viewed online or downloaded at www.im.bnymellon.com

The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (“SEC”) for the first and third quarters of each fiscal year on Form N-PORT. The fund’s Forms N-PORT are available on the SEC’s website at www.sec.gov.

A description of the policies and procedures that the fund uses to determine how to vote proxies relating to portfolio securities and information regarding how the fund voted these proxies for the most recent 12-month period ended June 30 is available at www.im.bnymellon.com and on the SEC’s website at www.sec.gov and without charge, upon request, by calling 1-800-373-9387.

  

© 2021 BNY Mellon Securities Corporation
0141AR1220

 


 

Item 2.             Code of Ethics.

The Registrant has adopted a code of ethics that applies to the Registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.  There have been no amendments to, or waivers in connection with, the Code of Ethics during the period covered by this Report.

Item 3.             Audit Committee Financial Expert.

The Registrant's Board has determined that Joseph S. DiMartino, a member of the Audit Committee of the Board, is an audit committee financial expert as defined by the Securities and Exchange Commission (the "SEC").  Mr. DiMartino is "independent" as defined by the SEC for purposes of audit committee financial expert determinations.

Item 4.             Principal Accountant Fees and Services.

 

(a)  Audit Fees.  The aggregate fees billed for each of the last two fiscal years (the "Reporting Periods") for professional services rendered by the Registrant's principal accountant (the "Auditor") for the audit of the Registrant's annual financial statements or services that are normally provided by the Auditor in connection with the statutory and regulatory filings or engagements for the Reporting Periods, were $36,338 in 2019 and $34,853 in 2020.

 

(b)  Audit-Related Fees.  The aggregate fees billed in the Reporting Periods for assurance and related services by the Auditor that are reasonably related to the performance of the audit of the Registrant's financial statements and are not reported under paragraph (a) of this Item 4 were $10,587 in 2019 and $10,311 in 2020.  These services consisted of one or more of the following: (i) agreed upon procedures related to compliance with Internal Revenue Code section 817(h), (ii) security counts required by Rule 17f-2 under the Investment Company Act of 1940, as amended, (iii) advisory services as to the accounting or disclosure treatment of Registrant transactions or events and (iv) advisory services to the accounting or disclosure treatment of the actual or potential impact to the Registrant of final or proposed rules, standards or interpretations by the Securities and Exchange Commission, the Financial Accounting Standards Boards or other regulatory or standard-setting bodies.

 

The aggregate fees billed in the Reporting Periods for non-audit assurance and related services by the Auditor to the Registrant's investment adviser (not including any sub-investment adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the Registrant ("Service Affiliates"), that were reasonably related to the performance of the annual audit of the Service Affiliate, which required pre-approval by the Audit Committee were $0 in 2019 and $0 in 2020.

 

(c)  Tax Fees.  The aggregate fees billed in the Reporting Periods for professional services rendered by the Auditor for tax compliance, tax advice, and tax planning ("Tax Services") were $3,099 in 2019 and $3,427 in 2020.  These services consisted of: (i) review or preparation of U.S. federal, state, local and excise tax returns; (ii) U.S. federal, state and local tax planning, advice and assistance regarding statutory, regulatory or administrative developments; (iii) tax advice regarding tax qualification matters and/or treatment of various financial instruments held or proposed to be acquired or held, and (iv) determination of Passive Foreign Investment Companies.  The aggregate fees billed in the Reporting Periods for Tax Services by the Auditor to Service Affiliates, which required pre-approval by the Audit Committee were $0 in 2019 and $0 in 2020.

 


 

(d)  All Other Fees.  The aggregate fees billed in the Reporting Periods for products and services provided by the Auditor, other than the services reported in paragraphs (a) through (c) of this Item, were $5,404 in 2019 and $0 in 2020.  These services consisted of a review of the Registrant's anti-money laundering program.

 

The aggregate fees billed in the Reporting Periods for Non-Audit Services by the Auditor to Service Affiliates, other than the services reported in paragraphs (b) through (c) of this Item, which required pre-approval by the Audit Committee, were $0 in 2019 and $0 in 2020.

 

(e)(1)  Audit Committee Pre-Approval Policies and Procedures.  The Registrant's Audit Committee has established policies and procedures (the "Policy") for pre-approval (within specified fee limits) of the Auditor's engagements for non-audit services to the Registrant and Service Affiliates without specific case-by-case consideration.  The pre-approved services in the Policy can include pre-approved audit services, pre-approved audit-related services, pre-approved tax services and pre-approved all other services.  Pre-approval considerations include whether the proposed services are compatible with maintaining the Auditor's independence.  Pre-approvals pursuant to the Policy are considered annually.

(e)(2)  Note.  None of the services described in paragraphs (b) through (d) of this Item 4 were approved by the Audit Committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.

 

(f)  None of the hours expended on the principal accountant's engagement to audit the registrant's financial statements for the most recent fiscal year were attributed to work performed by persons other than the principal accountant's full-time, permanent employees.

Non-Audit Fees.  The aggregate non-audit fees billed by the Auditor for services rendered to the Registrant, and rendered to Service Affiliates, for the Reporting Periods were $605,259 in 2019 and $1,264,899 in 2020.

 

Auditor Independence.  The Registrant's Audit Committee has considered whether the provision of non-audit services that were rendered to Service Affiliates, which were not pre-approved (not requiring pre-approval), is compatible with maintaining the Auditor's independence.

 

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.


 

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 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.           Disclosure of Securities Lending Activities for Closed-End Management Investment Companies.

Not applicable.

Item 13.           Exhibits.

(a)(1)   Code of ethics referred to in Item 2.

(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.

BNY Mellon Appreciation Fund, Inc.

By:       /s/ David DiPetrillo

            David DiPetrillo

            President (Principal Executive Officer)

 

Date:    February 25, 2021

 

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/ David DiPetrillo

            David DiPetrillo

            President (Principal Executive Officer)

 

Date:    February 25, 2021

 

By:       /s/ James Windels

            James Windels

            Treasurer (Principal Financial Officer)

 

Date:    February 25, 2021

 

 

 


 

EXHIBIT INDEX

(a)(1)   Code of ethics referred to in Item 2.

(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)