N-30D 1 pn30d-026.txt ANNUAL REPORT The Dreyfus Fund Incorporated ANNUAL REPORT December 31, 2001 The views expressed herein are current to the date of this report. These views and the composition of the fund's portfolio are subject to change at any time based on market and other conditions. * Not FDIC-Insured * Not Bank-Guaranteed * May Lose Value Contents THE FUND -------------------------------------------------- 2 Letter from the Chairman 3 Discussion of Fund Performance 6 Fund Performance 7 Statement of Investments 13 Statement of Financial Futures 14 Statement of Securities Sold Short 15 Statement of Assets and Liabilities 16 Statement of Operations 17 Statement of Changes in Net Assets 18 Financial Highlights 19 Notes to Financial Statements 24 Report of Independent Auditors 25 Important Tax Information 26 Board Members Information 27 Officers of the Fund FOR MORE INFORMATION --------------------------------------------------------------------------- Back Cover The Fund The Dreyfus Fund Incorporated LETTER FROM THE CHAIRMAN Dear Shareholder: We present this annual report for The Dreyfus Fund Incorporated, covering the 12-month period from January 1, 2001 through December 31, 2001. Inside, you'll find valuable information about how the fund was managed during the reporting period, including a discussion with the fund's portfolio managers, Douglas D. Ramos, CFA, and Hilary Woods. 2001 was a difficult year for the U.S. and global economies. It was a year in which one of America' s longest periods of economic expansion came to an end, derailed by widespread credit concerns, dramatically lower levels of corporate spending and the September 11 terrorist attacks. It was also a year in which the large-cap sector of the U.S. stock market posted its second consecutive year of negative returns, led lower by persistent declines among technology and telecommunications stocks. The past year also reminded investors of the importance of some fundamental principles of investing. The merit of a long-term perspective was validated when stocks rallied in the fourth quarter, rewarding those investors who held onto companies with sound business fundamentals and bright prospects. The importance of diversification was underscored by the bond market's strong returns, which helped cushion the equity market's decline for investors who allocated their investments among different asset classes. Perhaps most significant, 2001 affirmed the value of objective advice from an experienced financial advisor who understands your current needs, long-term goals and attitude toward risk. As challenging as 2001 was, we believe better times are ahead in 2002. Signs of economic recovery have emerged, and the equity markets have recently rallied in response to renewed investor optimism. While we can't guarantee that these encouraging trends will continue, we do believe that the straightest path to financial security in any market environment is one that includes a long-term perspective, broad diversification and professional advice from a trusted advisor. Thank you for your continued confidence and support. Sincerely, Stephen E. Canter Chairman and Chief Executive Officer The Dreyfus Corporation January 15, 2002 DISCUSSION OF FUND PERFORMANCE Douglas D. Ramos, CFA, and Hilary Woods, Portfolio Managers How did The Dreyfus Fund Incorporated perform relative to its benchmark? For the 12-month period ended December 31, 2001, the fund's total return was -10.07% .(1) For the same period, the total return of the Standard & Poor's 500 Composite Stock Price Index ("S&P 500 Index"), the portfolio's benchmark, was -11.88%.(2) We attribute the fund and market's absolute performance primarily to a slowing U.S. economy, which drove down prices of most stocks during the reporting period, particularly among growth-oriented areas. However, the fund succeeded in surpassing the benchmark' s returns on the strength of its stock selection strategy in the communications services, consumer cyclical and energy areas. What is the fund's investment approach? The Dreyfus Fund Incorporated invests primarily in stocks of well-established U.S. companies that we believe demonstrate the potential to outperform the S&P 500 Index. Our investment approach targets both growth- and value-oriented stocks. Our disciplined investment process sifts through over 1,500 equity securities to identify the relatively small number of stocks that best meet our criteria.We start with computerized, quantitative analysis of all potential targets, scoring each stock on a wide range of growth, valuation, leverage, earnings surprise, momentum and risk factors.Our team of experienced analysts then further narrows the field by examining the specifics of each top-ranked candidate. We observe their operations, interview corporate management and conduct detailed surveys of the competitive environment, seeking catalysts likely to spark a change in a company' s market value.Armed with these analytical insights, we decide which stocks to purchase and whether any current holdings should be sold. The Fund DISCUSSION OF FUND PERFORMANCE (CONTINUED) What other factors influenced the fund's performance? The U.S. economy slowed throughout 2001, slipping into recession during the first quarter of the reporting period. As economic activity weakened, a wide range of companies posted disappointing earnings and revenues, and warned of the possibility of future disappointments. These conditions drove stock prices lower across most industry groups. Technology stocks proved particularly weak because of a sharp reduction in technology-related business spending by corporations. The fund was hurt by the dip in technology to nearly the same degree as its benchmark. The fund delivered above-average performance in several other areas, however. The fund realized its best results relative to its benchmark in the communications services area, where we emphasized relatively defensive names such as regional carriers Verizon Communications, SBC Communications and Bell South. These stocks retained more of their value than those of pure cellular companies and other, more growth-oriented businesses. The fund also achieved good results with individual stock selections among consumer cyclicals, with holdings focused on discounters such as Wal-Mart Stores and general merchandise retailers such as Sears, Roebuck & Co. Finally, the fund also outperformed in the energy group, largely because of its success in avoiding Enron, which suffered a well-publicized bankruptcy late in the reporting period. On the other hand, results in the financial services and health care groups detracted slightly from the fund's performance. Financial stocks, the largest single investment area for the benchmark and the fund, lost ground because of rising loan losses and lower levels of trading activity on Wall Street. The fund' s financial stocks fell to a slightly greater degree than the benchmark's because of the disappointing performance of a few specific stocks such as Bank of New York and American Express. In health care, the fund lost ground due to its relatively large exposure to pharmaceutical companies at a time when these stocks were out of favor. However, the negative impact of invest ments on a relative basis to the S&P 500 Index in these areas was outweighed by the fund's strong relative returns in communications services, consumer cyclicals and energy mentioned earlier. What is the fund's current strategy? As of the end of the reporting period, we have placed slightly greater emphasis on cyclical and growth-oriented stocks, and we have de-emphasized traditionally defensive sectors. We believe that interest-rate cuts by the Federal Reserve Board have set the stage for future economic recovery, creating a more favorable environment for growth. Accordingly, the fund currently holds a slightly higher percentage of technology and basic materials stocks than its benchmark, and a slightly smaller percentage of financial and consumer staples stocks. We continue to adhere to our investment discipline of evaluating individual companies and stocks in seeking to outperform the S&P 500 Index. However, as always, we are prepared to change our strategies and the fund's composition as market conditions evolve. January 15, 2002 (1) TOTAL RETURN INCLUDES REINVESTMENT OF DIVIDENDS AND ANY CAPITAL GAINS PAID. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE AND INVESTMENT RETURN FLUCTUATE SUCH THAT UPON REDEMPTION, FUND SHARES MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. (2) SOURCE: LIPPER INC. -- REFLECTS REINVESTMENT OF DIVIDENDS AND, WHERE APPLICABLE, CAPITAL GAIN DISTRIBUTIONS. THE STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX IS A WIDELY ACCEPTED, UNMANAGED INDEX OF U.S. STOCK MARKET PERFORMANCE. The Fund FUND PERFORMANCE Comparison of change in value of $10,000 investment in the Dreyfus Fund Incorporated and the Standard & Poor's 500 Composite Stock Price Index EXHIBIT A: Standard & Poor's 500 The Dreyfus Fund Composite Stock PERIOD Incorporated Price Index * 12/31/91 10,000 10,000 12/31/92 10,553 10,761 12/31/93 11,224 11,844 12/31/94 10,746 11,999 12/31/95 13,300 16,502 12/31/96 15,408 20,289 12/31/97 17,064 27,055 12/31/98 19,990 34,793 12/31/99 24,802 42,110 12/31/00 21,262 38,278 12/31/01 19,122 33,732 * Source: Lipper Inc. -------------------------------------------------------------------------------- Average Annual Total Returns AS OF 12/31/01 1 Year 5 Years 10 Years ------------------------------------------------------------------------------------------------------------------------------------ FUND (10.07)% 4.41% 6.70%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. THE ABOVE GRAPH COMPARES A $10,000 INVESTMENT MADE IN THE DREYFUS FUND INCORPORATED ON 12/31/91 TO A $10,000 INVESTMENT MADE IN THE STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX (THE "INDEX") ON THAT DATE. ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS ARE REINVESTED. THE FUND'S PERFORMANCE SHOWN IN THE LINE GRAPH TAKES INTO ACCOUNT ALL APPLICABLE FEES AND EXPENSES. THE INDEX IS A WIDELY ACCEPTED, UNMANAGED INDEX OF U.S. STOCK MARKET PERFORMANCE, WHICH DOES NOT TAKE INTO ACCOUNT CHARGES, FEES AND OTHER EXPENSES. FURTHER INFORMATION RELATING TO FUND PERFORMANCE, INCLUDING EXPENSE REIMBURSEMENTS, IF APPLICABLE, IS CONTAINED IN THE FINANCIAL HIGHLIGHTS SECTION OF THE PROSPECTUS AND ELSEWHERE IN THIS REPORT. STATEMENT OF INVESTMENTS December 31, 2001 COMMON STOCKS--98.6% Shares Value ($) ------------------------------------------------------------------------------------------------------------------------------- COMMERCIAL SERVICES--.9% Lamar Advertising 225,000 (a) 9,526,500 McGraw-Hill Cos. 120,000 7,317,600 16,844,100 CONSUMER DURABLES--.2% Newell Rubbermaid 165,000 4,549,050 CONSUMER NON-DURABLES--6.5% Anheuser-Busch Cos. 164,000 7,414,440 Coca-Cola 550,000 25,932,500 Colgate-Palmolive 104,000 6,006,000 General Mills 150,000 7,801,500 Gillette 420,000 14,028,000 Kimberly-Clark 145,000 8,671,000 Kraft Foods, Cl. A 280,000 9,528,400 Philip Morris Cos. 387,000 17,743,950 Procter & Gamble 235,000 18,595,550 UST 130,600 4,571,000 120,292,340 CONSUMER SERVICES--2.6% Carnival 395,000 11,091,600 Clear Channel Communications 200,000 (a) 10,182,000 Comcast, Cl. A 192,700 (a) 6,937,200 McDonald's 236,800 6,268,096 Viacom, Cl. B 313,310 (a) 13,832,637 48,311,533 ELECTRONIC TECHNOLOGY--13.8% Agilent Technologies 77,000 (a) 2,195,270 Altera 261,600 (a) 5,551,152 Applied Materials 147,000 (a) 5,894,700 Boeing 250,000 9,695,000 Cisco Systems 1,288,300 (a) 23,331,113 Compaq Computer 986,000 9,623,360 Dell Computer 637,000 (a) 17,313,660 EMC 381,700 (a) 5,130,048 Emulex 118,700 (a) 4,689,837 Hewlett-Packard 328,000 6,737,120 Intel 1,330,000 41,828,500 International Business Machines 315,000 38,102,400 The Fund STATEMENT OF INVESTMENTS (CONTINUED) COMMON STOCKS (CONTINUED) Shares Value ($) ------------------------------------------------------------------------------------------------------------------------------- ELECTRONIC TECHNOLOGY (CONTINUED) Lam Research 355,000 (a) 8,243,100 Micron Technology 316,000 (a) 9,796,000 Motorola 534,000 8,020,680 QLogic 88,000 (a) 3,916,880 Qualcomm 201,000 (a) 10,150,500 Raytheon 300,000 9,741,000 Sun Microsystems 588,800 (a) 7,265,792 Teradyne 266,000 (a) 8,017,240 Texas Instruments 469,300 13,140,400 United Technologies 135,000 8,725,050 257,108,802 ENERGY MINERALS--5.3% Anadarko Petroleum 130,000 7,390,500 Conoco, Cl. B 375,000 10,612,500 Exxon Mobil 1,300,000 51,090,000 Ocean Energy 430,000 8,256,000 Phillips Petroleum 165,000 9,942,900 Royal Dutch Petroleum, ADR 235,000 11,519,700 98,811,600 FINANCE--15.9% Allstate 549,000 18,501,300 American Express 456,000 16,274,640 American International Group 564,886 44,851,948 Bank One 275,000 10,738,750 Bank of America 372,000 23,417,400 Bank of New York 200,000 8,160,000 Citigroup 700,055 35,338,776 Federal Home Loan Mortgage 141,000 9,221,400 Federal National Mortgage Association 173,000 13,753,500 Fifth Third Bancorp 150,000 9,237,000 FleetBoston Financial 250,000 9,125,000 GE Investment Private Placement I, L.P. (Units) 4.140 (d) 7,207,665 Goldman Sachs Group 47,000 4,359,250 Household International 83,000 4,809,020 J.P. Morgan Chase 150,000 5,452,500 Marsh & McLennan Cos. 102,000 10,959,900 Morgan Stanley Dean Witter 339,000 18,963,660 COMMON STOCKS (CONTINUED) Shares Value ($) ------------------------------------------------------------------------------------------------------------------------------- FINANCE (CONTINUED) PNC Financial Services Group 125,000 7,025,000 USA Education 171,600 14,417,832 Wells Fargo 350,000 15,207,500 XL Capital, Cl. A 107,000 9,775,520 296,797,561 HEALTH SERVICES--2.9% AdvancePCS 270,000 (a) 7,924,500 HCA-Healthcare 471,000 (a) 18,152,340 Healthsouth 544,000 (a) 8,062,080 Wellpoint Health Networks 175,000 (a) 20,448,750 54,587,670 HEALTH TECHNOLOGY--12.7% Abbott Laboratories 302,000 16,836,500 American Home Products 229,000 14,051,440 Amgen 183,200 (a) 10,339,808 Baxter International 198,000 10,618,740 Bristol-Myers Squibb 478,000 24,378,000 Galen Partners II, L.P. (Units) 2.145 (d) 1,765,989 IDEC Pharmaceuticals 177,000 (a) 12,200,610 Johnson & Johnson 437,000 25,826,700 King Pharmaceuticals 230,666 (a) 9,717,959 Medtronic 236,000 12,085,560 Merck & Co. 540,000 31,752,000 Pfizer 1,245,500 49,633,175 Teva Pharmaceutical Industries, ADR 119,000 7,333,970 Zimmer Holdings 331,100 (a) 10,111,794 236,652,245 INDUSTRIAL SERVICES--1.4% Baker Hughes 250,000 9,117,500 Noble Drilling 115,000 (a) 3,914,600 Schlumberger 125,000 6,868,750 Waste Management 174,000 5,552,340 Yorktown Energy Partners, L.P. (Units) .26 (d) 400,667 25,853,857 NON-ENERGY MINERALS--1.5% Alcoa 350,000 12,442,500 Newmont Mining 350,000 6,688,500 The Fund STATEMENT OF INVESTMENTS (CONTINUED) COMMON STOCKS (CONTINUED) Shares Value ($) -------------------------------------------------------------------------------------------------------------------------------- NON-ENERGY MINERALS (CONTINUED) Weyerhaeuser 175,000 9,464,000 28,595,000 PROCESS INDUSTRIES--2.2% Air Products & Chemicals 200,000 9,382,000 Dow Chemical 329,027 11,114,532 duPont (E.I.) deNemours 195,000 8,289,450 International Paper 240,000 9,684,000 Monsanto 67,200 2,271,360 40,741,342 PRODUCER MANUFACTURING--8.2% Caterpillar 200,000 10,450,000 Danaher 125,000 7,538,750 Deere 240,000 10,478,400 Emerson Electric 175,000 9,992,500 General Electric 1,250,000 50,100,000 Georgia-Pacific 150,000 4,141,500 Honeywell International 315,000 10,653,300 Illinois Tool Works 100,000 6,772,000 Johnson Controls 125,000 10,093,750 Minnesota Mining & Manufacturing 150,000 17,731,500 Tyco International 265,000 15,608,500 153,560,200 RETAIL TRADE--8.4% Costco Wholesale 180,000 (a) 7,988,400 Dollar Tree Stores 275,000 (a) 8,500,250 Home Depot 375,000 19,128,750 Lowe's Cos. 165,000 7,657,650 May Department Stores 157,400 5,820,652 SK Equity Fund, L.P. (Units) 8.685 (d) 33,440,592 Safeway 200,000 (a) 8,350,000 Sears, Roebuck & Co. 225,000 10,719,000 Staples 400,000 (a) 7,480,000 Target 171,000 7,019,550 Wal-Mart Stores 700,000 40,285,000 156,389,844 COMMON STOCKS (CONTINUED) Shares Value ($) -------------------------------------------------------------------------------------------------------------------------------- TECHNOLOGY SERVICES--7.5% AOL Time Warner 500,000 (a) 16,050,000 Accenture, Cl. A 313,600 (a) 8,442,112 Adobe Systems 219,000 6,799,950 Anthem 66,000 (a) 3,267,000 Computer Associates International 289,000 9,967,610 Electronic Data Systems 82,000 5,621,100 First Data 66,000 5,177,700 Microsoft 933,000 (a) 61,829,910 Oracle 1,040,800 (a) 14,373,448 PeopleSoft 100,000 (a) 4,020,000 Veritas Software 72,000 (a) 3,227,040 138,775,870 TRANSPORTATION--.8% CSX 175,000 6,133,750 FedEx 150,000 (a) 7,782,000 13,915,750 UTILITIES--7.8% AES 156,900 (a) 2,565,315 AT&T 837,000 15,183,186 Allegheny Energy 147,000 5,324,340 BellSouth 346,400 13,215,160 Duke Energy 508,800 19,975,488 El Paso 197,873 8,827,115 Exelon 128,000 6,128,640 Liberty Media Group, Cl. A 638,000 (a) 8,932,000 NEXTEL Communications, Cl. A 134,000 (a) 1,468,640 SBC Communications 624,288 24,453,361 Sprint (FON Group) 160,000 3,212,800 TXU 280,000 13,202,000 Verizon Communications 498,100 23,639,826 146,127,871 TOTAL COMMON STOCKS (cost $1,519,409,943) 1,837,914,635 The Fund STATEMENT OF INVESTMENTS (CONTINUED) Principal SHORT-TERM INVESTMENTS--2.1% Amount ($) Value ($) -------------------------------------------------------------------------------------------------------------------------------- AGENCY DISCOUNT NOTES--1.8% Federal Home Loan Banks, 1.47%, 1/2/2002 33,856,000 33,854,617 U.S. TREASURY BILLS--.3% 1.64%, 1/10/2002 3,003,000 (b) 3,001,919 1.80%, 2/7/2002 1,005,000 (c) 1,003,382 1.68%, 2/14/2002 2,044,000 (c) 2,039,953 6,045,254 TOTAL SHORT-TERM INVESTMENTS (cost $39,899,330) 39,899,871 ------------------------------------------------------------------------------------------------------------------------------------ TOTAL INVESTMENTS (cost $1,559,309,273) 100.7% 1,877,814,506 LIABILITIES, LESS CASH AND RECEIVABLES (.7%) (14,376,026) NET ASSETS 100.0% 1,863,438,480 (A) NON-INCOME PRODUCING (B) PARTIALLY HELD BY THE CUSTODIAN IN A SEGREGATED ACCOUNT AS COLLATERAL FOR OPEN FINANCIAL FUTURES POSITIONS. (C) PARTIALLY HELD BY BROKERS AS COLLATERAL FOR OPEN SHORT POSITIONS. (D) SECURITIES RESTRICTED AS TO PUBLIC RESALE. INVESTMENT IN RESTRICTED SECURITIES WITH AN AGGREGATE MARKET VALUE OF $42,814,913 REPRESENTING APPROXIMATELY 2.3% OF NET ASSETS (SEE BELOW). Net Acquisition Purchase Assets Issuer Date Price ($)* (%) Valuation ($)** ------------------------------------------------------------------------------------------------------------------------------------ GE Investment Private Placement Partners I, L.P. (Units) 5/28/91-9/13/95 1,740,982 .39 1,740,982 per unit Galen Partners II, L.P. (Units) 1/28/93-1/3/97 823,305 .09 823,305 per unit SK Equity Fund, L.P. (Units) 12/6/92-10/30/96 1,025,971 1.79 3,850,385 per unit Yorktown Energy Partners, L.P. (Units) 3/5/91-9/15/95 1,617,179 .02 1,541,027 per unit * AVERAGE COST. ** THE VALUATION OF THESE SECURITIES HAS BEEN DETERMINED IN GOOD FAITH UNDER THE DIRECTION OF THE BOARD OF DIRECTORS. SUBJECT TO CERTAIN LIMITATIONS, THE FUND HAS COMMITMENTS TO INVEST IN THE LIMITED PARTNERSHIP LISTED BELOW: Portion of Committed Issuer Amounts Uninvested ------------------------------------------------------------------------------------------------------------------------------------ Galen Partners II, L.P. (Units) $147,742 SEE NOTES TO FINANCIAL STATEMENTS. STATEMENT OF FINANCIAL FUTURES December 31, 2001 Market Value Unrealized Covered by (Depreciation) Contracts Contracts ($) Expiration at 12/31/2001 ($) ------------------------------------------------------------------------------------------------------------------------------------ FINANCIAL FUTURES LONG Standard & Poor's 500 106 30,453,800 March 2002 (7,950) SEE NOTES TO FINANCIAL STATEMENTS.
The Fund STATEMENT OF SECURITIES SOLD SHORT December 31, 2001 COMMON STOCKS Shares Value ($) -------------------------------------------------------------------------------- XL Capital , Cl. A (proceeds $4,257,475) 47,000 4,293,920 SEE NOTES TO FINANCIAL STATEMENTS. STATEMENT OF ASSETS AND LIABILITIES December 31, 2001 Cost Value -------------------------------------------------------------------------------- ASSETS ($): Investments in securities--See Statement of Investments 1,559,309,273 1,877,814,506 Cash 120,370 Receivable from brokers for proceeds on securities sold short 4,257,475 Dividends and interest receivable 2,194,061 Receivable for investment securities sold 2,148,900 Receivable for shares of Common Stock subscribed 42,852 Prepaid expenses 48,862 1,886,627,026 -------------------------------------------------------------------------------- LIABILITIES ($): Due to The Dreyfus Corporation and affiliates 1,147,871 Payable for investment securities purchased 16,015,662 Securites sold short, at value (proceeds $4,257,475) --See Statement of Securities Sold Short 4,293,920 Payable for shares of Common Stock redeemed 1,181,553 Payable for futures variation margin--Note 4 267,650 Accrued expenses 281,890 23,188,546 -------------------------------------------------------------------------------- NET ASSETS ($) 1,863,438,480 -------------------------------------------------------------------------------- COMPOSITION OF NET ASSETS ($): Paid-in capital 1,560,421,664 Accumulated undistributed investment income--net 2,246,649 Accumulated net realized gain (loss) on investments (17,690,671) Accumulated net unrealized appreciation (depreciation) on investments [including ($7,950) net unrealized (depreciation) on financial futures] 318,460,838 -------------------------------------------------------------------------------- NET ASSETS ($) 1,863,438,480 -------------------------------------------------------------------------------- SHARES OUTSTANDING (500 million shares of $1 par value Common Stock authorized) 186,480,239 NET ASSET VALUE, offering and redemption price per share ($) 9.99 SEE NOTES TO FINANCIAL STATEMENTS. The Fund STATEMENT OF OPERATIONS Year Ended December 31, 2001 -------------------------------------------------------------------------------- INVESTMENT INCOME ($): INCOME: Cash dividends (net of $101,213 foreign taxes withheld at source) 23,969,870 Interest 2,834,083 TOTAL INCOME 26,803,953 EXPENSES: Management fee--Note 3(a) 12,724,511 Shareholder servicing costs--Note 3(a) 1,283,762 Custodian fees--Note 3(a) 127,230 Directors' fees and expenses--Note 3(b) 68,651 Professional fees 66,413 Loan commitment fees--Note 2 34,138 Registration fees 30,086 Dividends on securities sold short 21,620 Prospectus and shareholders' reports 14,859 Miscellaneous 12,856 TOTAL EXPENSES 14,384,126 INVESTMENT INCOME--NET 12,419,827 -------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--NOTE 4 ($): Net realized gain (loss) on investments (5,592,845) Net realized gain (loss) on financial futures 994,174 NET REALIZED GAIN (LOSS) (4,598,671) Net unrealized appreciation (depreciation) on investments [including ($7,950) net unrealized (depreciation) on financial futures] (230,369,311) NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (234,967,982) NET (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (222,548,155) SEE NOTES TO FINANCIAL STATEMENTS. STATEMENT OF CHANGES IN NET ASSETS Year Ended December 31, --------------------------------- 2001 2000 -------------------------------------------------------------------------------- OPERATIONS ($): Investment income--net 12,419,827 11,037,295 Net realized gain (loss) on investments (4,598,671) (1,743,286) Net unrealized appreciation (depreciation) on investments (230,369,311) (388,571,813) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (222,548,155) (379,277,804) -------------------------------------------------------------------------------- DIVIDENDS TO SHAREHOLDERS ($): From investment income--net (11,457,466) (10,238,980) From net realized gain on investments -- (22,183,682) In excess of net realized gain on investments (4,040,350) (10,186,235) TOTAL DIVIDENDS (15,497,816) (42,608,897) -------------------------------------------------------------------------------- CAPITAL STOCK TRANSACTIONS ($): Net proceeds from shares sold 471,724,789 775,864,634 Dividends reinvested 13,070,018 36,455,081 Cost of shares redeemed (623,447,123) (980,921,043) INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL STOCK TRANSACTIONS (138,652,316) (168,601,328) TOTAL INCREASE (DECREASE) IN NET ASSETS (376,698,287) (590,488,029) -------------------------------------------------------------------------------- NET ASSETS ($): Beginning of Period 2,240,136,767 2,830,624,796 END OF PERIOD 1,863,438,480 2,240,136,767 Undistributed investment income--net 2,246,649 798,315 -------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS (SHARES): Shares sold 44,277,731 61,597,033 Shares issued for dividends reinvested 1,326,107 2,884,337 Shares redeemed (59,147,225) (77,675,047) NET INCREASE (DECREASE) IN SHARES OUTSTANDING (13,543,387) (13,193,677) SEE NOTES TO FINANCIAL STATEMENTS. The Fund FINANCIAL HIGHLIGHTS The following table describes the performance for the fiscal periods indicated. Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions. These figures have been derived from the fund's financial statements. Year Ended December 31, ----------------------------------------------------------------------------- 2001 2000 1999 1998 1997 ------------------------------------------------------------------------------------------------------------------------------------ PER SHARE DATA ($): Net asset value, beginning of period 11.20 13.28 11.52 9.93 10.82 Investment Operations: Investment income--net .06(a) .05(a) .05(a) .10 .10 Net realized and unrealized gain (loss) on investments (1.19) (1.92) 2.65 1.60 1.01 Total from Investment Operations (1.13) (1.87) 2.70 1.70 1.11 Distributions: Dividends from investment income--net (.06) (.05) (.06) (.11) (.08) Dividends from net realized gain on investments -- (.11) (.88) -- (1.78) Dividends in excess of net realized gain on investments (.02) (.05) -- -- (.14) Total Distributions (.08) (.21) (.94) (.11) (2.00) Net asset value, end of period 9.99 11.20 13.28 11.52 9.93 ------------------------------------------------------------------------------------------------------------------------------------ TOTAL RETURN (%) (10.07) (14.27) 24.07 17.15 10.75 ------------------------------------------------------------------------------------------------------------------------------------ RATIOS/SUPPLEMENTAL DATA (%): Ratio of expenses to average net assets .73 .71 .71 .73 .71 Ratio of net investment income to average net assets .63 .42 .43 .82 .85 Portfolio Turnover Rate 60.55 79.41 58.61 109.61 201.10 ------------------------------------------------------------------------------------------------------------------------------------ Net Assets, end of period ($ x 1,000) 1,863,438 2,240,137 2,830,625 2,586,645 2,628,072 (A) BASED ON AVERAGE SHARES OUTSTANDING AT EACH MONTH END. SEE NOTES TO FINANCIAL STATEMENTS.
NOTES TO FINANCIAL STATEMENTS NOTE 1--Significant Accounting Policies: The Dreyfus Fund Incorporated (the "fund") is registered under the Investment Company Act of 1940, as amended (the "Act"), as a diversified open-end management investment company. The fund's investment objective is to provide investors with long-term capital growth consistent with the preservation of capital. The Dreyfus Corporation (the "Manager") serves as the fund's investment adviser. The Manager is a direct subsidiary of Mellon Bank, N.A. ("Mellon"), which is a wholly-owned subsidiary of Mellon Financial Corporation. Dreyfus Service Corporation (the "Distributor"), a wholly-owned subsidiary of the Manager, is the distributor of the fund's shares, which are sold to the public without a sales charge. The fund' s financial statements are prepared in accordance with accounting principles generally accepted in the United States, which may require the use of management estimates and assumptions. Actual results could differ from those estimates. (A) PORTFOLIO VALUATION: Investments in securities (including financial futures) are valued at the last sales price on the securities exchange on which such securities are primarily traded or at the last sales price on the national securities market. Securities not listed on an exchange or the national securities market, or securities for which there were no transactions, are valued at the average of the most recent bid and asked prices. Bid price is used when no asked price is available. Securities for which there are no such valuations are valued at fair value as determined in good faith under the direction of the Board of Directors. Investments denominated in foreign currencies are translated to U.S. dollars at the prevailing rates of exchange. (B) FOREIGN CURRENCY TRANSACTIONS: The fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. The Fund NOTES TO FINANCIAL STATEMENTS (CONTINUED) Net realized foreign exchange gains or losses arise from sales and maturities of short-term securities, sales of foreign currencies, currency gains or losses realized on securities transactions and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the fund's books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the value of assets and liabilities other than investments in securities, resulting from changes in exchange rates. Such gains and losses are included with net realized and unrealized gain or loss on investments. (C) SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are recorded on a trade date basis. Realized gain and loss from securities transactions are recorded on the identified cost basis. Dividend income is recognized on the ex-dividend date and interest income, including, where applicable, amortization of discount and premium on investments, is recognized on the accrual basis. Under the terms of the custody agreement, the fund received net earnings credits of $52,465 during the period ended December 31, 2001, based on available cash balances left on deposit. Income earned under this arrangement is included in interest income. (D) DIVIDENDS TO SHAREHOLDERS: Dividends are recorded on the ex-dividend date. Dividends from investment income-net are declared and paid on a quarterly basis. Dividends from net realized capital gain, 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 gain can be offset by capital loss carryovers, it is the policy of the fund not to distribute such gain. (E) FEDERAL INCOME TAXES: It is the policy of the fund to continue to qualify as a regulated investment company, if such qualification is in the best interests of its shareholders, by complying with the applicable provisions of the Code, and to make distributions of taxable income sufficient to relieve it from substantially all Federal income and excise taxes. At December 31, 2001, the components of accumulated earnings on a tax basis were as follows: undistributed ordinary income $2,246,649, accumulated capital losses $5,848,526 and unrealized appreciation $306,618,693. The accumulated capital loss is available to be applied against future net securities profits, if any, realized subsequent to December 31, 2001. If not applied, $5,848,526 of the carryover expires in fiscal 2009. The tax character of distributions paid to shareholders during the fiscal periods ended December 31, 2001 and December 31, 2000, respectively, were as follows: ordinary income $11,457,466 and $22,743,938 and long-term capital gains $4,040,350 and $19,864,959. During the period ended December 31, 2001, as a result of permanent book to tax differences, the fund increased accumulated undistributed investment income-net by $485,973, increased accumulated net realized gain (loss) on investments by $1,134,585 and decreased paid-in capital by $1,620,558. Net assets were not affected by this reclassification. NOTE 2--Bank Line of Credit: The fund participates with other Dreyfus-managed funds in a $500 million redemption credit facility (the "Facility" ) to be utilized for temporary or emergency purposes, including the financing of redemptions. In connection therewith, the fund has agreed to pay commitment fees on its pro rata portion of the Facility. Interest is charged to the fund based on prevailing market rates in effect at the time of borrowings. During the period ended December 31, 2001, the fund did not borrow under the Facility. NOTE 3--Management Fee and Other Transactions With Affiliates: (A) Pursuant to a management agreement (the "Agreement") with the Manager, the management fee is payable monthly, based on the following annual percentages of the value of the fund's average daily net assets: .65 of 1% of the first $1.5 billion; .625 of 1% of the next $500 million; .60 of 1% of the next $500 million; and .55 of 1% over $2.5 billion. The Fund NOTES TO FINANCIAL STATEMENTS (CONTINUED) The fund compensates Dreyfus Transfer, Inc., a wholly-owned subsidiary of the Manager, under a transfer agency agreement for providing personnel and facilities to perform transfer agency services for the fund. During the period ended December 31, 2001, the fund was charged $889,822 pursuant to the transfer agency agreement. The fund compensates Mellon under a custody agreement for providing custodial services for the fund. During the period ended December 31, 2001, the fund was charged $127,230 pursuant to the custody agreement. (B) Each Board member also serves as a Board member of other funds within the Dreyfus complex (collectively, the "Fund Group"). Each Board member who is not an "affiliated person" as defined in the Act receives an annual fee of $45,000 and an attendance fee of $5,000 for each in person meeting and $500 for telephone meetings. These fees are allocated among the funds in the Fund Group. The Chairman of the Board receives an additional 25% of such compensation. Subject to the fund's Emeritus Program Guidelines, Emeritus Board members, if any, receive 50% of the annual retainer fee and per meeting fee paid at the time the Board member achieves emeritus status. (C) During the period ended December 31, 2001, the fund incurred total brokerage commissions of $2,462,505, of which $151,600 was paid to Dreyfus Brokerage Services, a wholly-owned subsidiary of Mellon Financial Corporation. NOTE 4--Securities Transactions: The following summarizes the aggregate amount of purchases and sales of investment securities and securities sold short, excluding short-term securities and financial futures during the period ended December 31, 2001: Purchases ($) Sales ($) -------------------------------------------------------------------------------- Long transactions 1,158,348,013 1,219,998,698 Short sale transactions -- 4,257,475 TOTAL 1,158,348,013 1,224,256,173 The fund is engaged in short-selling which obligates the fund to replace the security borrowed by purchasing the security at current market value. The fund would incur a loss if the price of the security increases between the date of the short sale and the date on which the fund replaces the borrowed security. The fund would realize a gain if the price of the security declines between those dates. Until the fund replaces the borrowed security, the fund will maintain daily a segregated account with a broker or custodian, of permissible liquid assets sufficient to cover its short position. Securities sold short at December 31, 2001, and their related market values and proceeds are set forth in the Statement of Securities Sold Short. The fund may invest in financial futures contracts in order to gain exposure to or protect against changes in the market. The fund is exposed to market risk as a result of changes in the value of the underlying financial instruments. Investments in financial futures require the fund to "mark to market" on a daily basis, which reflects the change in the market value of the contract at the close of each day's trading. Accordingly, variation margin payments are received or made to reflect daily unrealized gains or losses. When the contracts are closed, the fund recognizes a realized gain or loss. These investments require initial margin deposits with a custodian or broker, which consist of cash or cash equivalents, up to approximately 10% of the contract amount. The amount of these deposits is determined by the exchange or Board of Trade on which the contract is traded and is subject to change. Contracts open at December 31, 2001 are set forth in the Statement of Financial Futures. At December 31, 2001, accumulated net unrealized appreciation on investments was $318,505,233, consisting of $366,651,447 gross unrealized appreciation and $48,146,214 gross unrealized depreciation. At December 31, 2001, the cost of investments for Federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments). The Fund REPORT OF INDEPENDENT AUDITORS Shareholders and Board of Directors The Dreyfus Fund Incorporated We have audited the accompanying statement of assets and liabilities of The Dreyfus Fund Incorporated, including the statements of investments, financial futures and securities sold short, as of December 31, 2001, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and financial highlights for each of the years indicated therein. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included verification by examination of securities held by the custodian as of December 31, 2001 and confirmation of securities not held by the custodian by correspondence with others. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of The Dreyfus Fund Incorporated at December 31, 2001, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the indicated years, in conformity with accounting principles generally accepted in the United States. New York, New York February 11, 2002 IMPORTANT TAX INFORMATION (Unaudited) For Federal tax purposes, the fund hereby designates $.0207 per share as a long-term capital gain distribution of the $.0310 per share paid on June 29, 2001. The fund also designates 100% of the ordinary dividends paid during the fiscal year ended December 31, 2001 as qualifying for the corporate dividends received deduction. The Fund BOARD MEMBERS INFORMATION (Unaudited) No. of Portfolios Name (age) Principal Occupation Other Directorships for which Board Position, (held since) During Past 5 Years And Affiliations Member Serves --------------------- -------------------- ----------------------------------------------------- ---------------- Joseph S. DiMartino o Chairman of the Board of o Muscular Dystrophy 190 (58) various funds in the Association Chairman of the Board Dreyfus Family of Funds o Plan Vista Corporation (formerly HealthPlan Services (1995) Corporation), a provider of marketing, administrative and risk management services to health and other benefit programs o Carlyle Industries, Inc., button packager and distributor o Century Business Services, Inc., provider of various outsourcing functions for small and medium size companies o TheNewark Group, privately held company providing a national network of paper recovery facilities, paperboard mills and paperboard converting plants o QuikCAT.com, Inc., private company engaged in the development of high speed movement, routing, storage and encryption of data across all modes of data transport Lucy Wilson Benson o President of Benson and o COMSAT Corporation, a 35 (74) Associates, Board Member (1981) consultants to business and telecommunications company government o Vice Chairman of the o Alfred P. Sloan Foundation Citizens Network for Foreign Affairs o Lafayette College o Vice Chairman of The o A member of the council of Atlantic Council of the U.S. foreign relations David W. Burke (65) o Corporate Director and o Former Chairman of the Broadcasting 62 Trustee. Board of Governors (August 1994-November 1998) Board Member (1994) Martin D. Fife (74) o Magar Inc., a company o Chairman of the Board Magar Inc., 14 Board Member (1974) specializing in a company specializing in the financial financial products and products and developing early stage companies developing early stage companies, Chairman o Skysat Communications Network Corporation, a company developing telecommunications systems, Chairman and Chief Executive Officer Whitney I. Gerard (67) o Partner of the New York 14 Board Member (1973) City law firm of Chadbourne & Parke LLP. Arthur A. Hartman (75) o First NIS Regional Fund o Ford Meter Box Corporation, Board Member 14 Board Member (1989) (ING/BARINGS Management) o APCO Associates, Inc., Senior Consultant and New Russia Fund, Chairman George L. Perry (68) o Brookings Institution, o State Farm Mutual Automobile Association, Director 14 Economist and Senior Board Member (1989) Fellow (1969-Present) o Co-director of the o State Farm Life Insurance Company, Director Brookings Panel on Economic Activity o The Brookings Papers, Editor
Once elected all Board Members serve for an indefinite term. Additional information about the Board Members, including their address is available in the Fund's Statement of Additional Information which can be obtained from Dreyfus free of charge by calling this toll free number: 1-800-554-4611. OFFICERS OF THE FUND (Unaudited) STEPHEN E. CANTER, PRESIDENT SINCE MARCH 2000. Chairman of the Board, Chief Executive Officer, Chief Operating Officer and a director of the Manager, and an officer of 92 investment companies (comprised of 183 portfolios) managed by the Manager. Mr. Canter also is a Director or an Executive Committee Member of the other investment management subsidiaries of Mellon Financial Corporation, each of which is an affiliate of the Manager. He is 56 years old, and has been an employee of the Manager since May 1995. MARK N. JACOBS, EXECUTIVE VICE PRESIDENT SINCE MARCH 2000. Executive Vice President, Secretary and General Counsel of the Manager, and an officer of 93 investment companies (comprised of 196 portfolios) managed by the Manager. He is 55 years old, and has been an employee of the Manager since June 1977. MICHAEL A. ROSENBERG, SECRETARY SINCE MARCH 2000. Associate General Counsel of the Manager, and an officer of 93 investment companies (comprised of 196 portfolios) managed by the Manager. He is 42 years old, and has been an employee of the Manager since October 1991. STEVEN F. NEWMAN, ASSISTANT SECRETARY SINCE MARCH 2000. Associate General Counsel and Assistant Secretary of the Manager, and an officer of 93 investment companies (comprised of 196 portfolios) managed by the Manager. He is 52 years old, and has been an employee of the Manager since July 1980. ROBERT R. MULLERY, ASSISTANT SECRETARY SINCE MARCH 2000. Associate General Counsel of the Manager, and an officer of 21 investment companies (comprised of 39 portfolios) managed by the Manager. He is 50 years old, and has been an employee of the Manager since May 1986. JAMES WINDELS, TREASURER SINCE NOVEMBER 2001. Director of Mutual Fund Treasury Accounting of the Manager, and an officer of 93 investment companies (comprised of 196 portfolios) managed by the Manager. He is 43 years old, and has been an employee of the Manager since April 1985. KENNETH J. SANDGREN, ASSISTANT TREASURER SINCE NOVEMBER 2001. Mutual Funds Tax Director of the Manager, and an officer of 93 investment companies (comprised of 196 portfolios) managed by the Manager. He is 47 years old, and has been an employee of the Manager since June 1993. The Fund NOTES For More Information The Dreyfus Fund Incorporated 200 Park Avenue New York, NY 10166 Manager The Dreyfus Corporation 200 Park Avenue New York, NY 10166 Custodian Mellon Bank, N.A. One Mellon Bank Center Pittsburgh, PA 15258 Transfer Agent & Dividend Disbursing Agent Dreyfus Transfer, Inc. P.O. Box 9263 Boston, MA 02205-8501 Distributor Dreyfus Service Corporation 200 Park Avenue New York, NY 10166 To obtain information: BY TELEPHONE Call 1-800-645-6561 BY MAIL Write to: The Dreyfus Family of Funds 144 Glenn Curtiss Boulevard Uniondale, NY 11556-0144 BY E-MAIL Send your request to info@dreyfus.com ON THE INTERNET Information can be viewed online or downloaded from: http://www.dreyfus.com (c) 2002 Dreyfus Service Corporation 026AR1201