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BNY Mellon Appreciation Fund

Filed: 29 Aug 05, 8:00pm
  UNITED STATES 
  SECURITIES AND EXCHANGE COMMISSION 
  Washington, D.C. 20549 
 
 
  FORM N-CSR 
 
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT 
  INVESTMENT COMPANIES 
 
Investment Company Act file number 811-3081 
 
  DREYFUS APPRECIATION FUND, INC. 
  (Exact name of Registrant as specified in charter) 
 
 
  c/o The Dreyfus Corporation 
  200 Park Avenue 
  New York, New York 10166 
  (Address of principal executive offices) (Zip code) 
 
  Mark N. Jacobs, Esq. 
  200 Park Avenue 
  New York, New York 10166 
  (Name and address of agent for service) 
 
Registrant's telephone number, including area code: (212) 922-6000 
 
Date of fiscal year end:  12/31 
 
Date of reporting period:  06/30/05 

P:\Edgar Filings\Pending\141\NCSRS-141-8-05\formncsr141.DOC


    FORM N-CSR 
Item 1.  Reports to Stockholders.   


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

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

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


Contents
 
  THE FUND 


2  Letter from the Chairman 
3  Discussion of Fund Performance 
6  Understanding Your Fund’s Expenses 
6  Comparing Your Fund’s Expenses 
With Those of Other Funds
7  Statement of Investments 
11  Statement of Assets and Liabilities 
12  Statement of Operations 
13  Statement of Changes in Net Assets 
14  Financial Highlights 
15  Notes to Financial Statements 
FOR MORE INFORMATION

  Back Cover 


Dreyfus Appreciation Fund, Inc.

The Fund

LETTER FROM THE CHAIRMAN

Dear Shareholder:

We are pleased to present this semiannual report for Dreyfus Appreciation Fund, Inc. covering the six-month period from January

1, 2005, through June 30, 2005. Inside, you’ll find valuable information about how the fund was managed during the reporting period, including a discussion with the fund’s portfolio manager, Fayez Sarofim & Co., the fund’s sub-investment adviser.

On average, U.S. stock prices ended the first half of 2005 slightly lower than where they began, largely due to headwinds caused by higher energy prices, rising short-term interest rates and recent evidence of slower economic growth. While midcap stocks generally produced higher returns than large-cap stocks, and large-cap stocks generally outperformed small-cap stocks, these differences were relatively small. Conversely, value-oriented stocks continued to produce substantially better results than their more growth-oriented counterparts.

In some ways, market conditions at midyear remind us of those from one year ago, when stock prices languished due to economic and political concerns before rallying strongly later in the year. Currently, our economists expect the U.S. economy to continue to grow over the foreseeable future without significant new inflationary pressures, potentially setting the stage for better business conditions that could send stock prices higher.As always, we encourage you to discuss these and other matters with your financial advisor.

Thank you for your continued confidence and support.

2

DISCUSSION OF FUND PERFORMANCE

Fayez Sarofim, Portfolio Manager 
Fayez Sarofim & Co., Sub-Investment Adviser 

How did Dreyfus Appreciation Fund, Inc. perform relative to its benchmark?

For the six-month period ended June 30, 2005, the fund produced a total return of 0.66% .1 For the same period, the total return of the fund’s benchmark, the Standard & Poor’s 500 Composite Stock Price Index (“S&P 500 Index”), was –0.81% .2

Stocks ended the reporting period roughly unchanged from where they began, as the benefits of a growing economy and strong earnings reports were offset by concerns regarding higher interest rates and surging energy prices.The fund produced a higher return than the S&P 500 Index, primarily due to a shift in investor sentiment away from smaller, more speculative investments and toward the larger, better-established, multinational companies in which the fund primarily invests.

What is the fund’s investment approach?

The fund invests primarily in large, well-established multinational companies that we believe are solidly positioned to weather difficult economic climates and thrive in more favorable environments. We focus on purchasing blue-chip stocks at a price we consider to be justified by a company’s fundamentals. The result is a portfolio of stocks in prominent companies selected for their sustained patterns of profitability, strong balance sheets, expanding global presence and above-average growth potential.

At the same time, we manage the fund in a manner particularly well-suited to long-term investors. Generally, we buy and sell relatively few stocks during the course of the year, helping to minimize investors’ tax liabilities and reduce trading costs.3

What other factors influenced the fund’s performance?

Stocks traded in a relatively narrow range over the first half of 2005 as positive factors, such as a generally robust economy and encouraging corporate earnings, were offset by other, potentially adverse influences.

The Fund 3


DISCUSSION OF FUND PERFORMANCE (continued)

Rising interest rates and inflationary pressures caused primarily by escalating energy prices proved to be particularly worrisome for investors, who grew concerned that higher borrowing and commodity costs might dampen future economic activity and financial results.

Perhaps due to these concerns, investors apparently began to shift their focus away from the smaller, more speculative investments that had done well over the past several years. Increasingly, they turned their attention to large, well-established companies with track records of consistent growth. Historically, companies with these characteristics have tended to generate profits under a variety of economic conditions. In addition, investors may have been attracted to relatively low valuations among large growth companies. Indeed, when 2005 began, stocks of large-cap growth companies were generally selling toward the low end of their historical valuation ranges.

In this changing environment, the fund’s returns benefited from our sector allocation and stock selection strategies. Because the fund was more heavily exposed to energy companies than the benchmark, it participated more fully in the energy sector’s gains when oil and gas prices reached new record highs. Conversely, the fund invested a substantially smaller percentage of its assets in technology stocks compared to the benchmark, which helped it avoid the full brunt of the technology area’s weakness. Nonetheless, semiconductor leader Intel proved to be one of the fund’s top performers for the reporting period, due to increasing demand for its products.

The fund also received positive contributions to performance from the consumer staples sector, an area we have emphasized for some time. Pharmacy chain Walgreen continued to enjoy strong operating results while recovering from earlier weakness, while food and tobacco giant Altria Group benefited from a more benign litigation environment and investors’ expectations of a potential restructuring that could unlock shareholder value.

On the other hand, the fund’s performance was constrained by sub-par returns from the financials sector, where global insurer American International Group and mortgage agency Fannie Mae both were hurt by regulatory scrutiny of their accounting practices and changes in senior management. Because of the risks surrounding these develop-

4

ments, we reduced the fund’s holdings of both companies. In addition, the fund held no utilities stocks, preventing it from participating in the sector’s relatively robust gains.

What is the fund’s current strategy?

We have remained fully invested in a diversified portfolio of large-cap growth companies that we regard as leaders in their markets.While we eliminated none of the fund’s holdings during the reporting period, we added three new positions. We believe managed health care provider UnitedHealthcare Group gives the fund greater exposure to a growing industry that recently has gained greater control over the prices charged by drug companies and doctors. We expect industrial gasses producer Praxair to benefit from continued robust demand for its products from the energy and health care sectors. French integrated oil company, TotalFinaElf, is believed to give the fund a way to participate in growing markets that U.S. oil companies currently do not serve.

Conditions created by higher rates and slower growth put added strain on the market’s weakest players and underscore the attractiveness of an investment strategy focused on high-quality industry leaders.We believe the large capitalization multinationals that are the focus of our strategy have the competitive advantages as well as the financial and managerial resources to achieve further cost reductions and sustain superior earnings growth even if economic activity slows. Furthermore, these companies have a broader range of options to deliver returns through share buybacks, restructurings, recapitalizations and dividend increases.

July 15, 2005
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. 
3  Achieving tax efficiency is not a part of the fund’s investment objective, and there can be no 
  guarantee that the fund will achieve any particular level of taxable distributions in future years. In 
  periods when the manager has to sell significant amounts of securities (e.g., during periods of 
  significant net redemptions or changes in index components) funds can be expected to be less tax 
  efficient than during periods of more stable market conditions and asset flows. 

The Fund 5


UNDERSTANDING YOUR FUND’S EXPENSES (Unaudited)

As a mutual fund investor, you pay ongoing expenses, such as management fees and other expenses. Using the information below, you can estimate how these expenses affect your investment and compare them with the expenses of other funds.You also may pay one-time transaction expenses, including sales charges (loads) and redemption fees, which are not shown in this section and would have resulted in higher total expenses. For more information, see your fund’s prospectus or talk to your financial adviser.

Review your fund’s expenses

The table below shows the expenses you would have paid on a $1,000 investment in Dreyfus Appreciation Fund, Inc. from January 1, 2005 to June 30, 2005. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.

Expenses and Value of a $1,000 Investment 
assuming actual returns for the six months ended June 30, 2005 

Expenses paid per $1,000   $ 4.58 
Ending value (after expenses)  $1,006.60 

COMPARING YOUR FUND’S EXPENSES 
WITH THOSE OF OTHER FUNDS (Unaudited) 

Using the SEC’s method to compare expenses

The Securities and Exchange Commission (SEC) has established guidelines to help investors assess fund expenses. Per these guidelines, the table below shows your fund’s expenses based on a $1,000 investment, assuming a hypothetical 5% annualized return. You can use this information to compare the ongoing expenses (but not transaction expenses or total cost) of investing in the fund with those of other funds.All mutual fund shareholder reports will provide this information to help you make this comparison. Please note that you cannot use this information to estimate your actual ending account balance and expenses paid during the period.

Expenses and Value of a $1,000 Investment assuming a hypothetical 5% annualized return for the six months ended June 30, 2005

Expenses paid per $1,000   $ 4.61 
Ending value (after expenses)  $1,020.23 

Expenses are equal to the fund’s annualized expense ratio of .92%; multiplied by the average account value over the 
period, multiplied by 181/365 (to reflect the one-half year period). 

6

STATEMENT OF INVESTMENTS 
June 30, 2005 (Unaudited) 

Common Stocks—98.3%  Shares  Value ($) 



Apparel—1.0%     
Christian Dior  550,000 a  42,651,499 
Banking—6.0%     
Bank of America  1,950,000  88,939,500 
Federal Home Loan Mortgage  550,000  35,876,500 
Federal National Mortgage Association  700,000  40,880,000 
HSBC Holdings, ADR  700,000 a  55,755,000 
SunTrust Banks  675,000  48,762,000 
    270,213,000 
Capital Goods—5.7%     
Emerson Electric  950,000  59,498,500 
General Electric  5,600,000  194,040,000 
    253,538,500 
Consumer Services—.8%     
McDonald’s  1,225,000  33,993,750 
Consumer Staples—5.8%     
Sysco  700,000 a  25,333,000 
Wal-Mart Stores  1,900,000  91,580,000 
Walgreen  3,080,000  141,649,200 
    258,562,200 
Diversified Financials—8.7%     
American Express  1,600,000  85,168,000 
Citigroup  3,600,333  166,443,395 
JP Morgan Chase & Co.  2,225,000  78,587,000 
Merrill Lynch  1,050,000  57,760,500 
    387,958,895 
Energy—19.0%     
BP, ADR  2,300,000  143,474,000 
Chevron  2,600,000  145,392,000 
ConocoPhillips  1,900,000  109,231,000 
Exxon Mobil  5,332,598  306,464,407 
Occidental Petroleum  400,000  30,772,000 
Royal Dutch Petroleum, ADR  725,000  47,052,500 
TotalFinaElf, ADR  550,000 a  64,267,500 
    846,653,407 

The Fund 7


STATEMENT OF INVESTMENTS (Unaudited) (continued)

Common Stocks (continued)  Shares    Value ($) 




Food, Beverage & Tobacco—15.0%       
Altria Group  4,100,000    265,106,000 
Anheuser-Busch Cos.  1,400,000    64,050,000 
Coca-Cola  3,140,000    131,095,000 
Kraft Foods, Cl. A  500,000  a  15,905,000 
Nestle, ADR  1,250,000    79,953,198 
PepsiCo  2,100,000    113,253,000 
      669,362,198 
Health Care—.8%       
UnitedHealth Group  700,000    36,498,000 
Household & Personal Products—5.2%     
Colgate-Palmolive  1,010,000  a  50,409,100 
Estee Lauder Cos., Cl. A  900,000    35,217,000 
Procter & Gamble  2,800,000    147,700,000 
      233,326,100 
Insurance—3.1%       
American International Group  750,000    43,575,000 
Berkshire Hathaway, Cl. A  820  b  68,470,000 
Marsh & McLennan Cos.  900,000    24,930,000 
      136,975,000 
Materials—.6%       
Praxair  600,000    27,960,000 
Media/Entertainment—5.2%       
McGraw-Hill Cos.  2,200,000    97,350,000 
News, Cl. A  5,796,708    93,790,735 
News, Cl. B  240,000  a  4,046,400 
Time Warner  1,007,500  b  16,835,325 
Viacom, Cl. B  600,000    19,212,000 
      231,234,460 

8

Common Stocks (continued)  Shares  Value ($) 



Pharmaceuticals & Biotechnology—11.3%   
Abbott Laboratories  1,500,000  73,515,000 
Johnson & Johnson  2,150,000  139,750,000 
Eli Lilly & Co.  900,000  50,139,000 
Merck & Co.  1,500,000  46,200,000 
Pfizer  5,775,000  159,274,500 
Roche Holding, ADR  600,000  37,956,319 
    506,834,819 
Retailing—2.6%     
Home Depot  1,200,000  46,680,000 
Target  1,300,000  70,733,000 
    117,413,000 
Semiconductors &     
Semiconductor Equipment—4.5%     
Intel  7,650,000  199,359,000 
Software & Services—2.1%     
Microsoft  3,750,000  93,150,000 
Transportation—.9%     
United Parcel Service, Cl. B  600,000  41,496,000 
Total Common Stocks     
(cost $3,138,870,231)    4,387,179,828 



  Principal   
Short-Term Investments—2.1%  Amount ($)  Value ($) 



U.S. Treasury Bills:     
2.72%, 7/21/2005  1,303,000  1,300,915 
2.87%, 8/4/2005  54,292,000  54,143,783 
2.97%, 9/1/2005  40,000,000  39,794,800 
Total Short-Term Investments     
(cost $95,241,361)    95,239,498 

The Fund 9


STATEMENT OF INVESTMENTS (Unaudited) (continued)
Investment of Cash Collateral     
for Securities Loaned—2.5%  Shares  Value ($) 



Registered Investment Company;     
Deryfus Institutional Cash Advantage Fund     
(cost $111,758,332)    111,758,332 c  111,758,332 




 
Total Investments (cost $3,345,869,924)  102.9%  4,594,177,658 
 
Liabilities, Less Cash and Receivables  (2.9%)  (130,998,398) 
 
Net Assets    100.0%  4,463,179,260 
 
ADR—American Depository Receipts.       
a  All or a portion of these securities are on loan. At June 30, 2005 the total market value of the fund’s securities on 
  loan is $108,275,959 and the total market value of the collateral held by the fund is $111,758,332. 
b  Non-income producing.       
c  Investment in affiliated money market mutual fund.     




 
 
 
 
Portfolio Summary (Unaudited)      
 
    Value (%)    Value (%) 





Energy  19.0  Short-Term/   
Food, Beverage & Tobacco  15.0  Money Market Investments  4.6 
Pharmaceuticals & Biotechnology  11.3  Semiconductors & Equipment  4.5 
Diversified Financials  8.7  Insurance  3.1 
Banking  6.0  Retailing  2.6 
Consumer Staples  5.8  Software & Services  2.1 
Capital Goods  5.7  Other  4.1 
Household & Personal Products  5.2     
Media/Entertainment  5.2    102.9 
 
  Based on net assets.       
See notes to financial statements.       

10

STATEMENT OF ASSETS AND LIABILITIES 
June 30, 2005 (Unaudited) 

  Cost  Value 



Assets ($):     
Investments in securities—See Statement   
of Investments (including securities on loan,   
valued at $108,275,959)—Note 1(c):   
Unaffiliated issuers  3,234,111,592  4,482,419,326 
Affiliated issuers  111,758,332  111,758,332 
Cash    4,542,844 
Receivable for shares of Common Stock subscribed  8,266,093 
Dividends and interest receivable    6,787,846 
Prepaid expenses    153,677 
    4,613,928,118 



Liabilities ($):     
Due to The Dreyfus Corporation and affiliates—Note 3(b)  2,316,548 
Due to Fayez Sarofim & Co.    1,013,548 
Liability for securities loaned—Note 1(c)  111,758,332 
Payable for shares of Common Stock redeemed  34,628,354 
Accrued expenses    1,032,076 
    150,748,858 



Net Assets ($)    4,463,179,260 



Composition of Net Assets ($):     
Paid-in capital    3,243,996,923 
Accumulated undistributed investment income—net  30,925,608 
Accumulated net realized gain (loss) on investments  (60,048,598) 
Accumulated net unrealized appreciation (depreciation)   
on investments and foreign currency transactions  1,248,305,327 


Net Assets ($)    4,463,179,260 



Shares Outstanding     
(300 million shares of $.001 par value Common Stock authorized)  114,620,154 
Net Asset Value, offering and redemption price per share ($)  38.94 

See notes to financial statements.

The Fund 11


STATEMENT OF OPERATIONS 
June 30, 2005 (Unaudited) 

Investment Income ($):   
Income:   
Cash dividends (net of $732,890 foreign taxes withheld at source)  50,020,664 
Interest  757,854 
Income from securities lending  246,564 
Total Income  51,025,082 
Expenses:   
Investment advisory fee—Note 3(a)  6,103,350 
Sub-Investment advisory fee—Note 3(a)  5,932,268 
Shareholder servicing costs—Note 3(b)  7,584,601 
Prospectus and shareholders’ reports  129,467 
Custodian fees—Note 3(b)  113,357 
Directors’ fees and expenses—Note 3(c)  64,911 
Registration fees  57,112 
Professional fees  50,134 
Loan commitment fees—Note 2  18,181 
Interest expense—Note 2  223 
Miscellaneous  44,504 
Total Expenses  20,098,108 
Less—reduction in custody fees   
due to earnings credits—Note 1(c)  (2,635) 
Net Expenses  20,095,473 
Investment Income—Net  30,929,609 


Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): 
Net realized gain (loss) on investments and foreign currency transactions  (11,747,573) 
Net unrealized appreciation (depreciation) on   
investments and foreign currency transactions  7,988,429 
Net Realized and Unrealized Gain (Loss) on Investments  (3,759,144) 
Net Increase in Net Assets Resulting from Operations  27,170,465 

See notes to financial statements.
12

STATEMENT OF CHANGES IN NET ASSETS

  Six Months Ended   
  June 30, 2005  Year Ended 
  (Unaudited)  December 31, 2004 



Operations ($):     
Investment income—net  30,929,609  58,861,560 
Net realized gain (loss) on investments  (11,747,573)  (19,038,589) 
Net unrealized appreciation     
(depreciation) on investments  7,988,429  3,679,447 
Net Increase (Decrease) in Net Assets     
Resulting from Operations  27,170,465  233,502,418 



Dividends to Shareholders from ($):     
Investment income—net  (872,489)  (58,753,473) 



Capital Stock Transactions ($):     
Net proceeds from shares sold  601,592,831  1,550,117,898 
Dividends reinvested  775,407  52,752,382 
Cost of shares redeemed  (585,649,622)  (1,339,496,487) 
Increase (Decrease) in Net Assets     
from Capital Stock Transactions  16,718,616  263,373,793 
Total Increase (Decrease) in Net Assets  43,016,592  438,122,738 



Net Assets ($):     
Beginning of Period  4,420,162,668  3,982,039,930 
End of Period  4,463,179,260  4,420,162,668 
Undistributed investment income—net  30,925,608  868,488 



Capital Share Transactions (Shares):     
Shares sold  15,452,438  41,406,737 
Shares issued for dividends reinvested  20,057  1,364,779 
Shares redeemed  (15,111,183)  (35,740,833) 
Net Increase (Decrease) in Shares Outstanding  361,312  7,030,683 

See notes to financial statements.

The Fund 13


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.

a  Based on average shares outstanding at each month end. 
b  Not annualized. 
See notes to financial statements. 
 
 
 
 
14   


NOTES TO FINANCIAL STATEMENTS (Unaudited)

NOTE 1—Significant Accounting Policies:

Dreyfus Appreciation Fund, Inc. (the “fund”) is registered under the Investment Company Act of 1940, as amended (the “Act”), as a diversified open-end management investment company.The fund’s investment objective is to provide investors with long-term capital growth consistent with the preservation of capital. The Dreyfus Corporation (“Dreyfus”) serves as the fund’s investment adviser. Dreyfus is a wholly-owned subsidiary of Mellon Financial Corporation (“Mellon Financial”). Fayez Sarofim & Co. (“Sarofim”) serves as the fund’s sub-investment adviser. Dreyfus Service Corporation (the “Distributor”), a wholly-owned subsidiary of Dreyfus, is the distributor of the fund’s shares, which are sold to the public without a sales charge.

The fund’s financial statements are prepared in accordance with U.S. generally accepted accounting principles, which may require the use of management estimates and assumptions. Actual results could differ from those estimates.

The fund enters into contracts that contain a variety of indemnifications. The fund’s maximum exposure under these arrangements is unknown.The fund does not anticipate recognizing any loss related to these arrangements.

(a) Portfolio valuation: Investments in securities are valued at the last sales price on the securities exchange or national securities market on which such securities are primarily traded. Securities listed on the National Market System for which market quotations are available are valued at the official closing price or, if there is no official closing price that day, at the last sale price. Securities not listed on an exchange or the national securities market, or securities for which there were no transactions, are valued at the average of the most recent bid and asked prices. Bid price is used when no asked price is available. Investments in registered investment companies are valued at their net asset value. When market quotations or official closing prices are not readily available, or are determined not to reflect accurately fair value, such as when the value of a security has been significantly affected by events

The Fund 15


NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)

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 Board of Directors. 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 ADR’s and futures contracts. For other securities that are fair valued by the Board of Directors, certain factors may be considered 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. Financial futures are valued at the last sales price. 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 on investments.

Net realized foreign exchange gains or losses arise from sales and maturities of short-term securities, sales of foreign currencies, currency gains or losses realized on securities transactions and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the value of assets and liabilities other than investments in securities, resulting from changes in exchange rates. Such gains and losses are included with net realized and unrealized gain or loss on investments.

16

(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, accretion of discount and amortization of premium on investments, is recognized on the accrual basis.

The fund has an arrangement with the custodian bank whereby the fund receives earnings credits from the custodian when positive cash balances are maintained, which are used to offset custody fees. For financial reporting purposes, the fund includes net earnings credits as an expense offset in the Statement of Operations.

Pursuant to a securities lending agreement with Mellon Bank, N.A., an affiliate of the Manager, the fund may lend securities to qualified institutions.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 will be maintained at all times. Cash collateral is invested in certain other money market mutual funds managed by Dreyfus. The fund will be entitled to receive all income on securities loaned, in addition to income earned as a result of the lending transaction. Although each security loaned is fully collateralized, the fund would bear the risk of delay in recovery of, or loss of rights in, the securities loaned should a borrower fail to return the securities in a timely manner.

(d) Affiliated issuers: Investments in other investment companies advised by Dreyfus are defined as “affiliated” in the Act.

(e) Dividends to shareholders: Dividends are recorded on the ex-dividend date. Dividends from investment income-net and 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

The Fund 17


NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)

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. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles.

(f) Federal income taxes: It is the policy of the fund to continue to qualify as a regulated investment company, if such qualification is in the best interests of its shareholders, by complying with the applicable provisions of the Code, and to make distributions of taxable income sufficient to relieve it from substantially all federal income and excise taxes.

The fund has an unused capital loss carryover of $48,301,025 available for federal income tax purposes to be applied against future net securities profits, if any, realized subsequent to December 31, 2004. If not applied, $264,160 of the carryover expires in fiscal 2010, $16,259,904 expires in fiscal 2011 and $31,776,961 expires in fiscal 2012.

The tax character of distributions paid to shareholders during the fiscal year ended December 31, 2004 was as follows: ordinary income $58,753,473. The tax character of current year distributions will be determined at the end of the current fiscal year.

NOTE 2—Bank Line of Credit:

The fund participates with other Dreyfus-managed funds in a $350 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.

The average daily amount of borrowings outstanding under the Facility during the period ended June 30, 2005, was $16,600 with a related weighted average annualized interest rate of 2.67% .

18

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

(a) Fees payable by the fund pursuant to the provisions of an Investment Advisory Agreement with Dreyfus and a Sub-Investment Advisory Agreement with Sarofim are payable monthly, computed on the average daily value of the fund’s net assets at the following annual rates:

Average Net Assets  Dreyfus  Sarofim 



0 up to $25 million  .44 of 1%  .11 of 1% 
$25 million up to $75 million  .37 of 1%  .18 of 1% 
$75 million up to $200 million  .33 of 1%  .22 of 1% 
$200 million up to $300 million  .29 of 1%  .26 of 1% 
In excess of $300 million  .275 of 1%  .275 of 1% 

(b) Under the Shareholder Services Plan, the fund pays the Distributor for the provision of certain services at the annual rate of .25 of 1% of the value of the fund’s average daily net assets. The services provided may include personal services relating to shareholder accounts, such as answering shareholder inquiries regarding the fund and providing reports and other information, and services related to the maintenance of shareholder accounts. The Distributor may make payments to Service Agents (a securities dealer, financial institution or other industry professional) in respect of these services. The Distributor determines the amounts to be paid to Service Agents. During the period ended June 30, 2005, the fund was charged $5,470,736 pursuant to the Shareholder Services Plan.

The fund compensates Dreyfus Transfer, Inc., a wholly-owned subsidiary of Dreyfus, under a transfer agency agreement for providing personnel and facilities to perform transfer agency services for the fund. During the period ended June 30, 2005, the fund was charged $900,294 pursuant to the transfer agency agreement.

The Fund 19


The fund compensates Mellon Bank, N.A., an affiliate of the Manager, under a custody agreement for providing custodial services for the fund. During the period ended June 30, 2005, the fund was charged $113,357 pursuant to the custody agreement.

During the period ended June 30, 2005, the fund paid $1,998 for services performed by the Chief Compliance Officer.

The components of Due to The Dreyfus Corporation and affiliates in the Statement of Assets and Liabilities consist of: management fees $1,041,904, shareholder services plan fees $934,297, custodian fees $77,093, chief compliance officer fees $1,998 and transfer agency per account fees $261,256.

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

NOTE 4—Securities Transactions:

The aggregate amount of purchases and sales of investment securities, excluding short-term securities, during the period ended June 30, 2005, amounted to $187,379,082 and $137,519,578, respectively.

At June 30, 2005, accumulated net unrealized appreciation on investments was $1,248,307,734, consisting of $1,337,575,034 gross unrealized appreciation and $89,267,300 gross unrealized depreciation.

At June 30,2005,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).

NOTE 5—Legal Matters:

In early 2004, two purported class and derivative actions were filed against Mellon Financial, Mellon Bank, N.A., Dreyfus, Founders Asset Management LLC, and certain directors of the Dreyfus Funds and the Dreyfus Founders Funds (together, the “Funds”) in the United States District Court for the Western District of Pennsylvania. In September 2004, plaintiffs served a Consolidated Amended Complaint (the

20

NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)


“Amended Complaint”) on behalf of a purported class of all persons who acquired interests in any of the Funds between January 30, 1999 and November 17, 2003, and derivatively on behalf of the Funds.The Amended Complaint in the newly styled In re Dreyfus Mutual Funds Fee Litigation also named the Distributor, Premier Mutual Fund Services, Inc. and two additional Fund directors as defendants and alleges violations of the Investment Company Act of 1940, the Investment Advisers Act of 1940, the Pennsylvania Unfair Trade Practices and Consumer Protection Law and common-law claims. Plaintiffs seek to recover allegedly improper and excessive Rule 12b-1 and advisory fees allegedly charged to the Funds for marketing and distribution services. More specifically, plaintiffs claim, among other things, that 12b-1 fees and directed brokerage were improperly used to pay brokers to recommend the Funds over other funds, and that such payments were not disclosed to investors. In addition, plaintiffs assert that economies of scale and soft-dollar benefits were not passed on to the Funds. Plaintiffs further allege that 12b-1 fees were improperly charged to certain of the Funds that were closed to new investors.The Amended Complaint seeks compensatory and punitive damages, rescission of the advisory contracts, and an accounting and restitution of any unlawful fees, as well as an award of attorneys’ fees and litigation expenses. As noted, some of the claims in this litigation are asserted derivatively on behalf of the Funds that have been named as nominal defendants. With respect to such derivative claims, no relief is sought against the Funds. Dreyfus believes the allegations to be totally without merit and intends to defend the action vigorously. In November 2004, all named defendants moved to dismiss the Amended Complaint in whole or substantial part. Briefing was completed in May 2005.

Additional lawsuits arising out of these circumstances and presenting similar allegations and requests for relief may be filed against the defendants in the future. Neither Dreyfus nor the Funds believe that any of the pending actions will have a material adverse effect on the Funds or Dreyfus’ ability to perform its contract with the Funds.

The Fund 21


For More Information

Dreyfus Appreciation Fund, Inc. 
200 Park Avenue 
New York, NY 10166 
 
Investment Adviser 
The Dreyfus Corporation 
200 Park Avenue 
New York, NY 10166 
 
Sub-Investment Adviser 
Fayez Sarofim & Co. 
Two Houston Center 
Suite 2907 
Houston,TX 77010 

Custodian 
Mellon Bank, N.A. 
One Mellon Bank Center 
Pittsburgh, PA 15258 
 
Transfer Agent & 
Dividend Disbursing Agent 
Dreyfus Transfer, Inc. 
200 Park Avenue 
New York, NY 10166 
 
Distributor 
Dreyfus Service Corporation 
200 Park Avenue 
New York, NY 10166 

Telephone 1-800-645-6561

Mail The Dreyfus Family of Funds, 144 Glenn Curtiss Boulevard, Uniondale, NY 11556-0144 E-mail Send your request to info@dreyfus.com Internet Information can be viewed online or downloaded at: http://www.dreyfus.com

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-Q. The fund’s Forms N-Q are available on the SEC’s website at http://www.sec.gov and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.

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 12-month period ended June 30, 2005, is available at http://www.dreyfus.com and on the SEC’s website at http://www.sec.gov. The description of the policies and procedures is also available without charge, upon request, by calling 1-800-645-6561.

© 2005 Dreyfus Service Corporation 


Item 2.  Code of Ethics. 
  Not applicable. 
Item 3.  Audit Committee Financial Expert. 
  Not applicable. 
Item 4.  Principal Accountant Fees and Services. 
  Not applicable. 
Item 5.  Audit Committee of Listed Registrants. 
  Not applicable. 
Item 6.  Schedule of Investments. 
  Not applicable. 
Item 7.  Disclosure of Proxy Voting Policies and Procedures for Closed-End Management 
  Investment Companies. 
  Not applicable. 
Item 8.  Portfolio Managers of Closed-End Management Investment Companies. 
  Not applicable. 
Item 9.  Purchases of Equity Securities by Closed-End Management Investment Companies and 
  Affiliated Purchasers. 
  Not applicable. [CLOSED-END FUNDS ONLY] 
Item 10.  Submission of Matters to a Vote of Security Holders. 

The Registrant has a Nominating Committee (the "Committee"), which is responsible for selecting and nominating persons for election or appointment by the Registrant's Board as Board members. The Committee has adopted a Nominating Committee Charter (the "Charter"). Pursuant to the Charter, the Committee will consider recommendations for nominees from shareholders submitted to the Secretary of the Registrant, c/o The Dreyfus Corporation Legal Department, 200 Park Avenue, 8th Floor East, New York, New York 10166. A nomination submission must include information regarding the recommended nominee as specified in the Charter. This information includes all information relating to a recommended nominee that is required to be disclosed in solicitations or proxy statements for the election of Board members, as well as information sufficient to evaluate the factors to be considered by the Committee, including character and integrity, business and professional experience, and whether the person has the ability to apply sound and independent business judgment and would act in the interests of the Registrant and its shareholders.

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Nomination submissions are required to be accompanied by a written consent of the individual to stand for election if nominated by the Board and to serve if elected by the shareholders, and such additional information must be provided regarding the recommended nominee as reasonably requested by the Committee.

Item 11.  Controls and Procedures. 

(a) The Registrant's principal executive and principal financial officers have concluded, based on their evaluation of the Registrant's disclosure controls and procedures as of a date within 90 days of the filing date of this report, that the Registrant's disclosure controls and procedures are reasonably designed to ensure that information required to be disclosed by the Registrant on Form N-CSR is recorded, processed, summarized and reported within the required time periods and that information required to be disclosed by the Registrant in the reports that it files or submits on Form N-CSR is accumulated and communicated to the Registrant's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

(b) There were no changes to the Registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Registrant's internal control over financial reporting.

Item 12.  Exhibits. 

(a)(1)  Not applicable. 
(a)(2)  Certifications of principal executive and principal financial officers as required by Rule 30a-2(a) 
under the Investment Company Act of 1940. 
(a)(3)  Not applicable. 
(b)  Certification of principal executive and principal financial officers as required by Rule 30a-2(b) 
under the Investment Company Act of 1940. 

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 SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dreyfus Appreciation Fund, Inc.

By:  /s/ Stephen E. Canter 
  Stephen E. Canter 
  President 
 
Date:  August 30, 2005 

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/ Stephen E. Canter 
  Stephen E. Canter 
  Chief Executive Officer 
 
Date:  August 30, 2005 
 
By:  /s/ James Windels 
James Windels
  Chief Financial Officer 
 
Date:  August 30, 2005 

EXHIBIT INDEX

(a)(2) Certifications of principal executive and principal financial officers as required by Rule 30a-2(a) under the Investment Company Act of 1940. (EX-99.CERT)

(b) Certification of principal executive and principal financial officers as required by Rule 30a-2(b) under the Investment Company Act of 1940. (EX-99.906CERT)

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