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BNY Mellon Appreciation Fund

Filed: 23 Aug 06, 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:  6/30/06 


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 
10  Statement of Assets and Liabilities 
11  Statement of Operations 
12  Statement of Changes in Net Assets 
13  Financial Highlights 
14  Notes to Financial Statements 
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, 2006, through June 30, 2006.

Stock market gains over the first four months of 2006 were given back in May and June, when investors reacted negatively to suggestions that the U.S. Federal Reserve Board (the “Fed”) and other central banks, in their fight against inflation, might raise short-term interest rates more than previously expected. In the judgment of our Chief Economist, Richard Hoey, the recent correction reflects an adjustment among leveraged investors toward lower risk levels as the U.S. economy moves into a more mature phase with milder rates of growth. In our view, corrections such as these generally are healthy mechanisms that help wring speculative excesses from the financial markets, potentially setting the stage for future rallies.

While a recession currently appears unlikely, a number of economic uncertainties remain. Indicators to watch in the months ahead include the outlook for inflation, the extent of softness in the U.S. housing market, the impact of slower economic growth on consumer spending, additional changes in interest rates from the Fed and other central banks, and the strength of the U.S. dollar relative to other major currencies. As always, we encourage you to discuss these and other investment-related issues with your financial advisor, who can help you prepare for the challenges and opportunities that lie ahead.

For information about how the fund performed during the reporting period, as well as market perspectives, we have provided a Discussion of Fund Performance given by the fund’s portfolio manager.

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 perform relative to its benchmark?

For the six-month period ended June 30, 2006, the fund produced a total return of 2.57% .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 2.71% .2

Although stocks generally rallied over the first four months of 2006, heightened inflation and economic concerns sparked a downturn in May and June, erasing many of the stock market’s earlier gains. The fund produced only slightly lower returns than the S&P 500 Index, mainly due to a shift in investor sentiment toward large, high-quality companies, similar to those invested in by the fund, and away from the smaller, more speculative stocks that previously led the market.

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?

In our last report to shareholders, we noted that valuations of large-cap companies had compressed beyond historical norms compared to

The Fund 3


DISCUSSION OF FUND PERFORMANCE (continued)

small- and midcap stocks, and that we believed a shift in investor sentiment toward high-quality multinationals might be overdue. We are pleased to report that this long-awaited shift appears to have begun in earnest during the first half of 2006.

Over the first four months of the year, investors generally favored more speculative companies as the economy continued to grow despite resurgent energy prices and additional increases in short-term interest rates from the Federal Reserve Board (the “Fed”). In early May, however, investors’ attitudes toward risk appeared to change dramatically when comments by Fed Chairman Ben Bernanke suggested that interest rates might rise more than previously expected, potentially choking off economic growth. Signs of impending economic weakness began to emerge when the housing market cooled and consumer spending moderated.At the same time, inflationary pressures seemed to intensify, as reflected by higher prices for energy, industrial commodities and precious metals.

The resulting “flight to quality” among investors helped the fund weather increased market volatility better than the S&P 500 Index. The fund’s energy and health care holdings provided particularly attractive results in the changing market environment. For example, integrated oil giant Exxon Mobil was one of the fund’s larger holdings and the greatest contributor to its performance for the reporting period. Rising crude oil and natural gas prices also helped support gains in other energy holdings, including industry leaders Chevron, ConocoPhillips and BP.

Large pharmaceutical companies had been hard-hit over the past several years, declining to valuations that we considered oversold relative to their fundamental long-term strengths. These stocks began to rebound in 2006 as more investors recognized their generous dividend yields, high levels of free cash flow and the promise of new products under development. Fund holdings Merck & Co.,Abbott Laboratories and Roche Holdings benefited from the sector’s rebound.

The industrials sector also advanced, but the fund’s relatively light holdings in the area prevented it from participating fully in its gains. Nonetheless, the fund received strong contributions from Emerson

4

Electric, which achieved higher earnings from its role as a supplier to China’s growing industrial infrastructure, and United Parcel Service, which benefited from higher shipping volumes. Similarly, the fund did not participate in gains within the telecommunications sector, where no companies met our investment criteria.

What is the fund’s current strategy?

We have maintained our focus on high-quality multinationals that have the resources to reinvest in their businesses and extend their established records of earnings and dividend increases. However, we recently eliminated a number of positions and replaced them with new ones. Sales included household goods provider Colgate-Palmolive, mortgage agency Freddie Mac, financial services firm Marsh McLennan and media conglomerate Time Warner, all of which encountered headwinds that made them less compelling to us.

Instead, we allocated those assets to holdings in which we have a higher degree of confidence, including new positions in industrial giant Halliburton and hotelier Hilton Hotels. Halliburton has enjoyed strong sales in its energy and military services businesses as well as in its role as a supplier to China’s growing industrial infrastructure. Hilton Hotels recently reacquired its former international properties, and we expect the company to achieve greater operating efficiencies as they are integrated into its network.

July 17, 2006
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


U N D E R S TA N D I N G YO U R F U N D ’ S E X P E N S E S ( U n a u d i t e d )

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, 2006 to June 30, 2006. 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, 2006

Expenses paid per $1,000   $ 4.77 
Ending value (after expenses)  $1,025.70 

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, 2006

Expenses paid per $1,000   $ 4.76 
Ending value (after expenses)  $1,020.08 

Expenses are equal to the fund’s annualized expense ratio of .95%; 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, 2006 (Unaudited)
Common Stocks—100.0%  Shares  Value ($) 



Consumer Discretionary—17.0%     
Altria Group  3,525,000  258,840,750 
CBS, Cl. B  350,000  9,467,500 
Christian Dior  550,000 a  53,919,443 
Hilton Hotels  400,000  11,312,000 
Home Depot  1,200,000 a  42,948,000 
McDonald’s  1,175,000  39,480,000 
McGraw-Hill Cos.  2,150,000  107,994,500 
News, Cl. A  5,256,708  100,823,659 
News, Cl. B  240,000 a  4,843,200 
Target  950,000  46,426,500 
Viacom, Cl. B  190,000 b  6,809,600 
    682,865,152 
Consumer Staples—20.8%     
Anheuser-Busch Cos.  990,000  45,134,100 
Coca-Cola  3,140,000  135,082,800 
Estee Lauder Cos., Cl. A  790,000  30,549,300 
Nestle, ADR  1,250,000  98,087,500 
PepsiCo  2,050,000  123,082,000 
Procter & Gamble  2,600,000  144,560,000 
SYSCO  750,000 a  22,920,000 
Wal-Mart Stores  1,700,000  81,889,000 
Walgreen  2,850,000  127,794,000 
Whole Foods Market  400,000 a  25,856,000 
    834,954,700 
Energy—20.9%     
BP, ADR  1,700,000  118,337,000 
Chevron  2,600,000  161,356,000 
ConocoPhillips  1,950,000  127,783,500 
Exxon Mobil  3,969,598  243,534,837 
Halliburton  200,000  14,842,000 
Occidental Petroleum  500,000  51,275,000 
Royal Dutch Shell, Cl. A, ADR  700,000  46,886,000 
Total, ADR  1,150,000  75,348,000 
    839,362,337 

The Fund 7


STATEMENT OF INVESTMENTS (Unaudited) (continued)

Common Stocks (continued)  Shares    Value ($) 




Financial—17.7%       
American Express  1,450,000    77,169,000 
American International Group  750,000    44,287,500 
Ameriprise Financial  550,000    24,568,500 
Bank of America  1,800,000    86,580,000 
Berkshire Hathaway, Cl. A  400 b   36,663,600 
Citigroup  3,530,333    170,303,264 
HSBC Holdings, ADR  800,000 a   70,680,000 
JPMorgan Chase & Co.  1,925,000    80,850,000 
Merrill Lynch & Co.  1,050,000    73,038,000 
SunTrust Banks  625,000    47,662,500 
      711,802,364 
Health Care—9.6%       
Abbott Laboratories  1,300,000    56,693,000 
Eli Lilly & Co.  750,000 a   41,452,500 
Johnson & Johnson  1,900,000    113,848,000 
Merck & Co.  480,000    17,486,400 
Pfizer  3,125,000 a   73,343,750 
Roche Holding, ADR  600,000    49,560,000 
UnitedHealth Group  750,000    33,585,000 
      385,968,650 
Industrial—7.6%       
Emerson Electric  880,000    73,752,800 
General Electric  5,450,000    179,632,000 
United Parcel Service, Cl. B  600,000    49,398,000 
      302,782,800 
Information Technology—5.5%       
Automatic Data Processing  700,000    31,745,000 
Intel  7,050,000    133,597,500 
Microsoft  2,400,000    55,920,000 
      221,262,500 
Materials—.9%       
Arkema, ADR  28,750 b,c   1,121,891 
Praxair  625,000    33,750,000 
      34,871,891 
Total Common Stocks       
(cost $2,832,319,295)      4,013,870,394 
 
 
8       


Investment of Cash Collateral     
for Securities Loaned—1.9%  Shares  Value ($) 



Registered Investment Company;     
Dreyfus Institutional Cash       
Advantage Fund       
(cost $73,942,001)    73,942,001 d  73,942,001 




 
Total Investments (cost $2,906,261,296)  101.9%  4,087,812,395 
 
Liabilities, Less Cash and Receivables  (1.9%)  (74,857,666) 
 
Net Assets    100.0%  4,012,954,729 
 
ADR—American Depository Receipts.     
a  All or a portion of these securities are on loan. At June 30, 2006, the total market value of the fund’s securities on 
  loan is $77,434,621 and the total market value of the collateral held by the fund is $78,697,401, consisting of 
  cash collateral of $73,942,001 and U.S. Government and agency securities valued at $4,755,400. 
b  Non-income producing security.     
c  The value of this security has been determined in good faith under the direction of the Board of Directors. 
d  Investment in affiliated money market mutual fund.     




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





Energy  20.9  Industrial  7.6 
Consumer Staples  20.8  Information Technology  5.5 
Financial  17.7  Money Market Investment  1.9 
Consumer Discretionary  17.0  Materials  .9 
Health Care  9.6    101.9 
 
  Based on net assets.       
See notes to financial statements.       

The Fund 9


STATEMENT OF ASSETS AND LIABILITIES

June 30, 2006 (Unaudited)

  Cost  Value 



Assets ($):     
Investments in securities—See Statement   
of Investments (including securities on loan,   
valued at $77,434,621)—Note 1(c):   
Unaffiliated issuers  2,832,319,295  4,013,870,394 
Affiliated issuers  73,942,001  73,942,001 
Cash    2,987,472 
Receivable for shares of Common Stock subscribed  12,870,855 
Dividends and interest receivable  6,335,694 
Receivable for investment securities sold  930,310 
Prepaid expenses    191,649 
    4,111,128,375 



Liabilities ($):     
Due to The Dreyfus Corporation and affiliates—Note 3(b)  2,069,026 
Due to Fayez Sarofim & Co.    883,532 
Liability for securities on loan—Note 1(c)  73,942,001 
Payable for shares of Common Stock redeemed  15,956,535 
Bank note payable—Note 2    4,320,000 
Accrued expenses    1,002,552 
    98,173,646 



Net Assets ($)    4,012,954,729 



Composition of Net Assets ($):   
Paid-in capital    2,599,655,392 
Accumulated undistributed investment income—net  32,278,231 
Accumulated net realized gain (loss) on investments  199,470,007 
Accumulated net unrealized appreciation (depreciation)   
on investments and foreign currency transactions  1,181,551,099 


Net Assets ($)    4,012,954,729 



Shares Outstanding     
(300 million shares of $.001 par value Common Stock authorized)  98,552,876 
Net Asset Value, offering and redemption price per share ($)  40.72 

See notes to financial statements.
10

STATEMENT OF OPERATIONS
Six Months Ended June 30, 2006 (Unaudited)
Investment Income ($):   
Income:   
Cash dividends (net of $852,949 foreign taxes withheld at source):   
Unaffiliated issuers  51,562,432 
Affiliated issuers  3,123 
Income from securities lending  248,388 
Interest  191,936 
Total Income  52,005,879 
Expenses:   
Investment advisory fee—Note 3(a)  5,785,023 
Sub-Investment advisory fee—Note 3(a)  5,613,941 
Shareholder servicing costs—Note 3(b)  7,640,888 
Interest expense—Note 2  183,765 
Prospectus and shareholders’ reports  170,930 
Custodian fees—Note 3(b)  83,515 
Directors’ fees and expenses—Note 3(c)  57,924 
Registration fees  46,827 
Professional fees  45,661 
Loan commitment fees—Note 2  16,160 
Miscellaneous  75,758 
Total Expenses  19,720,392 
Investment Income—Net  32,285,487 


Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): 
Net realized gain (loss) on investments and foreign currency transactions  199,509,664 
Net unrealized appreciation (depreciation) on   
investments and foreign currency transactions  (123,566,582) 
Net Realized and Unrealized Gain (Loss) on Investments  75,943,082 
Net Increase in Net Assets Resulting from Operations  108,228,569 

See notes to financial statements.

The Fund 11


STATEMENT OF CHANGES IN NET ASSETS

  Six Months Ended   
  June 30, 2006  Year Ended 
  (Unaudited)  December 31, 2005 



Operations ($):     
Investment income—net  32,285,487  60,553,268 
Net realized gain (loss) on investments  199,509,664  52,758,817 
Net unrealized appreciation     
(depreciation) on investments  (123,566,582)  64,800,783 
Net Increase (Decrease) in Net Assets     
Resulting from Operations  108,228,569  178,112,868 



Dividends to Shareholders from ($):     
Investment income—net  (717,417)  (60,699,561) 
Net realized gain on investments  (4,509,483)  — 
Total Dividends  (5,226,900)  (60,699,561) 



Capital Stock Transactions ($):     
Net proceeds from shares sold  434,821,148  1,164,817,046 
Dividends reinvested  4,703,778  54,850,697 
Cost of shares redeemed  (992,023,706)  (1,294,791,878) 
Increase (Decrease) in Net Assets from     
Capital Stock Transactions  (552,498,780)  (75,124,135) 
Total Increase (Decrease) in Net Assets  (449,497,111)  42,289,172 



Net Assets ($):     
Beginning of Period  4,462,451,840  4,420,162,668 
End of Period  4,012,954,729  4,462,451,840 
Undistributed investment income—net  32,278,231  710,161 



Capital Share Transactions (Shares):     
Shares sold  10,759,277  29,540,431 
Shares issued for dividends reinvested  115,974  1,371,602 
Shares redeemed  (24,595,784)  (32,897,466) 
Net Increase (Decrease) in Shares Outstanding  (13,720,533)  (1,985,433) 

See notes to financial statements.
12

FINANCIAL HIGHLIGHTS

The following table describes the performance for the fiscal periods indicated. Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions.These figures have been derived from the fund’s financial statements.

  Six Months Ended           
  June 30, 2006    Year Ended December 31,   



  (Unaudited)  2005  2004  2003  2002  2001 







Per Share Data ($):             
Net asset value,             
beginning of period  39.75  38.69  37.14  31.20  38.02  42.93 
Investment Operations:             
Investment income—net a  .31  .53  .52  .42  .31  .28 
Net realized and unrealized             
gain (loss) on investments  .71  1.07  1.55  5.93  (6.81)  (4.88) 
Total from Investment             
Operations  1.02  1.60  2.07  6.35  (6.50)  (4.60) 
Distributions:             
Dividends from investment             
income—net  (.01)  (.54)  (.52)  (.41)  (.30)  (.31) 
Dividends from net realized             
gain on investments  (.04)  —  —  —  (.02)  — 
Total Distributions  (.05)  (.54)  (.52)  (.41)  (.32)  (.31) 
Net asset value,             
end of period  40.72  39.75  38.69  37.14  31.20  38.02 







Total Return (%)  2.57b  4.14  5.57  20.39  (17.14)  (10.75) 







Ratios/Supplemental Data (%):           
Ratio of total expenses             
to average net assets  .47b  .92  .95  .96  .97  .91 
Ratio of net expenses             
to average net assets  .47b  .92  .95  .96  .97  .91 
Ratio of net investment income           
to average net assets  .77b  1.35  1.40  1.28  .90  .72 
Portfolio Turnover Rate  .64b  6.81  8.23  4.73  1.77  5.03 







Net Assets, end of period             
($ x 1,000) 4,012,955  4,462,452  4,420,163  3,982,040  3,128,482 3,394,522 
 
a  Based on average shares outstanding at each month end.         
b  Not annualized.             
See notes to financial statements.             

The Fund 13


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 (the “Manager” or “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.

14

When market quotations or official closing prices are not readily available, or are determined not to reflect accurately fair value, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded (for example, a foreign exchange or market), but before the fund calculates its net asset value, the fund may value these investments at fair value as determined in accordance with the procedures approved by the 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

The Fund 15


NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)

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, 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, if any, as an expense offset in the Statement of Operations.

Pursuant to a securities lending agreement with Mellon Bank, N.A., an affiliate of Dreyfus, the fund may lend securities to qualified institutions. It is the fund’s policy, that at origination, all loans are secured by collateral of at least 102% of the value of U.S. securities loaned and 105% of the value of foreign securities loaned. Collateral equivalent to at least 100% of the market value of securities on loan is maintained at all times. Cash collateral is invested in certain money market mutual funds managed by Dreyfus.The fund is entitled to receive all income on securities loaned, in addition to income earned as a result of the lending transac-tion.Although each security loaned is fully collateralized, the fund bears 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

16

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. 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 tax character of distributions paid to shareholders during the fiscal year ended December 31, 2005 were as follows: ordinary income $60,699,561. 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 borrowing.

The average daily amount of borrowings outstanding under the Facility during the period ended June 30, 2006, was $7,181,600 with a related weighted average annualized interest rate of 5.16% .

The Fund 17


NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)

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

(b) Under the Shareholder Services Plan, the fund pays the Distributor for the provision of certain services at the annual rate of .25% 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, 2006, the fund was charged $5,181,347 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, 2006, the fund was charged $819,260 pursuant to the transfer agency agreement.

18

The fund compensates Mellon Bank, N.A., an affiliate of Dreyfus, under a custody agreement for providing custodial services for the fund. During the period ended June 30, 2006, the fund was charged $83,515 pursuant to the custody agreement.

During the period ended June 30, 2006, the fund was charged $1,926 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 $911,889, shareholder services plan fees $816,100, custodian fees $85,779, chief compliance officer fees $1,926 and transfer agency per account fees $253,332.

(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, 2006, amounted to $26,445,518 and $487,439,356, respectively.

At June 30, 2006, accumulated net unrealized appreciation on investments was $1,181,551,099, consisting of $1,260,698,455 gross unrealized appreciation and $79,147,356 gross unrealized depreciation.

At June 30, 2006, 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 19


NOTES


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 1-202-551-8090.

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, 2006, 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.

© 2006 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 24, 2006 

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 24, 2006 
 
By:  /s/ James Windels 
  James Windels
  Chief Financial Officer 
 
Date:  August 24, 2006 

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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