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BNY Mellon Appreciation Fund

Filed: 10 Sep 07, 8:00pm
UNITED STATES 
SECURITIES AND EXCHANGE COMMISSION 
Washington, D.C. 20549 
 
 
FORM N-CSR/A 
 
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:  12/31/06   


FORM N-CSR/A 

Item 1.  Reports to Stockholders. 

Dreyfus     
Appreciation  Fund,  Inc. 

ANNUAL REPORT December 31, 2006


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

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


  Contents 
 
  THE FUND 


2  A Letter from the CEO 
3  Discussion of Fund Performance 
6  Fund Performance 
7  Understanding Your Fund’s Expenses 
7  Comparing Your Fund’s Expenses 
  With Those of Other Funds 
8  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 
22  Report of Independent Registered 
  Public Accounting Firm 
23  Important Tax Information 
23  Proxy Results 
24  Information About the Review and Approval 
  of the Fund’s Investment Advisory Agreement 
29  Board Members Information 
32  Officers of the Fund 
 
  FOR MORE INFORMATION 


  Back Cover 


Dreyfus Appreciation Fund, Inc.

The Fund

A LETTER FROM THE CEO

Dear Shareholder:

We are pleased to present this annual report for Dreyfus Appreciation Fund, Inc., covering the 12-month period from January 1, 2006, through December 31, 2006.

2006 proved to be a good year for the financial markets.Virtually all sectors and capitalization ranges of the U.S. equity markets generated strong returns, especially over the second half of the year.A number of positive factors contributed to the markets’ gains in 2006, including an expanding domestic economy, subdued inflation, stabilizing interest rates, rising productivity and robust corporate profits.

In our analysis, 2006 provided an excellent reminder of the need for a long-term investment perspective. Adopting too short a time frame proved costly for some investors last year, as chasing recent winners often meant buying the next month’s losers. Indeed, history shows that reacting to near-term developments with extreme shifts in strategy rarely is the right decision.We believe that a better course of action is to set a portfolio mix to meet future goals, while attempting to ignore short term market fluctuations in favor of a longer-term view.

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.We wish you good health and prosperity in 2007.

Thomas F. Eggers
Chief Executive Officer
The Dreyfus Corporation
January 16, 2007
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 12-month period ended December 31, 2006, the fund produced a total return of 16.26% .1 In comparison, the total return of the fund’s benchmark, the Standard & Poor’s 500 Composite Stock Price Index (“S&P 500 Index”), was 15.78% for the same period.2

After producing relatively lackluster returns during the first half of 2006, stocks rallied over the second half of the year, with particularly strong results from the kinds of large, multinational corporations in which the fund primarily invests. Consequently, the fund produced a higher return than its benchmark.The fund achieved especially attractive results in the energy sector, which has been an area of relatively heavy emphasis for some time.

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 the 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

The Fund 3


DISCUSSION OF FUND PERFORMANCE (continued)

What other factors influenced the fund’s performance?

The U.S. stock market generally saw two very different investment environments in 2006.The first six months of the year saw robust economic growth, intensifying inflation concerns and rising interest rates. Against this backdrop, stocks encountered heightened volatility as investors first worried that a relatively accommodative monetary policy might rekindle inflationary pressures, and then grew concerned that an overly aggressive Federal Reserve Board (the “Fed”) could trigger an economic recession.

These concerns began to subside over the second half of the year as housing markets cooled, labor gains moderated and energy prices fell. The Fed lent credence to a more benign inflation outlook when it refrained from raising interest rates over the final six months of the year, its first pause in more than two years. Easing inflation worries, expectations of an economic “soft landing” and strong corporate earnings helped fuel a sustained market rally. The second half of the year also marked a fundamental change in market leadership. Investors grew more risk-averse as the economy slowed, and they began to favor corporate giants over the small-cap companies that previously had led the market.

Relatively heavy exposure to energy companies and a successful security selection strategy within the energy sector helped drive the fund’s strong relative performance. Energy stocks generally gained value when crude oil and natural gas prices climbed to record highs during the sum-mer.The fund’s holdings of major integrated oil companies continued to produce robust earnings even when commodity prices retreated in the fall, mainly because their diversified operations provided a degree of protection from fluctuating oil and gas prices.As a result, industry leader Exxon Mobil ranked as the fund’s top performer for 2006.

The fund also achieved relatively attractive results in the health care area, where stocks of large pharmaceutical companies rebounded from earlier weakness. U.S. drug developers’ product-development and regulatory problems began to ease, enabling their stocks to recover from relatively

4

low valuations. Finally, a number of the fund’s consumer discretionary holdings fared well. Publisher The McGraw-Hill Companies benefited from ongoing strength in its textbook and financial divisions, while media conglomerate News Corp. gained value after its acquisition of the popular “MySpace” Internet site.

What is the fund’s current strategy?

We have continued to invest in leading corporations and hold them for the long term. Nonetheless, we eliminated the fund’s positions in a number of companies during the reporting period — including Colgate Palmolive,Time Warner,Freddie Mac,Marsh McLennan and Eli Lilly —due to company-specific issues.We added two new positions:energy and construction services company Halliburton and lodging chain Hilton Hotels. We believe that the fund is well positioned to benefit from a slower-growth environment in 2007, which we expect to favor well-established companies that have demonstrated their ability to produce consistent earnings under a variety of economic conditions.

January 16, 2007
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


FUND PERFORMANCE
Comparison of change in value of $10,000 investment in Dreyfus Appreciation Fund, Inc. and 
the Standard & Poor’s 500 Composite Stock Price Index     



 
 
Average Annual Total Returns  as of 12/31/06     
  1 Year  5 Years  10 Years 




Fund  16.26%  4.98%  7.86% 

Source: Lipper Inc.

Past performance is not predictive of future performance.The fund’s performance shown in the graph and table does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The above graph compares a $10,000 investment made in Dreyfus Appreciation Fund, Inc. on 12/31/96 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.

6

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 July 1, 2006 to December 31, 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 December 31, 2006

Expenses paid per $1,000   $ 5.05 
Ending value (after expenses)  $1,133.50 

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

Using the SEC’s method to compare expenses

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

Expenses and Value of a $1,000 Investment assuming a hypothetical 5% annualized return for the six months ended December 31, 2006

Expenses paid per $1,000   $ 4.79 
Ending value (after expenses)  $1,020.47 

Expenses are equal to the fund’s annualized expense ratio of .94%; multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).

The Fund 7


 STATEMENT OF INVESTMENTS
December 31, 2006
Common Stocks—100.3%  Shares  Value ($) 



Banks—5.1%     
Bank of America  1,800,000  96,102,000 
HSBC Holdings, ADR  800,000 a  73,320,000 
SunTrust Banks  625,000  52,781,250 
    222,203,250 
Capital Goods—6.4%     
Emerson Electric  1,760,000  77,598,400 
General Electric  5,400,000  200,934,000 
    278,532,400 
Consumer Durables & Apparel—1.3%   
Christian Dior  550,000 a  58,606,735 
Consumer Services—1.8%     
Hilton Hotels  800,000 a  27,920,000 
McDonald’s  1,175,000  52,087,750 
    80,007,750 
Diversified Financials—11.5%     
American Express  1,450,000  87,971,500 
Ameriprise Financial  550,000  29,975,000 
Citigroup  3,530,333  196,639,548 
JPMorgan Chase & Co.  1,925,000  92,977,500 
Merrill Lynch & Co.  1,050,000 a  97,755,000 
    505,318,548 
Energy—21.3%     
BP, ADR  1,504,000  100,918,400 
Chevron  2,600,000  191,178,000 
ConocoPhillips  1,950,000  140,302,500 
Exxon Mobil  3,969,598 a  304,190,295 
Halliburton  450,000  13,972,500 
Occidental Petroleum  1,000,000  48,830,000 
Royal Dutch Shell, Cl. A, ADR  700,000  49,553,000 
Total, ADR  1,150,000 a  82,708,000 
    931,652,695 
Food & Staples Retailing—5.6%     
SYSCO  750,000 a  27,570,000 
Wal-Mart Stores  1,458,000  67,330,440 
Walgreen  2,850,000 a  130,786,500 
Whole Foods Market  450,000 a  21,118,500 
    246,805,440 

8


Common Stocks (continued)  Shares    Value ($) 




Food, Beverage & Tobacco—16.5%     
Altria Group  3,515,000    301,657,300 
Anheuser-Busch Cos.  990,000    48,708,000 
Coca-Cola  2,790,000    134,617,500 
Nestle, ADR  1,250,000    111,012,500 
PepsiCo  2,050,000    128,227,500 
      724,222,800 
Health Care Services—.9%       
UnitedHealth Group  750,000    40,297,500 
Household & Personal Products—4.6%     
Estee Lauder Cos., Cl. A  790,000    32,247,800 
Procter & Gamble  2,600,000    167,102,000 
      199,349,800 
Insurance—2.2%       
American International Group  750,000    53,745,000 
Berkshire Hathaway, Cl. A  400  b  43,996,000 
      97,741,000 
Materials—.9%       
Praxair  625,000    37,081,250 
Media—6.2%       
CBS, Cl. B  125,000    3,897,500 
McGraw-Hill Cos.  2,150,000    146,243,000 
News, Cl. A  5,156,708    110,766,088 
News, Cl. B  240,000  a  5,342,400 
Viacom, Cl. B  140,000  b  5,744,200 
      271,993,188 
Pharmaceuticals &       
Biotechnology—7.9%       
Abbott Laboratories  1,300,000  a  63,323,000 
Johnson & Johnson  1,900,000    125,438,000 
Merck & Co.  480,000    20,928,000 
Pfizer  3,125,000    80,937,500 
Roche Holding, ADR  600,000    53,778,000 
      344,404,500 
Retailing—2.3%       
Home Depot  1,200,000    48,192,000 
Target  950,000    54,197,500 
      102,389,500 

The Fund 9


 STATEMENT OF INVESTMENTS (continued)
Common Stocks (continued)  Shares  Value ($) 



Semiconductors & Equipment—2.4%     
Intel  5,150,000  104,287,500 
Software & Services—2.4%     
Automatic Data Processing  700,000 a  34,475,000 
Microsoft  2,400,000 a  71,664,000 
    106,139,000 
Transportation—1.0%     
United Parcel Service, Cl. B  600,000  44,988,000 
Total Common Stocks     
(cost $2,678,486,779)    4,396,020,856 



 
Investment of Cash Collateral     
for Securities Loaned—2.8%     



Registered Investment Company;     
Dreyfus Institutional Cash     
Advantage Fund     
(cost $120,182,760)  120,182,760 c  120,182,760 



 
Total Investments (cost $2,798,669,539)  103.1%  4,516,203,616 
Liabilities, Less Cash and Receivables  (3.1%)  (134,005,368) 
Net Assets  100.0%  4,382,198,248 

ADR—American Depository Receipts 
a All or a portion of these securities are on loan. At December 31, 2006, the total market value of the fund’s securities 
on loan is $123,481,893 and the total market value of the collateral held by the fund is $127,412,960, consisting 
of cash collateral of $120,182,760 and U.S. Government and agency securities valued at $7,230,200. 
b Non-income producing security. 
c Investment in affiliated money market mutual fund. 

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




Energy  21.3  Food & Staples Retailing  5.6 
Food, Beverage & Tobacco  16.5  Banks  5.1 
Diversified Financials  11.5  Household & Personal Products  4.6 
Pharmaceuticals & Biotechnology  7.9  Other  18.0 
Capital Goods  6.4     
Media  6.2    103.1 

Based on net assets. 
See notes to financial statements. 

10


STATEMENT OF ASSETS AND LIABILITIES

December 31, 2006

  Cost  Value 



Assets ($):     
Investments in securities—See Statement of Investments   
of Investments (including securities on loan,   
valued at $123,481,893)—Note 1(c):   
Unaffiliated issuers  2,678,486,779  4,396,020,856 
Affiliated issuers  120,182,760  120,182,760 
Cash    1,213,493 
Receivable for investment securities sold  17,095,162 
Dividends and Interest receivable  6,960,740 
Receivable for shares of Common Stock subscribed  2,206,840 
Prepaid expenses    170,034 
    4,543,849,885 



Liabilities ($):     
Due to The Dreyfus Corporation and affiliates—Note 3(b)  2,284,609 
Due to Fayez Sarofim & Co.    1,012,810 
Liability for securities on loan—Note 1(c)  120,182,760 
Bank note payable—Note 2    19,440,000 
Payable for shares of Common Stock redeemed  17,769,674 
Interest payable—Note 2    20,982 
Accrued expenses    940,802 
    161,651,637 



Net Assets ($)    4,382,198,248 



Composition of Net Assets ($):   
Paid-in capital    2,663,622,146 
Accumulated undistributed investment income—net  2,255,218 
Accumulated net realized gain (loss) on investments  (1,213,193) 
Accumulated net unrealized appreciation (depreciation)   
on investments and foreign currency transactions  1,717,534,077 


Net Assets ($)    4,382,198,248 



Shares Outstanding     
( 300 million shares of $.001 par value Common Stock authorized)  100,086,265 
Net Asset Value, offering and redemption price per share ($)  43.78 

See notes to financial statements.

The Fund 11


STATEMENT OF OPERATIONS
Year Ended December 31, 2006
Investment Income ($):   
Income:   
Cash dividends (net of $1,222,868 foreign taxes withheld at source):   
Unaffiliated issuers  99,827,440 
Affiliated issuers  929,368 
Interest  178,371 
Income from securities lending  454,509 
Total Income  101,389,688 
Expenses:   
Investment adviory fee—Note 3(a)  11,784,974 
Sub-Investment adviory fee—Note 3(a)  11,439,974 
Shareholder servicing costs—Note 3(b)  15,533,097 
Prospectus and shareholders’ reports  315,719 
Interest expense—Note 2  228,634 
Custodian fees—Note 3(b)  193,291 
Registration fees  117,647 
Directors’ fees and expenses—Note 3(c)  112,427 
Professional fees  90,302 
Loan commitment fees—Note 2  24,441 
Miscellaneous  125,431 
Total Expenses  39,965,937 
Investment Income—Net  61,423,751 


Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): 
Net realized gain (loss) on investments and foreign currency transactions  167,064,768 
Net unrealized appreciation (depreciation) on   
investments and foreign currency transactions  412,416,396 
Net Realized and Unrealized Gain (Loss) on Investments  579,481,164 
Net Increase in Net Assets Resulting from Operations  640,904,915 

See notes to financial statements.
12

STATEMENT OF CHANGES IN NET ASSETS

  Year Ended December 31, 

  2006  2005 



Operations ($):     
Investment income—net  61,423,751  60,553,268 
Net realized gain (loss) on investments  167,064,768  52,758,817 
Net unrealized appreciation     
(depreciation) on investments  412,416,396  64,800,783 
Net Increase (Decrease) in Net Assets     
Resulting from Operations  640,904,915  178,112,868 



Dividends to Shareholders from ($):     
Investment income—net  (59,804,759)  (60,699,561) 
Net realized gain on investments  (172,821,722)  — 
Total Dividends  (232,626,481)  (60,699,561) 



Capital Stock Transactions ($):     
Net proceeds from shares sold  929,293623  1,164,817,046 
Dividends reinvested  205,352,133  54,850,697 
Cost of shares redeemed  (1,623,177,782)  (1,294,791,878) 
Increase (Decrease) in Net Assets     
from Capital Stock Transactions  (488,532,026)  (75,124,135) 
Total Increase (Decrease) in Net Assets  (80,253,592)  42,289,172 



Net Assets ($):     
Beginning of Period  4,462,451,840  4,420,162,668 
End of Period  4,382,198,248  4,462,451,840 
Undistributed investment income—net  2,255,218  710,161 



Capital Share Transactions (Shares):     
Shares sold  22,234,797  29,540,431 
Shares issued for dividends reinvested  4,702,886  1,371,602 
Shares redeemed  (39,124,827)  (32,897,466) 
Net Increase (Decrease) in Shares Outstanding  (12,187,144)  (1,985,433) 

See notes to financial statements.

The Fund 13


FINANCIAL HIGHLIGHTS

The following tables describe 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 dis-tributions.These figures have been derived from the portfolio’s financial statements.

    Year Ended December 31,   



  2006  2005  2004  2003  2002 






Per Share Data ($):           
Net asset value, beginning of period  39.75  38.69  37.14  31.20  38.02 
Investment Operations:           
Investment income—net a  .61  .53  .52  .42  .31 
Net realized and unrealized           
gain (loss) on investments  5.83  1.07  1.55  5.93  (6.81) 
Total from Investment Operations  6.44  1.60  2.07  6.35  (6.50) 
Distributions:           
Dividends from           
investment income—net  (.62)  (.54)  (.52)  (.41)  (.30) 
Dividends from net realized           
gain on investments  (1.79)  —  —  —  (.02) 
Total Distributions  (2.41)  (.54)  (.52)  (.41)  (.32) 
Net asset value, end of period  43.78  39.75  38.69  37.14  31.20 






Total Return (%)  16.26  4.14  5.57  20.39  (17.14) 






Ratios/Supplemental Data (%):           
Ratio of total expenses           
to average net assets  .95  .92  .95  .96  .97 
Ratio of net expenses           
to average net assets  .95  .92  .95  .96  .97 
Ratio of net investment income           
to average net assets  1.45  1.35  1.40  1.28  .90 
Portfolio Turnover Rate  1.00  6.81  8.23  4.73  1.77 






Net Assets, end of period           
($ x 1,000)  4,382,198  4,462,452  4,420,163  3,982,040  3,128,482 

a Based on average shares outstanding at each month end.
See notes to financial statements.
14

NOTES TO FINANCIAL STATEMENTS

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.

On December 4, 2006, Mellon Financial and The Bank of New York Company, Inc. announced that they had entered into a definitive agreement to merge. The new company will be called The Bank of New York Mellon Corporation. As part of this transaction, Dreyfus would become a wholly-owned subsidiary of The Bank of New York Mellon Corporation. The transaction is subject to certain regulatory approvals and the approval of The Bank of New York Company, Inc.’s and Mellon Financial’s shareholders, as well as other customary conditions to closing. Subject to such approvals and the satisfaction of the other conditions, Mellon Financial and The Bank of New York Company, Inc. expect the transaction to be completed in the third quarter of 2007.

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.

The Fund 15


NOTES TO FINANCIAL STATEMENTS (continued)

(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. Registered open-end investment companies that are not traded on an exchange 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 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.

On September 20, 2006, the Financial Accounting Standards Board (FASB) released Statement of Financial Accounting Standards No. 157 “Fair Value Measurements” (“FAS 157”). FAS 157 establishes an authoritative definition of fair value, sets out a framework for measuring fair

16

value, and requires additional disclosures about fair-value measurements. The application of FAS 157 is required for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. Management does not believe that the application of this standard will have a material impact on the financial statements of the fund.

(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.

(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.

The Fund 17


NOTES TO FINANCIAL STATEMENTS (continued)

Pursuant to a securities lending agreement with Mellon Bank, N.A., an affiliate of the Manager, 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 the Manager.The fund is 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 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 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.

On July 13, 2006, the FASB released FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (FIN 48). FIN 48 pro-

18

vides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the fund’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority.Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of the effective date. Management does not believe that the application of this standard will have a material impact on the financial statements of the fund.

At December 31, 2006, the components of accumulated earnings on a tax basis were as follows: undistributed ordinary income $2,255,218 and unrealized appreciation $1,717,534,077. In addition, the fund had $1,213,193 of capital losses realized after October 31, 2006, which were deferred for tax purposes to the first day of the following fiscal year.

The tax character of distributions paid to shareholders during the fiscal periods ended December 31, 2006 and December 31, 2005, were as follows: ordinary income $60,779,172 and $60,699,561 and long-term capital gains $171,847,309 and $0, respectively.

During the period ended December 31, 2006, as a result of permanent book to tax differences, primarily due to the tax treatment for foreign currency transactions and reclass of dividend, the fund decreased accumulated undistributed investment income-net by $73,935 and increased accumulated net realized gain (loss) on investments by the same amount. Net assets were not affected by this reclassification.

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.

The Fund 19


NOTES TO FINANCIAL STATEMENTS (continued)

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 line of credit during the period ended December 31, 2006 was approximately $4,293,000 with a related weighted average annualized interest rate of 5.33% ..

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 $200 million  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 December 31, 2006, the fund was charged $10,556,794 pursuant to the Shareholder Services Plan.

20

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 December 31, 2006, the fund was charged $1,642,590 pursuant to the transfer agency agreement.

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 December 31, 2006, the fund was charged $193,291 pursuant to the custody agreement.

During the period ended December 31, 2006, the fund was charged $4,204 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 $1,042,111, shareholder services plan fees $934,055, custodian fees $53,066, chief compliance officer fees $2,044 and transfer agency per account fees $253,333.

(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 December 31, 2006, amounted to $42,034,757 and $624,415,347, respectively.

At December 31, 2006, the cost of investments for federal income tax purposes was $2,798,669,539; accordingly, accumulated net unrealized appreciation on investments was $1,717,534,077, consisting of $1,732,867,744 gross unrealized appreciation and $15,333,667 gross unrealized depreciation.

The Fund 21


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Shareholders and Board of Directors
Dreyfus Appreciation Fund, Inc.

We have audited the accompanying statement of assets and liabilities of Dreyfus Appreciation Fund, Inc., including the statement of investments, as of December 31, 2006, 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 the standards of the Public Company Accounting Oversight Board (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.We were not engaged to perform an audit of the Fund’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2006 by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. 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 Dreyfus Appreciation Fund, Inc. at December 31, 2006, 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 U.S. generally accepted accounting principles.

New York, New York
February 15, 2007
22

IMPORTANT TAX INFORMATION (Unaudited)

For federal tax purposes, the fund hereby designates $.0440 per share as a long-term capital gain distribution of the $.0510 per share paid on March 30, 2006, and also designates $1.7389 per share as a long-term capital gain distribution and $.0100 per share as a short-term capital gain distribution of the $2.3630 per share paid on December 21, 2006. The fund also hereby designates 100% of the ordinary dividends paid during the fiscal year ended December 31, 2006 as qualifying for the corporate dividends received deduction. For the fiscal year ended December 31, 2006, certain dividends paid by the fund may be subject to a maximum tax rate of 15%, as provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003. Of the distributions paid during the fiscal year, $60,779,172 represents the maximum amount that may be considered qualified dividend income. Shareholders will receive notification in January 2007 of the percentage applicable to the preparation of their 2006 income tax returns.

PROXY RESULTS (Unaudited)

The fund held a special meeting of shareholders on November 30, 2006.The proposal considered at the meeting, and the results, are as follows:

    Shares   



  Votes For    Authority Withheld 



To elect additional Board Members:       
David W. Burke   61,726,495    1,158,016 
Joseph S. DiMartino   61,752,397    1,132,115 
Diane Dunst   61,724,773    1,159,738 
Jay I. Meltzer   61,685,874    1,198,637 
Daniel Rose   61,694,858    1,189,653 
Warren B. Rudman   61,685,961    1,198,550 
Sander Vanocur   61,668,078    1,216,434 

Each new Board member’s term commenced on January 1, 2007.

In addition Joseph S. DiMartino, Clifford L. Alexander,Jr., Peggy C. Davis, Ernest Kafka and Nathan Leventhal continue as Board members of the fund.

The Fund 23


INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S INVESTMENT ADVISORY AGREEMENT (Unaudited)

At a meeting of the fund’s Board of Directors held on August 2, 2006, the Board considered the re-approval (through September 5, 2007) of the fund’s Investment Advisory Agreement (“Management Agreement”), pursuant to which the Manager provides the fund with investment advisory and administrative services, and the fund’s Sub-Investment Advisory Agreement (the “Sub-Investment Advisory Agreement”) with Fayez Sarofim & Co. (“Sarofim & Co.”), pursuant to which Sarofim & Co. provides day-to-day management of the fund’s investments subject to the Manager’s oversight.The Board members, none of whom are “interested persons” (as defined in the Investment Company Act of 1940, as amended) of the fund, were assisted in their review by independent legal counsel and met with counsel in executive session separate from representatives of the Manager and Sarofim & Co.

Analysis of Nature, Extent and Quality of Services Provided to the Fund. The Board members received a presentation from representatives of the Manager regarding services provided to the fund and other funds in the Dreyfus fund complex, and discussed the nature, extent and quality of the services provided to the fund pursuant to its Management Agreement, and by Sarofim & Co. pursuant to the Sub-Investment Advisory Agreement.The Manager’s representatives reviewed the fund’s distribution of accounts and the relationships the Manager has with various intermediaries and the different needs of each.The Manager’s representatives noted the distribution channels for the fund as well as the diversity of distribution among the funds in the Dreyfus fund complex, and the Manager’s corresponding need for broad, deep, and diverse resources to be able to provide ongoing shareholder services to each distribution channel, including those of the fund.The Board also reviewed the number of shareholder accounts in the fund, as well as the fund’s asset size.

The Board members considered Sarofim & Co.’s research and portfolio management capabilities.The Board members also considered that the Manager provides oversight of day-to-day fund operations, including fund accounting and administration and assistance in meeting legal and

24

regulatory requirements, and the Manager’s extensive administrative, accounting and compliance infrastructure, as well as the Manager’s supervisory activities over Sarofim & Co.

Comparative Analysis of the Fund’s Performance, Management Fee and Expense Ratio. The Board members reviewed the fund’s performance and placed significant emphasis on comparisons to a group of retail, no-load large-cap core funds (the “Performance Group”) and to a larger universe of funds, consisting of all retail and institutional large-cap core funds (the “Performance Universe”), selected and provided by Lipper, Inc., an independent provider of investment company data.The Board noted that they had been provided with a description of the methodology Lipper used to select the Performance Group and Performance Universe as well as the Expense Group and Expense Universe (discussed below).The Board members discussed the results of the comparisons and noted that the fund achieved a range of 2nd, 3rd, 4th and 5th quintile rankings (the first quintile being the highest performance) among its Performance Group and Performance Universe on a total return performance basis for the 1-, 2-, 3-, 4-, 5- and 10-year time periods ended June30, 2006.The Board members discussed with representatives of the Manager and Sarofim & Co. the investment strategy employed in the management of the fund’s assets and how that strategy affected the fund’s relative performance, particularly during periods when the fund had 4th or 5th quintile rankings.A representative of the Manager noted that high quality, mega-cap stocks had been out of favor for a long period of time but recently appear to have come back into favor.The Board members noted that Sarofim & Co. is an experienced manager with a long-term “buy-and-hold” investment approach to investing in high quality companies that are predominantly “mega-cap” companies. Sarofim & Co.’s considerable reputation, based on following this investment approach, was noted. Dreyfus also provided the Board with the fund’s total return performance and the quartile, percentile and rank (as provided by Lipper) of the fund’s total return within its

The Fund 25


INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE

FUND’S INVESTMENT ADVISORY AGREEMENT (Unaudited) (continued)

Lipper category (as provided by Lipper) for the three-month and year-to-date periods ended June 30, 2006.The Board noted that the fund’s total return performance was in Lipper’s first quartile (the first quartile being the highest performance) during those periods.

The Board members also discussed the fund’s management fee and expense ratio and reviewed the range of management fees and expense ratios as compared to a comparable group of funds (the “Expense Group”) and a broader group of funds (the “Expense Universe”) each selected and provided by Lipper.The Board noted that the fund’s management fee was lower than the Expense Group and Expense Universe medians. The Board noted that the fund’s total expense ratio was higher than the Expense Group median and lower than the Expense Universe median.

Representatives of the Manager reviewed with the Board members the fees paid to the Manager or its affiliates by mutual funds managed by the Manager or its affiliates with similar investment objectives, policies and strategies, and included in the same Lipper category as the fund (the “Similar Funds”), and by other accounts managed by the Manager, Sarofim & Co. or their respective affiliates with similar investment objectives, policies and strategies as the fund (collectively with the Similar Funds, the “Similar Accounts”). The Manager’s representatives explained the nature of the Similar Accounts and the differences, from the Manager’s and Sarofim & Co.’s perspective, as applicable, in providing services to such Similar Accounts as compared to managing and providing services to the fund. The Manager’s representatives also reviewed the costs associated with distribution through intermediaries. The Board analyzed differences in fees paid to the Manager or Sarofim

& Co. and discussed the relationship of the fees paid in light of the Manager’s or Sarofim & Co.’s performance and the services provided. The Board members considered the relevance of the fee information provided for the Similar Accounts managed by the Manager and Sarofim & Co. to evaluate the appropriateness and reasonableness of the fund’s management fee and sub-investment advisory fee. The Board acknowledged that differences in fees paid by the Similar Accounts seemed to be consistent with the services provided.

26

Analysis of Profitability and Economies of Scale. The Manager’s representatives reviewed the dollar amount of expenses allocated and profit received by the Manager and the method used to determine such expenses and profit and the dollar amount of expenses allocated and profit received by Sarofim & Co. The Board members evaluated the profitability analysis in light of the relevant circumstances for the fund, including the recent decline in assets, and the extent to which economies of scale would be realized if the fund grows and whether fee levels reflect these economies of scale for the benefit of fund share-holders.The Board members also considered potential benefits to the Manager and Sarofim & Co. from acting as investment adviser and sub-investment adviser, respectively, and reviewed the soft dollar arrangements with respect to trading the fund’s portfolio.

It was noted that the Board members should consider the Manager’s and Sarofim & Co.’s profitability with respect to the fund as part of their evaluation of whether the fees under the Investment Advisory Agreement bear a reasonable relationship to the mix of services provided by the Manager and Sarofim & Co., respectively, including the nature, extent and quality of such services and that a discussion of economies of scale is predicated on increasing assets and that, if a fund’s assets had been decreasing, the possibility that the Manager or Sarofim

& Co. may have realized any economies of scale would be less. The Board members also discussed the profitability percentage ranges determined by appropriate court cases to be reasonable given the services rendered to investment companies. It was noted that the Manager’s and Sarofim & Co.’s respective profitability percentages for managing the fund were not unreasonable given the fund’s overall performance and generally superior service levels provided.

At the conclusion of these discussions, the Board agreed that it had been furnished with sufficient information to make an informed business decision with respect to continuation of the fund’s Investment Advisory Agreement and Sub-Investment Advisory Agreement. Based on the discussions and considerations described above, the Board made the following conclusions and determinations.

The Fund 27


INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE

FUND’S INVESTMENT ADVISORY AGREEMENT (Unaudited) (continued)

  • The Board concluded that the nature, extent and quality of the ser- vices provided by the Manager and Sarofim & Co. are adequate and appropriate.
  • The Board noted that the fund’s recent short-term performance had improved, but remained concerned with the fund’s longer-term performance. However, the Board understood that the fund’s per- formance was consistent with Sarofim & Co.’s investment approach during all periods, which involves investments in high quality mega- cap companies, and that, for a period of time, such companies have been out of favor but appear to have come back into favor recently.
    While management assured the Board members that portfolio man- agement had been consistent with the strategy description in fund materials and Sarofim & Co.’s stated investment style, the Board determined to continue to closely monitor performance.
  • The Board concluded that the fee paid by the fund to the Manager and Sarofim & Co. were reasonable in light of the considerations described above.
  • The Board determined that the economies of scale which may accrue to the Manager or Sarofim & Co. and their affiliates in con- nection with the management of the fund had been adequately considered by the Manager and Sarofim & Co. in connection with the advisory fee rates charged to the fund and that, to the extent in the future it were to be determined that material economies of scale had not been shared with the fund, the Board would seek to have those economies of scale shared with the fund.

The Board members considered these conclusions and determinations, along with information received on a routine and regular basis throughout the year, and, without any one factor being dispositive, the Board determined that re-approval of the fund’s Investment Advisory Agreement and Sub-Investment Advisory Agreement was in the best interests of the fund and its shareholders.

28

BOARD MEMBERS INFORMATION (Unaudited)

Joseph S. DiMartino (63)
Chairman of the Board (1995)
Principal Occupation During Past 5 Years:
• Corporate Director and Trustee
Other Board Memberships and Affiliations:
  • The Muscular Dystrophy Association, Director
  • Century Business Services, Inc., a provider of outsourcing functions for small and medium size companies, Director
  • The Newark Group, a provider of a national market of paper recovery facilities, paperboard mills and paperboard converting plants, Director
  • Sunair Services Corporation, engaging in the design, manufacture and sale of high frequency systems for long-range voice and data communications, as well as providing certain outdoor-related services to homes and businesses, Director

No. of Portfolios for which Board Member Serves: 190 ———————

Clifford L. Alexander, Jr. (73) Board Member (1981)

Principal Occupation During Past 5 Years:
  • President of Alexander & Associates, Inc., a management consulting firm ( January 1981-present)
  • Chairman of the Board of Moody's Corporation (October 2000-October 2003)

Other Board Memberships and Affiliations:

• Mutual of America Life Insurance Company, Director

No. of Portfolios for which Board Member Serves: 67 ———————

David W. Burke (70) Board Member (2006)

Principal Occupation During Past 5 Years:
• Corporate Director and Trustee
Other Board Memberships and Affiliations:
  • John F. Kennedy Library Foundation, Director
  • U.S.S. Constitution Museum, Director

No. of Portfolios for which Board Member Serves: 81 ———————

Peggy C. Davis (63) Board Member (1990)

Principal Occupation During Past 5 Years:
  • Shad Professor of Law, New York University School of Law (1983-present)
  • Writer and teacher in the fields of evidence, constitutional theory, family law, social sciences and the law, legal process and professional methodology and training
No. of Portfolios for which Board Member Serves: 80

The Fund 29


BOARD MEMBERS INFORMATION (Unaudited) (continued)

Diane Dunst (67)
Board Member (2006)
Principal Occupation During Past 5 Years:
• President, Huntting House Antiques

No. of Portfolios for which Board Member Serves: 32 ———————

Ernest Kafka (74) Board Member (1981)

Principal Occupation During Past 5 Years:
  • Physician engaged in private practice specializing in the psychoanalysis of adults and adolescents (1962-present)
  • Instructor,The New York Psychoanalytic Institute (1981-present)
  • Associate Clinical Professor of Psychiatry at Cornell Medical School (1987-2002)

No. of Portfolios for which Board Member Serves: 32 ———————

Nathan Leventhal (63) Board Member (1989)

Principal Occupation During Past 5 Years:
  • A management consultant for various non-profit organizations (May 2004-present)
  • Chairman of the Avery-Fisher Artist Program (November 1997-present)
Other Board Memberships and Affiliations:
• Movado Group, Inc., Director

No. of Portfolios for which Board Member Serves: 32 ———————

Jay I. Meltzer (78) Board Member (2006)

Principal Occupation During Past 5 Years:
  • Physician, Internist and Specialist in Clinical Hypertension
  • Clinical Professor of Medicine at Columbia University & College of Physicians and Surgeons
  • Faculty Associate, Center for Bioethics, Columbia

No. of Portfolios for which Board Member Serves: 32

30

Daniel Rose (77)
Board Member (2006)
Principal Occupation During Past 5 Years:
  • Chairman and Chief Executive Officer of Rose Associates, Inc., a New York based real estate development and management firm
Other Board Memberships and Affiliations:
  • Baltic-American Enterprise Fund,Vice Chairman and Director
  • Harlem Educational Activities Fund, Inc., Chairman
  • Housing Committee of the Real Estate Board of New York, Inc., Director

No. of Portfolios for which Board Member Serves: 41 ———————

Warren B. Rudman (76) Board Member (2006)

Principal Occupation During Past 5 Years:
  • Of Counsel to (from January 1993 to December 31, 2003, Partner in) the law firm Paul, Weiss, Rifkind,Wharton & Garrison LLP
Other Board Memberships and Affiliations:
  • Collins & Aikman Corporation, Director
  • Allied Waste Corporation, Director
  • Raytheon Company, Director
  • Boston Scientific, Director

No. of Portfolios for which Board Member Serves: 41 ———————

Sander Vanocur (78) Board Member (2006)

Principal Occupation During Past 5 Years:
• President, Old Owl Communications

No. of Portfolios for which Board Member Serves: 41 ———————

Once elected all Board Members serve for an indefinite term, but achieve Emeritus status upon reaching age 80.The address of the Board Members and Officers is in c/o The Dreyfus Corporation, 200 Park Avenue, New York, New York 10166. Additional information about the Board Members 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.

Saul B. Klaman, Emeritus Board Member

The Fund 31


OFFICERS OF THE FUND (Unaudited)

J. DAVID OFFICER, President since  JOSEPH M. CHIOFFI, Vice President and 
December 2006.  Assistant Secretary since August 2005. 
Chief Operating Officer,Vice Chairman and a  Associate General Counsel of the Manager, 
director of the Manager, and an officer of 90  and an officer of 91 investment companies 
investment companies (comprised of 190  (comprised of 206 portfolios) managed by the 
portfolios) managed by the Manager. He is 58  Manager. He is 45 years old and has been an 
years old and has been an employee of the  employee of the Manager since June 2000. 
 
Manager since April 1, 1998.  JANETTE E. FARRAGHER, Vice President 
MARK N. JACOBS, Vice President since  and Assistant Secretary since 
March 2000.  August 2005. 
Executive Vice President, Secretary and  Associate General Counsel of the Manager, 
General Counsel of the Manager, and an  and an officer of 91 investment companies 
officer of 91 investment companies (comprised  (comprised of 206 portfolios) managed by the 
of 206 portfolios) managed by the Manager.  Manager. She is 44 years old and has been an 
He is 60 years old and has been an employee  employee of the Manager since February 1984. 
 
of the Manager since June 1977.  JOHN B. HAMMALIAN, Vice President and 
MICHAEL A. ROSENBERG, Vice President  Assistant Secretary since August 2005. 
and Secretary since August 2005.  Associate General Counsel of the Manager, 
Associate General Counsel of the Manager,  and an officer of 91 investment companies 
and an officer of 91 investment companies  (comprised of 206 portfolios) managed by the 
(comprised of 206 portfolios) managed by the  Manager. He is 43 years old and has been an 
Manager. He is 46 years old and has been an  employee of the Manager since February 1991. 
 
employee of the Manager since October 1991.  ROBERT R. MULLERY, Vice President and 
JAMES BITETTO, Vice President and  Assistant Secretary since August 2005. 
Assistant Secretary since August 2005.  Associate General Counsel of the Manager, 
Associate General Counsel and Assistant  and an officer of 91 investment companies 
Secretary of the Manager, and an officer of 91  (comprised of 206 portfolios) managed by the 
investment companies (comprised of 206  Manager. He is 54 years old and has been an 
portfolios) managed by the Manager. He is 40  employee of the Manager since May 1986. 
 
years old and has been an employee of the  JEFF PRUSNOFSKY, Vice President and 
Manager since December 1996.  Assistant Secretary since August 2005. 
JONI LACKS CHARATAN, Vice President  Associate General Counsel of the Manager, 
and Assistant Secretary since  and an officer of 91 investment companies 
August 2005.  (comprised of 206 portfolios) managed by the 
Associate General Counsel of the Manager,  Manager. He is 41 years old and has been an 
and an officer of 91 investment companies  employee of the Manager since October 1990. 
(comprised of 206 portfolios) managed by the   
Manager. She is 51 years old and has been an   
employee of the Manager since October 1988.   

32


JAMES WINDELS, Treasurer since  JOSEPH W. CONNOLLY, Chief Compliance 
November 2001.  Officer since October 2004. 
Director – Mutual Fund Accounting of the  Chief Compliance Officer of the Manager and 
Manager, and an officer of 91 investment  The Dreyfus Family of Funds (91 investment 
companies (comprised of 206 portfolios)  companies, comprised of 206 portfolios). From 
managed by the Manager. He is 48 years old  November 2001 through March 2004, Mr. 
and has been an employee of the Manager  Connolly was first Vice-President, Mutual 
since April 1985.  Fund Servicing for Mellon Global Securities 
 
ERIK D. NAVILOFF, Assistant Treasurer  Services. In that capacity, Mr. Connolly was 
since August 2005.  responsible for managing Mellon’s Custody, 
  Fund Accounting and Fund Administration 
Senior Accounting Manager – Taxable Fixed  services to third-party mutual fund clients. He 
Income Funds of the Manager, and an officer  is 49 years old and has served in various 
of 91 investment companies (comprised of 206  capacities with the Manager since 1980, 
portfolios) managed by the Manager. He is 38  including manager of the firm’s Fund 
years old and has been an employee of the  Accounting Department from 1997 through 
Manager since November 1992.  October 2001. 
 
ROBERT ROBOL, Assistant Treasurer  WILLIAM GERMENIS, Anti-Money 
since December 2002.  Laundering Compliance Officer since 
Senior Accounting Manager – Money Market  September 2002. 
and Municipal Bond Funds of the Manager,  Vice President and Anti-Money Laundering 
and an officer of 91 investment companies  Compliance Officer of the Distributor, and the 
(comprised of 206 portfolios) managed by the  Anti-Money Laundering Compliance Officer 
Manager. He is 42 years old and has been an  of 87 investment companies (comprised of 202 
employee of the Manager since October 1988.  portfolios) managed by the Manager. He is 36 
ROBERT SVAGNA, Assistant Treasurer  years old and has been an employee of the 
since December 2002.  Distributor since October 1998. 
Senior Accounting Manager – Equity Funds of   
the Manager, and an officer of 91 investment   
companies (comprised of 206 portfolios)   
managed by the Manager. He is 39 years old   
and has been an employee of the Manager   
since November 1990.   
 
GAVIN C. REILLY, Assistant Treasurer   
since December 2005.   
Tax Manager of the Investment Accounting   
and Support Department of the Manager, and   
an officer of 91 investment companies   
(comprised of 206 portfolios) managed by the   
Manager. He is 38 years old and has been an   
employee of the Manager since April 1991.   

The Fund 33


For More Information

Dreyfus Appreciation Fund, Inc.  Custodian 
200 Park Avenue   
  Mellon Bank, N.A. 
New York, NY 10166   
  One Mellon Bank Center 
Investment Adviser  Pittsburgh, PA 15258 
The Dreyfus Corporation  Transfer Agent & 
200 Park Avenue  Dividend Disbursing Agent 
New York, NY 10166  Dreyfus Transfer, Inc. 
Sub-Investment Adviser  200 Park Avenue 
  New York, NY 10166 
Fayez Sarofim & Co.   
Two Houston Center  Distributor 
Suite 2907  Dreyfus Service Corporation 
Houston,TX 77010  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.

© 2007 Dreyfus Service Corporation


Item 2. Code of Ethics.

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

Item 3. Audit Committee Financial Expert.

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

Item 4. Principal Accountant Fees and Services

(a) Audit Fees. The aggregate fees billed for each of the last two fiscal years (the "Reporting Periods") for professional services rendered by the Registrant's principal accountant (the "Auditor") for the audit of the Registrant's annual financial statements, or services that are normally provided by the Auditor in connection with the statutory and regulatory filings or engagements for the Reporting Periods, were $31,301in 2005 and $32,789 in 2006.

(b) Audit-Related Fees. The aggregate fees billed in the Reporting Periods for assurance and related services by the Auditor that are reasonably related to the performance of the audit of the Registrant's financial statements and are not reported under paragraph (a) of this Item 4 were $4,725 in 2005 and $5,122 in 2006. These services consisted of security counts required by Rule 17f-2 under the Investment Company Act of 1940, as amended.

The aggregate fees billed in the Reporting Periods for non-audit assurance and related services by the Auditor to the Registrant's investment adviser (not including any sub-investment adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the Registrant ("Service Affiliates"), that were reasonably related to the performance of the annual audit of the Service Affiliate, which required pre-approval by the Audit Committee were $0 in 2005 and $0 in 2006.

Note: For the second paragraph in each of (b) through (d) of this Item 4, certain of such services were not pre-approved prior to May 6, 2003, when such services were required to be pre-approved. On and after May 6, 2003, 100% of all services provided by the Auditor were pre-approved as required. For comparative purposes, the fees shown assume that all such services were pre-approved, including services that were not pre-approved prior to the compliance date of the pre-approval requirement.

(c) Tax Fees. The aggregate fees billed in the Reporting Periods for professional services rendered by the Auditor for tax compliance, tax advice and tax planning ("Tax Services") were $4,459 in 2005 and $4,362 in 2006. These services consisted of (i) review or preparation of U.S. federal, state, local and excise tax returns; (ii) U.S. federal, state and local tax planning, advice and assistance regarding statutory, regulatory or


administrative developments, (iii) tax advice regarding tax qualification matters and/or treatment of various financial instruments held or proposed to be acquired or held, and (iv) determination of Passive Foreign Investment Companies (as applicable).

The aggregate fees billed in the Reporting Periods for Tax Services by the Auditor to Service Affiliates which required pre-approval by the Audit Committee were $0 in 2005 and $0 in 2006.

(d) All Other Fees. The aggregate fees billed in the Reporting Periods for products and services provided by the Auditor, other than the services reported in paragraphs (a) through (c) of this Item, were $6,070 in 2005 and $7,289 in 2006. These services consisted of a review of the Registrant's anti-money laundering program.

The aggregate fees billed in the Reporting Periods for Non-Audit Services by the Auditor to Service Affiliates, other than the services reported in paragraphs (b) through (c) of this Item, which required pre-approval by the Audit Committee were $0 in 2005 and $0 in 2006.

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

Non-Audit Fees. The aggregate non-audit fees billed by the Auditor for services rendered to the Registrant, and rendered to Service Affiliates, for the Reporting Periods were $758,091 in 2005 and $383,726 in 2006.

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

Item 5.  Audit Committee of Listed Registrants. 
  Not applicable.  [CLOSED-END FUNDS ONLY] 
Item 6.  Schedule of Investments. 
  Not applicable.   
Item 7.  Disclosure of Proxy Voting Policies and Procedures for Closed-End Management 
  Investment Companies. 
  Not applicable.  [CLOSED-END FUNDS ONLY] 
Item 8.  Portfolio Managers of Closed-End Management Investment Companies. 
  Not applicable.  [CLOSED-END FUNDS ONLY, beginning with reports for periods ended 
    on and after December 31, 2005] 
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.

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


 SIGNATURES

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

 DREYFUS APPRECIATION FUND, INC.
By:  /s/ J. David Officer 
  J. David Officer 
  President
 
Date:  February 27, 2007 

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/ J. David Officer 
  J. David Officer 
  President
 
Date:  February 27, 2007 
 
By:  /s/ J. David Officer 
  James Windels 
  Treasurer
 
Date:  February 27, 2007 

EXHIBIT INDEX

(a)(1)  Code of ethics referred to in Item 2. 
 
(a)(2)  Certifications of principal executive and principal financial officers as required by Rule 30a- 
2(a) under the Investment Company Act of 1940. (EX-99.CERT) 
 
(b)  Certification of principal executive and principal financial officers as required by Rule 30a- 
2(b) under the Investment Company Act of 1940. (EX-99.906CERT)