Loading...
Docoh

BNY Mellon Appreciation Fund

Filed: 2 Mar 09, 7:00pm
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) 

Michael A. Rosenberg, 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:  12/31/08   


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  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 
23  Report of Independent Registered 
     Public Accounting Firm 
24  Important Tax Information 
25  Information About the Review and Approval 
     of the Fund’s Investment Advisory Agreement 
31  Board Members Information 
34  Officers of the Fund 
 
  FOR MORE INFORMATION 

 
  Back Cover 


Dreyfus Appreciation Fund, Inc.

The Fund


A LETTER FROM THE CEO

Dear Shareholder:

We present to you this annual report for Dreyfus Appreciation Fund, Inc., covering the 12-month period from January 1, 2008, through December 31, 2008.

2008 was the most difficult year in decades for the economy and stock market.A credit crunch that originated in 2007 in the U.S. sub-prime mortgage market exploded in mid-2008 into a global financial crisis, resulting in the failures of major financial institutions, a deep and prolonged recession and lower investment values across a broad range of asset classes. Governments and regulators throughout the world moved aggressively to curtail the damage, implementing unprecedented reductions of short-term interest rates, massive injections of liquidity into the banking system, government bailouts of struggling companies and plans for massive economic stimulus programs. Although we expect the U.S. and global economies to remain weak until longstanding imbalances have worked their way out of the system, the financial markets currently appear to have priced in investors’ generally low expectations. In previous recessions, however, the markets have tended to anticipate economic improvement before it occurs, potentially leading to major rallies when few expected them. That’s why it makes sense to remain disciplined, maintain a long-term perspective and adopt a consistent asset allocation strategy that reflects one’s future goals and attitudes toward risk.As always, we urge you to consult with your financial advisor, who can recommend the course of action that is right for you.

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.


Jonathan R. Baum
Chief Executive Officer
The Dreyfus Corporation
January 15, 2009

2



DISCUSSION OF FUND PERFORMANCE

For the period of January 1, 2008, through December 31, 2008, as provided by Fayez Sarofim, of Fayez Sarofim & Co., Sub-Investment Adviser

Fund and Market Performance

For the 12-month period ended December 31, 2008, Dreyfus Appreciation Fund produced a total return of –32.37%.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 –36.99% for the same period.2

2008 proved to be a highly challenging year for most investments, including large-cap stocks.A global economic slowdown and an intensifying financial crisis fueled negative returns in every economic sector represented in the S&P 500 Index. Although we are never satisfied with negative absolute returns, we are pleased that the fund produced better results than its benchmark, which we attribute mainly to our longstanding focus on high-quality companies and an effective sector allocation strategy.

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)

Extreme Volatility Roiled the Financial Markets

After producing relatively modest declines over the first half of 2008, stocks tumbled during the second half, producing losses for the S&P 500 Index that have not been seen during a single calendar year since the early 1930s. The bear market was triggered by the intensification of a credit crisis that began in 2007 and mushroomed in September 2008 with the failures of several major financial institutions. These developments exacerbated an ongoing economic slowdown, as lenders grew reluctant to extend credit even to some of their most trusted customers, causing consumer spending and business investment to decline sharply.In late November, the National Bureau of Economic Research confirmed that the U.S. economy was mired in its first recession since 2001.

Not surprisingly, the financial crisis was particularly hard on financial stocks, which posted greater losses, on average, than any of the S&P 500 Index’s other economic sectors. The industrials and consumer discretionary areas, which historically have been relatively sensitive to economic changes, also were among the more severely affected areas, as were businesses that tend to be sensitive to commodity prices, such as producers of energy and basic materials. Traditionally defensive areas, such as the health care and consumer staples sectors, generally posted more mild losses.

Avoiding Troubled Financial Companies

The fund’s focus on quality sheltered it from the full brunt of the bear market. Our security selection and sector allocation strategies were particularly effective in the financials sector, where we maintained a substantially underweighted position and were early in eliminating some of the financial giants at the epicenter of the financial crisis, including American International Group, Citigroup, Merrill Lynch & Co. and SunTrust Banks.

Instead, we focused on the traditionally defensive consumer staples sector, where overweighted exposure and strong stock selections helped the fund participate in relative strength among companies with positive cash flows, low debt levels and steady customer demand. Some of the fund’s better performers included brewer Anheuser-Busch, retailer Wal-Mart Stores and restaurant chain McDonald’s, all of which produced positive absolute returns in 2008.Anheuser-Busch was sold during the reporting

4


period. Other consumer staples holdings declined more modestly than market averages, including food giant Nestle, household goods producer Procter & Gamble and beverages leader Coca-Cola.The fund’s investments in the energy sector also fared relatively well, as integrated energy producers Exxon Mobil, Chevron and ConocoPhillips held up better than most oil services and exploration-and-production specialists.

Of course, the fund also held its share of disappointments in 2008. For example, industrial giant General Electric suffered due to its exposure to the credit markets and slowing economy, and semiconductor maker Intel encountered softer demand for microchips. The fund also held no utilities or telecommunications services stocks, which generally produced above-average results.

Economic Weakness Likely to Persist

The stock market has remained volatile, staging a rally in the final month of the year that offset a portion of its earlier losses. However, we have maintained a defensive investment posture, as we expect the U.S. economy to continue to contract over the next several months.

Still, we remain optimistic over the longer term. The sharp decline in energy prices and an expected stimulus package from the federal government may put more cash in consumers’ pockets later in the year, while historically low interest rates could help reduce business costs.Therefore, we have remained invested in fundamentally strong large-cap companies that, in our analysis, could be among the first to rebound in an eventual market recovery.

January 15, 2009

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


† 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 12/31/98 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. Unlike a mutual fund, the Index is not subject to charges, 
fees and other expenses. Investors cannot invest directly in any index. Further information relating to fund performance, 
including expense reimbursements, if applicable, is contained in the Financial Highlights section of the prospectus and 
elsewhere in this report. 

6


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, 2008 to December 31, 2008. 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, 2008 

 
Expenses paid per $1,000  $4.29 
Ending value (after expenses)  $741.60 

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

Using the SEC’s method to compare expenses

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

Expenses and Value of a $1,000 Investment 
assuming a hypothetical 5% annualized return for the six months ended December 31, 2008 

 
Expenses paid per $1,000  $4.98 
Ending value (after expenses)  $1,020.21 

Expenses are equal to the fund’s annualized expense ratio of .98%, multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).

The Fund 7


STATEMENT OF INVESTMENTS 
December 31, 2008 

Common Stocks—99.3%  Shares  Value ($) 

 
 
Consumer Discretionary—17.7%     
Altria Group  3,371,200  50,770,272 
Christian Dior  531,400 a  29,731,512 
Estee Lauder, Cl. A  675,500 a  20,913,480 
Fomento Economico Mexicano, ADR  385,200  11,606,076 
McDonald’s  1,126,800  70,075,692 
McGraw-Hill  1,309,300  30,362,667 
News, Cl. A  4,753,308  43,207,570 
News, Cl. B  230,100 a  2,204,358 
Philip Morris International  3,371,200  146,680,912 
Target  891,100  30,769,683 
    436,322,222 
Consumer Staples—23.4%     
Coca-Cola  2,308,000  104,483,160 
Kraft Foods, Cl. A  503,168  13,510,061 
Nestle, ADR  2,937,650  116,624,705 
PepsiCo  1,241,700  68,007,909 
Procter & Gamble  2,261,700  139,818,294 
SYSCO  719,300  16,500,742 
Wal-Mart Stores  979,600  54,916,376 
Walgreen  2,553,400  62,992,378 
Whole Foods Market  217,100 a  2,049,424 
    578,903,049 
Energy—24.3%     
Chevron  1,451,600  107,374,852 
ConocoPhillips  1,810,900  93,804,620 
Exxon Mobil  2,664,898  212,738,807 
Halliburton  1,002,000  18,216,360 
Occidental Petroleum  939,800  56,378,602 
Peabody Energy  168,500  3,833,375 
Royal Dutch Shell, Cl. A, ADR  608,900  32,235,166 
Total, ADR  1,102,900  60,990,370 
Transocean  256,048 b  12,098,268 
Weatherford International  403,300 b  4,363,706 
    602,034,126 

8


Common Stocks (continued)  Shares  Value ($) 

 
 
Financial—5.2%     
American Express  383,600  7,115,780 
Bank of America  1,492,700  21,017,216 
Berkshire Hathaway, Cl. A  392 b  37,867,200 
HSBC Holdings, ADR  660,400 a  32,141,668 
JPMorgan Chase & Co.  930,400  29,335,512 
    127,477,376 
Health Care—10.8%     
Abbott Laboratories  1,227,200  65,495,664 
Intuitive Surgical  29,500 b  3,746,205 
Johnson & Johnson  1,822,300  109,028,209 
Medtronic  385,200  12,102,984 
Merck & Co.  460,300  13,993,120 
Novo Nordisk, ADR  356,400  18,315,396 
Roche Holding, ADR  575,500  44,054,525 
    266,736,103 
Industrial—7.4%     
Caterpillar  529,700  23,661,699 
Emerson Electric  1,229,900  45,026,639 
General Dynamics  356,400  20,525,076 
General Electric  3,796,500  61,503,300 
McDermott International                     245,800 a,b  2,428,504 
United Technologies  577,900  30,975,440 
    184,120,658 
Information Technology—8.8%     
Apple  313,000 b  26,714,550 
Automatic Data Processing  814,700  32,050,298 
Cisco Systems  1,355,300 b  22,091,390 
Corning  387,800  3,695,734 
Intel  4,747,500  69,598,350 
Microsoft  1,565,900  30,441,096 
QUALCOMM  431,300  15,453,479 
Texas Instruments  1,155,600  17,934,912 
    217,979,809 

The Fund 9


STATEMENT OF INVESTMENTS (continued)

Common Stocks (continued)  Shares  Value ($) 

 
 
Materials—1.7%     
Freeport-McMoRan Copper & Gold  164,300  4,015,492 
Praxair  599,400  35,580,384 
Rio Tinto, ADR  20,300 a  1,804,873 
    41,400,749 
Total Common Stocks     
   (cost $2,122,287,630)    2,454,974,092 
 
Other Investment—.1%     

 
 
Registered Investment Company;     
Dreyfus Institutional Preferred Plus Money Market Fund     
   (cost $1,340,000)  1,340,000 c  1,340,000 
 
Investment of Cash Collateral     
   for Securities Loaned—1.2%     

 
 
Registered Investment Company;     
Dreyfus Institutional Cash Advantage Fund     
   (cost $29,539,827)  29,539,827 c  29,539,827 
Total Investments (cost $2,153,167,457)  100.6%  2,485,853,919 
Liabilities, Less Cash and Receivables  (.6%)  (14,617,702) 
Net Assets  100.0%  2,471,236,217 

ADR—American Depository Receipts 
a All or a portion of these securities are on loan. At December 31, 2008, the total market value of the fund’s securities 
   on loan is $29,277,519 and the total market value of the collateral held by the fund is $29,539,827. 
b Non-income producing security. 
c Investment in affiliated money market mutual fund. 

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

 
 
 
Energy  24.3  Industrial  7.4 
Consumer Staples  23.4  Financial  5.2 
Consumer Discretionary  17.7  Materials  1.7 
Health Care  10.8  Money Market Investments  1.3 
Information Technology  8.8    100.6 

† Based on net assets. 
See notes to financial statements. 

10


STATEMENT OF ASSETS AND LIABILITIES

December 31, 2008

  Cost  Value 

 
 
Assets ($):     
Investments in securities—See Statement of     
   Investments (including securities on loan,     
valued at $29,277,519)—Note 1(c):     
Unaffiliated issuers  2,122,287,630  2,454,974,092 
Affiliated issuers  30,879,827  30,879,827 
Cash    1,940,216 
Receivable for investment securities sold    19,642,727 
Receivable for shares of Common Stock subscribed    12,774,541 
Dividends and interest receivable    6,757,373 
Prepaid expenses    54,338 
    2,527,023,114 
Liabilities ($):     
Due to The Dreyfus Corporation and affiliates—Note 3(b)    1,517,285 
Due to Fayez Sarofim & Co.    553,561 
Liability for securities on loan—Note 1(c)    29,539,827 
Payable for shares of Common Stock redeemed    23,541,679 
Interest payable—Note 2    51,886 
Accrued expenses    582,659 
    55,786,897 
Net Assets ($)    2,471,236,217 
Composition of Net Assets ($):     
Paid-in capital    2,185,953,831 
Accumulated undistributed investment income—net    1,632,312 
Accumulated net realized gain (loss) on investments    (49,036,388) 
Accumulated net unrealized appreciation     
   (depreciation) on investments    332,686,462 
Net Assets ($)    2,471,236,217 
Shares Outstanding     
(300 million shares of $.001 par value Common Stock authorized)    87,529,478 
Net Asset Value, offering and redemption price per share ($)    28.23 
 
See notes to financial statements.     

The Fund 11


STATEMENT OF OPERATIONS   
Year Ended December 31, 2008   

 
 
 
 
 
Investment Income ($):   
Income:   
Cash dividends (net of $1,778,912 foreign taxes withheld at source):   
   Unaffiliated issuers  92,451,562 
   Affiliated issuers  426,870 
Income from securities lending  1,336,105 
Total Income  94,214,537 
Expenses:   
Investment advisory fee—Note 3(a)  10,087,669 
Sub-Investment advisory fees—Note 3(a)  9,742,669 
Shareholder servicing costs—Note 3(b)  14,080,410 
Prospectus and shareholders’ reports  248,632 
Custodian fees—Note 3(b)  227,177 
Directors’ fees and expenses—Note 3(c)  166,650 
Registration fees  97,408 
Interest expense—Note 2  71,525 
Professional fees  65,355 
Loan commitment fees—Note 2  48,952 
Miscellaneous  102,616 
Total Expenses  34,939,063 
Less—reduction in fees due to   
   earnings credits—Note 1(c)  (258,209) 
Net Expenses  34,680,854 
Investment Income—Net  59,533,683 
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($):   
Net realized gain (loss) on investments and foreign currency transactions  80,360,634 
Net unrealized appreciation (depreciation) on investments  (1,470,667,591) 
Net Realized and Unrealized Gain (Loss) on Investments  (1,390,306,957) 
Net (Decrease) in Net Assets Resulting from Operations  (1,330,773,274) 
 
See notes to financial statements.   

12


STATEMENT OF CHANGES IN NET ASSETS

  Year Ended December 31, 
  
  2008  2007 

 
 
Operations ($):     
Investment income—net  59,533,683  60,088,014 
Net realized gain (loss) on investments  80,360,634  127,073,623 
Net unrealized appreciation     
   (depreciation) on investments  (1,470,667,591)  85,819,976 
Net Increase (Decrease) in Net Assets     
   Resulting from Operations  (1,330,773,274)  272,981,613 
Dividends to Shareholders from ($):     
Investment income—net  (59,887,458)  (60,345,000) 
Net realized gain on investments  (101,951,086)  (122,515,821) 
Total Dividends  (161,838,544)  (182,860,821) 
Capital Stock Transactions ($):     
Net proceeds from shares sold  931,035,742  948,441,022 
Dividends reinvested  152,431,569  161,992,097 
Cost of shares redeemed  (1,466,395,542)  (1,235,975,893) 
Increase (Decrease) in Net Assets     
from Capital Stock Transactions  (382,928,231)  (125,542,774) 
Total Increase (Decrease) in Net Assets  (1,875,540,049)  (35,421,982) 
Net Assets ($):     
Beginning of Period  4,346,776,266  4,382,198,248 
End of Period  2,471,236,217  4,346,776,266 
Undistributed investment income—net  1,632,312  1,992,479 
Capital Share Transactions (Shares):     
Shares sold  24,458,995  20,971,014 
Shares issued for dividends reinvested  5,532,768  3,658,644 
Shares redeemed  (39,713,624)  (27,464,584) 
Net Increase (Decrease) in Shares Outstanding  (9,721,861)  (2,834,926) 
 
See notes to financial statements.     

The Fund 13


FINANCIAL HIGHLIGHTS

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

    Year Ended December 31,   
  
 
 
  2008  2007  2006  2005  2004 

 
 
 
 
 
Per Share Data ($):           
Net asset value,           
   beginning of period  44.70  43.78  39.75  38.69  37.14 
Investment Operations:           
Investment income—neta  .64  .62  .61  .53  .52 
Net realized and unrealized           
   gain (loss) on investments  (15.16)  2.24  5.83  1.07  1.55 
Total from Investment Operations  (14.52)  2.86  6.44  1.60  2.07 
Distributions:           
Dividends from           
   investment income—net  (.72)  (.64)  (.62)  (.54)  (.52) 
Dividends from net realized           
   gain on investments  (1.23)  (1.30)  (1.79)  —  — 
Total Distributions  (1.95)  (1.94)  (2.41)  (.54)  (.52) 
Net asset value, end of period  28.23  44.70  43.78  39.75  38.69 
Total Return (%)  (32.37)  6.54  16.26  4.14  5.57 
Ratios/Supplemental Data (%):           
Ratio of total expenses           
   to average net assets  .97  .95  .95  .92  .95 
Ratio of net expenses           
   to average net assets  .96  .95  .95  .92  .95b 
Ratio of net investment income           
   to average net assets  1.65  1.37  1.45  1.35  1.40 
Portfolio Turnover Rate  6.98  7.35  1.00  6.81  8.23 
Net Assets, end of period           
   ($ x 1,000)  2,471,236  4,346,776  4,382,198  4,462,452  4,420,163 

a  Based on average shares outstanding at each month end. 
b  Expense waivers and/or reimbursements amounted to less than .01%. 
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”), a wholly-owned subsidiary ofThe Bank of New York Mellon Corporation (“BNY Mellon”), serves as the fund’s investment adviser. Fayez Sarofim & Co. (“Sarofim”) serves as the fund’s sub-investment adviser. MBSC Securities Corporation (the “Distributor”), a wholly-owned subsidiary of Dreyfus, is the distributor of the fund’s shares, which are sold without a sales charge.

Effective July 1, 2008, BNY Mellon reorganized and consolidated a number of its banking and trust company subsidiaries.As a result of the reorganization, any services previously provided to the fund by Mellon Bank, N.A. or Mellon Trust of New England, N.A. are now provided by The Bank of NewYork Mellon (formerly,The Bank of NewYork).

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 sales 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

The Fund 15


NOTES TO FINANCIAL STATEMENTS (continued)

prices. Bid price is used when no asked price is available. Registered investment companies that are not traded on an exchange are valued at their net asset 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 ADRs 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.

The fund adopted 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 value, and requires additional disclosures about fair value measurements.

Various inputs are used in determining the value of the fund’s investments relating to FAS 157.These inputs are summarized in the three broad levels listed below.

Level 1—quoted prices in active markets for identical securities. 
Level 2—other significant observable inputs (including quoted 
prices for similar securities, interest rates, prepayment speeds, credit 
risk, etc.). 
Level 3—significant unobservable inputs (including the fund’s own 
assumptions in determining the fair value of investments). 

16


The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used as of December 31, 2008 in valuing the fund’s investments carried at fair value:

  Investments in  Other Financial 
Valuation Inputs  Securities ($)  Instruments ($) 

 
 
Level 1—Quoted Prices  2,325,174,689  
Level 2—Other Significant     
   Observable Inputs  160,679,230  
Level 3—Significant     
   Unobservable Inputs   
Total  2,485,853,919  0 

† Other financial instruments include derivative instruments, such as futures, forward currency 
   exchange contracts and swap contracts, which are valued at the unrealized appreciation 
   (depreciation) on the instrument and written options contracts which are shown at value. 
 
(b) Foreign currency transactions: The fund does not isolate that por- 

tion 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 gains and losses from securities transactions are recorded on the identified cost basis. Dividend income is recognized on the ex-dividend date and interest

The Fund 17


NOTES TO FINANCIAL STATEMENTS (continued)

income, including, where applicable, accretion of discount and amortization of premium on investments, is recognized on the accrual basis.

The fund has arrangements with the custodian and cash management banks whereby the fund may receive earnings credits when positive cash balances are maintained, which are used to offset custody and cash management fees. For financial reporting purposes, the fund includes net earnings credits as an expense offset in the Statement of Operations.

Pursuant to a securities lending agreement with The Bank of New York Mellon, a subsidiary of BNY Mellon and 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. Collateral is either invested in the form of cash, which can be invested in certain money market mutual funds managed by Dreyfus, U.S. Government and Agency securities or letters of credit.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. During the period ended December 31, 2008,The Bank of New York Mellon earned $572,617 from lending fund portfolio securities, pursuant to the securities lending agreement.

(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 gains, if any, are normally declared and paid annually but the fund may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code of 1986, as amended (the “Code”).To the extent that net realized

18


capital gains can be offset by capital loss carryovers, it is the policy of the fund not to distribute such gains. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from 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.

As of and during the period ended December 31, 2008, the fund did not have any liabilities for any unrecognized tax positions. The fund recognizes interest and penalties, if any, related to unrecognized tax positions as income tax expense in the Statement of Operations. During the period, the fund did not incur any interest or penalties.

Each of the tax years in the four-year period ended December 31, 2008 remains subject to examination by the Internal Revenue Service and state taxing authorities.

At December 31, 2008, the components of accumulated earnings on a tax basis were as follows: undistributed ordinary income $1,632,312 and unrealized appreciation $332,686,462. In addition, the fund had $49,036,388 of capital losses realized after October 31, 2008, 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, 2008 and December 31, 2007 were as follows: ordinary income $60,573,158 and $65,435,266 and long-term capital gains $101,265,386 and $117,425,555, respectively.

During the period ended December 31, 2008, as a result of permanent book to tax differences, primarily due to the tax treatment for foreign currency transactions, dividend reclassification and treating a portion of the proceeds from redemptions as a distribution for tax purposes, the fund decreased accumulated undistributed investment

The Fund 19


NOTES TO FINANCIAL STATEMENTS (continued)

income-net by $6,392, decreased accumulated net realized gain (loss) on investments by $30,796,298 and increased paid-in capital by $30,802,690. Net assets and net asset value per share were not affected by this reclassification.

NOTE 2—Bank Lines of Credit:

Prior to October 15, 2008, the fund participated with other Dreyfus-managed funds in a $350 million redemption credit facility. Effective October 15, 2008, the fund participates with other Dreyfus managed funds in a $145 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 Facilities during the period ended December 31, 2008, was approximately $3,310,700 with a related weighted average annualized interest rate of 2.16%.

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% 

20


(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, 2008, the fund was charged $9,013,790 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 December 31, 2008, the fund was charged $2,058,505 pursuant to the transfer agency agreement.

The fund compensates The Bank of New York Mellon under a cash management agreement for performing cash management services related to fund subscriptions and redemptions. During the period ended December 31, 2008, the fund was charged $258,209 pursuant to the cash management agreement.

The fund compensates The Bank of New York Mellon under a custody agreement for providing custodial services for the fund. During the period ended December 31, 2008, the fund was charged $227,177 pursuant to the custody agreement.

During the period ended December 31, 2008, the fund was charged $5,403 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: investment advi-

The Fund 21


NOTES TO FINANCIAL STATEMENTS (continued)

sory fees $582,782, shareholder services plan fees $516,520, custodian fees $65,168, chief compliance officer fees $1,197 and transfer agency per account fees $351,618.

(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, 2008, amounted to $252,173,755 and $752,805,794, respectively.

At December 31, 2008, the cost of investments for federal income tax purposes was $2,153,167,457; accordingly, accumulated net unrealized appreciation on investments was $332,686,462, consisting of $710,647,744 gross unrealized appreciation and $377,961,282 gross unrealized depreciation.

In March 2008, the Financial Accounting Standards Board released Statement of Financial Accounting Standards No. 161 “Disclosures about Derivative Instruments and Hedging Activities” (“FAS 161”). FAS 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements. The application of FAS 161 is required for fiscal years and interim periods beginning after November 15, 2008.At this time, management is evaluating the implications of FAS 161 and its impact on the financial statements and the accompanying notes has not yet been determined.

22


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, 2008, 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, 2008 by correspondence with the custodian and others. 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, 2008, 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 24, 2009

The Fund 23


IMPORTANT TAX INFORMATION (Unaudited)

In accordance with federal tax law, the fund hereby designates 99.92% of the ordinary dividends paid during the fiscal year ended December 31, 2008 as qualifying for the corporate dividends received deduction. For the fiscal year ended December 31, 2008, 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, $60,573,158 represents the maximum amount that may be considered qualified dividend income. Shareholders will receive notification in January 2009 of the percentage applicable to the preparation of their 2008 income tax returns. Also the fund hereby designates $132,068,076 as a long-term capital gain distribution and $670,108 as a short-term capital gain distribution for the fiscal year ended December 31, 2008.

24


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

At a meeting of the Board of Directors held on July 22, 2008, the Board considered the re-approval for an annual period 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 Sub-Investment Advisory Agreement (the “Sub-Investment Advisory Agreement”) pursuant to which Fayez Sarofim & Co. (“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 considered information previously provided to them in a presentation from representatives of the Manager regarding services provided to the fund and other funds in the Dreyfus fund complex, and representatives of the Manager confirmed that there had been no material changes in this information. The Board also 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 in each distribution channel, including those of the fund. The Manager provided the number of shareholder accounts in the fund, as well as the fund’s asset size.

The Fund 25


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

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 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 reports prepared by Lipper, Inc., an independent provider of investment company data, comparing the fund’s performance to a group of comparable funds (the “Performance Group”) and to a broader group of funds (the “Performance Universe”) selected by Lipper.The Board members 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 noted that the fund’s total return performance was above the Performance Group median for the one- and two-year periods ended May 31, 2008, and below the Performance Group median for the three-, four-, five- and ten-year periods ended May 31, 2008.The Board members noted that the fund’s total return performance was above the Performance Universe median for the one-, two-, three- and ten-year periods ended May 31, 2008, and below the Performance Universe median for the four- and five-year periods ended May 31, 2008. 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 underperformed. A representative of the Manager reminded the Board members that high quality, mega-cap stocks had been out of favor for a long period of time, which affected the fund’s relative performance for the three-, four- and five-year periods ended May 31, 2008, but have performed better more recently, as was reflected in the fund’s one-and two-year relative perfor-mance.The representatives of the Manager noted that Sarofim & Co. is

26


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. The Manager also provided the Board with the fund’s total return performance for the past ten calendar years in comparison to the Standard & Poor’s Composite Stock Index (the “Index”), and noted that the fund outperformed the Index in six of the ten calendar years, including 2006 and 2007.

The Board members also discussed the fund’s management fee and expense ratio as compared to a comparable group of funds (the “Expense Group”) that was composed of the same funds included in the Performance 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 and the total expense ratio was higher than the Expense Group median but lower than the Expense Universe median.

Representatives of the Manager reviewed with the Board members the fees paid to the Manager, Sarofim & Co. or their affiliates by mutual funds managed by the Manager, Sarofim & Co. or their affiliates with similar investment objectives, policies and strategies, and included in the same Lipper category, as the fund (the “Similar Funds”). The Board members also reviewed the fees paid by other accounts managed by the Manager, Sarofim & Co. or their respective affiliates with similar investment objectives, policies and strategies as the fund (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 management of the 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 services provided.The Board members con-

The Fund 27


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

sidered the relevance of the fee information provided for the Similar Funds and the Similar Accounts 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.

The Board considered the fee paid to Sarofim & Co. in relation to the fee paid to the Manager and the respective services provided by Sarofim & Co. and the Manager.

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 previously had been provided with information prepared by an independent consulting firm regarding the Manager’s approach to allocating costs to, and determining the profitability of, individual funds and the entire Dreyfus mutual fund complex. The Board members also had been informed that the methodology also had been reviewed by an independent registered public accounting firm which, like the consultant, found the methodology to be reasonable.The consulting firm also analyzed where any economies of scale might emerge in connection with the management of a fund. The Board members evaluated the profitability analysis in light of the relevant circumstances for the fund, and the extent to which economies of scale would be realized if the fund grows and whether fee levels reflect these economies of scale for the benefit of fund shareholders. The Board members also considered potential benefits to the Manager and Sarofim & Co. and their affiliates from acting as investment adviser and sub-investment adviser, respectively, to the fund and noted that there were no 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

28


their evaluation of whether the fees under the Management Agreement and Sub-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. It was also noted that the profitability percentage for managing the fund was within the range determined by appropriate court cases to be reasonable given the services rendered and generally superior service levels provided by the Manager or Sarofim & Co.

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 Management Agreement and Sub-Investment Advisory Agreement. Based on the discussions and considerations as described above, the Board made the following conclusions and determinations.

  • The Board concluded that the nature, extent and quality of the ser- vices provided by the Manager and Sarofim & Co. to the fund are adequate and appropriate.
  • The Board was generally satisfied with the fund’s performance, noting the fund’s total return performance for the one- and two-year peri- ods ended May 31, 2008 in comparison to the Performance Group and Performance Universe medians. The Board also noted that the fund’s performance was consistent with Sarofim & Co.’s investment approach during all periods, which involves investments in high qual- ity mega-cap companies, and that, for a period of time during which the fund underperformed, such companies had been out of favor.
  • The Board concluded that the fees paid by the fund to the Manager and Sarofim & Co. were reasonable in light of the considerations described above.

The Fund 29


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

  • 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 Management Agreement and Sub-Investment Advisory Agreement was in the best interests of the fund and its shareholders.

30








OFFICERS OF THE FUND (Unaudited)

J. DAVID OFFICER, President since December 2006.

Chief Operating Officer,Vice Chairman and a Director of the Manager, and an officer of 77 investment companies (comprised of 180 portfolios) managed by the Manager. He is 60 years old and has been an employee of the Manager since April 1998.

PHILLIP N. MAISANO, Executive Vice President since July 2007.

Chief Investment Officer,Vice Chair and a director of the Manager, and an officer of 77 investment companies (comprised of 180 portfolios) managed by the Manager. Mr. Maisano also is an officer and/or Board member of certain other investment management subsidiaries of The Bank of New York Mellon Corporation, each of which is an affiliate of the Manager. He is 61 years old and has been an employee of the Manager since November 2006. Prior to joining the Manager, Mr. Maisano served as Chairman and Chief Executive Officer of EACM Advisors, an affiliate of the Manager, since August 2004, and served as Chief Executive Officer of Evaluation Associates, a leading institutional investment consulting firm, from 1988 until 2004.

MICHAEL A. ROSENBERG, Vice President and Secretary since August 2005.

Assistant General Counsel of BNY Mellon, and an officer of 78 investment companies (comprised of 201 portfolios) managed by the Manager. He is 48 years old and has been an employee of the Manager since October 1991.

JAMES BITETTO, Vice President and Assistant Secretary since August 2005.

Senior Counsel of BNY Mellon and Secretary of the Manager, and an officer of 78 investment companies (comprised of 201 portfolios) managed by the Manager. He is 42 years old and has been an employee of the Manager since December 1996.

JONI LACKS CHARATAN, Vice President and Assistant Secretary since August 2005.

Senior Counsel of BNY Mellon, and an officer of 78 investment companies (comprised of 201 portfolios) managed by the Manager. She is 53 years old and has been an employee of the Manager since October 1988.

JOSEPH M. CHIOFFI, Vice President and Assistant Secretary since August 2005.

Senior Counsel of BNY Mellon, and an officer of 78 investment companies (comprised of 201 portfolios) managed by the Manager. He is 47 years old and has been an employee of the Manager since June 2000.

JANETTE E. FARRAGHER, Vice President and Assistant Secretary since August 2005.

Assistant General Counsel of BNY Mellon, and an officer of 78 investment companies (comprised of 201 portfolios) managed by the Manager. She is 46 years old and has been an employee of the Manager since February 1984.

JOHN B. HAMMALIAN, Vice President and Assistant Secretary since August 2005.

Managing Counsel of BNY Mellon, and an officer of 78 investment companies (comprised of 201 portfolios) managed by the Manager. He is 45 years old and has been an employee of the Manager since February 1991.

ROBERT R. MULLERY, Vice President and Assistant Secretary since August 2005.

Managing Counsel of BNY Mellon, and an officer of 78 investment companies (comprised of 201 portfolios) managed by the Manager. He is 56 years old and has been an employee of the Manager since May 1986.

34


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

Managing Counsel of BNY Mellon, and an officer of 78 investment companies (comprised of 201 portfolios) managed by the Manager. He is 43 years old and has been an employee of the Manager since October 1990.

JAMES WINDELS, Treasurer since November 2001.

Director – Mutual Fund Accounting of the Manager, and an officer of 78 investment companies (comprised of 201 portfolios) managed by the Manager. He is 49 years old and has been an employee of the Manager since April 1985.

RICHARD CASSARO, Assistant Treasurer since January 2008.

Senior Accounting Manager – Money Market and Municipal Bond Funds of the Manager, and an officer of 78 investment companies (comprised of 201 portfolios) managed by the Manager. He is 49 years old and has been an employee of the Manager since September 1982.

GAVIN C. REILLY, Assistant Treasurer since December 2005.

Tax Manager of the Investment Accounting and Support Department of the Manager, and an officer of 78 investment companies (comprised of 201 portfolios) managed by the Manager. He is 40 years old and has been an employee of the Manager since April 1991.

ROBERT ROBOL, Assistant Treasurer since December 2002.

Senior Accounting Manager – Fixed Income Funds of the Manager, and an officer of 78 investment companies (comprised of 201 portfolios) managed by the Manager. He is 44 years old and has been an employee of the Manager since October 1988.

ROBERT SALVIOLO, Assistant Treasurer since May 2007.

Senior Accounting Manager – Equity Funds of the Manager, and an officer of 78 investment companies (comprised of 201 portfolios) managed by the Manager. He is 41 years old and has been an employee of the Manager since June 1989.

ROBERT SVAGNA, Assistant Treasurer since December 2002.

Senior Accounting Manager – Equity Funds of the Manager, and an officer of 78 investment companies (comprised of 201 portfolios) managed by the Manager. He is 41 years old and has been an employee of the Manager since November 1990.

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

Chief Compliance Officer of the Manager and The Dreyfus Family of Funds (78 investment companies, comprised of 201 portfolios). From November 2001 through March 2004, Mr. Connolly was first Vice-President, Mutual Fund Servicing for Mellon Global Securities Services. In that capacity, Mr. Connolly was responsible for managing Mellon’s Custody, Fund Accounting and Fund Administration services to third-party mutual fund clients. He is 51 years old and has served in various capacities with the Manager since 1980, including manager of the firm’s Fund Accounting Department from 1997 through October 2001.

WILLIAM GERMENIS, Anti-Money Laundering Compliance Officer since October 2002.

Vice President and Anti-Money Laundering Compliance Officer of the Distributor, and the Anti-Money Laundering Compliance Officer of 74 investment companies (comprised of 197 portfolios) managed by the Manager. He is 38 years old and has been an employee of the Distributor since October 1998.

The Fund 35


NOTES




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 $32,789 in 2007 and $33,772 in 2008.

(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 $5,122 in 2007 and $10,398 in 2008.

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 2007 and $0 in 2008.

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 $3,323 in 2007 and $3,104 in 2008. 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. 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 2007 and $0 in 2008.


(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 $0 in 2007 and $1,667 in 2008. 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 2007 and $0 in 2008.

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 $1,889,332 in 2007 and $12,561,320 in 2008.

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.  Investments. 
(a)  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 23, 2009 

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 23, 2009 
 
By:  /s/ James Windels 
  James Windels, 
  Treasurer
 
 
Date:  February 23, 2009 

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)