N-CSR 1 formncsr.htm SEMI-ANNUAL REPORT formncsr
  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 811-2653    
       
  DREYFUS BOND FUNDS, 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: 08/31    
       
Date of reporting period: 02/29/2004    

SSL-DOCS2 70134233v1

FORM N-CSR

Item 1. Reports to Stockholders.

Dreyfus
Municipal Bond
Fund

SEMIANNUAL REPORT February 29, 2004

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

T H E F U N D

2
  		 Letter from the Chairman
3
  		 Discussion of Fund Performance
6
  		 Statement of Investments
19
  		 Statement of Assets and Liabilities
20
  		 Statement of Operations
21
  		 Statement of Changes in Net Assets
22
  		 Financial Highlights
24
  		 Notes to Financial Statements
     F O R M O R E I N F O R M AT I O N
Back Cover
Dreyfus Municipal
   Bond Fund

The Fund

LETTER FROM THE CHAIRMAN

Dear Shareholder:

This semiannual report for Dreyfus Municipal Bond Fund covers the six-month period from September 1, 2003, through February 29, 2004. Inside, you’ll find valuable information about how the fund was managed during the reporting period, including a discussion with the fund’s portfolio manager, Paul Disdier.

The municipal bond market ended the reporting period with the same strong performance and underpinnings with which it began. In fact, despite a rising stock market, historically low tax-exempt yields and stubborn fiscal pressures affecting many states and municipalities, investor demand for tax-exempt securities has remained robust, supporting bond prices.While the strengthening U.S. economy continues to suggest to us that short-term interest rates are likely to rise at some point in the future, the timing of such a move and its implications for municipal bonds of various types and maturities are far from certain.

Should you revise your tax-exempt income strategies if the economy strengthens further? The answer depends on your current needs and tax situation, future goals and the level of diversification across the various asset classes in your overall investment portfolio.As always, we encourage you to talk with your financial advisor regularly about these issues and the investment strategies that may be appropriate for you.

Thank you for your continued confidence and support.

Sincerely,

Stephen E. Canter
Chairman and Chief Executive Officer
The Dreyfus Corporation
March 15, 2004

2

DISCUSSION OF FUND PERFORMANCE

Paul Disdier, Senior Portfolio Manager

How did Dreyfus Municipal Bond Fund perform relative to its benchmark?

For the six-month period ended February 29, 2004, the fund achieved a total return of 6.73%.1The Lehman Brothers Municipal Bond Index (the “Index”), the fund’s benchmark, achieved a total return of 6.52% for the same period.2 In addition, the average total return for all funds reported in the Lipper General Municipal Debt Funds category was 6.44%.3

The municipal bond market recovered gradually during the reporting period from the steep market decline that occurred in the summer of 2003, just before the reporting period began. The fund’s focus on intermediate-term securities, where the rebound was particularly strong, enabled it to produce a higher return than its benchmark and Lipper category average.

What is the fund’s investment approach?

The fund seeks to maximize current income exempt from federal income tax to the extent consistent with the preservation of capital.

To pursue this goal, the fund normally invests substantially all of its net assets in municipal bonds that provide income exempt from federal income tax.The fund will invest at least 75% of its assets in municipal bonds rated A or better or the unrated equivalent as determined by Dreyfus. The fund may invest up to 25% of its assets in municipal bonds rated below A or the unrated equivalent as determined by Dreyfus, including bonds rated below investment-grade quality (“high-yield” or “junk” bonds).The dollar-weighted average maturity of the fund’s portfolio is not restricted, but normally exceeds 10 years.

The portfolio manager may buy and sell bonds based on credit quality, market outlook and yield potential. In selecting municipal bonds for investment, the portfolio manager may assess the current interest-rate environment and the municipal bond’s potential volatility in different

The Fund 3

DISCUSSION OF FUND PERFORMANCE (continued)

rate environments.The portfolio manager focuses on bonds with the potential to offer attractive current income, typically looking for bonds that can provide consistently attractive current yields or that are trading at competitive market prices.A portion of the fund’s assets may be allocated to “discount” bonds, which are bonds that sell at a price below their face value, or to “premium” bonds, which are bonds that sell at a price above their face value.The fund’s allocation to either discount bonds or premium bonds will change along with the portfolio manager’s changing views of the current interest-rate and market envi-ronment.The portfolio manager also may look to select bonds that are most likely to obtain attractive prices when sold.

What other factors influenced the fund’s performance?

Just before the reporting period began, municipal bonds suffered a sharp decline amid signs that the U.S. economy was growing more robustly. Over the next six months, tax-exempt bond prices recovered gradually, as a persistently weak labor market and the absence of inflationary pressures allowed the Federal Reserve Board (the “Fed”) to maintain short-term interest rates near historically low levels. In addition, a strengthening economy was expected to produce better fiscal conditions for many states and municipalities that previously had seen tax revenues fall short of budgeted projections.

Bonds in the intermediate-term maturity range generally participated in the market rally to a greater degree than bonds with shorter or longer maturities. In addition, intermediate-term bonds benefited from the effects of “roll down” at year-end, a phenomenon in which bond prices appreciate as they move closer to their final maturities.The fund held more intermediate-term bonds than its benchmark during the reporting period, helping to support its relative performance.

Because of the risk that stronger economic growth could lead to higher interest rates, we recently began to reduce the fund’s average duration from a range we considered to be in line with the Index to one that is slightly shorter than the Index.We achieved this positioning by reducing the fund’s holdings of intermediate-term bonds and

4

putting cash to work in bonds with maturities in the one- to four-year range. In our view, this more diversified positioning among bonds of various maturities should help the fund weather potential heightened short-term market volatility.

When making new purchases, we generally favored higher-coupon bonds that historically tended to perform well during market declines. We continued to find such opportunities among bonds backed by revenues produced by essential municipal services, such as water and utility facilities.As the fiscal outlooks of many states and municipalities improved, we also felt more comfortable investing in some of the general obligation securities that we previously had avoided.

What is the fund’s current strategy?

The U.S. economy reportedly has continued to expand, without creating a significant number of new jobs that might cause the Fed to act. Although the timing of the Fed’s next move is uncertain, we currently believe it is likely to be toward higher short-term interest rates. Accordingly, we have maintained the fund’s current positioning, including a shorter average duration, a focus on higher-coupon bonds and a diversified mix of maturities and issuers. In our view, these are prudent strategies in the wake of the municipal bond market’s strong performance over the past several years.

March 15, 2004

1
  		 Total return includes reinvestment of dividends and any capital gains paid. Past performance is no guarantee of future results. Share price, yield and investment return fluctuate such that upon redemption, fund shares may be worth more or less than their original cost. Income may be subject to state and local taxes, and some income may be subject to the federal alternative minimum tax (AMT) for certain investors. Capital gains, if any, are fully taxable.
2
  		 SOURCE: LIPPER INC. — Reflects reinvestment of dividends and, where applicable, capital gain distributions.The Lehman Brothers Municipal Bond Index is a widely accepted, unmanaged total return performance benchmark for the long-term, investment-grade, tax-exempt bond market. However, the bonds in the Index generally are not insured. Index returns do not reflect fees and expenses associated with operating a mutual fund.
3
  		 SOURCE: LIPPER INC. — Category average returns reflect the fees and expenses of the funds comprising the average.

The Fund 5

STATEMENT OF INVESTMENTS        
February 29, 2004 (Unaudited)        
 
         
         
         
         
  Principal      
Long-Term Municipal Investments—97.0% Amount ($) Value ($)  
 
Alabama—3.0%        
Alabama Housing Finance Authority, SFMR:        
   6.45%, 10/1/2025 2,785,000   2,879,913  
   6.10%, 10/1/2027 4,255,000   4,471,111  
Alabama Industrial Development Authority, SWDR        
   (Pine City Fiber Co.) 6.45%, 12/1/2023 4,900,000   4,968,894  
Alabama Public School and College Authority:        
   9.95%, 7/1/2015 11,760,000 a,b 15,157,111  
   (Capital Improvement) 5.50%, 7/1/2019 29,250,000   33,227,707  
Courtland Industrial Development Board, EIR        
   (International Paper Co.) 6.25%, 8/1/2025 8,000,000   8,706,480  
Alaska—1.7%        
Alaska Energy Authority, Power Revenue (Bradley Lake)        
   6%, 7/1/2017 (Insured; FSA) 5,730,000   6,975,645  
Alaska, General Purpose        
   5.25%, 8/1/2009 (Insured; FSA) 11,720,000   13,475,773  
Alaska Housing Finance Corp.        
   10.69%, 12/1/2019 10,000,000 a,b 11,035,700  
Anchorage, Electric Utility Revenue        
   6.50%, 12/1/2015 (Insured; MBIA) 6,135,000   7,831,696  
Arizona—2.9%        
Maricopa County Pollution Control Corp., PCR        
   (Southern California Edison Co.) 2.90%, 3/2/2009 15,000,000   15,009,750  
The Industrial Development Authority of the County of        
   Apache, PCR (Tucson Electric Power Co. Project):        
      5.85%, 3/1/2028 7,750,000   7,580,895  
      5.875%, 3/1/2033 28,970,000   28,651,330  
Tucson Unified School District Number 1 of Pima County:        
   2.25%, 7/1/2006 (Insured; FSA) 8,000,000 c 8,170,240  
   2.50%, 7/1/2007 (Insured; FSA) 6,465,000 c 6,646,214  
California—7.8%        
Airport Commission City and County of San Francisco        
   (San Francisco International Airport)        
   6.50%, 5/1/2015 (Insured; FGIC) 10,100,000   10,392,698  
California, GO 1.98%, 2/3/2005 10,000,000   10,000,000  
California Department of Water Resource, Revenue:        
   Power Supply:        
      5.25%, 5/1/2011 (Insured; FSA) 12,000,000   13,884,000  
      5.125%, 5/1/2019 20,500,000   21,794,165  
   Water (Central Valley Project):        
      5%, 12/1/2010 12,120,000   14,011,568  
      5.50%, 12/1/2016 7,670,000   8,822,341  
         
6        
  Principal      
Long-Term Municipal Investments (continued) Amount ($) Value ($)  
 
California (continued)        
California Pollution Control Financing Authority, PCR        
   (Southern California Edison Co.) 7%, 3/1/2005 7,500,000   7,579,725  
California Public Works Board, LR        
   (Various University of California Projects)        
   5.50%, 6/1/2014 9,750,000   11,346,075  
Golden State Tobacco Securitization Corp.,        
   Enhanced Tobacco Settlement Asset—Backed Bonds:        
      5.50%, 6/1/2033 14,000,000   14,340,620  
      5.50%, 6/1/2043 23,495,000   23,952,213  
Los Angeles County Sanitation Districts Financing        
   Authority, Revenue (Capital Project)        
   5%, 10/1/2022 (Insured; FSA) 6,000,000   6,417,180  
Los Angeles Department of Water and Power,        
   Waterworks Revenue 5%, 7/1/2011 (Insured; MBIA) 11,750,000   13,513,792  
Sacramento Municipal Utility District, Electric Revenue        
   5%, 8/15/2020 (Insured; MBIA) 20,000,000   21,669,600  
Colorado—.9%        
Colorado Department of Transportation,        
   Transportation Revenue, RAN        
   5.25%, 6/15/2009 (Insured; MBIA) 12,620,000   14,459,744  
Denver Convention Center Hotel Authority,        
   Convention Center Hotel, Senior Revenue        
   5%, 12/1/2033 6,250,000   6,537,000  
Connecticut—1.2%        
Connecticut Resource Recovery Authority        
   (American Fuel Co. Project) 6.45%, 11/15/2022 7,325,000   7,439,124  
Mashantucket Western Pequot Tribe, Special Revenue:        
   6.40%, 9/1/2011        
      (Prerefunded 9/1/2007) 9,170,000 b,d 10,590,250  
   6.40%, 9/1/2011 9,330,000 b 10,185,095  
Delaware—2.1%        
Delaware:        
   5%, 7/1/2008 9,000,000   10,151,910  
   5%, Series A, 7/1/2009 20,250,000   23,077,102  
   5%, Series C, 7/1/2009 9,000,000   10,256,490  
Delaware Housing Authority, Senior SFMR        
   6.45%, 1/1/2026 4,005,000   4,088,825  
District of Columbia—.5%        
District of Columbia Tobacco Settlement        
   Financing Corp. 6.50%, 5/15/2033 11,750,000   11,253,327  

The Fund 7

STATEMENT OF INVESTMENTS (Unaudited) (continued)

  Principal      
Long-Term Municipal Investments (continued) Amount ($) Value ($)  
 
Florida—5.1%        
Florida Board of Education        
   Capital Outlay (Public Education) 5.50%, 6/1/2016 12,000,000   13,640,400  
Florida Department of Environmental Protection,        
   Revenue 5.75%, 7/1/2013 (Insured; FGIC) 10,270,000   12,151,567  
Florida Division Bond Finance Department, General        
   Services Revenue (Environmental        
   Protection-Preservation 2000)        
   5.50%, 7/1/2008 (Insured; FSA) 9,500,000   10,857,550  
Florida Turnpike Authority, Turnpike Revenue        
   (Department of Transportation):        
      5%, 7/1/2007 (Insured; AMBAC) 9,160,000   10,143,234  
      5.25%, 7/1/2011 (Insured; FSA) 15,000,000   17,413,050  
Gainesville Utilities System, Revenue        
   5%, 10/1/2009 (Insured; FSA) 6,495,000   7,379,424  
Orlando—Orange County Expressway Authority, Revenue        
   5%, 7/1/2009 (Insured; AMBAC) 6,965,000   7,884,868  
Orlando Utilities Commission, Water and Electric Revenue        
   6.75%, 10/1/2017 (Escrowed to Maturity) 15,875,000   20,396,676  
Palm Beach County, Public Improvement Revenue        
   (Convention Center Project)        
   5%, 11/1/2011 (Insured; FGIC) 5,000,000   5,732,700  
Tampa, Utility Tax and Special Revenue        
   5.75%, 10/1/2013 (Insured; AMBAC) 9,100,000   10,978,695  
Georgia—2.6%        
Fulton County Facilities Corp., COP        
   (Fulton County, Georgia Public Purpose Project)        
   5.50%, 11/1/2018 (Insured; AMBAC) 11,630,000   13,274,366  
Georgia:        
   5.80%, 11/1/2014 19,580,000   23,388,897  
   5.80%, 11/1/2015 20,000,000   23,700,400  
Hawaii—.7%        
Hawaii 5.80%, 9/1/2015 (Insured; FSA)        
   (Prerefunded 9/1/2009) 14,000,000 d 16,662,940  
Idaho—.5%        
Idaho Housing Agency, Multi-Family Housing        
   6.70%, 7/1/2024 10,050,000   10,297,029  
Illinois—3.0%        
Cook County 5.50%, 11/15/2012 (Insured; FGIC)        
   (Prerefunded 5/15/2011) 12,000,000 d 14,170,320  
8  
  Principal      
Long-Term Municipal Investments (continued) Amount ($) Value ($)  
 
Illinois (continued)        
Illinois Development Finance Authority, PCR        
   (Central Illinois Public Service Co.)        
   6.375%, 1/1/2028 16,450,000   16,467,437  
Illinois Educational Facilities Authority, Revenue        
   (Illinois Institute of Technology)        
   6.875% 12/1/2015 (Insured; AGIC) 7,250,000   7,700,225  
Illinois Health Facilities Authority, Revenue        
   (Advocate Health Care Network)        
   6.125%, 11/15/2022 10,000,000   11,255,800  
Illinois Housing Development Authority:        
   Multi-Family Housing (Lawndale Redevelopment Project)        
      6.90%, 12/1/2026 (Insured; FHA) 8,750,000   9,149,262  
   (Multi-Family Program) 6.75%, 9/1/2021 8,750,000   8,849,137  
Iowa—.1%        
Iowa Finance Authority, SFMR        
   (Mortgage Backed Securities Program)        
   6.65%, 7/1/2028 3,180,000   3,281,760  
Kentucky—.7%        
City of Ashland, Sewage and Solid Waste Revenue        
   (Ashland Inc. Project) 7.125%, 2/1/2022 5,170,000   5,414,438  
Mount Sterling, LR (Kentucky League Cities Funding)        
   6.10%, 3/1/2018 7,955,000   9,657,927  
Louisiana—.6%        
Parish of West Feliciana, PCR (Gulf States Utilities-I)        
   7.70%, 12/1/2014 14,000,000   14,332,780  
Maryland—2.6%        
Community Development Administration, Department of        
   Housing and Community Development        
   State of Maryland 10.70%, 7/1/2039 5,000,000 a,b 5,551,950  
Maryland Economic Development Corp, Student Housing        
   Revenue (Frostburg State University Project)        
   6.25%, 10/1/2033 8,580,000   9,056,190  
Maryland State and Local Facilities Loan        
   5%, 8/1/2009 20,000,000   22,808,200  
Washington Suburban Sanitary District,        
   Sewer Disposal:        
      4%, 6/1/2006 9,375,000 c 9,951,094  
      5.25%, 6/1/2010 11,460,000   13,300,132  

The Fund 9

STATEMENT OF INVESTMENTS (Unaudited) (continued)

  Principal      
Long-Term Municipal Investments (continued) Amount ($) Value ($)  
 
Massachusetts—2.5%        
Massachusetts 11.002%, 2/1/2015 10,000,000 a,b 14,028,600  
Massachusetts Housing Finance Agency, Revenue:        
   Housing:        
      6.50%, 7/1/2025 (Insured; AMBAC) 3,580,000   3,716,147  
      6.60%, 1/1/2037 (Insured; AMBAC) 6,135,000   6,366,289  
   Single Family Housing:        
      7.125%, 6/1/2025 4,780,000   4,797,782  
      6.65%, 12/1/2027 2,340,000   2,430,137  
Massachusetts Municipal Wholesale Electric Co.,        
   Power Supply System Revenue        
   (Nuclear Project Number 4 Issue):        
      5%, 7/1/2007 (Insured; MBIA) 12,755,000   14,106,520  
      5.25%, 7/1/2013 (Insured; MBIA) 10,000,000   11,437,300  
Michigan—3.5%        
The Economic Development Corp. of the County of Gratiot,        
   Limited Obligation EDR (Danly Die Set Project)        
   7.625%, 4/1/2007 3,200,000   3,197,056  
Michigan Building Authority, Revenue (Facilities Program):        
      5%, 10/15/2007 (Insured; FSA) 6,000,000   6,687,240  
      5%, 10/15/2008 (Insured; FSA) 5,000,000   5,638,550  
      5%, 10/15/2009 (Insured; FSA) 20,000,000   22,720,800  
Michigan Hospital Finance Authority:        
   HR (Genesys Health System Obligated Group):        
      8.125%, 10/1/2021 (Prerefunded 10/1/2005) 15,000,000 d 16,950,300  
      7.50%, 10/1/2027 (Prerefunded 10/1/2005) 15,300,000 d 16,841,934  
   Revenue (Oakwood Obligated Group)        
      5.50%, 11/1/2016 8,165,000   8,909,811  
Minnesota—1.0%        
Minneapolis and Saint Paul Metropolitan Airports        
   Commission, Airport Revenue        
   5.75%, 1/1/2032 (Insured; FGIC) 5,000,000   5,730,700  
Minnesota Housing Finance Agency,        
   Single Family Mortgage:        
      6.50%, 7/1/2024 5,500,000   5,676,605  
      6.45%, 7/1/2025 10,025,000   10,341,489  
Mississippi—.9%        
Mississippi, Gaming Counties        
   (Highway Improvements Project) 5%, 10/1/2009 18,770,000   21,357,632  

10

  Principal      
Long-Term Municipal Investments (continued) Amount ($) Value ($)  
 
Missouri—2.1%        
Missouri, GO:        
   State Water Pollution Control 5%, 8/1/2006 8,410,000   9,161,349  
   Third State Building 4%, 10/1/2007 7,240,000   7,843,164  
Missouri Board of Public Buildings (Special Obligation)        
   5.50%, 10/15/2010 12,205,000   14,353,202  
Missouri Higher Education Loan Authority,        
   Student Loan Revenue 6.75%, 2/15/2009 11,500,000   11,757,715  
The City of Saint Louis, Airport Revenue ( Airport        
   Development Program)        
   5.625%, 7/1/2016 (Insured; MBIA) 5,000,000   5,673,950  
Nebraska—2.3%        
Omaha Public Power District, Electric Revenue        
   5.50%, 2/1/2014 44,800,000   52,731,840  
Nevada—.4%        
Clark County, PCR (Southern California Edison Co.)        
   3.25%, 3/2/2009 5,000,000 c 5,005,250  
Nevada Housing Division (Single Family Program)        
   6.80%, 4/1/2027 3,265,000   3,325,076  
New Hampshire—1.4%        
Business Finance Authority of the State of New Hampshire        
   PCR (Public Service Co.) 6%, 5/1/2021 15,500,000   17,557,780  
New Hampshire Housing Finance Authority:        
   Multi-Family Housing:        
      7.55%, 7/1/2013 4,205,000   4,687,482  
      (Mariners Village Project)        
         6.60%, 1/1/2038 (Insured; FHA) 7,365,000   7,594,346  
   Single Family Residential Mortgage        
      6.85%, 1/1/2025 2,550,000   2,574,276  
New Jersey—5.7%        
New Jersey Economic Development Authority,        
   PCR (Public Service Electric and Gas Co. Project)        
   6.40%, 5/1/2032 (Insured; MBIA) 32,040,000   32,960,509  
New Jersey Transit Corp., COP        
   Federal Transit Administration Grants        
   5.75%, 9/15/2014 (Insured; AMBAC)        
   (Prerefunded 9/15/2010) 15,000,000 d 17,922,300  

The Fund 11

STATEMENT OF INVESTMENTS (Unaudited) (continued)

  Principal      
Long-Term Municipal Investments (continued) Amount ($) Value ($)  
 
New Jersey (continued)        
New Jersey Transportation Trust Fund Authority:        
   11.01%, 6/15/2012 12,330,000 a,b 17,807,849  
   (Transportation System):        
      5.50%, 12/15/2013 (Insured; FSA) 15,900,000   18,875,208  
      5.75%, 6/15/2018 7,750,000   9,257,762  
      5.75%, 6/15/2020 12,645,000   15,065,000  
New Jersey Turnpike Authority, Turnpike Revenue        
   10.493%, 1/1/2017 15,000,000 a,b 19,547,400  
New Mexico—.1%        
New Mexico Mortgage Financing Authority        
   6.80%, 1/1/2026 3,035,000   3,257,435  
New York—15.9%        
Long Island Power Authority, Electric System Revenue:        
   5.50%, 12/1/2012 (Insured; FSA) 10,000,000   11,947,100  
   5.50%, 12/1/2013 (Insured; FSA) 25,860,000   30,972,005  
Metropolitan Transportation Authority:        
   Revenue        
      5.50%, 11/15/2014 (Insured; AMBAC) 18,000,000   21,432,600  
   State Service Contract:        
      5.75%, 1/1/2016 7,000,000   8,288,140  
      5.50%, 7/1/2016 6,435,000   7,501,151  
      5.75%, 1/1/2018 17,025,000   20,217,868  
Nassau County Industrial Development Agency, IDR        
   (KeySpan-Glenwood Energy Center, LLC Project)        
   5.25%, 6/1/2027 10,000,000   10,273,000  
New York City:        
   5%, 8/1/2007 15,000,000   16,451,100  
   6.375%, 8/15/2011        
      (Prerefunded 8/15/2005) 24,720,000 d 26,862,730  
   5.50%, 5/15/2015 (Insured; MBIA) 11,180,000   12,721,946  
   5.75%, 3/1/2018 14,185,000   16,180,120  
   5.25%, 10/15/2021 12,005,000   12,871,641  
New York City Transitional Finance        
   Authority, Revenue:        
      9.959%, 11/1/2018 14,550,000 a,b 18,662,266  
      (Future Tax Secured):        
         5.75%, 2/15/2015        
            (Prerefunded 2/15/2010) 5,100,000 d 6,090,267  
         5.75%, 2/15/2015 11,910,000   13,846,328  
New York State:        
   4%, 4/15/2006 9,250,000   9,761,617  
   5%, 4/15/2009 10,020,000   11,310,676  
         
12        
  Principal      
Long-Term Municipal Investments (continued) Amount ($) Value ($)  
 
New York (continued)        
New York State Dormitory Authority, Revenue:        
   9.976%, 5/15/2013 10,175,000 a,b 13,838,000  
   (City University):        
      5.25%, 7/1/2009 10,000,000   11,467,200  
      7.50%, 7/1/2010 5,000,000   5,965,800  
   (North Shore University Hospital)        
      5%, 11/1/2009 6,000,000   6,718,560  
New York State Environmental Facilities Corp.        
   State Clean Water and Drinking Water Revolving Funds        
   Revenue (New York City Municipal Water Finance        
   Authority Projects) (Second Resolution Bonds)        
   5.50%, 6/15/2017 5,000,000   5,982,100  
New York State Power Authority,        
   Revenue and General Purpose 5%, 2/15/2008 10,000,000   11,130,400  
New York State Thruway Authority Service Contract        
   Revenue (Local Highway and Bridge)        
   5.50%, 4/1/2013 37,000,000   42,450,840  
Tobacco Settlement Financing Corp., Asset Backed        
   Revenue 5.25%, 6/1/2022 (Insured; AMBAC) 10,000,000   10,921,600  
North Carolina—3.5%        
Charlotte 5.25%, 2/1/2015 9,380,000   10,587,112  
Guilford County 4%, 10/1/2007 15,000,000   16,140,600  
Mecklenburg County 5.50%, 4/1/2009 14,670,000   16,979,205  
North Carolina Eastern Municipal Power Agency,        
   Power System Revenue:        
      5.50%, 1/1/2011 10,000,000   11,114,200  
      5.50%, 1/1/2012 10,000,000   11,132,500  
North Carolina Housing Finance Agency,        
   Single Family Revenue 6.50%, 9/1/2026 3,080,000   3,186,352  
Wake County 5%, 2/1/2008 10,000,000   11,171,000  
Ohio—1.1%        
Cincinnati, City School District (Classroom Facilities        
   Construction and Improvement)        
   5%, 12/1/2009 (Insured; FSA) 7,610,000   8,677,607  
Ohio Water Development Authority, Water Pollution        
   Control Loan Fund Revenue, Water Quality        
   5%, 12/1/2016 15,035,000   16,874,683  
Oklahoma—1.4%        
Claremore Industrial and Redevelopment Authority, EDR        
   (Yuba Project) 8.375%, 7/1/2011 7,500,000   7,520,925  

The Fund 13

STATEMENT OF INVESTMENTS (Unaudited) (continued)

  Principal      
Long-Term Municipal Investments (continued) Amount ($)   Value ($)  
 
 
Oklahoma (continued)        
Grand River Dam Authority, Revenue        
   5%, 6/1/2012 (Insured; FSA) 22,000,000   25,148,860  
Pennsylvania—.5%        
Delaware County Industrial Development Authority,        
   Water Facilities Revenue        
   (Philadelphia Suburban Water)        
   6.35%, 8/15/2025 (Insured; FGIC) 10,000,000   10,828,700  
Rhode Island—.0%        
Rhode Island Housing and Mortgage Finance Corp.        
   (Homeownership Opportunity) 6.50%, 4/1/2027 300,000   305,700  
South Carolina—1.9%        
Piedmont Municipal Power Agency, Electric Revenue        
   6.60%, 1/1/2021 8,980,000   9,067,106  
Securing Assets For Education, Installment Purchase        
   Revenue (The School District of Berkeley County,        
   South Carolina Project) 5%, 12/1/2028 20,105,000   20,329,573  
South Carolina Housing Finance and        
   Development Authority,        
      Mortgage Revenue:        
         6.75%, 7/1/2026 2,375,000   2,434,351  
         6.70%, 7/1/2027 3,625,000   3,713,885  
South Carolina Transportation Infrastructure Bank,        
   Revenue 5%, 10/1/2025 (Insured; AMBAC) 7,450,000   7,883,218  
Tennessee—.2%        
Knox County Health, Educational and Housing Facilities        
   Board, Hospital Facilities Revenue        
   (Baptist Health System East Tennessee)        
   6.50%, 4/15/2031 4,125,000   4,372,748  
Texas—7.8%        
Alliance Airport Authority Inc., Special Facilities Revenue        
   (Federal Express Corp. Project) 6.375%, 4/1/2021 34,070,000   36,477,046  
Austin Convention Enterprises Inc., Convention Center        
   Hotel, Second Tier Revenue 5.75%, 1/1/2032 18,000,000   19,306,080  
Brazos River Authority, PCR (TXU Electric Co. Project):        
   5.75%, 11/1/2011 12,750,000   13,873,275  
   6.75%, 10/1/2038 8,000,000   8,784,800  
Cities of Dallas and Fort Worth,        
   Dallas/Fort Worth International Airport        
   Joint Revenue Improvement:        
      5.75%, 11/1/2014 (Insured; FGIC) 15,070,000   17,015,537  
      5.75%, 11/1/2015 (Insured; FGIC) 10,000,000   11,262,600  
         
14        
  Principal      
Long-Term Municipal Investments (continued) Amount ($) Value ($)  
 
Texas (continued)        
Harris County Hospital District, Mortgage Revenue:        
   7.40%, 2/15/2010 (Insured; AMBAC)        
      (Escrowed to Maturity) 2,820,000   3,211,783  
   7.40%, 2/15/2010 (Insured; AMBAC) 4,320,000   5,100,538  
Rio Grande Valley Health Facilities Development Corp.,        
   HR (Valley Baptist Medical Center Project)        
   6.40%, 8/1/2016 (Insured; MBIA) 11,200,000   11,358,704  
Tarrant County Health Facilities Development Corp.,        
   Health System Revenue        
   (Texas Health Resources System)        
   5.75%, 2/15/2014 (Insured; MBIA) 9,470,000   11,219,014  
Texas:        
   11.79%, 12/1/2020 7,605,000 a,b 8,126,399  
   GO (Veterans Housing Assistance Fund)        
      7% 12/1/2025 7,915,000   8,167,726  
Texas Turnpike Authority,        
   Central Texas Turnpike System Revenue:        
      BAN, Second Tier 5%, 6/1/2008 10,000,000   11,191,000  
      First Tier 5.75%, 8/15/2038 (Insured; AMBAC) 12,000,000   13,597,680  
Utah—.4%        
Carbon County, SWDR (Sunnyside Cogeneration)        
   7.10%, 8/15/2023 8,744,000   8,281,005  
Vermont—.1%        
Vermont Housing Finance Agency        
   (Single Family Housing) 6.875%, 5/1/2025 2,230,000   2,262,246  
Virginia—2.3%        
Southwest Virginia Regional Jail Authority,        
   Jail Facilities GAN 3%, 9/1/2006 (Insured; MBIA) 17,750,000   18,168,013  
Virginia Commonwealth Transportation Board,        
   Federal Highway Reimbursement Notes:        
      5%, 10/1/2007 12,500,000   13,939,125  
      5%, 10/1/2009 18,020,000   20,524,420  
Washington—1.6%        
Seattle, Municipal Light and Power Revenue, Improvement:        
   5.50%, 3/1/2013 (Insured; FSA) 11,585,000   13,431,765  
   5.50%, 3/1/2016 (Insured; FSA) 15,400,000   17,463,908  
Tumwater Office Properties, LR        
   (Washington State Office Building) 5%, 7/1/2028 5,360,000   5,544,866  
Wisconsin—1.6%        
Badger Tobacco Asset Securitization Corp.,        
   Tobacco Settlement Asset-Backed Bonds 7%, 6/1/2028 25,000,000   25,490,250  

The Fund 15

STATEMENT OF INVESTMENTS (Unaudited) (continued)

    Principal      
Long-Term Municipal Investments (continued) Amount ($) Value ($)  
 
Wisconsin (continued)        
Wisconsin 6.25%, 5/1/2009 9,555,000   11,334,714  
Wyoming—.6%        
Sweetwater County, SWDR (FMC Corp. Project)        
6.90%, 9/1/2024 13,225,000   13,393,751  
U.S. Related—2.2%        
Puerto Rico Highway and Transportation Authority,        
Transportation Revenue:        
5%, 7/1/2008 5,105,000   5,704,123  
6%, 7/1/2039 (Prerefunded 7/1/2010) 20,050,000 d 24,545,611  
Puerto Rico Infrastructure Financing Authority,        
Special Obligation 5.50%, 10/1/2032 7,000,000   7,866,880  
Puerto Rico Public Finance Corp.        
(Commonwealth Appropriation)        
6%, 8/1/2026 (Insured; AGC) 9,500,000   11,832,630  
Total Long-Term Municipal Investments        
   (cost $ 2,073,666,706)     2,223,102,405  
 
           
Short-Term Municipal Investments—3.3%        
 
Florida—.9%        
Alachua County Health Facilities Authority,        
Health Facilities Revenue, VRDN        
(Shands Teaching Hospital) .99% (LOC; SunTrust Bank) 3,200,000 e 3,200,000  
Broward County Health Facilities Authority, Revenue,        
VRDN (John Knox Village Project) 1.05% 5,900,000 e 5,900,000  
Capital Projects Finance Authority, Continuing Care        
Retirement Community Revenue, VRDN        
(Glenridge On Palmer Ranch)        
.98% (LOC; Bank of Scotland) 3,350,000 e 3,350,000  
Palm Beach County Health Facilities Authority,        
Health Facilities Revenue, VRDN (Bethesda Healthcare        
System Project) .99% (LOC; SunTrust Bank) 1,300,000 e 1,300,000  
Pinellas County Health Facilities Authority, Revenue,        
VRDN (Pooled Hospital Loan Program)        
1% (Insured; AMBAC) 6,500,000 e 6,500,000  
Georgia—.7%        
Appling County Development Authoriy, PCR, VRDN        
(Georgia Power Co. Plant Hatch Project) .99% 16,500,000 e 16,500,000  

16

      Principal      
Short-Term Municipal Investments (continued) Amount ($) Value ($)  
 
Illinois—.6%          
Illinois Health Facilities Authority, Revenue, VRDN        
(Northwestern Memorial Hospital) .98% 13,600,000 e 13,600,000  
New Hampshire—.1%          
New Hampshire Health and Education Authority, HR, VRDN        
(Wentworth Douglass Hospital) 1.08% (Insured; AGIC) 2,500,000 e 2,500,000  
Ohio—.1%            
Trumbull County, Health Care Facilities Revenue, VRDN        
(Shepherd Valley) 1% (Insured; AGIC) 2,900,000 e 2,900,000  
Pennsylvania—.4%          
Allegheny County Industrial Development Authority,        
Health and Housing Facilities Revenue, VRDN        
(Longwood):          
1%, Series A (Insured; AGIC) 6,030,000 e 6,030,000  
1%, Series B (Insured; AGIC) 3,300,000 e 3,300,000  
Tennessee—.2%          
Blount County Public Building Authority, VRDN        
(Local Government Public Improvement)        
.99% (Insured; AMBAC)   4,000,000 e 4,000,000  
Wisconsin—.3%          
Wisconsin Health and Educational Facilities        
Authority, Revenue, VRDN (Gundersen Lutheran)        
.98% (Insured; FSA)   6,000,000 e 6,000,000  
Total Short-Term Municipal Investments        
   (cost $ 75,080,000)       75,080,000  
 
             
Total Investments (cost $ 2,148,746,706) 100.3%   2,298,182,405  
Liabilities, Less Cash and Receivables (.3%)   (7,408,013)  
Net Assets   100.0%   2,290,774,392  

The Fund 17

STATEMENT OF INVESTMENTS (Unaudited) (continued)

Summary of Abbreviations    
AGC ACE Guaranty Corporation GAN Grant Anticipation Notes
AGIC Asset Guaranty Insurance GO General Obligation
  Company HR Hospital Revenue
AMBAC American Municipal Bond IDR Industrial Development Revenue
  Assurance Corporation LOC Letter of Credit
BAN Bond Anticipation Notes LR Lease Revenue
COP Certificate of Participation MBIA Municipal Bond Investors
EDR Economic Development Revenue   Assurance Insurance
EIR Environment Improvement   Corporation
  Revenue PCR Pollution Control Revenue
FGIC Financial Guaranty Insurance RAN Revenue Anticipation Notes
  Company SFMR Single Family Mortgage Revenue
FHA Federal Housing Administration SWDR Solid Waste Disposal Revenue
FSA Financial Security Assurance VRDN Variable Rate Demand Notes

Summary of Combined Ratings (Unaudited)

Fitch or Moody’s or Standard & Poor’s Value (%)  
 
AAA   Aaa   AAA 49.0  
AA   Aa   AA 23.9  
A   A   A 10.0  
BBB   Baa   BBB 8.6  
BB   Ba   BB 3.0  
F1   MIG1/P1   SP1/A1 3.8  
Not Rated f   Not Rated f   Not Rated f 1.7  
          100.0  

a Inverse Floater Security—the interest rate is subject to change periodically.

b
  		 Securities exempt from registration under Rule 144A of the Securities Act of 1933.These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers.At February 29, 2004, these securities amounted to $144,530,620 or 6.3% of net assets.
c
  		 Purchased on a delayed delivery basis.
d
  		 Bonds which are prerefunded are collateralized by U.S. Government securities which are held in escrow and are used to pay principal and interest on the municipal issue and to retire the bonds in full at the earliest refunding date.
e
  		 Securities payable on demand.Variable interest rate—subject to periodic change.
f
  		 Securities which, while not rated by Fitch, Moody’s and Standard & Poor’s, have been determined by the Manager to be of comparable quality to those rated securities in which the fund may invest.
See notes to financial statements.

18

STATEMENT OF ASSETS AND LIABILITIES

February 29, 2004 (Unaudited)        
 
           
           
           
           
           
      Cost Value  
 
Assets ($):          
Investments in securities—See Statement of Investments 2,148,746,706 2,298,182,405  
Interest receivable     30,554,429  
Receivable for investment securities sold   8,937,474  
Receivable for shares of Common Stock subscribed   14,575  
Prepaid expenses     38,670  
        2,337,727,553  
 
Liabilities ($):          
Due to The Dreyfus Corporation and affiliates   826,154  
Cash overdraft due to Custodian     787,350  
Payable for investment securities purchased   44,657,025  
Payable for shares of Common Stock redeemed   537,214  
Accrued expenses     145,418  
        46,953,161  
 
Net Assets ( $)     2,290,774,392  
 
Composition of Net Assets ($):      
Paid-in capital       2,273,554,664  
Accumulated undistributed investment income—net   1,947,013  
Accumulated net realized gain (loss) on investments   (134,162,984)  
Accumulated net unrealized appreciation      
(depreciation) on investments     149,435,699  
 
Net Assets ( $)     2,290,774,392  
 
Shares Outstanding        
(600 million shares of $.001 par value Common Stock authorized) 190,179,618  
Net Asset Value, offering and redemption price per share ($)   12.05  
           
See notes to financial statements.        

The Fund 19

STATEMENT OF OPERATIONS    
Six Months Ended February 29, 2004 (Unaudited)    
 
     
     
     
     
     
     
Investment Income ($):    
Interest Income 54,629,458  
Expenses:    
Management fee—Note 3(a) 6,856,904  
Shareholder servicing costs—Note 3(b) 1,015,812  
Directors’ fees and expenses—Note 3(c) 84,366  
Custodian fees 57,621  
Prospectus and shareholders’ reports 24,142  
Auditing fees 20,091  
Registration fees 17,711  
Loan commitment fees—Note 2 12,938  
Miscellaneous 34,764  
Total Expenses 8,124,349  
Less—reduction in management fee due to    
   undertaking—Note 3(a) (377,146)  
Net Expenses 7,747,203  
Investment Income—Net 46,882,255  
 
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($):    
Net realized gain (loss) on investments 11,484,567  
Net unrealized appreciation (depreciation) on investments 91,831,299  
Net Realized and Unrealized Gain (Loss) on Investments 103,315,866  
Net Increase in Net Assets Resulting from Operations 150,198,121  
     
See notes to financial statements.    

20

STATEMENT OF CHANGES IN NET ASSETS

  Six Months Ended      
  February 29, 2004   Year Ended  
  (Unaudited)   August 31, 2003  
 
 
Operations ($):        
Investment income—net 46,882,255   109,958,181  
Net realized gain (loss) on investments 11,484,567   (55,565,129)  
Net unrealized appreciation        
   (depreciation) on investments 91,831,299   (2,739,425)  
Net Increase (Decrease) in Net Assets        
   Resulting from Operations 150,198,121   51,653,627  
 
 
Dividends to Shareholders from ($):        
Investment income—net (46,482,041)   (109,455,844)  
Net realized gain on investments —   (314,026)  
Total Dividends (46,482,041)   (109,769,870)  
 
 
Capital Stock Transactions ($):        
Net proceeds from shares sold 59,806,555   543,378,112  
Dividends reinvested 29,451,917   69,121,337  
Cost of shares redeemed (215,197,569)   (738,584,924)  
Increase (Decrease) in Net Assets        
   from Capital Stock Transactions (125,939,097)   (126,085,475)  
Total Increase (Decrease) in Net Assets (22,223,017)   (184,201,718)  
 
 
Net Assets ($):        
Beginning of Period 2,312,997,409   2,497,199,127  
End of Period 2,290,774,392   2,312,997,409  
Undistributed investment income—net 1,947,013   545,107  
 
 
Capital Share Transactions (Shares):        
Shares sold 5,074,359   46,381,935  
Shares issued for dividends reinvested 2,483,308   5,867,135  
Shares redeemed (18,277,352)   (62,626,678)  
Net Increase (Decrease) in Shares Outstanding (10,719,685)   (10,377,608)  
         
See notes to financial statements.        

The Fund 21

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 dis-tributions.These figures have been derived from the fund’s financial statements.

  Six Months Ended                      
  February 29, 2004       Year Ended August 31,      
         
     
  (Unaudited)   2003   2002a   2001   2000   1999  
 
 
 
 
 
 
Per Share Data ($):                        
Net asset value,                        
   beginning of period 11.51   11.82   12.32   11.68   11.70   12.85  
Investment Operations:                        
Investment income—net .24b   .54b   .61b   .61   .60   .62  
Net realized and unrealized                        
   gain (loss) on investments .54   (.31)   (.50)   .64   (.02)   (.93)  
Total from                        
   Investment Operations .78   .23   .11   1.25   .58   (.31)  
Distributions:                        
Dividends from                        
   investment income—net (.24)   (.54)   (.61)   (.61)   (.60)   (.62)  
Dividends from net realized                        
   gain on investments —   .00c   .00c   .00c   .00c   (.22)  
Total Distributions (.24)   (.54)   (.61)   (.61)   (.60)   (.84)  
Net asset value,                        
   end of period 12.05   11.51   11.82   12.32   11.68   11.70  
 
 
 
 
 
 
Total Return (%) 6.73d   1.91   .99   11.00   5.28   (2.60)  

22

Six Months Ended                    
February 29, 2004     Year Ended August 31,          
     
         
  (Unaudited) 2003   2002a   2001   2000   1999  
 
 
 
 
 
Ratios/Supplemental                      
   Data (%):                      
Ratio of expenses                      
   to average net assets .68e .72   .71   .72   .76   .73  
Ratio of net investment                      
   income to average                      
   net assets 4.10e 4.56   5.14   5.11   5.32   4.98  
Decrease reflected in                      
   above expense ratios                      
   due to undertakings                      
   by The Dreyfus                      
   Corporation .03 .00f   —   —   .01   .00f  
Portfolio                      
   Turnover Rate 26.72d 61.20   49.25   42.71   40.51   55.77  
 
 
 
 
 
Net Assets,                      
   end of period                      
   ($ x 1,000) 2,290,774 2,312,997   2,497,199   2,670,674   2,599,644   2,839,207  

a As required, effective September 1, 2001, the fund has adopted the provisions of the AICPA Audit and

AccountingGuide for Investment Companies and began amortizing discount or permium on a scientific basis for debt securities on a daily basis.The effect of this change for the period ended August 31, 2002 was to increase net investment income per share and decrease net realized and unrealized gain (loss) on investments by less than $.01 and increase the ratio of net investment income to average net assets from 5.13% to 5.14%. Per share data and ratios/supplemental data for periods prior to September 1, 2001 have not been restated to reflect this change in presentation.

b
  		 Based on average shares outstanding at each month end.
c
  		 Amount represents less than $.01 per share.
d
  		 Not annualized.
e
  		 Annualized.
f
  		 Amount represents less than .01%.

See notes to financial statements.

The Fund 23

NOTES TO FINANCIAL STATEMENTS (Unaudited)

NOTE 1—Significant Accounting Policies:

Dreyfus Municipal Bond Fund (the “fund”) is a separate diversified series of Dreyfus Bond Funds, Inc. (the “Company”) which is registered under the Investment Company Act of 1940, as amended (the “Act”), as a diversified open-end management investment company and operates as a series company currently offering two series, including the fund. The fund’s investment objective is to provide investors with as high a level of current income exempt from federal income tax as is consistent with the preservation of capital. The Dreyfus Corporation (the “Manager”) serves as the fund’s investment adviser. The Manager is a wholly-owned subsidiary of Mellon Financial Corporation (“Mellon Financial”). Dreyfus Service Corporation (the “Distributor”), a wholly-owned subsidiary of the Manager, is the distributor of the fund’s shares, which are sold without a sales charge.

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

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 (excluding options and financial futures on municipal and U.S.Treasury securities) are valued each business day by an independent pricing service (the “Service”) approved by the Board of Directors. Investments for which quoted bid prices are readily available and are representative of the bid side of the market in the judgment of the Service are valued at the mean between the quoted bid prices (as obtained by the Service from dealers in such securities) and asked prices (as calculated by the Service based upon its evaluation of the market for such securities). Other

24

investments (which constitute a majority of the portfolio securities) are carried at fair value as determined by the Service based on methods which include consideration of: yields or prices of municipal securities of comparable quality, coupon, maturity and type; indications as to values from dealers; and general market conditions. Options and financial futures on municipal and U.S. Treasury securities are valued at the last sales price on the securities exchange on which such securities are primarily traded or at the last sales price on the national securities market on each business day.

(b) 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. Interest income, adjusted for amortization of discount and premium on investments, is earned from settlement date and recognized on the accrual basis. Securities purchased or sold on a when-issued or delayed-delivery basis may be settled a month or more after the trade date. Under the terms of the custody agreement, the fund received net earnings credits of $22,479 during the period ended February 29, 2004. Income earned under this arrangement is included in interest income.

(c) Dividends to shareholders: It is the policy of the fund to declare dividends daily from investment income-net. Such dividends are paid monthly. 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 accounting principles generally accepted in the United States.

The Fund 25

NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)

(d) Federal income taxes: It is the policy of the fund to continue to qualify as a regulated investment company, which can distribute tax exempt dividends, by complying with the applicable provisions of the Code, and to make distributions of income and net realized capital gain sufficient to relieve it from substantially all federal income and excise taxes.

The fund has an unused capital loss carryover of $86,864,850 available for federal income taxes to be applied against future net securities profits, if any, realized subsequent to August 31, 2003. If not applied, $13,170,822 of the carryover expires in fiscal 2008, $27,718,137 expires in fiscal 2009, $11,793,725 expires in fiscal 2010 and $34,182,166 expires in fiscal 2011.

The tax character of distributions paid to shareholders during the fiscal year ended August 31, 2003 was as follows: tax exempt income $109,455,844 and ordinary income $314,026. The tax character of current year distributions will be determined at the end of the current fiscal year.

NOTE 2—Bank Line of Credit:

The fund participates with other Dreyfus-managed funds in a $350 million redemption credit facility (the “Facility”) to be utilized for temporary or emergency purposes, including the financing of redemptions. In connection therewith, the fund has agreed to pay commitment fees on its pro rata portion of the Facility. Interest is charged to the fund based on prevailing market rates in effect at the time of borrowings. During the period ended February 29, 2004, the fund did not borrow under the Facility.

NOTE 3—Management Fee and Other Transactions with Affiliates:

(a) Pursuant to a management agreement with the Manager, the management fee is computed at the annual rate of .60 of 1% of the value of the fund’s average daily net assets and is payable monthly.

26

(b) Under the Shareholder Services Plan, the fund reimburses the Distributor an amount not to exceed an annual rate of .25 of 1% of the value of the fund’s average daily net assets for certain allocated expenses of providing personal services and/or maintaining shareholder accounts.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. During the period ended February 29, 2004, the fund was charged $617,391 pursuant to the Shareholder Services Plan.

The fund compensates Dreyfus Transfer, Inc., a wholly-owned subsidiary of the Manager, under a transfer agency agreement for providing personnel and facilities to perform transfer agency services for the fund. During the period ended February 29, 2004, the fund was charged $354,833 pursuant to the transfer agency agreement.

(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.

(d) A .10% redemption fee is charged and retained by the fund on shares redeemed within thirty days of their issuance, including redemptions made through the use of the fund’s exchange privilege. During the period ended February 29, 2004, redemption fees charged and retained by the fund amounted to $16,827.

NOTE 4—Securities Transactions:

The aggregate amount of purchases and sales of investment securities, excluding short-term securities, during the period ended February 29, 2004, amounted to $582,707,930 and $619,959,493 respectively.

At February 29, 2004, accumulated net unrealized appreciation on investments was $149,435,699, consisting of $150,411,913 gross unrealized appreciation and $976,214 gross unrealized depreciation.

The Fund 27

NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)

At February 29, 2004, the cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments).

NOTE 5—Legal Matters:

Two class actions have been filed against Mellon Financial and Mellon Bank, N.A., and Dreyfus and Founders Asset Management LLC (the “Investment Advisers”), and the directors of all or substantially all of the Dreyfus funds, alleging that the Investment Advisers improperly used assets of the Dreyfus funds, in the form of directed brokerage commissions and 12b-1 fees, to pay brokers to promote sales of Dreyfus funds, and that the use of fund assets to make these payments was not properly disclosed to investors.The complaints further allege that the directors breached their fiduciary duties to fund shareholders under the Investment Company Act of 1940 and at common law.The complaints seek unspecified compensatory and punitive damages, rescission of the funds’ contracts with the Investment Advisers, an accounting of all fees paid, and an award of attorneys’ fees and litigation expenses. Dreyfus and the Dreyfus funds believe the allegations to be totally without merit and will defend the actions vigorously.

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

28

For More Information

Dreyfus
Municipal Bond Fund
200 Park Avenue
New York, NY 10166
 
Manager
The Dreyfus Corporation
200 Park Avenue
New York, NY 10166
 
Custodian
The Bank of New York
100 Church Street
New York, NY 10286
 
Transfer Agent &
Dividend Disbursing Agent
Dreyfus Transfer, Inc.
200 Park Avenue
New York, NY 10166
 
Distributor
Dreyfus Service Corporation
200 Park Avenue
New York, NY 10166

To obtain information:

By telephone

Call 1-800-645-6561

By mail Write to:
The Dreyfus Family of Funds
144 Glenn Curtiss Boulevard
Uniondale, NY 11556-0144

By E-mail Send your request to info@dreyfus.com

On the Internet Information can be viewed online or downloaded from: http://www.dreyfus.com

© 2004 Dreyfus Service Corporation 0054SA0204

Dreyfus Premier
High Income Fund

SEMIANNUAL REPORT February 29, 2004

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
   T H E F U N D
2
  		 Letter from the Chairman
3
  		 Discussion of Fund Performance
6
  		 Statement of Investments
22
  		 Statement of Assets and Liabilities
23
  		 Statement of Operations
24
  		 Statement of Changes in Net Assets
26
  		 Financial Highlights
30
  		 Notes to Financial Statements
     F O R M O R E I N F O R M AT I O N
Back Cover

Dreyfus Premier High Income Fund

The Fund

LETTER FROM THE CHAIRMAN

Dear Shareholder:

This semiannual report for Dreyfus Premier High Income Fund covers the six-month period from September 1, 2003, through February 29, 2004. Inside, you’ll find valuable information about how the fund was managed during the reporting period, including a discussion with portfolio managers Mark Shenkman, Frank Whitley, Mark Flanagan and Robert Stricker of Shenkman Capital Management, Inc., the fund’s sub-investment adviser.

The economic recovery that arrived during the spring 2003 remained in place through the end of the reporting period, leading many analysts to believe that the Federal Reserve Board may shift from its accommodative monetary policy to one that is somewhat more restrictive. While we agree that higher short-term interest rates are likely at some point in the future, the beneficial effects of a stronger economy could continue to support high-yield bond prices.

On the other hand, some analysts are concerned that the high-yield market’s dramatic improvement over the past year or so may make it vulnerable to a correction over the near term. Should you revise your strategies accordingly? The answer depends on your current income needs, future financial goals, time horizon and the level of diversification across the various asset classes in your overall investment portfolio.We encourage you to talk with your financial advisor regularly about these issues and the investment strategies that may be appropriate for you.

Thank you for your continued confidence and support.

Sincerely,

Stephen E. Canter
Chairman and Chief Executive Officer
The Dreyfus Corporation
March 15, 2004

2

DISCUSSION OF FUND PERFORMANCE

Mark Shenkman, Frank Whitley, Mark Flanagan and Robert Stricker, Portfolio Managers Shenkman Capital Management, Inc., Sub-Investment Adviser

How did Dreyfus Premier High Income Fund perform relative to its benchmark?

During the six-month reporting period ended February 29, 2004, the fund achieved total returns of 7.92% for Class A shares, 7.66% for Class B shares, 7.56% for Class C shares and 8.03% for Class R shares.1 For the same period, the fund’s benchmark, the CSFB High Yield Index, produced a 10.88% total return.2

High-yield bonds continued to produce strong returns during the reporting period, which we attribute to a stronger economy and better business conditions for most issuers.The fund produced lower returns than the benchmark, primarily because the fund focused on higher-quality securities during a time in which lower-rated bonds (mainly, of “CCC” credit quality) provided better performance.

What is the fund’s investment approach?

The fund seeks to maximize total return consistent with capital preservation and prudent risk management. To pursue its goal, the fund normally invests at least 80% of its assets in high-yield bonds rated below investment-grade.The high-yield securities in which the fund invests may include corporate debt securities, structured notes, zero-coupon securities and debt securities issued by states or local governments and their agencies, authorities and other instrumentalities. The fund may invest up to 20% of its assets in investment-grade corporate bonds, U.S. government securities, bank certificates of deposit, fixed time deposits and bankers’ acceptances.

When choosing securities for the fund, we generally look for issuers that we believe have positive credit momentum and the potential for credit-rating upgrades. Using bottom-up, fundamental analysis, we seek to maximize returns and minimize default risk through broad

The Fund 3

DISCUSSION OF FUND PERFORMANCE (continued)

diversification, direct communication with management and monitoring all issuers on a systematic basis.We also avoid or de-emphasize investing in industries or issuers that we believe have a high risk of default.

What other factors influenced the fund’s performance?

The fund and high-yield bond market were influenced by stronger economic growth during the reporting period, which improved business conditions for many high-yield issuers,caused default rates to decline and contributed to a continuation of the market rally that began in late 2002. However, the bonds that generally produced the highest returns during the reporting period were those in the lower credit-rating categories, as investors continued to favor bonds of companies that had been more severely affected during the previous economic downturn. In contrast, the fund continued to emphasize high-yield bonds in the higher rating categories, a focus that is consistent with our longstanding approach to investing in the bonds of issuers with positive credit momentum.

According to our analysis, it is not unusual for lower-rated issues to outperform higher-quality issues during the early stages of economic recoveries. Over the longer term, however, corporate bonds with credit ratings in the single-B range generally have produced higher returns, and during the reporting period our “bottom-up” approach to security selection continued to find what we believed to be the most attractive opportunities.

More specifically, we found a number of opportunities in the bonds of companies with improving credit characteristics primarily in the telecommunications, health care, gaming, utilities and publishing industries. Bonds of utilities and telecommunications companies continued to rebound from previously depressed levels. In the utilities sector, many companies appear to have made good progress toward correcting some of the missteps of their management teams in the wake of deregulation. Meanwhile, telecommunications companies have benefited from higher demand for their products and services after several years of weakness. In contrast, health care companies, gaming companies and certain publishers have ranked among the bond market’s more stable investments, primarily due to their relatively consistent earnings and predictable cash flows.

4

What is the fund’s current strategy?

Although the timing of the Fed’s next move is uncertain, we currently believe it is likely to be toward higher short-term interest rates. Accordingly,we have maintained a cautious posture regarding securities in the double-B credit-rating range and higher, which tend to be more sensitive than lower-rated securities to changing interest rates. Likewise, we have been judicious in our investments in credits rated triple-C or lower, especially given the major run-up in prices.We have focused the fund’s investments in the lower rating category to companies that we believe are misrated, or stand the prospect of getting a credit upgrade in the future. Therefore,as of the end of the reporting period,approximately 70% of the fund’s assets were invested in single-B-rated bonds. In addition, the fund was diversified across more than 230 issuers in 32 industries, helping to ensure that unexpected problems in any single issuer or industry should not have a disproportionately adverse effect on performance.

Toward the end of the reporting period, we began to see signs that the bond market’s momentum may be shifting toward higher-quality securities. Indeed, after the market’s prolonged rally, credit spreads have narrowed substantially, suggesting to us that careful security selection based on a credit-focused approach may be a key to further success in high-yield bonds.

March 15, 2004

1
  		 Total return includes reinvestment of dividends and any capital gains paid, and does not take into consideration the maximum initial sales charge in the case of Class A shares, or the applicable contingent deferred sales charges imposed on redemptions in the case of Class B and Class C shares. Had these charges been reflected, returns would have been lower. 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: CREDIT SUISSE FIRST BOSTON — Reflects reinvestment of dividends and, where applicable, capital gain distributions.The CSFB HighYield Index is designed to mirror the investable universe of the U.S. dollar-denominated high-yield debt market.The index consists of corporate debt issues, including cash-pay, zero-coupon, stepped-rate and pay-in-kind (PIK) bonds that are publicly registered in the U.S. or issued under Rule 144A with registration rights, rated 5B or lower, with minimum outstanding par values of $75 million.

The Fund 5

STATEMENT OF INVESTMENTS          
February 29, 2004 (Unaudited)          
 
 
           
           
           
           
    Principal      
Bonds and Notes—93.2%   Amount ($) Value ($)  
 
 
Aerospace—3.9%          
Aviall,          
   Sr. Notes, 7.625%, 2011   2,075,000   2,220,250  
BE Aerospace:          
   Sr. Sub. Notes, Ser. B, 8%, 2008   750,000   716,250  
   Sr. Sub. Notes, 9.5%, 2008   2,500,000   2,506,250  
Communications & Power,          
   Sr. Sub. Notes, 8%, 2012   1,000,000 a 1,020,000  
DRS Technologies,          
   Sr. Sub. Notes, 6.875%, 2013   300,000 a 312,000  
Esterline Technologies,          
   Sr. Sub. Notes, 7.75%, 2013   1,000,000   1,075,000  
Hexcel:          
   Sr. Secured Notes, 9.875%, 2008   500,000   560,000  
   Sr. Sub. Notes, 9.75%, 2009   2,250,000   2,362,500  
Sequa:          
   Sr. Notes, Ser. B, 8.875%, 2008   1,900,000   2,104,250  
   Sr. Notes, 9%, 2009   100,000   111,750  
Titan,          
   Sr. Notes, 8%, 2011   750,000 a 858,750  
TransDigm,          
   Sr. Sub. Notes, 8.375%, 2011   1,750,000   1,855,000  
        15,702,000  
Automotive—2.4%          
Accuride,          
   Sr. Sub. Notes, Ser. B, 9.25%, 2008   2,750,000   2,848,750  
Delco Remy International:          
   Sr. Sub. Notes, 10.625%, 2006   2,000,000   2,020,000  
   Sr. Sub. Notes, 11%, 2009   500,000   530,000  
Dura Operating,          
   Sr. Notes, Ser. B, 8.625%, 2012   150,000   162,000  
Keystone Automotive Operations,          
   Sr. Sub. Notes, 9.75%, 2013   250,000 a 274,375  
TRW Automotive,          
   Sr. Notes, 9.375%, 2013   400,000   458,000  
Tenneco Automotive:          
   Sr. Secured Notes, Ser. B, 10.25%, 2013   500,000   585,000  
   Sr. Sub. Notes, Ser. B, 11.625%, 2009   1,500,000   1,627,500  
United Components,          
   Sr. Sub. Notes, 9.375%, 2013   1,000,000   1,095,000  
        9,600,625  
           
           
6          
  Principal      
Bonds and Notes (continued) Amount ($) Value ($  
 
Broadcasting—3.8%        
Allbritton Communication,        
   Sr. Sub. Notes, 7.75%, 2012 2,775,000   2,892,937  
Citadel Broadcasting,        
   Conv. Notes, 1.875%, 2011 1,200,000 a 1,201,500  
Corus Entertainment,        
   Sr. Sub. Notes, 8.75%, 2012 250,000   279,375  
Entravision Communications,        
   Sr. Sub. Notes, 8.125%, 2009 1,425,000   1,528,312  
LIN Television,        
   Sr. Sub. Notes, 6.5%, 2013 2,250,000   2,306,250  
Nexstar Finance,        
   Sr. Sub. Notes, 7%, 2014 1,700,000 a 1,695,750  
Paxson Communications,        
   Sr. Sub. Notes, 0/12.25%, 2009 1,000,000 b 855,000  
Salem Communications,        
   Sr. Sub. Notes, 7.75%, 2010 750,000   798,750  
Sinclair Broadcast,        
   Sr. Sub. Notes, 8%, 2012 1,500,000   1,620,000  
Susquehanna Media,        
   Sr. Sub. Notes, 7.375%, 2013 1,750,000   1,865,938  
      15,043,812  
Building Materials—2.6%        
Atrium Cos.,        
   Sr. Sub. Notes, Ser. B, 10.5%, 2009 450,000   479,812  
Euramax International,        
   Sr. Sub. Notes, 8.5%, 2011 850,000 a 888,250  
Interface:        
   Notes, 7.3%, 2008 1,200,000   1,206,000  
   Sr. Notes, 10.375%, 2010 1,000,000   1,125,000  
   Sr. Sub. Notes, Ser. B, 9.5%, 2005 1,000,000   1,005,000  
   Sr. Sub. Notes, 9.5%, 2014 1,000,000 a 995,000  
Jacuzzi Brands,        
   Sr. Secured Notes, 9.625%, 2010 2,350,000   2,585,000  
Nortek,        
   Sr. Sub. Notes,        
      Ser. B, 9.875%, 2011 750,000   840,000  
Ply Gem Industries,        
   Sr. Sub. Notes, 9%, 2012 1,400,000 a 1,449,000  
      10,573,062  

The Fund 7

STATEMENT OF INVESTMENTS (Unaudited) (continued)

    Principal      
Bonds and Notes (continued)   Amount ($) Value ($)  
 
 
Cable/Media—4.1%          
CSC,          
   Debs., 7.625%, 2018   1,350,000   1,491,750  
Charter Communications/Capital,          
   Sr. Notes, 10%, 2009   750,000   656,250  
Charter Communications II,          
   Sr. Notes, 10.25%, 2010   3,000,000 a 3,135,000  
EchoStar Communications,          
   Conv. Notes, 5.75%, 2008   3,500,000   3,688,125  
Mediacom/Capital:          
   Sr. Notes, Ser. B, 8.5%, 2008   1,100,000   1,111,000  
   Sr. Notes, 9.5%, 2013   1,700,000   1,732,563  
Mediacom Communications,          
   Conv. Notes, 5.25%, 2006   1,250,000   1,210,937  
PanAmSat,          
   Sr. Notes, 8.5%, 2012   750,000   783,750  
Shaw Communications:          
   Sr. Notes, 7.2%, 2011   650,000   729,625  
   Sr. Notes, 7.25%, 2011   750,000   841,875  
Telenet,          
   Sr. Discount Notes, 0/11.5%, 2014   1,000,000 a,b 625,000  
Videotron LTEE,          
   Sr. Notes, 6.875%, 2014   250,000 a 263,125  
        16,269,000  
Chemicals/Plastics—2.7%          
Equistar Chemical/Funding,          
   Sr. Notes, 10.625%, 2011   500,000   545,000  
Huntsman ICI Chemicals,          
   Sr. Sub. Notes, 10.125%, 2009   1,500,000   1,537,500  
Koppers,          
   Sr. Notes, 9.875%, 2013   2,000,000 a 2,230,000  
Kraton Polymers/Capital,          
   Sr. Sub. Notes, 8.125%, 2014   500,000 a 533,750  
Lyondell Chemicals:          
   Sr. Secured Notes, 10.5%, 2013   1,500,000   1,620,000  
   Sub. Notes, 10.875%, 2009   1,000,000   1,007,500  
Millennium America,          
   Sr. Notes, 7.625%, 2026   1,450,000   1,384,750  
Nalco,          
   Sr. Sub. Notes, 8.875%, 2013   1,500,000 a 1,582,500  
           
           
           
8          
  Principal      
Bonds and Notes (continued) Amount ($) Value ($)  
 
Chemicals/Plastics (continued)        
Rockwood Specialties,        
   Sr. Sub. Notes, 10.625%, 2011 500,000   557,500  
      10,998,500  
Consumer Durables—1.9%        
General Binding,        
   Sr. Sub. Notes, 9.375%, 2008 500,000   506,875  
Jarden,        
   Sr. Sub. Notes, 9.75%, 2012 900,000   1,003,500  
Samsonite,        
   Sr. Sub. Notes, 10.75%, 2008 3,250,000   3,404,375  
Simmons,        
   Sr. Sub. Notes, 7.875%, 2014 2,500,000 a 2,531,250  
      7,446,000  
Consumer Non-Durables—2.0%        
Central Garden & Pet,        
   Sr. Sub. Notes, 9.125%, 2013 100,000   111,500  
Chattem,        
   Sr. Sub. Notes, 7%, 2014 1,000,000 a 1,006,250  
Elizabeth Arden,        
   Sr. Sub. Notes, 7.75%, 2014 1,000,000 a 1,037,500  
FTD,        
   Sr. Sub. Notes, 7.75%, 2014 2,000,000 a 2,015,000  
Hines Nurseries,        
   Notes, 10.25%, 2011 500,000   547,500  
Jafra Cosmetics/Distributors,        
   Sr. Sub. Notes, 10.75%, 2011 2,005,000   2,235,575  
Playtex Products,        
   Sr. Sub. Notes, 9.375%, 2011 1,000,000   932,500  
      7,885,825  
Ecological Pollution Control—1.0%        
Allied Waste,        
   Sr. Sub. Notes, Ser. B, 10%, 2009 1,000,000   1,078,750  
IESI,        
   Sr. Sub. Notes, 10.25%, 2012 1,200,000   1,314,000  
MSW Energy/Finance:        
   Sr. Secured Notes, 7.375%, 2010 1,000,000 a 1,045,000  
   Sr. Secured Notes, 8.5%, 2010 500,000   547,500  
      3,985,250  

The Fund 9

STATEMENT OF INVESTMENTS (Unaudited) (continued)

    Principal      
Bonds and Notes (continued)   Amount ($) Value ($)  
 
 
Entertainment/Leisure—3.0%          
AMC Entertainment,          
   Sr. Sub. Notes, 9.5%, 2011   1,000,000   1,052,500  
AMF Bowling Worldwide,          
   Sr. Sub. Notes, 10%, 2010   1,250,000 a 1,293,750  
Bally Total Fitness,          
   Sr. Notes, 10.5%, 2011   300,000   279,000  
IMAX,          
   Sr. Notes, 9.625%, 2010   500,000 a 537,500  
Intrawest,          
   Sr. Notes, 7.5%, 2013   2,750,000   2,866,875  
Royal Caribbean Cruises:          
   Debs., 7.25%, 2018   1,200,000   1,230,000  
   Debs., 7.5%, 2027   250,000   251,875  
   Sr. Notes, 6.875%, 2013   500,000   521,875  
   Sr. Notes, 8%, 2010   1,000,000   1,122,500  
Six Flags,          
   Sr. Notes, 8.875%, 2010   750,000   775,313  
Town Sports International,          
   Sr. Notes, 9.625%, 2011   1,400,000   1,452,500  
Vail Resorts,          
   Sr. Sub. Notes, 6.75%, 2014   500,000 a 500,000  
        11,883,688  
Food & Beverages—4.2%          
Del Monte,          
   Sr. Sub. Notes, 8.625%, 2012   975,000   1,082,250  
Delhaize America,          
   Notes, 9%, 2031   600,000   734,250  
Dole Foods:          
   Notes, 7.25%, 2010   1,500,000   1,537,500  
   Sr. Notes, 8.875%, 2011   1,075,000   1,158,313  
Ingles Markets,          
   Sr. Sub. Notes, 8.875%, 2011   500,000   521,250  
Land O Lakes,          
   Sr. Notes, 8.75%, 2011   1,900,000   1,657,750  
Le-Natures,          
   Sr. Sub. Notes, 9%, 2013   1,000,000 a 1,047,500  
Merisant,          
   Sr. Notes, 9.5%, 2013   1,500,000 a 1,537,500  
Michael Foods,          
   Sr. Sub. Notes, 8%, 2013   1,000,000 a 1,042,500  
           
           
10          
  Principal      
Bonds and Notes (continued) Amount ($) Value ($)  
 
Food & Beverages (continued)        
Pathmark Stores:        
   Sr. Sub. Notes, 8.75%, 2012 2,750,000   2,873,750  
   Sr. Sub. Notes, 8.75%, 2012 500,000 a 522,500  
Pinnacle Foods,        
   Sr. Sub. Notes, 8.25%, 2013 2,500,000 a 2,631,250  
Seminis Vegetable Seeds,        
   Sr. Sub. Notes, 10.25%, 2013 500,000 a 537,500  
      16,883,813  
Gaming—5.2%        
American Casino & Entertainment,        
   Sr. Secured Notes, 7.85%, 2012 2,000,000 a 2,010,000  
Argosy Gaming:        
   Sr. Sub. Notes, 7%, 2014 500,000 a 514,375  
   Sr. Sub. Notes, 9%, 2011 50,000   56,000  
Boyd Gaming,        
   Sr. Sub. Notes, 7.75%, 2012 1,000,000   1,080,000  
Hard Rock Hotel,        
   Notes, 8.875%, 2013 1,750,000   1,890,000  
Horseshoe Gaming,        
   Sr. Sub. Notes,        
      Ser. B, 8.625%, 2009 1,600,000   1,686,000  
Inn of the Mountain Gods,        
   Sr. Notes, 12%, 2010 1,000,000 a 1,092,500  
Isle of Capri Casinos:        
   Notes, 8.75%, 2009 800,000   846,000  
   Sr. Sub. Notes, 7%, 2014 2,950,000 a 2,964,750  
Mohegan Tribal Gaming Authority,        
   Sr. Sub. Notes, 8%, 2012 700,000   770,000  
Penn National Gaming,        
   Sr. Sub. Notes, 6.875%, 2011 750,000 a 755,625  
Pinnacle Entertainment:        
   Sr. Sub. Notes, 8.25%, 2012 3,000,000 a 2,978,460  
   Sr. Sub. Notes, Ser. B, 9.25%, 2007 2,640,000   2,739,000  
Station Casinos,        
   Sr. Sub. Notes, 6.875%, 2016 1,500,000 a 1,522,500  
      20,905,210  
Health Care—6.3%        
Alaris Medical,        
   Sr. Sub. Notes, 7.25%, 2011 2,200,000   2,332,000  

The Fund 11

STATEMENT OF INVESTMENTS (Unaudited) (continued)

    Principal      
Bonds and Notes (continued)   Amount ($) Value ($)  
 
 
Health Care (continued)          
Alliance Imaging,          
   Sr. Sub. Notes, 10.375%, 2011   1,500,000   1,518,750  
Beverly Enterprises,          
   Sr. Notes, 9.625%, 2009   625,000   709,375  
Extendicare Health Services:          
   Sr. Notes, 9.5%, 2010   250,000   278,750  
   Sr. Sub. Notes, 9.35%, 2007   2,500,000   2,600,000  
Fisher Scientific International,          
   Sr. Sub. Notes, 8%, 2013   500,000   551,250  
Genesis Healthcare,          
   Sr. Sub. Notes, 8%, 2013   2,500,000 a 2,675,000  
Insight Health Services,          
   Sr. Sub. Notes, Ser. B, 9.875%, 2011   1,750,000   1,798,125  
Kinetic Concepts,          
   Sr. Sub. Notes, 7.375%, 2013   1,250,000 a 1,331,250  
MedEx,          
   Sr. Sub. Notes, 8.875%, 2013   2,250,000 a 2,441,250  
Medquest,          
   Notes, Ser. B, 11.875%, 2012   500,000   570,000  
NeighborCare,          
   Sr. Sub. Notes, 6.875%, 2013   1,000,000 a 1,045,000  
Province Healthcare,          
   Sr. Sub. Notes, 7.5%, 2013   2,400,000   2,490,000  
Psychiatric Solutions,          
   Sr. Sub. Notes, 10.625%, 2013   500,000   567,500  
Select Medical,          
   Sr. Sub. Notes, 7.5%, 2013   2,000,000   2,180,000  
Sybron Dental Specialties,          
   Sr. Sub. Notes, 8.125%, 2012   250,000   276,250  
Triad Hospitals,          
   Sr. Sub. Notes, 7%, 2013   2,000,000 a 2,080,000  
        25,444,500  
Home Building—.3%          
K. Hovnanian Enterprises,          
   Sr. Sub. Notes, 7.75%, 2013   1,000,000   1,065,000  
Industrial—1.2%          
Blount,          
   Sr. Sub. Notes, 13%, 2009   1,250,000   1,356,250  
Great Lakes Dredge & Dock,          
   Sr. Sub. Notes, 7.75%, 2013   1,000,000 a 1,050,000  
           
12          
  Principal      
Bonds and Notes (continued) Amount ($) Value ($)  
 
Industrial (continued)        
Sensus Metering Systems,        
   Sr. Sub. Notes, 8.625%, 2013 1,500,000 a 1,531,875  
Terex,        
   Sr. Sub. Notes, 7.375%, 2014 600,000 a 636,000  
Trimas,        
   Notes, 9.875%, 2012 250,000   271,250  
      4,845,375  
Leasing—1.6%        
Mobile Mini,        
   Sr. Notes, 9.5%, 2013 1,750,000   1,938,125  
United Rentals:        
   Sr. Sub. Notes, 7%, 2014 2,000,000 a 1,920,000  
   Sr. Sub. Notes, 7.75%, 2013 1,500,000 a 1,496,250  
Williams Scotsman,        
   Sr. Notes, 9.875%, 2007 1,250,000   1,234,375  
      6,588,750  
Lodging/Hotels—1.3%        
Gaylord Entertainment,        
   Sr. Notes, 8%, 2013 3,000,000 a 3,191,250  
Host Marriott,        
   Sr. Notes, 7.125%, 2013 2,000,000   2,075,000  
      5,266,250  
Mining/Metals—.5%        
Arch Western Finance,        
   Sr. Notes, 6.75%, 2013 750,000 a 795,000  
Massey Energy,        
   Sr. Notes, 6.625%, 2010 1,000,000 a 1,035,000  
      1,830,000  
Oil & Gas—3.3%        
Chesapeake Energy,        
   Sr. Notes, 7.75%, 2015 500,000   548,750  
Citgo Petroleum,        
   Sr. Notes, 11.375%, 2011 750,000   896,250  
Comstock Resources,        
   Sr. Notes, 6.875%, 2012 1,000,000   1,016,250  
Continental Resources,        
   Sr. Sub. Notes, 10.25%, 2008 400,000   414,000  
Denbury Resources,        
   Notes, 7.5%, 2013 1,150,000   1,213,250  

The Fund 13

STATEMENT OF INVESTMENTS (Unaudited) (continued)

    Principal      
Bonds and Notes (continued)   Amount ($) Value ($)  
 
 
Oil & Gas (continued)          
El Paso Production,          
   Sr. Notes, 7.75%, 2013   500,000   472,500  
Exco Resources,          
   Sr. Notes, 7.25%, 2011   1,000,000 a 1,032,500  
GulfMark Offshore,          
   Sr. Sub. Notes, 8.75%, 2008   1,650,000   1,703,625  
Houston Exploration,          
   Sr. Sub. Notes, 7%, 2013   1,000,000   1,055,000  
Plains E&P,          
   Sr. Sub. Notes, Ser. B, 8.75%, 2012   250,000   280,625  
Premcor Refining,          
   Sr. Sub. Notes, 7.75%, 2012   1,500,000   1,635,000  
Tom Brown,          
   Units, 7.25%, 2013   1,000,000   1,077,500  
Transmontaigne,          
   Sr. Sub. Notes, 9.125%, 2010   1,750,000 a 1,881,250  
        13,226,500  
Packaging/Consumer—4.4%          
AEP Industries,          
   Sr. Sub. Notes, 9.875%, 2007   1,500,000   1,552,500  
Crown Cork & Seal:          
   Debs., 7.375%, 2026   1,600,000   1,480,000  
   Debs., 8%, 2023   750,000   720,000  
Graham Packaging/Capital,          
   Sr. Sub. Notes, Ser. B, 8.75%, 2008   2,700,000   2,740,500  
Graphic Packaging International:          
   Sr. Notes, 8.5%, 2011   1,050,000   1,162,875  
   Sr. Sub. Notes, 9.5%, 2013   1,250,000   1,412,500  
Owens-Brockway Glass Container,          
   Sr. Notes, 8.25%, 2013   3,750,000   3,965,625  
Portola Packaging,          
   Sr. Notes, 8.25%, 2012   500,000 a 517,500  
Solo Cup,          
   Sr. Sub. Notes, 8.5%, 2014   2,500,000 a 2,628,125  
Tekni-Plex,          
   Sr. Secured Notes, 8.75%, 2013   1,250,000 a 1,309,375  
U.S. Can,          
   Sr. Secured Notes, 10.875%, 2010   250,000   263,750  
        17,752,750  
           
           
14          
  Principal      
Bonds and Notes (continued) Amount ($) Value ($)  
 
Paper—4.0%        
Abitibi-Consolidated:        
   Debs., 7.5%, 2028 2,000,000   1,917,326  
   Notes, 6%, 2013 500,000   480,882  
Ainsworth Lumber,        
   Sr. Notes, 6.75%, 2014 1,000,000 a 1,004,006  
Boise Cascade,        
   Sr. Notes, 7%, 2013 1,000,000   1,056,721  
Caraustar Industries,        
   Sr. Sub. Notes, 9.875%, 2011 1,900,000   1,966,500  
Four M,        
   Sr. Secured Notes, Ser. B, 12%, 2006 500,000   502,500  
Georgia-Pacific:        
   Bonds, 7.25%, 2028 500,000   476,250  
   Debs., 8.25%, 2023 200,000   202,000  
   Sr. Notes, 8%, 2014 1,000,000   1,087,500  
   Sr. Notes, 8%, 2024 1,500,000 a 1,533,750  
Jefferson Smurfit,        
   Sr. Notes, 7.5%, 2013 2,000,000   2,100,000  
MDP Acquisitions,        
   Sr. Notes, 9.625%, 2012 1,400,000   1,582,000  
Smurfit Capital Funding,        
   Debs., 7.5%, 2025 500,000   510,000  
Stone Container,        
   Sr. Notes, 8.375%, 2012 1,500,000   1,636,875  
      16,056,310  
Publishing—5.9%        
Advanstar Communications:        
   Secured Notes, 10.75%, 2010 100,000   109,750  
   Sr. Sub. Notes, Ser. B, 12%, 2011 900,000   965,250  
Affinity,        
   Sr. Sub. Notes, 9%, 2012 700,000 a 724,500  
American Color Graphics,        
   Sr. Secured Notes, 10%, 2010 1,800,000   1,611,000  
American Media Operation,        
   Notes, 8.875%, 2011 400,000   416,000  
CBD Media/Finance,        
   Sr. Sub. Notes, 8.625%, 2011 2,000,000   2,200,000  
Canwest Media,        
   Sr. Notes, Ser. B, 7.625%, 2013 1,000,000   1,095,000  

The Fund 15

STATEMENT OF INVESTMENTS (Unaudited) (continued)

    Principal      
Bonds and Notes (continued)   Amount ($) Value ($)  
 
 
Publishing (continued)          
Dex Media,          
   Notes, 8%, 2013   2,000,000 a 2,010,000  
Dex Media West/Finance,          
   Sr. Sub. Notes, 9.875%, 2013   500,000 a 563,750  
Houghton Mifflin,          
   Sr. Sub. Notes, 9.875%, 2013   800,000   880,000  
Liberty Group Operating,          
   Sr. Sub. Notes, 9.375%, 2008   3,000,000   3,075,000  
Mail-Well I:          
   Sr. Notes, 9.625%, 2012   750,000   832,500  
   Sr. Sub. Notes, 7.875%, 2013   1,500,000 a 1,455,000  
Moore North American Finance,          
   Sr. Notes, 7.875%, 2011   750,000   858,750  
Morris Publishing,          
   Sr. Sub. Notes, 7%, 2013   500,000 a 513,125  
PRIMEDIA:          
   Sr. Notes, 8%, 2013   1,000,000 a 1,010,000  
   Sr. Notes, 8.875%, 2011   1,100,000   1,141,250  
Quebecor Media,          
   Sr. Discount Notes, 0/13.75%, 2011   1,250,000 b 1,125,000  
Vertis:          
   Sr. Notes, Ser. B, 10.875%, 2009   500,000   510,000  
   Sr. Secured Notes, 9.75%, 2009   1,000,000   1,070,000  
Von Hoffmann:          
   Sr. Notes, 10.25%, 2009   820,000   863,050  
   Sr. Notes, 10.25%, 2009   50,000 a 52,625  
Yell Finance,          
   Sr. Discount Notes, 0/13.5%, 2011   650,000 b 607,750  
        23,689,300  
Real Estate Investment Trusts—.9%          
Felcor Lodging,          
   Sr. Notes, 9%, 2011   250,000   265,000  
Felcor Suites,          
   Sr. Notes, 7.375%, 2004   1,000,000   1,020,000  
HMH Properties,          
   Sr. Secured Notes, Ser. B, 7.875%, 2008   1,000,000   1,040,000  
La Quinta Properties,          
   Sr. Notes, 8.875%, 2011   200,000   224,750  
Meristar Hospitality,          
   Sr. Notes, 9.125%, 2011   850,000   884,000  
        3,433,750  
           
16          
  Principal      
Bonds and Notes (continued) Amount ($) Value ($)  
 
Restaurants—1.1%        
Buffets,        
   Sr. Sub. Notes, 11.25%, 2010 1,800,000   1,953,000  
CKE Restaurants,        
   Sr. Sub. Notes, 9.125%, 2009 500,000   522,500  
Dominos,        
   Sr. Sub. Notes, 8.25%, 2011 2,000,000   2,160,000  
      4,635,500  
Retail—4.8%        
CSK Auto,        
   Sr. Notes, 7%, 2014 2,000,000 a 2,010,000  
Couche-Tard U.S./Finance,        
   Sr. Sub. Notes, 7.5%, 2013 750,000 a 806,250  
General Nutrition Center,        
   Sr. Sub. Notes, 8.5%, 2010 2,000,000 a 2,092,500  
Jo-Ann Stores,        
   Sr. Sub. Notes, 7.5%, 2012 1,250,000 a 1,264,063  
Pantry:        
   Sr. Sub. Notes, 7.75%, 2014 2,000,000 a 2,040,000  
   Sr. Sub. Notes, 10.25%, 2007 2,500,000   2,597,925  
Petro Stopping Centers/Financial,        
   Sr. Secured Notes, 9%, 2012 1,500,000 a 1,575,000  
Rent-A-Center,        
   Sr. Sub. Notes, Ser. B, 7.5%, 2010 1,750,000   1,846,250  
Rite Aid:        
   Debs., 7.7%, 2027 1,750,000   1,662,500  
   Sr. Secured Notes, 8.125%, 2010 1,250,000   1,350,000  
Saks:        
   Sr. Sub. Notes, 7.375%, 2019 2,000,000   2,040,000  
   Sr. Sub. Notes, 7.5%, 2010 150,000   164,625  
      19,449,113  
Services—4.4%        
Alderwoods,        
   Sr. Notes, 12.25%, 2009 3,050,000   3,404,562  
Coinmach,        
   Sr. Notes, 9%, 2010 450,000   482,625  
Corrections Corporation of America:        
   Sr. Notes, 7.5%, 2011 1,500,000   1,586,250  
   Sr. Notes, 7.5%, 2011 800,000 a 846,000  
Iron Mountain:        
   Sr. Sub. Notes, 6.625%, 2016 3,000,000   2,925,000  
   Sr. Sub. Notes, 7.75%, 2015 400,000   424,000  

The Fund 17

STATEMENT OF INVESTMENTS (Unaudited) (continued)

    Principal      
Bonds and Notes (continued)   Amount ($) Value ($)  
 
 
Services (continued)          
JohnsonDiversey,          
   Sr. Discount Notes, 0/10.67%, 2013   1,500,000 b 1,162,500  
LodgeNet Entertainment,          
   Sr. Sub. Debs., 9.5%, 2013   1,800,000   2,020,500  
Monitronics International,          
   Sr. Sub. Notes, 11.75%, 2010   1,000,000 a 1,055,000  
Nebraska Book,          
   Sr. Sub. Notes, 8.625%, 2012   1,000,000 a 1,000,000  
Wackenhut Corrections,          
   Sr. Notes, 8.25%, 2013   1,750,000 a 1,876,875  
Wesco Distribution,          
   Sr. Sub. Notes, Ser. B, 9.125%, 2008   1,000,000   1,035,000  
        17,818,312  
Technology—3.4%          
Activant Solutions,          
   Sr. Notes, 10.5%, 2011   1,250,000   1,331,250  
Amkor Technologies,          
   Sr. Notes, 7.75%, 2013   2,000,000   2,100,000  
Eastman Kodak,          
   Sr. Notes, 7.25%, 2013   1,500,000   1,640,105  
Flextronics International,          
   Sr. Sub. Notes, 6.5%, 2013   1,400,000   1,457,750  
Lucent Technologies:          
   Debs., 6.45%, 2029   2,000,000   1,645,000  
   Notes, 5.5%, 2008   500,000   483,750  
New ASAT Finance,          
   Sr. Notes, 9.25%, 2011   1,500,000 a 1,608,750  
Stratus Technologies,          
   Sr. Notes, 10.375%, 2008   750,000 a 793,125  
Xerox,          
   Sr. Notes, 7.625%, 2013   1,000,000   1,070,000  
Xerox Capital Trust I,          
   Notes, 8%, 2027   1,500,000   1,477,500  
        13,607,230  
Telecommunications—7.2%          
Alamosa Delaware,          
   Sr. Notes, 8.5%, 2012   500,000 a 480,000  
American Cellular,          
   Sr. Notes, Ser. B, 10%, 2011   750,000   757,500  
           
           
18          
  Principal      
Bonds and Notes (continued) Amount ($) Value ($)  
 
Telecommunications (continued)        
American Tower,        
   Sr. Notes, 9.375%, 2009 3,500,000   3,727,500  
Centennial Cell Communications,        
   Sr. Notes, 10.125%, 2013 500,000   527,500  
Cincinnati Bell:        
   Sr. Notes, 7.25%, 2013 3,500,000   3,622,500  
   Sr. Sub. Notes, 8.375%, 2014 500,000   528,750  
Crown Castle International,        
   Sr. Notes, 7.5%, 2013 500,000 a 503,750  
Dobson Communications,        
   Sr. Notes, 8.875%, 2013 450,000   389,250  
Eircom Funding,        
   Sr. Sub. Notes, 8.25%, 2013 1,500,000   1,672,500  
Level Three Financing,        
   Sr. Notes, 10.75%, 2011 2,000,000 a 2,020,000  
Nextel Communications,        
   Sr. Notes, 7.375%, 2015 3,600,000   3,897,000  
Nextel Partners,        
   Sr. Notes, 8.125%, 2011 2,500,000   2,650,000  
Qwest Capital Funding:        
   Notes, 7%, 2009 2,000,000   1,810,000  
   Notes, 7.25%, 2011 1,500,000   1,350,000  
Qwest Communications International,        
   Sr. Notes, 7.5%, 2014 1,000,000 a 950,000  
Rural Cellular,        
   Sr. Sub. Notes, 9.75%, 2010 750,000   712,500  
SBA Communications,        
   Sr. Notes, 10.25%, 2009 1,000,000   1,007,500  
Spectrasite,        
   Sr. Notes, 8.25%, 2010 1,000,000   1,057,500  
Triton PCS,        
   Sr. Sub. Notes, 8.75%, 2011 500,000   502,500  
Western Wireless,        
   Sr. Notes, 9.25%, 2013 500,000   527,500  
      28,693,750  
Textiles/Apparel—.7%        
Oxford Industries,        
   Sr. Notes, 8.875%, 2011 750,000 a 802,500  

The Fund 19

STATEMENT OF INVESTMENTS (Unaudited) (continued)

      Principal      
Bonds and Notes (continued) Amount ($) Value ($)  
 
Textiles/Apparel (continued)        
Perry Ellis International,        
Sr. Sub. Notes, 8.875%, 2013 500,000 a 525,000  
Phillips Van-Heusen,        
Sr. Notes, 8.125%, 2013 1,500,000   1,590,000  
          2,917,500  
Transportation—.2%        
Allied,            
Sr. Notes, Ser. B, 8.625%, 2007 750,000   732,188  
Utilities—4.9%        
Allegheny Energy Supply:        
Bonds, 8.75%, 2012 500,000 a 497,500  
Notes, 7.8%, 2011 1,000,000   975,000  
Coastal,            
Notes, 7.75%, 2010 3,000,000   2,640,000  
Dynegy,            
Sr. Notes, 6.875%, 2011 2,500,000   2,193,750  
Edison Mission Energy,        
Sr. Notes, 7.73%, 2009 1,750,000   1,688,750  
El Paso:            
Medium-Term Notes, 7.8%, 2031 1,500,000   1,215,000  
Sr. Notes, 7.875%, 2012 1,000,000   910,000  
NRG Energy,        
Sr. Secured Notes, 8%, 2013 500,000 a 518,750  
Semco Energy,        
Sr. Notes, 7.75%, 2013 1,000,000   1,065,000  
Southern Natural Gas,        
Notes, 7.35%, 2031 750,000   731,250  
Southern Star Cent,        
Sr. Secured Notes, 8.5%, 2010 750,000   825,000  
Tennessee Gas Pipeline:        
Debs., 7%, 2028 500,000   470,000  
Debs., 7.5%, 2017 2,000,000   2,080,000  
Williams Cos.:        
Debs., Ser. A, 7.5%, 2031 1,000,000   975,000  
Notes, 7.625%, 2019 2,500,000   2,550,000  
Sr. Notes, 7.75%, 2031 250,000   248,750  
          19,583,750  
Total Bonds and Notes        
   (cost $   361,049,204)     373,812,613  
             
             
             
20            
Preferred Stocks—1.8% Shares   Value ($)  
 
 
Broadcasting—.4%            
Emmis Communications,            
Ser. A, Cum. Conv., $ 3.125 20,000   987,500  
Sinclair Broadcast,            
Ser. D, Conv. $ 3.00     17,000   790,500  
              1,778,000  
Leasing—.0%              
United Rentals Trust I,            
   Conv., $ 3.25       4,245   185,188  
Paper—.3%                
Smurfit-Stone Container,          
Ser. A, Cum. Conv., $ 1.75   40,000   985,000  
Telecommunications—.5%          
Crown Castle International,          
Cum. Conv., $ 3.125     44,000   2,018,500  
Utilities—.6%              
Calpine Capital Trust:            
   Conv. $ 2.875       30,000   1,473,750  
Cum. Conv., $ 2.75     20,000   965,000  
              2,438,750  
Total Preferred Stocks            
   (cost $   6,865,192)         7,405,438  
 
 
                 
Other Investments—5.5%        
 
 
Registered Investment Companies:        
Dreyfus Institutional Cash Advantage Fund 7,317,000 c   7,317,000  
Dreyfus Institutional Cash Advantage Plus Fund 7,317,000 c   7,317,000  
Dreyfus Institutional Preferred Plus Money Market Fund 7,317,000 c   7,317,000  
Total Other Investments          
   (cost $   21,951,000)         21,951,000  
 
 
                 
Total Investments (cost $ 389,865,396) 100.5%   403,169,051  
Liabilities, Less Cash and Receivables (.5%)   (2,134,461)  
Net Assets       100.0%   401,034,590  

a Securities exempt from registration under Rule 144A of the Securities Act of 1933.These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers.At February 29, 2004, these securities amounted to $106,915,654 or 26.7% of net assets.

b
  		 Zero coupon until a specified date at which time the stated coupon rate becomes effective until maturity.
c
  		 Investments in affiliated money market mutual funds.

See notes to financial statements.

The Fund 21

STATEMENT OF ASSETS AND LIABILITIES

February 29, 2004 (Unaudited)            
 
 
               
               
               
               
               
          Cost Value  
 
 
Assets ($):              
Investments in securities—See Statement of Investments:          
Unaffiliated issuers       367,914,396 381,218,051  
Affiliated issuers       21,951,000 21,951,000  
Cash           4,065,083  
Dividends and interest receivable         6,750,921  
Receivable for shares of Common Stock subscribed       2,375,232  
Receivable for investment securities sold       718,654  
Prepaid expenses         37,355  
            417,116,296  
 
 
Liabilities ($):            
Due to The Dreyfus Corporation and affiliates       448,007  
Payable for investment securities purchased       15,223,907  
Payable for shares of Common Stock redeemed       322,634  
Accrued expenses         87,158  
            16,081,706  
 
 
Net Assets ( $)         401,034,590  
 
 
Composition of Net Assets ($):            
Paid-in capital           385,256,333  
Accumulated undistributed investment income—net       1,642,078  
Accumulated net realized gain (loss) on investments       832,524  
Accumulated net unrealized appreciation          
(depreciation) on investments         13,303,655  
 
 
Net Assets ( $)         401,034,590  
 
 
               
               
Net Asset Value Per Share            
    Class A   Class B Class C Class R  
 
 
Net Assets ($) 194,364,633   64,624,793 138,133,657 3,911,507  
Shares Outstanding 13,894,988   4,623,668 9,900,485 279,108  
 
 
Net Asset Value Per Share ($) 13.99   13.98 13.95 14.01  
               
See notes to financial statements.            

22

STATEMENT OF OPERATIONS    
Six Months Ended February 29, 2004 (Unaudited)    
 
     
     
     
     
     
     
Investment Income ($):    
Income:    
Interest 12,649,853  
Cash dividends:    
   Unaffiliated issuers 108,074  
   Affiliated issuers 62,441  
Total Income 12,820,368  
Expenses:    
Management fee—Note 3(a) 1,233,012  
Distribution fees—Note 3(b) 549,792  
Shareholder servicing costs—Note 3(c) 528,568  
Registration fees 111,273  
Professional fees 45,035  
Prospectus and shareholders’ reports 24,826  
Custodian fees—Note 3(c) 13,561  
Directors’ fees and expenses—Note 3(d) 12,197  
Miscellaneous 13,990  
Total Expenses 2,532,254  
Less—reduction in management fee    
   due to undertaking—Note 3(a) (47,049)  
Net Expenses 2,485,205  
Investment Income—Net 10,335,163  
 
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($):    
Net realized gain (loss) on investments 1,516,385  
Net unrealized appreciation (depreciation) on investments 10,482,919  
Net Realized and Unrealized Gain (Loss) on Investments 11,999,304  
Net Increase in Net Assets Resulting from Operations 22,334,467  
     
See notes to financial statements.    

The Fund 23

STATEMENT OF CHANGES IN NET ASSETS

    Six Months Ended      
    February 29, 2004   Year Ended  
    (Unaudited)   August 31, 2003a  
 
 
 
Operations ($):          
Investment income—net   10,335,163   3,696,450  
Net realized gain (loss) on investments   1,516,385   (666,715)  
Net unrealized appreciation          
   (depreciation) on investments   10,482,919   2,820,736  
Net Increase (Decrease) in Net Assets          
   Resulting from Operations   22,334,467   5,850,471  
 
 
 
Dividends to Shareholders from ($):          
Investment income—net          
Class A shares   (5,084,682)   (1,359,110)  
Class B shares   (1,704,140)   (481,034)  
Class C shares   (3,077,445)   (708,104)  
Class R shares   (94,234)   (3,797)  
Total Dividends   (9,960,501)   (2,552,045)  
 
 
 
Capital Stock Transactions ($):          
Net proceeds from shares sold:          
Class A shares   92,043,125   125,951,139  
Class B shares   21,056,350   49,254,903  
Class C shares   62,400,158   77,065,981  
Class R shares   2,703,055   2,523,615  
Dividends reinvested:          
Class A shares   3,331,738   977,748  
Class B shares   876,406   251,694  
Class C shares   1,273,429   267,757  
Class R shares   44,523   3,797  
Cost of shares redeemed:          
Class A shares   (24,858,008)   (10,930,411)  
Class B shares   (5,022,611)   (4,807,298)  
Class C shares   (5,405,693)   (2,120,050)  
Class R shares   (966,868)   (552,281)  
Increase (Decrease) in Net Assets from          
   Capital Stock Transactions   147,475,604   237,886,594  
Total Increase (Decrease) in Net Assets   159,849,570   241,185,020  
 
 
 
Net Assets ($):          
Beginning of Period   241,185,020   —  
End of Period   401,034,590   241,185,020  
Undistributed investment income—net   1,642,078   1,267,416  
           
           
24          
  Six Months Ended      
  February 29, 2004   Year Ended  
  (Unaudited)   August 31, 2003a  
 
 
Capital Share Transactions:        
Class Ab        
Shares sold 6,644,371   9,537,075  
Shares issued for dividends reinvested 242,044   73,770  
Shares redeemed (1,781,753)   (820,519)  
Net Increase (Decrease) in Shares Outstanding 5,104,662   8,790,326  
 
 
Class Bb        
Shares sold 1,524,903   3,738,190  
Shares issued for dividends reinvested 63,701   19,018  
Shares redeemed (360,569)   (361,575)  
Net Increase (Decrease) in Shares Outstanding 1,228,035   3,395,633  
 
 
Class C        
Shares sold 4,512,530   5,824,305  
Shares issued for dividends reinvested 92,554   20,231  
Shares redeemed (388,806)   (160,329)  
Net Increase (Decrease) in Shares Outstanding 4,216,278   5,684,207  
 
 
Class R        
Shares sold 191,990   194,102  
Shares issued for dividends reinvested 3,218   296  
Shares redeemed (68,736)   (41,762)  
Net Increase (Decrease) in Shares Outstanding 126,472   152,636  

a From January 31, 2003 (commencement of operations) to August 31, 2003.

b During the period ended February 29, 2004, 15,445 Class B shares representing $213,447 were automatically converted to 15,440 Class A shares and during the period ended August 31, 2003, 10,447 Class B shares representing $138,184 were automatically converted to 10,446 Class A shares.

See notes to financial statements.

The Fund 25

FINANCIAL HIGHLIGHTS (Unaudited)

The following tables describe the performance for each share class for the fiscal periods indicated.All information (except portfolio turnover rate) reflects financial results for a single fund share.Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions.These figures have been derived from the fund’s financial statements.

    Six Months Ended      
    February 29, 2004   Year Ended  
Class A Shares   (Unaudited)   August 31, 2003a  
 
 
Per Share Data ($):        
Net asset value, beginning of period 13.39   12.50  
Investment Operations:        
Investment income—netb .46   .48  
Net realized and unrealized        
gain (loss) on investments .60   .70  
Total from Investment Operations 1.06   1.18  
Distributions:          
Dividends from investment income—net (.46)   (.29)  
Net asset value, end of period 13.99   13.39  
 
 
Total Return (%) c,d 7.92   9.55  
 
 
Ratios/Supplemental Data (%):        
Ratio of expenses to average net assetse 1.17   1.25  
Ratio of net investment income        
to average net assetse 6.62   6.31  
Decrease reflected in above expense ratios due to        
undertakings by The Dreyfus Corporatione .02   .08  
Portfolio Turnover Rated 27.06   21.71  
 
 
Net Assets, end of period ($ x 1,000) 194,365   117,731  
a From January 31, 2003 (commencement of operations) to August 31, 2003.
b
  		 Based on average shares outstanding at each month end.
c
  		 Exclusive of sales charge.
d
  		 Not annualized.
e
  		 Annualized.

See notes to financial statements.

26

    Six Months Ended      
    February 29, 2004   Year Ended  
Class B Shares   (Unaudited)   August 31, 2003a  
 
 
Per Share Data ($):        
Net asset value, beginning of period 13.38   12.50  
Investment Operations:        
Investment income—netb .42   .44  
Net realized and unrealized        
gain (loss) on investments .60   .70  
Total from Investment Operations 1.02   1.14  
Distributions:          
Dividends from investment income—net (.42)   (.26)  
Net asset value, end of period 13.98   13.38  
 
 
Total Return (%) c,d 7.66   9.24  
 
 
Ratios/Supplemental Data (%):        
Ratio of expenses to average net assetse 1.68   1.75  
Ratio of net investment income        
to average net assetse 6.12   5.77  
Decrease reflected in above expense ratios due to        
undertakings by The Dreyfus Corporatione .02   .13  
Portfolio Turnover Rated 27.06   21.71  
 
 
Net Assets, end of period ($ x 1,000) 64,625   45,444  

a From January 31, 2003 (commencement of operations) to August 31, 2003.

b
  		 Based on average shares outstanding at each month end.
c
  		 Exclusive of sales charge.
d
  		 Not annualized.
e
  		 Annualized.

See notes to financial statements.

The Fund 27

FINANCIAL HIGHLIGHTS (continued)

    Six Months Ended      
    February 29, 2004   Year Ended  
Class C Shares   (Unaudited)   August 31, 2003a  
 
 
Per Share Data ($):        
Net asset value, beginning of period 13.36   12.50  
Investment Operations:        
Investment income—netb .40   .43  
Net realized and unrealized        
gain (loss) on investments .60   .68  
Total from Investment Operations 1.00   1.11  
Distributions:          
Dividends from investment income—net (.41)   (.25)  
Net asset value, end of period 13.95   13.36  
 
 
Total Return (%) c,d 7.56   9.00  
 
 
Ratios/Supplemental Data (%):        
Ratio of expenses to average net assetse 1.94   2.00  
Ratio of net investment income        
to average net assetse 5.86   5.64  
Decrease reflected in above expense ratios due to        
undertakings by The Dreyfus Corporatione .03   .11  
Portfolio Turnover Rated 27.06   21.71  
 
 
Net Assets, end of period ($ x 1,000) 138,134   75,962  

a From January 31, 2003 (commencement of operations) to August 31, 2003.

b
  		 Based on average shares outstanding at each month end.
c
  		 Exclusive of sales charge.
d
  		 Not annualized.
e
  		 Annualized.

See notes to financial statements.

28

  Six Months Ended      
  February 29, 2004   Year Ended  
Class R Shares (Unaudited)   August 31, 2003a  
 
 
Per Share Data ($):        
Net asset value, beginning of period 13.42   12.50  
Investment Operations:        
Investment income—netb .47   .42  
Net realized and unrealized        
   gain (loss) on investments .59   .80  
Total from Investment Operations 1.06   1.22  
Distributions:        
Dividends from investment income—net (.47)   (.30)  
Net asset value, end of period 14.01   13.42  
 
 
Total Return (%)c 8.03   9.80  
 
 
Ratios/Supplemental Data (%):        
Ratio of expenses to average net assetsd .92   1.00  
Ratio of net investment income        
   to average net assetsd 6.88   6.11  
Decrease reflected in above expense ratios due to        
   undertakings by The Dreyfus Corporationd .00e   .35  
Portfolio Turnover Ratec 27.06   21.71  
 
 
Net Assets, end of period ($ x 1,000) 3,912   2,048  

a From January 31, 2003 (commencement of operations) to August 31, 2003.

b
  		 Based on average shares outstanding at each month end.
c
  		 Not annualized.
d
  		 Annualized.
e
  		 Amount represents less than .01%.

See notes to financial statements.

The Fund 29

NOTES TO FINANCIAL STATEMENTS (Unaudited)

NOTE 1—Significant Accounting Policies:

Dreyfus Premier High Income Fund (the “fund”) is a separate diversified series of Dreyfus Bond Funds, Inc. (the “Company”) which is registered under the Investment Company Act of 1940, as amended (the “Act”), as an open-end management investment company and operates as a series company currently offering two series, including the fund.The fund’s investment objective is to maximize total return consistent with capital preservation and prudent risk management.The Dreyfus Corporation (“Dreyfus”) serves as the fund’s investment adviser. Dreyfus is a wholly-owned subsidiary of Mellon Financial Corporation (“Mellon Financial”). Shenkman Capital Management, Inc. (“Shenkman”) 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.The fund is authorized to issue 100 million shares of $.001 par value Common Stock in each of the following classes of shares: Class A, Class B, Class C and Class R. Class A shares are subject to a sales charge imposed at the time of purchase, Class B shares are subject to a contingent deferred sales charge (“CDSC”) imposed on Class B share redemptions made within six years of purchase and automatically convert to Class A shares after six years. Class C shares are subject to a CDSC imposed on Class C shares redeemed within one year of purchase and Class R shares are sold at net asset value per share only to institutional investors.Other differences between the classes include the services offered to and the expenses borne by each class, the minimum initial investment and certain voting rights. Income, expenses (other than expenses attributable to a specific class), and realized and unrealized gains or losses on investments are allocated to each class of shares based on its relative net assets.

The Company accounts separately for the assets, liabilities and operations of each series. Expenses directly attributable to each series are charged to that series’ operations; expenses which are applicable to all series are allocated among them on a pro rata basis.

30

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

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 (excluding short-term investments, other than U.S.Treasury Bills) are valued each business day by an independent pricing service (“Service”) approved by the Board of Directors. Investments for which quoted bid prices are readily available and are representative of the bid side of the market in the judgment of the Service are valued at the mean between the quoted bid prices (as obtained by the Service from dealers in such securities) and asked prices (as calculated by the Service based upon its evaluation of the market for such securities). Other investments (which constitute a majority of the portfolio securities) are carried at fair value as determined by the Service, based on methods which include consideration of: yields or prices of securities of comparable quality, coupon, maturity and type; indications as to values from dealers; and general market conditions. Securities for which there are no such valuations are valued at fair value as determined in good faith under the direction of the Board of Directors. Short-term investments, excluding U.S. Treasury Bills, are carried at amortized cost, which approximates value.

(b) Securities transactions and investment income: Securities transactions are recorded on a trade date basis. Realized gain and loss from securities transactions are recorded on the identified cost basis. Dividend income is recognized on the ex-dividend date and interest income, including, where applicable, amortization of discount and premium on investments, is recognized on the accrual basis. Under the terms of the custody agreement, the fund received net earnings cred-

The Fund 31

NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)

its of $3,026 during the period ended February 29, 2004, based on available cash balances left on deposit. Income earned under this arrangement is included in interest income.

(c) Affiliated issuers: Issuers in which the fund held investments in other investment companies advised by Dreyfus are defined as “affiliated” in the Act.

(d) Dividends to shareholders: Dividends payable to shareholders are recorded by the fund on the ex-dividend date. The fund declares and pays dividends from investment income-net monthly. 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 accounting principles generally accepted in the United States.

On February 27, 2004, the Board of Directors declared a cash dividend per share of $.073 for Class A, $.067 for Class B, $.064 for Class C and $.076 for Class R from undistributed investment income-net, payable on March 1, 2004 (ex-dividend date) to shareholders of record as of the close of business on February 27, 2004.

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

The tax character of distributions paid to shareholders during the fiscal period ended August 31, 2003 was as follows: ordinary income $2,552,045. The tax character of current year distributions will be determined at the end of the current fiscal year.

32

NOTE 2—Bank Line of Credit:

The fund participates with other Dreyfus-managed funds in a $350 million redemption credit facility (the “Facility”) to be utilized for temporary or emergency purposes, including the financing of redemptions. In connection therewith, the fund has agreed to pay commitment fees on its pro rata portion of the Facility. Interest is charged to the fund based on prevailing market rates in effect at the time of borrowings. During the period ended February 29, 2004, the fund did not borrow under the Facility.

NOTE 3—Management Fee and Other Transactions With Affiliates:

(a) Pursuant to a management agreement with Dreyfus, the management fee is computed at the annual rate of .75 of 1% of the value of the fund’s average daily net assets and is payable monthly. Dreyfus has undertaken from September 1, 2003 through January 1, 2004, to reduce the management fee paid by the fund or assume excess expenses of the fund, to the extent that, if the fund’s aggregate expenses, exclusive of taxes, brokerage fees, Rule 12b-1 distribution fees, shareholder services plan fees and extraordinary expenses, exceed an annual rate of 1% of the value of the fund’s average daily net assets. The reduction in management fee, pursuant to the undertaking, amounted to $47,049 during the period ended February 29, 2004.

Pursuant to a Sub-Investment Advisory Agreement between Dreyfus and Shenkman, Dreyfus pays Shenkman a fee payable monthly at the annual rate of .30 of 1% of the value of the fund’s average daily net assets.

During the period ended February 29, 2004, the Distributor retained $96,931 from commissions earned on sales of the fund’s Class A shares, and $52,843 and $27,756 from contingent deferred sales charges on redemptions of the fund’s Class B and C shares, respectively.

The Fund 33

NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)

(b) Under the Distribution Plan (the “Plan”) adopted pursuant to Rule 12b-1 under the Act, Class B and Class C shares pay the Distributor for distributing their shares at an annual rate of .50 of 1% of the value of the average daily net assets of Class B shares and .75 of 1% of the value of the average daily net assets of Class C shares. During the period ended February 29, 2004, Class B and Class C shares were charged $142,640 and $407,152, respectively, pursuant to the Plan.

(c) Under the Shareholder Services Plan, Class A, Class B and Class C shares pay the Distributor at an annual rate of .25 of 1% of the value of their average daily net assets for the provision of certain services. 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 February 29, 2004, Class A, Class B and Class C shares were charged $200,373, $71,320 and $135,717, respectively, 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 February 29, 2004, the fund was charged $29,445 pursuant to the transfer agency agreement.

The fund compensates Mellon Bank, N.A., an affiliate of Dreyfus under a custody agreement for providing custodial services for the fund. During the period ended February 29, 2004, the fund was charged $13,561 pursuant to the custody agreement.

34

(d) 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.

(e) Pursuant to an exemptive order from the Securities and Exchange Commission, the fund may invest its available cash balances in affiliated money market mutual funds as shown in the fund’s Statement of Investments. Management fees of the underlying money market mutual funds have been waived by Dreyfus. During the period ended February 29, 2004, the fund derived $62,441 in income from these investments, which is included in dividend income in the fund’s Statement of Operations.

NOTE 4—Securities Transactions:

The aggregate amount of purchases and sales of investment securities, excluding short-term securities, during the period ended February 29, 2004, amounted to $236,305,421 and $84,243,504, respectively.

At February 29, 2004, accumulated net unrealized appreciation on investments was $13,303,655, consisting of $14,962,493 gross unrealized appreciation and $1,658,838 gross unrealized depreciation.

At February 29, 2004, the cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments).

NOTE 5—Legal Matters:

Two class actions have been filed against Mellon Financial and Mellon Bank, N.A., and Dreyfus and Founders Asset Management LLC (the “Investment Advisers”), and the directors of all or substantially all of the Dreyfus funds, alleging that the Investment Advisers improperly used assets of the Dreyfus funds, in the form of directed brokerage

The Fund 35

NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)

commissions and 12b-1 fees, to pay brokers to promote sales of Dreyfus funds, and that the use of fund assets to make these payments was not properly disclosed to investors.The complaints further allege that the directors breached their fiduciary duties to fund shareholders under the Investment Company Act of 1940 and at common law.The complaints seek unspecified compensatory and punitive damages, rescission of the funds’ contracts with the Investment Advisers, an accounting of all fees paid, and an award of attorneys’ fees and litigation expenses. Dreyfus and the Dreyfus funds believe the allegations to be totally without merit and will defend the actions vigorously.

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

36

For More Information

Dreyfus Premier
High Income Fund
200 Park Avenue
New York, NY 10166
 
Investment Adviser
The Dreyfus Corporation
200 Park Avenue
New York, NY 10166
 
Sub-Investment Adviser
Shenkman Capital Management, Inc.
461 Fifth Avenue
New York, NY 10017
 
Custodian
Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, PA 15258
 
Transfer Agent &
Dividend Disbursing Agent
Dreyfus Transfer, Inc.
200 Park Avenue
New York, NY 10166
 
Distributor
Dreyfus Service Corporation
200 Park Avenue
New York, NY 10166

To obtain information:

By telephone

Call your financial representative or 1-800-554-4611

By mail Write to:
The Dreyfus Premier
Family of Funds
144 Glenn Curtiss Boulevard
Uniondale, NY 11556-0144

A description of the policies and procedures that the fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, by calling the telephone number listed above, or by visiting the SEC’s website at http://www.sec.gov

© 2004 Dreyfus Service Corporation 0115SA0204

Item 2. Code of Ethics.

Not applicable.

Item 3. Audit Committee Financial Expert.

Not applicable.

Item 4. Principal Accountant Fees and Services.

Not applicable.

Item 5. Audit Committee of Listed Registrants.

Not applicable.

Item 6. [Reserved]

Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment

Companies.

Not applicable.

Item 8. [Reserved]

Item 9. 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 Registrant's most recently ended fiscal half-year that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting.

Item 10. Exhibits.

(a)(1) Not applicable.

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

-2-

SSL-DOCS2 70134233v1

(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 BOND FUNDS, INC.
By: /s/ Stephen E. Canter
 
  Stephen E. Canter
  President
   
Date: April 23, 2004

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

By: /s/ Stephen E. Canter
 
  Stephen E. Canter
  Chief Executive Officer
   
Date: April 23, 2004
   
By: /s/ James Windels
 
  James Windels
  Chief Financial Officer
   
Date: April 23, 2004

EXHIBIT INDEX

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

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

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