N-CSR 1 form.htm SEMI-ANNUAL REPORT form
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:    8/31 
Date of reporting period:    2/28/07 

FORM N-CSR

Item 1. Reports to Stockholders.

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

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

    Contents 
 
    THE FUND 
2    A Letter from the CEO 
3    Discussion of Fund Performance 
6    Understanding Your Fund’s Expenses 
6    Comparing Your Fund’s Expenses 
    With Those of Other Funds 
7    Statement of Investments 
24    Statement of Assets and Liabilities 
25    Statement of Operations 
26    Statement of Changes in Net Assets 
27    Financial Highlights 
28    Notes to Financial Statements 
34    Proxy Results 
35    Information About the Review and Approval 
    of the Fund’s Investment Advisory Agreement 
 
    FOR MORE INFORMATION 
    Back Cover 

Dreyfus Municipal 
Bond Fund 

The Fund

A LETTER FROM THE CEO

Dear Shareholder:

We are pleased to present this semiannual report for Dreyfus Municipal Bond Fund, covering the six-month period from September 1, 2006, through February 28, 2007.

Despite a bout of weakness in January 2007, municipal bonds fared relatively well over the course of your fund’s reporting period. Municipal bond prices generally were propelled higher by stabilized short-term interest rates, moderating inflationary pressures and robust demand for tax-exempt securities from non-traditional investors, such as leveraged structured trading accounts and hedge funds.

The U.S. economy has shown signs of a gradual and orderly slowdown, but few analysts currently believe we are headed for a full-blown recession. Over the long term, productivity has increased as modern technologies and efficient business practices helped to limit cyclical inflation pressures around the world. Of more immediate note, a warm winter in the United States and rapidly declining energy prices have mitigated the risks that weakness in the U.S. housing sector might derail business and consumer confidence.As always, your financial consultant can help you identify the investments that may be most likely to help you profit from these trends while managing your income tax liabilities.

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

Thank you for your continued confidence and support.

2

DISCUSSION OF FUND PERFORMANCE

Paul Disdier, Senior Portfolio Manager

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

For the six-month period ended February 28, 2007, the fund achieved a total return of 2.73% .1 The Lehman Brothers Municipal Bond Index (the “Index”), the fund’s benchmark, achieved a total return of 2.89% for the same period.2

The municipal bond market fared relatively well in an environment characterized by stable short-term interest rates, receding inflationary pressures and a gradual moderation of U.S. economic growth.

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.3 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.

We may buy and sell bonds based on credit quality, market outlook and yield potential. In selecting municipal bonds for investment, we may assess the current interest rate environment and the municipal bond’s potential volatility under different interest rate scenarios. We focus on bonds with the potential to offer attractive current income or that are trading at attractive 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

The Fund 3

price above their face value. The fund’s allocation to either discount bonds or premium bonds will change along with our changing views of the current interest rate and market environments.We also may look to select bonds that are most likely to obtain attractive prices when sold.

What other factors influenced the fund’s performance?

In the months leading up to the start of the reporting period, the U.S. economy was growing at a robust rate, inflationary pressures were intensifying and the Federal Reserve Board (the “Fed”) continued the series of interest rate hikes that began in June 2004.These conditions changed significantly during the reporting period, when weakness in the housing and automobile sectors weighed on U.S. economic growth, falling energy prices alleviated inflation-related concerns and the Fed refrained from further rate hikes, leaving the overnight federal funds rate unchanged at 5.25% .

These changes helped to bolster investor sentiment, and most financial markets rallied, including municipal bonds.The municipal bond market also was supported by supply-and-demand influences, including robust demand for long-term securities from non-traditional investors such as hedge funds and highly leveraged institutional accounts. High levels of investor demand readily absorbed the available supply of newly issued bonds, including a surge of new issuance toward the end of 2006.

As investor sentiment improved and short-term interest rates stabilized, yield differences along the municipal bond market’s maturity spectrum narrowed toward historical lows.This trend particularly benefited security prices at the long end of the maturity range, which experienced price appreciation as yields fell. The fund participated fully in the strength of longer-term bonds by maintaining heavier exposure to the long end of the yield curve than the benchmark.

The fund also benefited from its relatively light exposure to deep-discount bonds with yields below 5%, which underperformed market averages. Conversely, we increased the fund’s positions in non-callable bonds approximately midway through the reporting period. Because non-callable bond prices are generally more sensitive to declining

4

interest rates than their callable counterparts, this move boosted the fund’s relative performance through the end of 2006.We subsequently pared back those positions and moved the fund’s average duration toward the neutral range, which helped protect the fund from the full brunt of market weakness in January 2007. Finally, the fund’s positions in lower-rated bonds fared well as credit spreads tightened during the reporting period.

What is the fund’s current strategy?

The sharp sell-off in global equity markets in late February could be a harbinger of a weaker economic climate in the months ahead. Greater uncertainty among equity investors has so far benefited the fixed-income markets, including municipal bonds, as evidenced by increased asset flows. Accordingly, in anticipation of further potential strength in the bond markets, we have set the fund’s average duration at a point that is somewhat longer than industry averages. However, we are prepared to adjust our strategies as economic and market conditions evolve.

March 15, 2007

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. 
    Index returns do not reflect fees and expenses associated with operating a mutual fund. 
3    The fund may continue to own investment grade bonds (at the time of purchase) which are 
    subsequently downgraded to below investment grade. 

The Fund 5

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

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

Review your fund’s expenses

The table below shows the expenses you would have paid on a $1,000 investment in Dreyfus Municipal Bond Fund from September 1, 2006 to February 28, 2007. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.

Expenses and Value of a $1,000 Investment assuming actual returns for the six months ended February 28, 2007

Expenses paid per $1,000 ††    $ 4.42 
Ending value (after expenses)    $1,027.30 

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

Using the SEC’s method to compare expenses

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

Expenses and Value of a $1,000 Investment assuming a hypothetical 5% annualized return for the six months ended February 28, 2007

Expenses paid per $1,000 ††    $ 4.41 
Ending value (after expenses)    $1,020.43 

† Expenses are equal to the fund’s annualized expense ratio of .88%; multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period).

6
STATEMENT OF INVESTMENTS 
February 28, 2007 (Unaudited) 

Long-Term Municipal    Coupon    Maturity    Principal     
Investments—102.9%    Rate (%)    Date    Amount ($)    Value ($) 
Alabama—6.0%                 
Alabama Housing Finance Authority,                 
SFMR (Home Mortgage Revenue                 
Bond Program) (Collateralized:                 
FHLMC, FNMA and GNMA)    6.10    10/1/27    2,085,000    2,128,993 
Alabama Public School and                 
College Authority    7.97    7/1/15    23,520,000 a,b    24,734,926 
Alabama Public School and College                 
Authority (Capital Improvement)    5.50    7/1/19    29,250,000    30,777,727 
Courtland Industrial Development                 
Board, EIR (International                 
Paper Co. Project)    6.25    8/1/25    8,000,000    8,775,680 
Jefferson County,                 
Limited Obligation                 
School Warrants    5.25    1/1/19    23,000,000    24,797,450 
Jefferson County,                 
Limited Obligation                 
School Warrants    5.25    1/1/20    20,000,000    21,563,000 
Jefferson County,                 
Limited Obligation                 
School Warrants    5.50    1/1/21    5,000,000    5,480,800 
Alaska—1.4%                 
Alaska Energy Authority,                 
Power Revenue (Bradley Lake                 
Hydroelectric Project)                 
(Insured; FSA)    6.00    7/1/17    5,730,000    6,721,691 
Alaska Housing Finance Corp.                 
(Insured; MBIA)    8.72    12/1/19    13,880,000 a,b    14,046,144 
Anchorage,                 
Electric Utility Revenue                 
(Insured; MBIA)    6.50    12/1/15    6,135,000    7,377,583 
Arizona—1.8%                 
Apache County Industrial                 
Development Authority, PCR                 
(Tucson Electric Power Co. Project)    5.85    3/1/28    7,750,000    7,755,812 
Apache County Industrial                 
Development Authority, PCR                 
(Tucson Electric Power Co. Project)    5.88    3/1/33    28,570,000    28,592,285 
California—8.6%                 
California,                 
GO    5.00    3/1/26    10,845,000    11,603,499 

The Fund 7

Long-Term Municipal    Coupon    Maturity    Principal     
Investments (continued)    Rate (%)    Date    Amount ($)    Value ($) 
California (continued)                 
California,                 
GO (Various Purpose)    5.50    4/1/14    4,205,000 c    4,706,572 
California,                 
GO (Various Purpose)    5.50    4/1/14    9,545,000 c    10,683,528 
California,                 
GO (Various Purpose)    5.50    4/1/28    525,000    578,466 
California,                 
GO (Various Purpose)    5.50    4/1/30    215,000    236,334 
California County Tobacco                 
Securitization Agency, Tobacco                 
Settlement Asset-Backed Bonds                 
(Kern County Tobacco                 
Funding Corp.)    6.25    6/1/37    6,100,000    6,567,504 
California Department of Water                 
Resources, Power Supply Revenue    5.13    5/1/12    20,500,000 c    22,188,995 
California Department of Water                 
Resources, Water Revenue                 
(Central Valley Project)    5.50    12/1/11    1,280,000 c    1,389,786 
California Department of Water                 
Resources, Water Revenue                 
(Central Valley Project)    5.50    12/1/16    6,390,000    6,913,277 
California Public Works Board,                 
LR (Department of Mental                 
Health) (Coalinga State Hospital)    5.13    6/1/29    7,000,000    7,425,740 
California Public Works Board,                 
LR (Various University of                 
California Projects)    5.50    6/1/14    9,750,000    10,581,577 
Chabot-Las Positas Community                 
College District, GO                 
(Insured; AMBAC)    0.00    8/1/26    20,000,000    8,055,800 
Chabot-Las Positas Community                 
College District, GO                 
(Insured; AMBAC)    0.00    8/1/42    50,000,000    8,781,000 
Chula Vista,                 
IDR (San Diego Gas                 
and Electric)    5.50    12/1/21    10,000,000    11,086,500 
Coast Community College District,                 
GO (Insured; FSA)    0.00    8/1/29    15,000,000    11,793,600 
Golden State Tobacco                 
Securitization Corp., Enhanced                 
Tobacco Settlement                 
Asset-Backed Bonds    5.50    6/1/13    28,495,000 c    31,343,645 

  8
Long-Term Municipal    Coupon    Maturity    Principal     
Investments (continued)    Rate (%)    Date    Amount ($)    Value ($) 
California (continued)                 
Golden State Tobacco                 
Securitization Corp., Enhanced                 
Tobacco Settlement Asset-Backed             
Bonds (Insured; FGIC)    5.50    6/1/13    11,500,000 c    12,649,655 
San Mateo County Community College             
District, GO (Insured; MBIA)    0.00    9/1/25    10,000,000    4,497,700 
Colorado—1.0%                 
University of Colorado Hospital                 
Authority, Revenue    5.00    11/15/37    7,500,000    7,751,175 
University of Colorado Regents,                 
University Enterprise Revenue                 
(Insured; MBIA)    5.00    6/1/23    11,000,000    12,009,470 
Connecticut—.5%                 
Mashantucket Western Pequot Tribe,             
Special Revenue    6.40    9/1/07    9,170,000 a,c    9,391,272 
Delaware—.1%                 
Delaware Housing Authority,                 
Senior SFMR    6.45    1/1/26    1,295,000    1,321,288 
District of Columbia—1.7%                 
District of Columbia Tobacco                 
Settlement Financing Corp.,                 
Tobacco Settlement                 
Asset-Backed Bonds    6.50    5/15/33    12,855,000    15,351,570 
District of Columbia Tobacco                 
Settlement Financing Corp.,                 
Tobacco Settlement                 
Asset-Backed Bonds    0.00    6/15/46    184,975,000    17,309,961 
Florida—4.3%                 
Florida Department of                 
Environmental Protection,                 
Revenue (Insured; FGIC)    5.75    7/1/13    10,270,000    11,019,710 
Florida Housing Finance                 
Corporation, Homeowner Mortgage             
Revenue (Collateralized: FHLMC,             
FNMA and GNMA)    5.10    7/1/31    9,705,000    10,107,369 
Florida State Board of Education,                 
Public Education Capital Outlay    5.50    6/1/16    12,000,000    12,965,400 
Highlands County Health Facilities             
Authority, HR (Adventist                 
Health System/Sunbelt                 
Obligated Group)    5.25    11/15/36    7,000,000    7,485,730 

The Fund 9

STATEMENT OF INVESTMENTS (Unaudited) (continued)

Long-Term Municipal    Coupon    Maturity    Principal     
Investments (continued)    Rate (%)    Date    Amount ($)    Value ($) 
Florida (continued)                 
Orange County,                 
Tourist Development Tax                 
Revenue (Insured; AMBAC)    5.00    10/1/24    10,110,000    10,872,901 
Orange County Health Facilities                 
Authority, HR (Orlando                 
Regional Healthcare System)    6.00    12/1/12    2,090,000 c    2,323,955 
Orlando Utilities Commission,                 
Water and Electric Revenue    6.75    10/1/17    15,875,000    18,969,831 
Tampa,                 
Utility Tax and Special                 
Revenue (Insured; AMBAC)    5.75    10/1/13    9,100,000    10,184,811 
Georgia—4.5%                 
Atlanta Development Authority,                 
Student Housing Revenue                 
(ADA/CAU Partners, Inc.                 
Project at Clark Atlanta                 
University) (Insured; ACA)    6.25    7/1/14    4,605,000    4,941,856 
Chatham County Hospital Authority,                 
Improvement Revenue (Memorial                 
Health University)    5.75    1/1/29    4,000,000    4,388,800 
Fulton County Facilities Corp.,                 
COP (Fulton County Public                 
Purpose Project) (Insured; AMBAC)    5.50    11/1/18    11,630,000    12,417,235 
Georgia    5.80    11/1/09    19,580,000 c    21,026,570 
Georgia    5.80    11/1/09    20,000,000 c    21,477,600 
Metropolitan Atlanta Rapid Transit                 
Authority, Sales Tax Revenue                 
(Insured; FGIC)    5.25    7/1/32    10,000,000 d    11,845,500 
Milledgeville and Baldwin County                 
Development Authority, Revenue                 
(Georgia College and State                 
University Foundation Property                 
III, LLC Student Housing                 
System Project)    5.63    9/1/30    5,100,000    5,563,335 
Private Colleges and Universities                 
Authority, Revenue (Mercer                 
University Project)    5.75    10/1/11    6,000,000 c    6,614,880 
Hawaii—.8%                 
Hawaii                 
(Insured; FSA)    5.80    9/1/09    14,000,000 c    14,851,760 

10

Long-Term Municipal    Coupon    Maturity    Principal     
Investments (continued)    Rate (%)    Date    Amount ($)    Value ($) 
Idaho—.7%                 
Idaho Housing Agency,                 
MFHR    6.70    7/1/24    8,300,000    8,311,371 
Power County Industrial                 
Development Corp., SWDR                 
(FMC Corp. Project)    6.45    8/1/32    4,750,000    5,056,375 
Illinois—4.1%                 
Chicago O’Hare International                 
Airport, General Airport Third                 
Lien Revenue (Insured; FGIC)    5.25    1/1/23    21,370,000    23,450,156 
Chicago O’Hare International                 
Airport, General Airport Third                 
Lien Revenue (Insured; FSA)    5.75    1/1/24    9,215,000    10,188,749 
Chicago O’Hare International                 
Airport, Special Facilities                 
Revenue (American Airlines                 
Inc. Project)    8.20    12/1/24    6,970,000    7,179,100 
Illinois Finance Authority,                 
Revenue (Northwestern                 
Memorial Hospital)    5.50    8/15/43    22,310,000    24,420,526 
Illinois Health Facilities                 
Authority, Revenue (Advocate                 
Health Care Network)    6.13    11/15/10    10,000,000 c    10,839,000 
Illinois Housing Development                 
Authority (Multi-Family Program)    6.75    9/1/21    3,805,000    3,811,088 
Indiana—1.0%                 
Indiana Health and Educational                 
Facility Financing Authority,                 
HR (Clarian Health                 
Obligated Group)    5.00    2/15/33    8,000,000    8,289,280 
Indiana Transportation Finance                 
Authority, Highway Revenue                 
(Insured; FGIC)    5.75    12/1/21    10,000,000    12,016,600 
Kansas—1.1%                 
Wichita,                 
Hospital Facilities                 
Improvement Revenue (Christi                 
Health System)    5.50    11/15/26    7,000,000    7,454,930 
Wyandotte County Kansas City                 
Unified Government, Utility                 
System Revenue (Insured; AMBAC)    5.60    9/1/23    12,010,000    13,907,460 

The Fund 11

Long-Term Municipal    Coupon    Maturity    Principal     
Investments (continued)    Rate (%)    Date    Amount ($)    Value ($) 
Kentucky—.5%                 
Mount Sterling,                 
LR (Kentucky League of Cities                 
Funding Trust Program)    6.10    3/1/18    7,955,000    9,381,809 
Maryland—1.0%                 
Maryland Community Development                 
Administration, Department of                 
Housing and Community                 
Development    8.95    7/1/39    10,000,000 a,b    10,239,250 
Maryland Economic Development                 
Corp., Student Housing Revenue                 
(Frostburg State University Project)    6.25    10/1/33    8,580,000    8,914,448 
Massachusetts—5.5%                 
Massachusetts    9.02    2/1/10    20,000,000 a,b,c    21,451,800 
Massachusetts                 
(Insured; FSA)    5.25    9/1/24    15,000,000    17,458,050 
Massachusetts,                 
Special Obligation Dedicated                 
Tax Revenue (Insured; FGIC)    5.25    1/1/14    5,000,000 c    5,469,150 
Massachusetts Bay Transportation                 
Authority, Senior Sales                 
Tax Revenue    5.00    7/1/22    10,200,000    11,254,476 
Massachusetts Housing Finance                 
Agency, SFHR    7.13    6/1/25    1,085,000    1,086,465 
Massachusetts Municipal Wholesale                 
Electric Co., Power Supply                 
System Revenue (Nuclear                 
Project Number 4 Issue)                 
(Insured; MBIA)    5.25    7/1/13    10,000,000    10,755,300 
Massachusetts Water Resources                 
Authority, General Revenue                 
(Insured; FSA)    5.25    8/1/24    24,140,000    28,015,436 
Massachusetts Water Resources                 
Authority, General Revenue                 
(Insured; FSA)    5.25    8/1/28    10,000,000    11,779,100 
Michigan—1.3%                 
Detroit,                 
Sewage Disposal System                 
Revenue (Insured; FSA)    5.62    7/1/10    10,000,000 a,b    10,020,000 
Kent Hospital Finance Authority,                 
Revenue (Metropolitan                 
Hospital Project)    6.25    7/1/40    7,500,000    8,428,875 

12

Long-Term Municipal    Coupon    Maturity    Principal     
Investments (continued)    Rate (%)    Date    Amount ($)    Value ($) 
Michigan (continued)                 
Michigan Strategic Fund,                 
SWDR (Genesee Power                 
Station Project)    7.50    1/1/21    4,305,000    4,305,301 
The Economic Development Corp. of             
the County of Gratiot, Limited                 
Obligation EDR (Danly Die                 
Set Project)    7.63    4/1/07    3,200,000    3,200,096 
Minnesota—1.1%                 
Minneapolis and Saint Paul                 
Metropolitan Airports                 
Commission, Airport Revenue                 
(Insured; FGIC)    5.75    1/1/10    5,000,000 c    5,329,350 
Saint Paul Housing and Redevelopment             
Authority, Hospital Facility                 
Revenue (HealthEast Project)    6.00    11/15/30    11,000,000    12,274,240 
Shakopee Health Care Facilities,                 
Revenue (Saint Francis                 
Regional Medical Center)    5.25    9/1/34    3,000,000    3,162,510 
Missouri—.9%                 
Missouri Higher Education Loan                 
Authority, Student Loan Revenue    6.75    2/15/09    11,500,000    11,529,555 
Saint Louis,                 
Airport Revenue (Airport                 
Development Program)                 
(Insured; MBIA)    5.63    7/1/11    5,000,000 c    5,393,950 
Nebraska—2.1%                 
Omaha Public Power District,                 
Electric Revenue    5.50    2/1/14    37,300,000    40,613,732 
Nevada—.9%                 
Clark County,                 
IDR (Nevada Power Co. Project)    5.60    10/1/30    3,000,000    3,019,650 
Clark County,                 
IDR (Nevada Power Co. Project)    5.90    11/1/32    15,000,000    15,008,250 
New Hampshire—1.1%                 
New Hampshire Business Finance                 
Authority, PCR (Public Service                 
Co. of New Hampshire Project)                 
(Insured; MBIA)    6.00    5/1/21    15,500,000    16,170,065 
New Hampshire Housing Finance                 
Authority, Multi-Family Housing    7.55    7/1/13    1,210,000    1,308,724 

The Fund 13

Long-Term Municipal    Coupon    Maturity    Principal     
Investments (continued)    Rate (%)    Date    Amount ($)    Value ($) 
New Hampshire (continued)                 
New Hampshire Housing Finance                 
Authority, Single Family                 
Mortgage Acquisition Revenue    5.00    7/1/31    3,120,000    3,208,483 
New Hampshire Housing Finance                 
Authority, Single Family                 
Residential Mortgage    6.85    1/1/25    1,235,000    1,248,289 
New Jersey—10.8%                 
Camden County Improvement                 
Authority, Health Care                 
Redevelopment Project Revenue                 
(The Cooper Health System                 
Obligated Group Issue)    5.25    2/15/20    9,505,000    10,059,046 
New Jersey Economic Development                 
Authority, Cigarette Tax Revenue    5.50    6/15/24    12,120,000    12,812,173 
New Jersey Economic Development                 
Authority, Cigarette Tax Revenue    5.50    6/15/31    9,865,000    10,496,064 
New Jersey Economic Development                 
Authority, PCR (Public Service                 
Electric and Gas Co. Project)                 
(Insured; MBIA)    6.40    5/1/32    32,040,000    32,318,748 
New Jersey Economic Development                 
Authority, School Facilities                 
Construction Revenue                 
(Insured; FSA)    5.50    9/1/25    9,550,000    11,473,561 
New Jersey Transit Corp.,                 
Master Lease Agreement, COP,                 
Federal Transit Administration                 
Grants (Insured; AMBAC)    5.75    9/15/10    15,000,000 c    16,041,450 
New Jersey Transportation Trust                 
Fund Authority (Insured; FSA)    9.02    6/15/12    24,660,000 a,b    27,458,294 
New Jersey Transportation Trust                 
Fund Authority (Transportation                 
System)    5.75    6/15/18    7,750,000    9,007,050 
New Jersey Transportation Trust                 
Fund Authority (Transportation                 
System)    5.75    6/15/20    12,645,000    14,873,302 
New Jersey Turnpike Authority,                 
Turnpike Revenue (Insured; MBIA)    8.50    1/1/17    30,000,000 a,b    31,593,000 

  14
Long-Term Municipal    Coupon    Maturity    Principal     
Investments (continued)    Rate (%)    Date    Amount ($)    Value ($) 
New Jersey (continued)                 
Tobacco Settlement Financing                 
Corporation of New Jersey,                 
Tobacco Settlement                 
Asset-Backed Bonds    6.75    6/1/13    3,000,000 c    3,509,520 
Tobacco Settlement Financing                 
Corporation of New Jersey,                 
Tobacco Settlement                 
Asset-Backed Bonds    7.00    6/1/13    12,065,000 c    14,273,860 
Tobacco Settlement Financing                 
Corporation of New Jersey,                 
Tobacco Settlement                 
Asset-Backed Bonds    5.00    6/1/41    20,000,000    19,596,800 
New Mexico—.5%                 
New Mexico Finance Authority,                 
State Transportation Revenue             
(Senior Lien) (Insured; MBIA)    5.25    6/15/20    8,000,000    8,690,240 
New Mexico Mortgage Financing             
Authority    6.80    1/1/26    1,220,000    1,253,526 
New York—14.6%                 
Long Island Power Authority,                 
Electric System General                 
Revenue (Insured; FSA)    5.50    12/1/12    10,000,000    10,966,000 
Long Island Power Authority,                 
Electric System General                 
Revenue (Insured; FSA)    5.50    12/1/13    25,860,000    28,708,996 
Metropolitan Transportation                 
Authority, State Service                 
Contract Revenue    5.75    1/1/18    17,025,000    19,762,450 
Nassau County Industrial                 
Development Agency, IDR                 
(Keyspan-Glenwood Energy                 
Center, LLC Project)    5.25    6/1/27    10,000,000    10,476,600 
New York City    5.75    3/1/13    6,385,000 c    7,118,956 
New York City    5.75    3/1/18    7,800,000    8,570,640 
New York City    5.00    8/1/19    5,000,000    5,367,450 
New York City    5.25    8/15/24    18,500,000    20,035,130 
New York City    5.00    8/1/28    18,125,000    19,352,606 

The Fund 15

Long-Term Municipal    Coupon    Maturity    Principal     
Investments (continued)    Rate (%)    Date    Amount ($)    Value ($) 
New York (continued)                 
New York City                 
(Insured; MBIA)    5.50    5/15/09    11,180,000 c    11,739,335 
New York City Industrial                 
Development Agency, Liberty                 
Revenue (7 World Trade                 
Center, LLC Project)    6.50    3/1/35    10,000,000    10,671,300 
New York City Industrial                 
Development Agency, Special                 
Facility Revenue (American                 
Airlines, Inc. John F. Kennedy                 
International Airport Project)    7.50    8/1/16    10,360,000    12,227,286 
New York City Industrial                 
Development Agency, Special                 
Facility Revenue (American                 
Airlines, Inc. John F. Kennedy                 
International Airport Project)    8.00    8/1/28    14,000,000    17,308,620 
New York City Transitional Finance                 
Authority, Future Tax                 
Secured Revenue    5.75    2/15/10    5,100,000 c    5,456,643 
New York City Transitional Finance                 
Authority, Future Tax                 
Secured Revenue    5.75    2/15/10    11,910,000 c    12,742,866 
New York City Transitional Finance                 
Authority, Future Tax                 
Secured Revenue    7.99    5/1/10    29,100,000 a,b,c    31,034,714 
New York State Dormitory                 
Authority, Consolidated Second                 
General Resolution Revenue                 
(City University System)    7.50    7/1/10    3,560,000    3,783,426 
New York State Dormitory                 
Authority, Insured Revenue                 
(New York University)                 
(Insured; MBIA)    5.75    7/1/27    8,000,000    9,891,040 
New York State Dormitory                 
Authority, Revenue (State                 
University Educational                 
Facilities) (Insured; FGIC)    5.50    5/15/13    20,350,000    22,109,054 
Triborough Bridge and Tunnel                 
Authority, General Purpose Revenue    5.50    1/1/09    20,000,000 c    20,683,000 

  16
Long-Term Municipal    Coupon    Maturity    Principal     
Investments (continued)    Rate (%)    Date    Amount ($)    Value ($) 
North Carolina—1.3%                 
Charlotte    5.25    2/1/15    9,380,000    9,694,699 
North Carolina Eastern Municipal                 
Power Agency, Power System                 
Revenue (Insured; AMBAC)    5.00    1/1/20    14,000,000    15,136,240 
North Carolina Housing Finance                 
Agency, Single Family Revenue    6.50    9/1/26    1,400,000    1,429,092 
Ohio—.5%                 
Ohio Turnpike Commission,                 
Turnpike Revenue (Insured; FGIC)    5.50    2/15/20    8,000,000    9,350,560 
Oklahoma—.4%                 
Claremore Industrial and                 
Redevelopment Authority, EDR                 
(Yuba Project)    8.38    7/1/11    7,500,000    7,528,650 
Pennsylvania—1.2%                 
Lehman Municipal Trust Receipts                 
(Pennsylvania Economic                 
Development Financing Authority)    7.78    6/1/31    12,000,000 a,b    12,615,780 
Pennsylvania Economic Development             
Financing Authority, Exempt                 
Facilities Revenue (Reliant                 
Energy Seward, LLC Project)    6.75    12/1/36    10,000,000    11,056,800 
South Carolina—1.2%                 
Greenville County School District,                 
Installment Purchase Revenue                 
(Building Equity Sooner                 
for Tomorrow)    5.88    12/1/12    4,000,000 c    4,480,720 
Greenville County School District,                 
Installment Purchase Revenue                 
(Building Equity Sooner                 
for Tomorrow)    5.00    12/1/23    15,000,000    16,094,550 
South Carolina Housing Finance and                 
Development Authority,                 
Mortgage Revenue    6.70    7/1/27    1,480,000    1,488,466 
South Carolina Housing Finance and                 
Development Authority,                 
Mortgage Revenue                 
(Collateralized; FHA)    6.75    7/1/26    865,000    866,315 

The Fund 17

Long-Term Municipal    Coupon    Maturity    Principal     
Investments (continued)    Rate (%)    Date    Amount ($)    Value ($) 
Tennessee—4.6%                 
Johnson City Health and                 
Educational Facilities Board,                 
Hospital First Mortgage                 
Revenue (Mountain States                 
Health Alliance)    5.50    7/1/36    10,525,000    11,344,792 
Tennessee Energy Acquisition                 
Corporation, Gas Project Revenue    5.25    9/1/23    20,000,000    22,726,200 
Tennessee Energy Acquisition                 
Corporation, Gas Project Revenue    5.00    2/1/27    50,000,000    55,397,500 
Texas—8.8%                 
Alliance Airport Authority Inc.,                 
Special Facilities Revenue                 
(American Airlines, Inc. Project)    7.50    12/1/29    13,000,000    13,247,000 
Brazos River Authority,                 
PCR (TXU Electric                 
Company Project)    5.75    11/1/11    11,500,000    11,874,095 
Brazos River Authority,                 
PCR (TXU Energy                 
Company LLC Project)    6.75    10/1/38    5,790,000    6,408,256 
Cities of Dallas and Fort Worth,                 
Dallas/Fort Worth                 
International Airport,                 
Facility Improvement Corp.,                 
Revenue (American Airlines, Inc.)    7.25    11/1/30    8,250,000    8,384,062 
Cities of Dallas and Fort Worth,                 
Dallas/Fort Worth                 
International Airport,                 
Facility Improvement Corp.,                 
Revenue (Bombardier Inc.)    6.15    1/1/16    5,865,000    5,925,761 
Cities of Dallas and Fort Worth,                 
Dallas/Fort Worth                 
International Airport, Joint                 
Improvement Revenue                 
(Insured; FGIC)    5.75    11/1/14    15,070,000    16,210,046 
Cities of Dallas and Fort Worth,                 
Dallas/Fort Worth                 
International Airport, Joint                 
Improvement Revenue                 
(Insured; FGIC)    5.75    11/1/15    10,000,000    10,776,400 
Harris County Hospital District,                 
Mortgage Revenue                 
(Insured; AMBAC)    7.40    2/15/10    740,000    780,389 

18

Long-Term Municipal    Coupon    Maturity    Principal     
Investments (continued)    Rate (%)    Date    Amount ($)    Value ($) 
Texas (continued)                 
Harris County Hospital District,                 
Mortgage Revenue                 
(Insured; AMBAC)    7.40    2/15/10    2,550,000    2,714,194 
Houston,                 
Airport System Special                 
Facilities Revenue                 
(Continental Airlines, Inc.                 
Airport Improvement Projects)    5.70    7/15/29    2,000,000    2,041,620 
Houston,                 
Airport System Special                 
Facilities Revenue                 
(Continental Airlines, Inc.                 
Terminal E Project)    6.75    7/1/21    10,000,000    10,801,500 
Houston,                 
Airport System Special                 
Facilities Revenue                 
(Continental Airlines, Inc.                 
Terminal E Project)    7.00    7/1/29    5,800,000    6,349,782 
Houston,                 
Utilities System Revenue,                 
First Lien (Insured; FSA)    5.25    5/15/21    18,075,000    19,595,469 
Tarrant County Health Facilities                 
Development Corp., Health                 
Resources System Revenue                 
(Insured; MBIA)    5.75    2/15/14    9,470,000    10,549,391 
Texas Municipal Gas Acquisition                 
and Supply Corporation I, Gas                 
Supply Revenue    4.25    12/15/26    15,000,000 e    15,052,500 
Texas Turnpike Authority,                 
Central Texas Turnpike System                 
Revenue (Insured; AMBAC)    5.75    8/15/38    12,000,000    13,089,000 
University of Texas System Board                 
of Regents, Permanent                 
University Fund Bonds    5.25    7/1/28    17,925,000    21,048,790 
Virginia—.5%                 
Tobacco Settlement Financing Corp.             
of Virginia, Tobacco                 
Settlement Asset-Backed Bonds    5.50    6/1/26    10,000,000    10,635,800 
Washington—2.4%                 
Bellevue                 
(Insured; MBIA)    5.50    12/1/39    12,000,000    13,282,440 

The Fund 19

STATEMENT OF INVESTMENTS (Unaudited) (continued)

Long-Term Municipal    Coupon    Maturity    Principal     
Investments (continued)    Rate (%)    Date    Amount ($)    Value ($) 
Washington (continued)                 
Seattle,                 
Municipal Light and Power                 
Revenue, Improvement                 
(Insured; FSA)    5.50    3/1/13    11,585,000    12,346,250 
Seattle,                 
Municipal Light and Power                 
Revenue, Improvement                 
(Insured; FSA)    5.50    3/1/16    15,400,000    16,388,372 
Tumwater Office Properties,                 
LR (Washington State                 
Office Building)    5.00    7/1/28    5,110,000    5,370,661 
Wisconsin—2.3%                 
Badger Tobacco Asset                 
Securitization Corporation,                 
Tobacco Settlement                 
Asset-Backed Bonds    7.00    6/1/28    25,000,000    28,212,000 
Wisconsin Health and Educational                 
Facilities Authority, Revenue                 
(Aurora Health Care, Inc.)    5.63    2/15/29    9,725,000    10,105,734 
Wisconsin Health and Educational                 
Facilities Authority, Revenue                 
(FH Healthcare Development                 
Inc. Project)    6.25    11/15/09    5,000,000 c    5,373,300 
Wisconsin Health and Educational                 
Facilities Authority, Revenue                 
(Marshfield Clinic)    5.38    2/15/34    1,000,000    1,065,840 
U.S. Related—1.8%                 
Puerto Rico Highway and                 
Transportation Authority,                 
Transportation Revenue    6.00    7/1/10    20,050,000 c    21,712,747 
Puerto Rico Infrastructure                 
Financing Authority, Special                 
Obligation    5.50    10/1/32    7,000,000    7,506,940 
Puerto Rico Infrastructure                 
Financing Authority, Special                 
Tax Revenue (Insured; AMBAC)    0.00    7/1/36    23,150,000    6,569,739 
Total Long-Term Municipal Investments             
(cost $1,915,815,223)                2,023,069,425 

  20
Short-Term Municipal    Coupon    Maturity    Principal     
Investments—1.3%    Rate (%)    Date    Amount ($)    Value ($) 
Florida—.3%                 
Broward County Health Facilities                 
Authority, Revenue, Refunding                 
(John Knox Village of Florida,                 
Inc. Project) (Insured; Radian                 
Bank and Liquidity Facility;                 
SunTrust Bank)    3.69    3/1/07    1,525,000 f    1,525,000 
Pinellas County Health Facilities                 
Authority, Revenue, Refunding                 
(Pooled Hospital Loan Program)             
(Insured; AMBAC and Liquidity                 
Facility; Wachovia Bank)    3.64    3/1/07    4,100,000 f    4,100,000 
Minnesota—.6%                 
Saint Paul Port Authority,                 
Revenue (Amherst H. Wilder                 
Foundation Project) (LOC; The                 
Bank of New York)    3.64    3/1/07    11,495,000 f    11,495,000 
Ohio—.4%                 
University of Toledo,                 
General Receipts (Insured;                 
FGIC and Liquidity Facility;                 
U.S. Bank NA)    3.63    3/1/07    8,100,000 f    8,100,000 
Total Short-Term Municipal Investments             
(cost $25,220,000)                25,220,000 
 
Total Investments (cost $1,941,035,223)        104.2%    2,048,289,425 
Liabilities, Less Cash and Receivables        (4.2%)    (82,593,309) 
Net Assets            100.0%    1,965,696,116 

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 28, 2007, these 
securities amounted to $192,585,180 or 9.8% of net assets. 
b Collateral for floating rate borrowings. 
c These securities are prerefunded; the date shown represents the prerefunded date. 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. 
d Purchased on a delayed delivery basis. 
e Variable rate security—interest rate subject to periodic change. 
f Securities payable on demand.Variable interest rate—subject to periodic change. 

The Fund 21

STATEMENT OF INVESTMENTS (Unaudited) (continued)

Summary of Abbreviations         
 
ACA    American Capital Access    AGC    ACE Guaranty Corporation 
AGIC    Asset Guaranty Insurance    AMBAC    American Municipal Bond 
    Company        Assurance Corporation 
ARRN    Adjustable Rate Receipt Notes    BAN    Bond Anticipation Notes 
BIGI    Bond Investors Guaranty Insurance    BPA    Bond Purchase Agreement 
CGIC    Capital Guaranty Insurance    CIC    Continental Insurance 
    Company        Company 
CIFG    CDC Ixis Financial Guaranty    CMAC    Capital Market Assurance 
            Corporation 
COP    Certificate of Participation    CP    Commercial Paper 
EDR    Economic Development Revenue    EIR    Environmental Improvement 
            Revenue 
FGIC    Financial Guaranty Insurance         
    Company    FHA    Federal Housing Administration 
FHLB    Federal Home Loan Bank    FHLMC    Federal Home Loan Mortgage 
            Corporation 
FNMA    Federal National         
    Mortgage Association    FSA    Financial Security Assurance 
GAN    Grant Anticipation Notes    GIC    Guaranteed Investment Contract 
GNMA    Government National         
    Mortgage Association    GO    General Obligation 
HR    Hospital Revenue    IDB    Industrial Development Board 
IDC    Industrial Development Corporation    IDR    Industrial Development Revenue 
LOC    Letter of Credit    LOR    Limited Obligation Revenue 
LR    Lease Revenue    MBIA    Municipal Bond Investors Assurance 
            Insurance Corporation 
MFHR    Multi-Family Housing Revenue    MFMR    Multi-Family Mortgage Revenue 
PCR    Pollution Control Revenue    PILOT    Payment in Lieu of Taxes 
RAC    Revenue Anticipation Certificates    RAN    Revenue Anticipation Notes 
RAW    Revenue Anticipation Warrants    RRR    Resources Recovery Revenue 
SAAN    State Aid Anticipation Notes    SBPA    Standby Bond Purchase Agreement 
SFHR    Single Family Housing Revenue    SFMR    Single Family Mortgage Revenue 
SONYMA    State of New York Mortgage Agency    SWDR    Solid Waste Disposal Revenue 
TAN    Tax Anticipation Notes    TAW    Tax Anticipation Warrants 
TRAN    Tax and Revenue Anticipation Notes    XLCA    XL Capital Assurance 

22
Summary of Combined Ratings (Unaudited)     
 
Fitch    or Moody’s    or    Standard & Poor’s    Value (%) † 
AAA    Aaa        AAA    45.6 
AA    Aa        AA    22.1 
A        A        A    9.8 
BBB    Baa        BBB    14.4 
BB    Ba        BB    1.0 
B        B        B    2.7 
CCC    Caa        CCC    1.5 
F1    MIG1/P1        SP1/A1    .7 
Not Rated g    Not Rated g        Not Rated g    2.2 
                    100.0 
 
†    Based on total investments.             
g    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.             

The Fund 23

STATEMENT OF ASSETS AND LIABILITIES 
February 28, 2007 (Unaudited) 

    Cost    Value 
Assets ($):         
Investments in securities-See Statement of Investments    1,941,035,223    2,048,289,425 
Cash        2,922,590 
Interest receivable        25,042,157 
Receivable for investment securities sold        10,672,789 
Receivable for shares of Common Stock subscribed        30,250 
Prepaid expenses        75,064 
        2,087,032,275 
Liabilities ($):         
Due to The Dreyfus Corporation and affiliates—Note 3(b)    964,822 
Payable for floating rate notes issued        89,580,000 
Payable for investment securities purchased        29,046,873 
Payable for shares of Common Stock redeemed        888,611 
Interest and related expenses payable        696,403 
Accrued expenses        159,450 
        121,336,159 
Net Assets ($)        1,965,696,116 
Composition of Net Assets ($):         
Paid-in capital        1,974,483,489 
Accumulated undistributed investment income—net        38,229 
Accumulated net realized gain (loss) on investments        (116,079,804) 
Accumulated net unrealized appreciation         
(depreciation) on investments        107,254,202 
Net Assets ($)        1,965,696,116 
Shares Outstanding         
(600 million shares of $.001 par value Common Stock authorized)    164,737,433 
Net Asset Value, offering and redemption price per share—Note 3(d)($)    11.93 

See notes to financial statements.

24
STATEMENT OF OPERATIONS 
Six Months Ended February 28, 2007 (Unaudited) 

Investment Income ($):     
Interest Income    50,338,637 
Expenses:     
Management fee—Note 3(a)    5,869,027 
Interest and related expenses    1,640,516 
Shareholder servicing costs—Note 3(b)    960,608 
Directors’ fees and expenses—Note 3(c)    56,011 
Custodian fees    53,300 
Professional fees    45,881 
Prospectus and shareholders’ reports    27,385 
Registration fees    12,321 
Loan commitment fees—Note 2    4,024 
Miscellaneous    33,785 
Total Expenses    8,702,858 
Less—reduction in custody fees     
due to earnings credit—Note 1(b)    (53,502) 
Net Expenses    8,649,356 
Investment Income—Net    41,689,281 
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): 
Net realized gain (loss) on investments    5,804,802 
Net unrealized appreciation (depreciation) on investments    6,121,890 
Net Realized and Unrealized Gain (Loss) on Investments    11,926,692 
Net Increase in Net Assets Resulting from Operations    53,615,973 

See notes to financial statements.

The Fund 25

    Six Months Ended     
    February 28, 2007    Year Ended 
    (Unaudited)    August 31, 2006 
Operations ($):         
Investment income—net    41,689,281    87,492,295 
Net realized gain (loss) on investments    5,804,802    11,013,651 
Net unrealized appreciation         
(depreciation) on investments    6,121,890    (37,256,710) 
Net Increase (Decrease) in Net Assets         
Resulting from Operations    53,615,973    61,249,236 
Dividends to Shareholders from ($):         
Investment income—net    (41,651,052)    (87,414,073) 
Capital Stock Transactions ($):         
Net proceeds from shares sold    37,403,674    86,763,684 
Dividends reinvested    27,661,716    57,030,220 
Cost of shares redeemed    (95,656,276)    (218,542,758) 
Increase (Decrease) in Net Assets         
from Capital Stock Transactions    (30,590,886)    (74,748,854) 
Total Increase (Decrease) in Net Assets    (18,625,965)    (100,913,691) 
Net Assets ($):         
Beginning of Period    1,984,322,081    2,085,235,772 
End of Period    1,965,696,116    1,984,322,081 
Undistributed investment income—net    38,229    — 
Capital Share Transactions (Shares):         
Shares sold    3,143,109    7,370,621 
Shares issued for dividends reinvested    2,320,871    4,847,387 
Shares redeemed    (8,038,285)    (18,587,121) 
Net Increase (Decrease) in Shares Outstanding    (2,574,305)    (6,369,113) 

See notes to financial statements.

26

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

    Six Months Ended                     
    February 28, 2007        Year Ended August 31,     
    (Unaudited)    2006    2005    2004    2003    2002 
Per Share Data ($):                         
Net asset value,                         
beginning of period    11.86    12.01    11.84    11.51    11.82    12.32 
Investment Operations:                         
Investment income—net a    .25    .51    .52    .48    .54    .61 
Net realized and unrealized                         
gain (loss) on investments    .07    (.15)    .17    .34    (.31)    (.50) 
Total from                         
Investment Operations    .32    .36    .69    .82    .23    .11 
Distributions:                         
Dividends from                         
investment income—net    (.25)    (.51)    (.52)    (.49)    (.54)    (.61) 
Net asset value,                         
end of period    11.93    11.86    12.01    11.84    11.51    11.82 
Total Return (%)    2.73b    3.14    5.94    7.20    1.91    .99 
Ratios/Supplemental                         
Data (%):                         
Ratio of total expenses                         
to average net assets    .89c    .86d    .81d    .78d    .85d    .92d 
Ratio of net expenses                         
to average net assets    .88c    .86d    .77d    .74d    .85d    .92d 
Ratio of net investment                         
income to average                         
net assets    4.26c    4.35    4.36    4.12    4.56    5.14 
Portfolio Turnover Rate    27.13b    36.31    29.74    47.77    61.20    49.25 
Net Assets,                         
end of period                         
($ x 1,000) 1,965,696    1,984,322    2,085,236    2,143,305    2,312,997 2,497,199 
 
a    Based on average shares outstanding at each month end.                 
b    Not annualized.                         
c    Annualized.                         
d    Ratio of total expenses to average net assets and ratio of net expenses to average net assets have been restated.This 
    restatement has no impact on the fund’s previously reported net assets, net investment income, net asset value or total 
    return. See Note 5                         
See notes to financial statements.                         

The Fund 27

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” or “Dreyfus”) 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 to the public without a sales charge.

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

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

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

28

(a) Portfolio valuation: Investments in 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 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.

On September 20, 2006, the Financial Accounting Standards Board (FASB) released Statement of Financial Accounting Standards No. 157 “Fair Value Measurements” (“FAS 157”). FAS 157 establishes an authoritative definition of fair value, sets out a framework for measuring fair value, and requires additional disclosures about fair-value measurements. The application of FAS 157 is required for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. Management does not believe that the application of this standard will have a material impact on the financial statements of the fund.

(b) 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 accretion of discount and amortization of 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.

The Fund 29

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

(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 U.S generally accepted accounting principles.

(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.

On July 13, 2006, the FASB released FASB Interpretation No. 48 Accounting for Uncertainty in Income Taxes” (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the fund’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority.Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of the effective date. Management does not believe

30

that the application of this standard will have a material impact on the financial statements of the fund.

The fund has an unused capital loss carryover of $121,547,904 available for federal income tax purposes to be applied against future net securities profits, if any, realized subsequent to August 31, 2006. If not applied, $25,873,198 of the carryover expires in fiscal 2009, $11,793,725 expires in fiscal 2010, $34,182,166 expires in fiscal 2011 and $49,698,815 expires in fiscal 2012.

The tax character of distributions paid to shareholders during the fiscal year ended August 31, 2006 were as follows: tax exempt income of $87,414,073. The tax character of current year distributions will be determined at the end of the current fiscal year.

NOTE 2—Bank Line of Credit:

The fund participates with other Dreyfus-managed funds in a $350 million redemption credit facility (the “Facility”) to be utilized for temporary or emergency purposes, including the financing of redemptions. In connection therewith, the fund has agreed to pay commitment fees on its pro rata portion of the Facility. Interest is charged to the fund based on prevailing market rates in effect at the time of borrowing. During the period ended February 28, 2007, 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 the value of the fund’s average daily net assets and is payable monthly.

(b) Under the Shareholder Services Plan, the fund reimburses the Distributor an amount not to exceed an annual rate of .25% 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

The Fund 31

fund and providing reports and other information, and services related to the maintenance of shareholder accounts. During the period ended February 28, 2007, the fund was charged $541,732 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 28, 2007, the fund was charged $271,652 pursuant to the transfer agency agreement.

During the period ended February 28, 2007, the fund was charged $2,044 for services performed by the Chief Compliance Officer.

The components of Due to The Dreyfus Corporation and affiliates in the Statement of Assets and Liabilities consist of: management fees $871,166, chief compliance officer fees $2,726 and transfer agency per account fees $90,930.

(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 certain shares redeemed within thirty days of their issuance, subject to exceptious including redemptions made through the use of the fund’s exchange privilege. During the period ended February 28, 2007, redemption fees charged and retained by the fund amounted to $97.

NOTE 4—Securities Transactions:

The aggregate amount of purchases and sales of investment securities, excluding short-term securities, during the period ended February 28, 2007, amounted to $522,298,781 and $556,954,220, respectively.

At February 28, 2007, accumulated net unrealized appreciation on investments was $107,254,202, consisting of $107,697,411 gross unrealized appreciation and $443,209 gross unrealized depreciation.

32

At February 28, 2007, the cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes (see Statement of Investment).

NOTE 5—Restatement

Subsequent to the issuance of the August 31, 2006 financial statements, the fund determined that the transfers of certain tax-exempt municipal bond securities by the fund to special purpose bond trusts in connection with participation in inverse floater structures do not qualify for sale treatment under Statement of Financial Accounting Standard No. 140,Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities, and should have been accounted for as a secured borrowing.

The correction of the above item resulted in the restatement of the ratio of total and net expenses of the financial highlights table as shown below:

Ratio of Total Expenses    2006    2005    2004    2003    2002 
As previously reported    .72%    .72%    .72%    .72%    .71% 
As restated    .86%    .81%    .78%    .85%    .92% 
Ratio of Net Expenses    2006    2005    2004    2003    2002 
As previously reported    .72%    .68%    .68%    .72%    .71% 
As restated    .86%    .77%    .74%    .85%    .92% 

This restatement has no impact on the fund’s previously reported net assets, net investment income, net asset value per share or total return.

The Fund 33

PROXY RESULTS (Unaudited)

Dreyfus Bond Funds, Inc., held a special meeting of shareholders on September 20, 2006.The Proposal considered at the meeting, and the results, are as follows:

        Shares     
    Votes For        Authority Withheld 
To elect additional Board Members:             
Gordon J. Davis †    110,904,698        4,044,524 
Joni Evans †    110,962,066        3,987,156 
Arnold S. Hiatt †    110,268,438        4,680,784 
Burton N. Wallack    110,980,311        3,968,911 

† Each new Board member’s term commenced on November 7, 2006. 
In addition, Joseph S. DiMartino, David W. Burke,William Hodding Carter III, Ehud Houminer, Richard C. 
Leone, Hans C. Mautner, Robin A. Melvin and John E. Zuccotti will continue as Board members of the fund. 

34

At a Meeting of the fund’s Board of Directors held on November 6, 2006, the Board considered the re-approval for an annual period of the fund’s Management Agreement,pursuant to which the Manager provides the fund with investment advisory and administrative services.The Board members, none of whom are “interested persons” (as defined in the Investment Company Act of 1940, as amended) of the fund, were assisted in their review by independent legal counsel and met with counsel in executive session separate from representatives of the Manager.

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

The Board members also considered the Manager’s research and portfolio management capabilities and that the Manager also provides oversight of day-to-day fund operations, including fund accounting and administration and assistance in meeting legal and regulatory requirements.The Board members also considered the Manager’s extensive administrative, accounting, and compliance infrastructure.

Comparative Analysis of the Fund’s Management Fee and Expense Ratio and Performance. The Board members reviewed reports prepared by Lipper, Inc., an independent provider of investment company data, which included information comparing the fund’s management

The Fund 35

fee and expense ratio with a group of comparable funds (the “Expense Group”) and with a broader group of funds (the “Expense Universe”) that were selected by Lipper. Included in the fund’s reports were comparisons of contractual and actual management fee rates and total operating expenses.

The Board members also reviewed the reports prepared by Lipper that presented the fund’s performance and placed significant emphasis on comparisons of total return performance for various periods ended September 30, 2006 and yield performance for one-year periods ended September 30th for the fund to the same group of funds as the fund’s Expense Group (the “Performance Group”) and to a group of funds that was broader than the fund’s Expense Universe (the “Performance Universe”) that also were selected by Lipper.The Manager previously had furnished the Board with a description of the methodology Lipper used to select the fund’s Expense Group and Expense Universe, and Performance Group and Performance Universe.The Manager also provided a comparison of the fund’s total returns to the fund’s Lipper category average returns for the past 10 calendar years.

The Board reviewed the results of the Expense Group and Expense Universe comparisons for various periods ended September 30, 2006. The Board reviewed the range of management fees and expense ratios of the funds in the Expense Group and Expense Universe, and noted that the fund’s contractual management fee was higher than the Expense Group median and that the fund’s actual management fee was higher than the Expense Group and Expense Universe medians.The Board also noted that the fund’s total expense ratio approximated the Expense Group median and was lower than the Expense Universe median.

With respect to the fund’s performance, the Board noted the fund’s strong relative total return performance over the past 5-year period compared with its below median performance (in the Performance Group and Performance Universe) for the 10-year period.The Board noted the fund’s first or second quintile (the first quintile reflecting the

36

highest performance ranking group) total return rankings in the Performance Group for each reported time period up to 3 years, and the fund’s first quintile total return rankings in the Performance Universe for each reported time periods up to 3 years.The Board also noted that the fund’s total return was one basis point lower than the Performance Group median for the 4-year period and was at the Performance Universe median for the 5-year period. On a yield performance basis, the Board noted that the fund achieved 1-year yields that were variously higher and lower than Performance Group median, and higher than the Performance Universe median, for each reported time period up to 10 years.

Representatives of the Manager reviewed with the Board members the fees paid to the Manager or its affiliates by mutual funds managed by the Manager or its affiliates reported in the same Lipper category as the fund (the “Similar Funds”), and explained the nature of the Similar Funds and the differences, from the Manager’s perspective, in providing services to the Similar Funds as compared to the fund.The Manager’s representatives also reviewed the costs associated with distribution through intermediaries. The Board discussed the relationship of the management fees paid in light of the Manager’s performance, and the services provided.The Board members considered the relevance of the fee information provided for the Similar Funds to evaluate the appropriateness and reasonableness of the fund’s management fee. The Manager’s representatives noted that there were no similarly managed institutional separate accounts or wrap fee accounts managed by the Manager or its affiliates with similar investment objectives, policies, and strategies as the fund.

Analysis of Profitability and Economies of Scale. The Manager’s representatives reviewed the dollar amount of expenses allocated and profit received by the Manager for the fund and the method used to determine such expenses and profit.The Board previously had been provided with information prepared by an independent consulting firm regarding

The Fund 37

the Manager’s approach to allocating costs to, and determining the profitability of, individual funds and the entire Dreyfus mutual fund complex.The Board also had been informed that the methodology had also been reviewed by an independent registered public accounting firm which, like the consultant, found the methodology to be reasonable.The consulting firm also analyzed where any economies of scale might emerge in connection with the management of the fund. The Board members evaluated the profitability analysis in light of the relevant circumstances for the fund, including any decline in fund assets from the prior year, and the extent to which economies of scale would be realized if the fund grows and whether fee levels reflect these economies of scale for the benefit of fund shareholders.The Board members also considered potential benefits to the Manager from acting as investment adviser to the fund and noted that there were no soft dollar arrangements in effect with respect to trading the fund’s portfolio.

It was noted that the Board members should consider the Manager’s profitability with respect to the fund as part of their evaluation of whether the fees under the Management Agreement bear a reasonable relationship to the mix of services provided by the Manager, including the nature, extent, and quality of such services and that a discussion of economies of scale is predicated on increasing assets and that, if a fund’s assets had been decreasing, the possibility that the Manager may have realized any economies of scale would be less. It was noted that the profitability percentage for managing the fund was within ranges determined by appropriate court cases to be reasonable given the services rendered and the fund’s overall performance and generally superior service levels provided.

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

38

• The Board concluded that the nature,extent,and quality of the services provided by the Manager to the fund are adequate and appropriate.

• The Board was satisfied with the fund’s overall performance.

• The Board concluded that the fee paid to the Manager by the fund was reasonable in light of the services provided, comparative performance and expense and management fee information, costs of the services provided and profits to be realized and benefits derived or to be derived by the Manager from its relationship with the fund.

• The Board determined that the economies of scale which may accrue to the Manager and its affiliates in connection with the management of the fund had been adequately considered by the Manager in connection with the management fee rate charged to the fund, and that, to the extent in the future it were to be determined that material economies of scale had not been shared with the fund, the Board would seek to have those economies of scale shared with the fund.

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

The Fund 39

NOTES

Mail The Dreyfus Family of Funds, 144 Glenn Curtiss Boulevard, Uniondale, NY 11556-0144

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

Internet Information can be viewed online or downloaded at: http://www.dreyfus.com

The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (“SEC”) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at http://www.sec.gov and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-202-551-8090.

Information regarding how the fund voted proxies relating to portfolio securities for the 12-month period ended June 30, 2006, is available on the SEC’s website at http://www.sec.gov and without charge, upon request, by calling 1-800-645-6561.

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

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

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

    Contents 
 
    THE FUND 
2    A Letter from the CEO 
3    Discussion of Fund Performance 
6    Understanding Your Fund’s Expenses 
6    Comparing Your Fund’s Expenses 
    With Those of Other Funds 
7    Statement of Investments 
21    Statement of Assets and Liabilities 
22    Statement of Operations 
23    Statement of Changes in Net Assets 
25    Financial Highlights 
29    Notes to Financial Statements 
36    Proxy Results 
37    Information About the Review and Approval 
    of the Fund’s Management Agreement 
 
    FOR MORE INFORMATION 
    Back Cover 

Dreyfus Premier 
High Income Fund 

The Fund

A LETTER FROM THE CEO

Dear Shareholder:

We are pleased to present this semiannual report for Dreyfus Premier High Income Fund, covering the six-month period from September 1, 2006, through February 28, 2007.

As they have for some time, high-yield bonds continued to produce higher total returns over the course of the reporting period than most other sectors of the U.S. fixed-income marketplace. Prices of corporate bonds rated below investment grade have been supported since 2003 by an expanding economy, low default rates and robust investor demand for high current yields.

However, a bout of heightened volatility in equity markets near the end of February 2007 may be signaling a shift in investor sentiment. As the rate of economic growth slows and the number and magnitude of leveraged buyouts increases, investors may become more sensitive to the risks that lower-rated investments entail. What’s required, in our view, is a disciplined focus on the business fundamentals and financial circumstances of each individual high yield issuer. Such an approach may help separate sound credits from questionable ones. As always, your financial consultant can help you identify the investments that may be most likely to help you achieve high levels of current income while mitigating the risks of a more discerning market environment.

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

Thank you for your continued confidence and support.

2

DISCUSSION OF FUND PERFORMANCE

Mark Shenkman, Chief Investment Officer

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 28, 2007, the fund achieved total returns of 7.00% for Class A shares, 6.63% for Class B shares, 6.52% for Class C shares and 7.16% for Class R shares.1 For the same period, the fund’s benchmark, the Merrill Lynch U.S. High Yield Master II Constrained Index (the “Index”), produced a 8.19% total return.2

High yield bonds continued to gain value over the reporting period as investors remained comfortable with the risks of lower-rated credits in an environment of moderate economic growth, subdued inflation and low defaults.The fund’s returns were lower than the Index, primarily due to its continuing focus on higher-quality credits during a time when speculative and distressed bonds, generally represented by the Index, fared better.

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 generally invests at least 80% of its assets in 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 and money market instruments.

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 a “bottom-up,” fundamental analysis, we

The Fund 3

seek to maximize returns and minimize default risk through broad diversification, direct communication with management and monitoring all issuers on a systematic basis. We generally avoid investing in industries or issuers that we believe have a high risk of default.

What other factors influenced the fund’s performance?

Although U.S. economic growth began to moderate over the reporting period, the slowdown proved to be relatively mild, leading many analysts to conclude that a full-blown recession is unlikely. At the same time, falling energy prices helped to relieve inflation concerns, and weakness in the automobile and housing sectors did not appear to spread to other industry groups, supporting business conditions for many U.S. companies.

In this favorable economic climate, investors seeking high levels of current income continued to tolerate the risks of lower-rated investments, and demand for high yield securities remained robust. These factors caused yield differences between high yield bonds and comparable U.S. Treasury securities to continue to narrow. The high yield market’s strength was particularly pronounced at the lower end of the credit-rating spectrum.

While the fund participated in the market rally to a significant degree, we continued to proceed cautiously with regard to credits at the lower end of the high yield range, many of which did not meet our investment criteria. In addition, with yield differences between lower- and higher-rated bonds near historical lows, it made little sense to us to assume the risks that the lowest-rated credits typically entail.

Our focus on higher-quality securities prevented the fund from benefiting fully from gains among lower-rated bonds.The fund suffered mild performance shortfalls compared to the benchmark due to its relatively light exposure to the automotive and homebuilding industries, which gained value despite deteriorating business fundamentals. In the cable television area, the fund’s results were constrained by a lack of exposure to the distressed, CCC-rated debt of Charter Communications, which comprises about one-third of the overall high yield cable sector.

4

Our security selection strategy in other areas helped offset a portion of the fund’s quality-related shortfall. Overweight positions in the support services sector fared well as companies serving commercial builders and other enterprises enjoyed relatively robust business conditions.The fund also received positive contributions from the health care, chemicals, and utilities sectors.

What is the fund’s current strategy?

Slower economic growth and heightened market volatility just days before the end of the reporting period have convinced us that investors are becoming more sensitive to risk. As investors pay closer attention to credit fundamentals, a measure of equilibrium may return to the markets and investor psychology.We believe the fund’s emphasis on higher-quality credits positions it appropriately for this shift.

At the same time, today’s high yield market appears to be supported by ample capital, and investors’ appetite for income should continue to support demand. Moreover, default rates have remained near historical lows, new capital from hedge funds has poured into the market and considerable liquidity has been available to traders. In our judgment, while there is no guarantee how any market will perform, these factors should help the high yield bond market deliver desirable returns to risk-conscious investors over the foreseeable future.

March 15, 2007

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: BLOOMBERG — Reflects reinvestment of dividends and, where applicable, 
    capital gain distributions.The Merrill Lynch U.S. High Yield Master II Constrained Index is an 
    unmanaged performance benchmark composed of U.S. dollar-denominated domestic and Yankee 
    bonds rated below investment grade with at least $100 million par amount outstanding and at 
    least one year remaining to maturity. Bonds are capitalization-weighted.Total allocations to an 
    issuer are capped at 2%. Index return does not reflect fees and expenses associated with operating 
    a mutual fund. 

The Fund 5

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

Review your fund’s expenses

The table below shows the expenses you would have paid on a $1,000 investment in Dreyfus Premier High Income Fund from September 1, 2006 to February 28, 2007. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.

Expenses and Value of a $1,000 Investment             
assuming actual returns for the six months ended February 28, 2007         
    Class A    Class B    Class C    Class R 
Expenses paid per $1,000 †    $ 6.06    $ 8.76    $ 9.93    $ 4.37 
Ending value (after expenses)    $1,070.00    $1,066.30    $1,065.20    $1,071.60 

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

Using the SEC’s method to compare expenses

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

Expenses and Value of a $1,000 Investment assuming a hypothetical 5% annualized return for the six months ended February 28, 2007

    Class A    Class B    Class C    Class R 
Expenses paid per $1,000 †    $ 5.91    $ 8.55    $ 9.69    $ 4.26 
Ending value (after expenses)    $1,018.94    $1,016.31    $1,015.17    $1,020.58 

† Expenses are equal to the fund’s annualized expense ratio of 1.18% for Class A, 1.71% for Class B, 1.94% for Class C and .85% for Class R; multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period).

6
STATEMENT OF INVESTMENTS 
February 28, 2007 (Unaudited) 

    Coupon    Maturity    Principal     
Bonds and Notes—95.0%    Rate (%)    Date    Amount ($)    Value ($) 
Aerospace & Defense—1.6%                 
Alion Science and Technology,                 
Sr. Unscd. Notes    10.25    2/1/15    2,000,000 a    2,090,000 
Bombardier,                 
Sr. Uscd. Notes    8.00    11/15/14    1,500,000 a    1,575,000 
K & F Acquisition,                 
Gtd. Notes    7.75    11/15/14    1,500,000    1,556,250 
                5,221,250 
Auto Related—2.9%                 
Ford Motor Credit,                 
Sr. Notes    7.25    10/25/11    1,000,000    984,649 
Ford Motor Credit,                 
Sr. Unscd. Notes    8.00    12/15/16    1,000,000    988,820 
Ford Motor Credit,                 
Notes    9.81    4/15/12    1,050,000 b    1,136,927 
General Motors,                 
Sr. Notes    7.13    7/15/13    1,500,000    1,432,500 
General Motors,                 
Unscd. Debs.    7.70    4/15/16    250,000    238,750 
General Motors,                 
Debs.    8.25    7/15/23    1,750,000    1,636,250 
Goodyear Tire & Rubber,                 
Notes    7.86    8/15/11    2,000,000    2,072,500 
United Components,                 
Sr. Sub. Notes    9.38    6/15/13    1,000,000    1,050,000 
                9,540,396 
Automotive, Trucks & Parts—.6%             
American Axle and Manufacturing,             
Gtd. Notes    7.88    3/1/17    1,000,000    1,005,000 
Lear,                 
Gtd. Notes, Ser. B    8.75    12/1/16    1,000,000    968,750 
                1,973,750 
Broadcasting & Media—2.3%                 
Allbritton Communications,                 
Sr. Sub. Notes    7.75    12/15/12    1,500,000    1,545,000 
LIN Television,                 
Sr. Sub. Debs.    2.50    5/15/33    1,500,000    1,440,000 
LIN Television,                 
Gtd. Notes, Ser. B    6.50    5/15/13    1,500,000    1,470,000 
Nexstar Finance,                 
Sr. Sub. Notes    7.00    1/15/14    1,000,000    970,000 

The Fund 7

    Coupon    Maturity    Principal     
Bonds and Notes (continued)    Rate (%)    Date    Amount ($)    Value ($) 
Broadcasting & Media (continued)             
Radio One,                 
Gtd. Notes    6.38    2/15/13    1,000,000    955,000 
Salem Communications,                 
Gtd. Notes    7.75    12/15/10    1,000,000    1,022,500 
                7,402,500 
Building Materials—.6%                 
Goodman Global Holdings,                 
Gtd. Notes    7.88    12/15/12    1,000,000    1,025,000 
Interface,                 
Sr. Sub. Notes    9.50    2/1/14    1,000,000    1,077,500 
                2,102,500 
Cable & Media—5.5%                 
Cablevision Systems,                 
Sr. Notes, Ser. B    8.00    4/15/12    750,000    765,000 
CVC,                 
Sr. Notes, Ser. B    9.87    4/1/09    1,500,000 b    1,605,000 
Echostar DBS,                 
Gtd. Notes    6.63    10/1/14    1,500,000    1,518,750 
Insight Communications,                 
Sr. Discount Notes    12.25    2/15/11    2,000,000 c    2,092,500 
Lodgenet Entertainment,                 
Sr. Sub. Debs.    9.50    6/15/13    2,500,000    2,693,750 
Mediacom Broadband,                 
Sr. Notes    8.50    10/15/15    2,000,000    2,045,000 
Mediacom/Mediacom Capital,                 
Sr. Notes    9.50    1/15/13    1,500,000    1,545,000 
NTL Cable,                 
Sr. Notes    9.13    8/15/16    3,000,000    3,202,500 
Telenet Group Holding,                 
Discount Notes    11.50    6/15/14    2,500,000 a,c    2,318,750 
                17,786,250 
Casinos & Gaming—.9%                 
Seminole Hard Rock Entertainment,             
Scd. Notes    7.85    3/15/14    750,000 a,b    758,438 
Station Casinos,                 
Sr. Sub. Notes    6.63    3/15/18    750,000    683,437 
Wimar OpCo,                 
Sr. Sub. Notes    9.63    12/15/14    1,500,000 a    1,516,875 
                2,958,750 

8

    Coupon    Maturity    Principal     
Bonds and Notes (continued)    Rate (%)    Date    Amount ($)    Value ($) 
Chemicals—3.6%                 
Hexion U.S. Finance/Nova Scotia                 
Finance, Sr. Notes    9.75    11/15/14    2,750,000 a    2,928,750 
Hexion U.S. Finance/Nova Scotia                 
Finance, Scd. Notes    9.86    11/15/14    500,000 a,b    517,500 
Ineos Group Holdings,                 
Sr. Sub. Notes    8.50    2/15/16    1,500,000 a    1,466,250 
Lyondell Chemical,                 
Gtd. Notes    8.00    9/15/14    1,250,000    1,321,875 
Lyondell Chemical,                 
Gtd. Notes    8.25    9/15/16    1,750,000    1,890,000 
Nalco,                 
Sr. Sub. Notes    8.88    11/15/13    2,000,000    2,140,000 
PolyOne,                 
Sr. Notes    8.88    5/1/12    1,500,000    1,533,750 
                11,798,125 
Commercial &                 
Professional Services—1.9%                 
Aleris International,                 
Sr. Notes    9.00    12/15/14    1,000,000 a    1,065,000 
Aleris International,                 
Sr. Sub. Notes    10.00    12/15/16    2,000,000 a    2,120,000 
Aramark,                 
Sr. Notes    8.50    2/1/15    3,000,000 a    3,131,250 
                6,316,250 
Consumer Products—3.6%                 
American Achievement,                 
Sr. Sub. Notes    8.25    4/1/12    1,500,000    1,556,250 
Central Garden and Pet,                 
Gtd. Notes    9.13    2/1/13    650,000    679,250 
Da-Lite Screen,                 
Sr. Notes    9.50    5/15/11    1,500,000    1,578,750 
Jarden,                 
Gtd. Notes    7.50    5/1/17    1,500,000    1,528,125 
Josten’s,                 
Gtd. Notes    7.63    10/1/12    1,000,000    1,030,000 
Leslie’s Poolmart,                 
Sr. Notes    7.75    2/1/13    2,000,000    2,025,000 
Simmons Bedding,                 
Sr. Sub. Notes    7.88    1/15/14    2,000,000    2,060,000 

The Fund 9

    Coupon    Maturity    Principal     
Bonds and Notes (continued)    Rate (%)    Date    Amount ($)    Value ($) 
Consumer Products (continued)                 
Visant Holding,                 
Sr. Notes    8.75    12/1/13    1,000,000    1,072,500 
                11,529,875 
Environmental &                 
Facilities Services—2.0%                 
Allied Waste North America,                 
Gtd. Notes, Ser. B    7.13    5/15/16    1,000,000    1,021,250 
Casella Waste Systems,                 
Sr. Sub. Notes    9.75    2/1/13    2,000,000    2,130,000 
Waste Connections,                 
Sr. Notes    3.75    4/1/26    1,750,000    1,903,125 
Waste Services,                 
Sr. Sub. Notes    9.50    4/15/14    1,250,000    1,328,125 
                6,382,500 
Food & Beverages—1.5%                 
B & G Foods,                 
Sr. Notes    8.00    10/1/11    1,000,000    1,015,000 
Michael Foods,                 
Sr. Sub. Notes    8.00    11/15/13    1,750,000    1,798,125 
Pinnacle Foods Holding,                 
Sr. Sub. Notes    8.25    12/1/13    2,000,000    2,160,000 
                4,973,125 
Food & Drugs—1.3%                 
Rite Aid,                 
Scd. Notes    7.50    3/1/17    1,000,000    997,500 
Rite Aid,                 
Sr. Unscd. Notes    8.63    3/1/15    2,500,000    2,443,750 
Stater Brothers Holdings,                 
Sr. Notes    8.13    6/15/12    750,000    769,687 
                4,210,937 
Gaming—5.3%                 
American Casino & Entertainment                 
Properties, Scd. Notes    7.85    2/1/12    1,750,000    1,815,625 
Boyd Gaming,                 
Sr. Sub. Notes    6.75    4/15/14    1,000,000    1,000,000 
Boyd Gaming,                 
Sr. Sub. Notes    7.75    12/15/12    1,000,000    1,035,000 
Herbst Gaming,                 
Gtd. Notes    7.00    11/15/14    1,750,000    1,715,000 

10

    Coupon    Maturity    Principal     
Bonds and Notes (continued)    Rate (%)    Date    Amount ($)    Value ($) 
Gaming (continued)                 
Isle of Capri Casinos,                 
Gtd. Notes    7.00    3/1/14    1,000,000    982,500 
Isle of Capri Casinos,                 
Gtd. Notes    9.00    3/15/12    1,000,000    1,050,000 
MGM Mirage,                 
Gtd. Notes    7.63    1/15/17    1,000,000    1,017,500 
MTR Gaming Group,                 
Gtd. Notes, Ser. B    9.75    4/1/10    2,000,000    2,105,000 
Penn National Gaming,                 
Sr. Sub. Notes    6.75    3/1/15    500,000    483,750 
Pinnacle Entertainment,                 
Sr. Sub. Notes    8.25    3/15/12    2,350,000    2,432,250 
Seneca Gaming,                 
Sr. Unscd. Notes, Ser. B    7.25    5/1/12    500,000    506,250 
Shuffle Master,                 
Sr. Notes    1.25    4/15/24    1,000,000    1,001,250 
Station Casinos,                 
Sr. Unscd. Notes    7.75    8/15/16    1,300,000    1,342,250 
Station Casinos,                 
Sr. Sub. Notes    6.88    3/1/16    600,000    560,250 
                17,046,625 
Health Care—7.1%                 
Carriage Services,                 
Gtd. Notes    7.88    1/15/15    1,000,000    1,027,500 
CDRV Investors,                 
Sr. Discount Notes    9.63    1/1/15    1,000,000 c    807,500 
Concentra Operating,                 
Gtd. Notes    9.13    6/1/12    1,000,000    1,070,000 
HCA,                 
Sr. Unscd. Notes    6.50    2/15/16    1,250,000    1,078,125 
HCA,                 
Scd. Notes    9.25    11/15/16    2,500,000 a    2,684,375 
HCA,                 
Scd. Notes    9.63    11/15/16    1,000,000 a    1,082,500 
Health Management,                 
Sr. Sub. Notes    4.38    8/1/23    750,000    783,750 
IASIS Healthcare/Capital,                 
Sr. Sub. Notes    8.75    6/15/14    1,500,000    1,563,750 

The Fund 11

    Coupon    Maturity    Principal     
Bonds and Notes (continued)    Rate (%)    Date    Amount ($)    Value ($) 
Health Care (continued)                 
LifePoint Hospitals,                 
Sub. Notes    3.25    8/15/25    750,000    705,000 
Omnicare,                 
Debs., Ser. OCR    3.25    12/15/35    1,500,000    1,342,500 
Par Pharmaceutical Cos.,                 
Sr. Sub. Notes    2.88    9/30/10    750,000    717,187 
Psychiatric Solutions,                 
Gtd. Notes    7.75    7/15/15    1,500,000    1,530,000 
Service Corp. International,                 
Sr. Unscd. Notes    7.38    10/1/14    1,000,000    1,052,500 
Service Corp. International,                 
Sr. Unscd. Notes    7.63    10/1/18    1,500,000    1,601,250 
Stewart Enterprises,                 
Sr. Notes    6.25    2/15/13    600,000 b    583,500 
Triad Hospitals,                 
Sr. Sub. Notes    7.00    11/15/13    1,000,000    1,046,250 
Vanguard Health Holding II,                 
Sr. Sub. Notes    9.00    10/1/14    1,500,000    1,548,750 
Warner Chilcott,                 
Gtd. Notes    8.75    2/1/15    1,500,000 b    1,571,250 
Wyeth,                 
Sr. Notes    4.88    1/15/24    1,000,000 b    1,066,800 
                22,862,487 
Hotels—.5%                 
Gaylord Entertainment,                 
Sr. Notes    8.00    11/15/13    1,500,000    1,560,000 
Manufacturing—2.0%                 
Baldor Electric,                 
Gtd. Notes    8.63    2/15/17    1,500,000    1,584,375 
Chart Industries,                 
Sr. Sub. Notes    9.63    10/15/15    1,750,000 a,b    1,846,250 
Koppers,                 
Gtd. Notes    9.88    10/15/13    1,024,000    1,121,280 
RBS Global & Rexnord,                 
Gtd. Notes    9.50    8/1/14    1,000,000 a    1,060,000 
Trimas,                 
Gtd. Notes    9.88    6/15/12    1,000,000    1,000,000 
                6,611,905 

12

    Coupon    Maturity    Principal     
Bonds and Notes (continued)    Rate (%)    Date    Amount ($)    Value ($) 
Media/Diversified & Services—4.2%             
Advanstar Communications,                 
Scd. Notes    10.75    8/15/10    1,550,000    1,670,125 
Advanstar Communications,                 
Gtd. Notes, Ser. B    12.00    2/15/11    1,500,000    1,563,750 
Hughes Network Systems/HNS                 
Finance, Gtd. Notes    9.50    4/15/14    2,500,000    2,662,500 
Intelsat Bermuda,                 
Gtd. Notes    9.25    6/15/16    1,000,000 a    1,110,000 
Intelsat Bermuda,                 
Sr. Notes    11.25    6/15/16    2,100,000 a    2,388,750 
Lamar Media,                 
Gtd. Notes    6.63    8/15/15    1,000,000    990,000 
LBI Media,                 
Gtd. Notes    10.13    7/15/12    1,000,000    1,055,000 
Quebecor Media,                 
Sr. Notes    7.75    3/15/16    2,000,000    2,060,000 
                13,500,125 
Mining & Metals—2.2%                 
Alpha Natural Resources/Capital,                 
Gtd. Notes    10.00    6/1/12    2,500,000 b    2,712,500 
Arch Western Finance,                 
Gtd. Notes    6.75    7/1/13    1,000,000 b    987,500 
Foundation PA Coal,                 
Sr. Notes    7.25    8/1/14    2,000,000    2,035,000 
Peabody Energy,                 
Jr. Sub. Debs.    4.75    12/15/66    1,500,000    1,486,875 
                7,221,875 
Non-Food & Drug Retail—.6%                 
Yankee Acquisition,                 
Sr. Notes    8.50    2/15/15    1,000,000 a    1,027,500 
Yankee Acquisition,                 
Sr. Sub. Notes    9.75    2/15/17    1,000,000 a    1,030,000 
                2,057,500 
Non Food & Drug—3.9%                 
Autonation,                 
Gtd. Notes    7.36    4/15/13    1,700,000 b    1,734,000 
Blockbuster,                 
Sr. Sub. Notes    9.00    9/1/12    500,000 b    504,375 

The Fund 13

    Coupon    Maturity    Principal     
Bonds and Notes (continued)    Rate (%)    Date    Amount ($)    Value ($) 
Non Food & Drug (continued)                 
Buhrmann US,                 
Sr. Sub. Notes    8.25    7/1/14    2,000,000    2,052,500 
Pantry,                 
Sr. Sub. Notes    7.75    2/15/14    1,500,000    1,515,000 
Petro Stopping Centers/Financial,                 
Scd. Notes    9.00    2/15/12    1,000,000    1,045,000 
Sally Holdings,                 
Sr. Notes    9.25    11/15/14    1,000,000 a    1,040,000 
Sally Holdings,                 
Sr. Sub. Notes    10.50    11/15/16    1,750,000 a    1,820,000 
Susser Holdings,                 
Gtd. Notes    10.63    12/15/13    1,412,000    1,560,260 
United Auto Group,                 
Sr. Sub. Bonds    7.75    12/15/16    1,500,000 a    1,533,750 
                12,804,885 
Oil & Gas—6.2%                 
Berry Petroleum,                 
Sr. Sub. Notes    8.25    11/1/16    500,000    501,250 
Chesapeake Energy,                 
Gtd. Notes    6.50    8/15/17    500,000    495,000 
Complete Production Services,                 
Sr. Notes    8.00    12/15/16    2,000,000 a    2,055,000 
Compton Petroleum Finance,                 
Gtd. Notes    7.63    12/1/13    2,000,000    1,970,000 
Copano Energy,                 
Gtd. Notes    8.13    3/1/16    1,000,000    1,040,000 
Denbury Resources,                 
Gtd. Notes    7.50    4/1/13    1,250,000    1,268,750 
Denbury Resources,                 
Sr. Sub. Notes    7.50    12/15/15    1,000,000    1,015,000 
Dresser-Rand Group,                 
Gtd. Notes    7.38    11/1/14    2,000,000 b    2,040,000 
Encore Acquisition,                 
Sr. Sub. Notes    6.00    7/15/15    1,500,000    1,350,000 
Encore Acquisition,                 
Sr. Sub. Notes    6.25    4/15/14    750,000    695,625 

  14
    Coupon    Maturity    Principal     
Bonds and Notes (continued)    Rate (%)    Date    Amount ($)    Value ($) 
Oil & Gas (continued)                 
Exco Resources,                 
Gtd. Notes    7.25    1/15/11    3,000,000    3,052,500 
Harvest Operations,                 
Sr. Notes    7.88    10/15/11    1,500,000    1,455,000 
PetroHawk Energy,                 
Gtd. Notes    9.13    7/15/13    2,065,000    2,204,388 
Whiting Petroleum,                 
Sr. Sub. Notes    7.25    5/1/13    1,000,000    1,003,750 
                20,146,263 
Packaging & Containers—.4%                 
BWAY,                 
Sr. Sub. Notes    10.00    10/15/10    1,000,000    1,055,000 
Stone Container,                 
Sr. Notes    8.38    7/1/12    250,000    256,250 
                1,311,250 
Paper & Forest Products—3.7%                 
Abitibi-Consolidated Finance,                 
Gtd. Notes    7.88    8/1/09    500,000    512,500 
Abitibi-Consolidated,                 
Gtd. Notes    8.38    4/1/15    750,000    733,125 
Abitibi-Consolidated,                 
Notes    8.86    6/15/11    500,000 b    505,000 
Boise Cascade,                 
Gtd. Notes    7.13    10/15/14    850,000    837,250 
Boise Cascade,                 
Gtd. Notes    8.24    10/15/12    1,000,000 b    1,005,000 
Catalyst Paper,                 
Sr. Notes    7.38    3/1/14    2,000,000    1,990,000 
Georgia-Pacific,                 
Gtd. Notes    7.13    1/15/17    1,000,000 a    1,005,000 
NewPage,                 
Scd. Notes    10.00    5/1/12    1,000,000    1,095,000 
Smurfit Kappa Funding,                 
Sr. Notes    9.63    10/1/12    1,250,000    1,332,813 
Stone Container,                 
Sr. Notes    9.75    2/1/11    1,000,000    1,038,750 

The Fund 15

    Coupon    Maturity    Principal     
Bonds and Notes (continued)    Rate (%)    Date    Amount ($)    Value ($) 
Paper & Forest Products (continued)             
Verso Paper Holdings,                 
Scd. Notes    9.11    8/1/14    750,000 a,b    776,250 
Verso Paper Holdings,                 
Sr. Sub. Notes    11.38    8/1/16    1,000,000 a    1,080,000 
                11,910,688 
Printing & Publishing—3.3%                 
CBD Media Holdings/Finance,                 
Sr. Notes    9.25    7/15/12    1,000,000    1,050,000 
CBD Media/Finance,                 
Gtd. Notes    8.63    6/1/11    1,000,000    1,040,000 
Cenveo Corporation,                 
Sr. Sub. Notes    7.88    12/1/13    1,050,000    1,036,875 
Idearc,                 
Sr. Notes    8.00    11/15/16    3,000,000 a    3,097,500 
R.H. Donnelley,                 
Sr. Discount Notes, Ser. A-2    6.88    1/15/13    2,000,000    1,960,000 
R.H. Donnelley,                 
Sr. Notes, Ser. A-3    8.88    1/15/16    2,000,000    2,145,000 
Valassis Communication,                 
Sr. Notes    8.25    3/1/15    500,000 a    498,125 
                10,827,500 
Restaurants—.5%                 
Domino’s,                 
Sr. Sub. Notes    8.25    7/1/11    1,500,000    1,580,250 
Support Services—7.2%                 
Ahern Rentals,                 
Gtd. Notes    9.25    8/15/13    1,500,000    1,578,750 
Ashtead Capital,                 
Notes    9.00    8/15/16    1,100,000 a    1,193,500 
Ashtead Holdings,                 
Scd. Notes    8.63    8/1/15    600,000 a    640,500 
Avis Budget Car Rental/Finance,                 
Sr. Notes    7.86    5/15/14    1,250,000 a,b    1,293,750 
CCM Merger,                 
Notes    8.00    8/1/13    1,250,000 a    1,256,250 
Education Management/Finance,                 
Gtd. Notes    10.25    6/1/16    1,000,000    1,090,000 
FTI Consulting,                 
Sr. Sub. Notes    3.75    7/15/12    400,000    519,000 

16

    Coupon    Maturity    Principal     
Bonds and Notes (continued)    Rate (%)    Date    Amount ($)    Value ($) 
Support Services (continued)                 
Hertz,                 
Gtd. Notes    8.88    1/1/14    2,500,000    2,706,250 
Hertz,                 
Gtd. Notes    10.50    1/1/16    1,000,000    1,145,000 
Iron Mountain,                 
Gtd. Notes    8.63    4/1/13    1,000,000    1,030,000 
Mac-Gray,                 
Sr. Notes    7.63    8/15/15    1,250,000    1,290,625 
Mobile Mini,                 
Sr. Notes    9.50    7/1/13    1,300,000    1,397,500 
Mobile Services Group,                 
Sr. Notes    9.75    8/1/14    1,000,000 a    1,070,000 
Neff Rental/Finance,                 
Gtd. Notes    11.25    6/15/12    1,000,000    1,117,500 
Norcross Safety Products/Capital,                 
Sr. Sub. Notes, Ser. B    9.88    8/15/11    1,000,000    1,065,000 
Rental Service,                 
Bonds    9.50    12/1/14    1,500,000 a    1,605,000 
West,                 
Sr. Notes    9.50    10/15/14    1,000,000 a    1,057,500 
West,                 
Sr. Sub. Notes    11.00    10/15/16    1,000,000 a    1,087,500 
Williams Scotsman,                 
Gtd. Notes    8.50    10/1/15    1,000,000    1,047,500 
                23,191,125 
Technology—4.5%                 
Celestica,                 
Sr. Sub. Notes    7.63    7/1/13    1,000,000    957,500 
Celestica,                 
Sr. Sub. Notes    7.88    7/1/11    850,000    839,375 
Freescale Semiconductor,                 
Sr. Sub. Notes    10.13    12/15/16    2,500,000 a    2,571,875 
Lucent Technologies,                 
Debs.    6.45    3/15/29    2,000,000    1,830,000 
NXP/Funding,                 
Sr. Notes    9.50    10/15/15    1,000,000 a    1,037,500 
Sungard Data Systems,                 
Gtd. Notes    9.13    8/15/13    1,500,000    1,608,750 

The Fund 17

    Coupon    Maturity    Principal     
Bonds and Notes (continued)    Rate (%)    Date    Amount ($)    Value ($) 
Technology (continued)                 
Sungard Data Systems,                 
Gtd. Notes    10.25    8/15/15    2,500,000    2,731,250 
Syniverse Technologies,                 
Sr. Sub. Notes, Ser. B    7.75    8/15/13    2,000,000    2,020,000 
Vishay Intertechnology,                 
Sub. Notes    3.63    8/1/23    1,000,000    1,011,250 
                14,607,500 
Telecommunications—7.8%                 
American Cellular,                 
Sr. Notes, Ser. B    10.00    8/1/11    2,000,000    2,137,500 
Centennial Cellular Operating,                 
Gtd. Notes    10.13    6/15/13    800,000    869,000 
Centennial Communications,                 
Sr. Notes    8.13    2/1/14    1,750,000    1,824,375 
Centennial Communications,                 
Sr. Notes    11.11    1/1/13    2,000,000 b    2,120,000 
Cincinnati Bell,                 
Gtd. Notes    8.38    1/15/14    2,000,000    2,062,500 
Citizens Communications,                 
Sr. Notes    7.88    1/15/27    2,000,000 a    2,095,000 
Intelsat Bermuda,                 
Sr. Unscd. Notes    8.87    1/15/15    1,250,000 a,b    1,285,938 
Intelsat,                 
Notes    7.63    4/15/12    2,300,000    2,265,500 
Level 3 Financing,                 
Sr. Notes    8.75    2/15/17    2,000,000 a    2,017,500 
Nordic Telephone Holdings,                 
Scd. Bonds    8.88    5/1/16    3,500,000 a    3,788,750 
Qwest Communications                 
International, Gtd. Notes    8.86    2/15/09    1,250,000 b    1,268,750 
Qwest,                 
Sr. Notes    8.61    6/15/13    1,000,000 b    1,096,250 
Time Warner Telecom Holdings,                 
Gtd. Notes    9.25    2/15/14    2,000,000    2,155,000 
                24,986,063 
Textiles & Apparel—1.6%                 
Levi Strauss & Co.,                 
Sr. Unsub. Notes    10.11    4/1/12    1,850,000 b    1,898,562 
Oxford Industries,                 
Sr. Notes    8.88    6/1/11    1,150,000    1,201,750 

18

    Coupon    Maturity    Principal     
Bonds and Notes (continued)    Rate (%)    Date    Amount ($)    Value ($) 
Textiles & Apparel (continued)                 
Perry Ellis International,                 
Sr. Sub. Notes, Ser. B    8.88    9/15/13    500,000    520,000 
Phillips-Van Heusen,                 
Sr. Notes    7.25    2/15/11    500,000    511,250 
Warnaco,                 
Sr. Notes    8.88    6/15/13    1,000,000    1,070,000 
                5,201,562 
Transportation—.7%                 
CHC Helicopter,                 
Sr. Sub. Notes    7.38    5/1/14    1,000,000    987,500 
Gulfmark Offshore,                 
Gtd. Notes    7.75    7/15/14    1,250,000 b    1,281,250 
                2,268,750 
Utilities—5.0%                 
Amerigas Partners,                 
Sr. Unscd. Notes    7.25    5/20/15    1,500,000    1,530,000 
Dynegy Holdings,                 
Debs.    7.13    5/15/18    500,000    492,500 
Dynegy Holdings,                 
Sr. Unscd. Notes    8.38    5/1/16    3,000,000    3,225,000 
Inergy/Finance,                 
Sr. Notes    6.88    12/15/14    1,500,000    1,485,000 
Mirant Americas Generation,                 
Sr. Notes    8.30    5/1/11    1,000,000    1,025,000 
Mirant North America,                 
Gtd. Notes    7.38    12/31/13    2,000,000    2,065,000 
NRG Energy,                 
Gtd. Notes    7.38    2/1/16    1,050,000    1,073,625 
NRG Energy,                 
Gtd. Notes    7.38    1/15/17    1,500,000    1,530,000 
SEMCO Energy,                 
Sr. Notes    7.75    5/15/13    1,000,000    1,026,842 
Suburban Propane Partners/Energy             
Finance, Sr. Notes    6.88    12/15/13    1,000,000    990,000 
Williams Cos.,                 
Sr. Notes    7.63    7/15/19    1,500,000    1,635,000 
                16,077,967 
Total Bonds and Notes                 
(cost $299,423,596)                307,970,528 

The Fund 19

Preferred Stocks—1.4%    Shares    Value ($) 
Auto Related—1.4%             
General Motors,             
Conv., Ser. A, Cum. $1.125    184,346    4,547,816 
Broadcasting & Media—.0%         
Spanish Broadcasting System,         
Ser. B, Cum. $107.51        1    705 
Total Preferred Stocks             
(cost $4,489,830)            4,548,521 
 
Other Investment—2.8%         
Registered Investment Company;         
Dreyfus Institutional Preferred         
Plus Money Market Fund         
(cost $9,160,000)        9,160,000 d    9,160,000 
 
Total Investments (cost $313,073,426)    99.2%    321,679,049 
Cash and Receivables (Net)    .8%    2,716,530 
Net Assets        100.0%    324,395,579 
 
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 28, 2007, these 
    securities amounted to $66,623,376 or 20.5% of net assets.     
b    Variable rate security—interest rate subject to periodic change.     
c    Zero coupon until a specified date at which time the stated coupon rate becomes effective until maturity. 
d    Investment in affiliated money market mutual fund.         
 
 
 
 
Portfolio Summary    (Unaudited) †         
        Value (%)        Value (%) 
Corporate Bonds    95.0    Preferred Stocks    1.4 
Money Market Investment    2.8        99.2 
 
†    Based on net assets.             
See notes to financial statements.         

20
STATEMENT OF ASSETS AND LIABILITIES 
February 28, 2007 (Unaudited) 

            Cost    Value 
Assets ($):                 
Investments in securities—See Statement of Investments:         
Unaffiliated issuers            303,913,426    312,519,049 
Affiliated issuers            9,160,000    9,160,000 
Dividends and interest receivable                5,304,921 
Receivable for investment securities sold            1,622,851 
Receivable for shares of Common Stock subscribed        305,505 
Prepaid expenses                50,118 
                328,962,444 
Liabilities ($):                 
Due to The Dreyfus Corporation and affiliates—Note 3(c)        348,609 
Cash overdraft due to custodian                32,558 
Payable for investment securities purchased            3,521,441 
Payable for shares of Common Stock redeemed            550,341 
Interest payable—Note 2                355 
Accrued expenses                113,561 
                4,566,865 
Net Assets ($)                324,395,579 
Composition of Net Assets ($):                 
Paid-in capital                314,223,308 
Accumulated undistributed investment income—net        1,173,740 
Accumulated net realized gain (loss) on investments        392,908 
Accumulated net unrealized appreciation             
(depreciation) on investments                8,605,623 
Net Assets ($)                324,395,579 
 
 
Net Asset Value Per Share                 
    Class A    Class B    Class C    Class R 
Net Assets ($)    150,340,137    56,498,792    92,487,477    25,069,173 
Shares Outstanding    10,826,615    4,070,870    6,678,304    1,801,235 
Net Asset Value Per Share ($)    13.89    13.88    13.85    13.92 

See notes to financial statements.

The Fund 21

STATEMENT OF OPERATIONS 
Six Months Ended February 28, 2007 (Unaudited) 

Investment Income ($):     
Income:     
Interest    12,581,496 
Cash dividends:     
Unaffiliated issuers    143,833 
Affiliated issuers    173,700 
Total Income    12,899,029 
Expenses:     
Management fee—Note 3(a)    1,254,299 
Shareholder servicing costs—Note 3(c)    542,825 
Distribution fees—Note 3(b)    504,088 
Prospectus and shareholders’ reports    47,470 
Registration fees    34,661 
Professional fees    24,991 
Custodian fees—Note 3(c)    14,243 
Directors’ fees and expenses—Note 3(d)    9,932 
Commitment fees    375 
Interest expense—Note 2    354 
Miscellaneous    21,005 
Total Expenses    2,454,243 
Less—expense reduction in custody fees     
due to earnings credits—Note 1(b)    (3,524) 
Net Expenses    2,450,719 
Investment Income—net    10,448,310 
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): 
Net realized gain (loss) on investments    4,070,368 
Net unrealized appreciation (depreciation) on investments    7,610,648 
Net Realized and Unrealized Gain (Loss) on Investments    11,681,016 
Net Increase in Net Assets Resulting from Operations    22,129,326 

See notes to financial statements.
22
    Six Months Ended     
    February 28, 2007    Year Ended 
    (Unaudited)    August 31, 2006 
Operations ($):         
Investment income—net    10,448,310    21,538,658 
Net realized gain (loss) on investments    4,070,368    2,644,675 
Net unrealized appreciation         
(depreciation) on investments    7,610,648    (9,927,115) 
Net Increase (Decrease) in Net Assets         
Resulting from Operations    22,129,326    14,256,218 
Dividends to Shareholders from ($):         
Investment income—net:         
Class A shares    (5,689,696)    (10,910,556) 
Class B shares    (1,879,551)    (4,227,391) 
Class C shares    (3,093,428)    (7,673,888) 
Class R shares    (827,159)    (1,115,692) 
Total Dividends    (11,489,834)    (23,927,527) 
Capital Stock Transactions ($):         
Net proceeds from shares sold:         
Class A shares    23,640,063    61,793,228 
Class B shares    872,629    3,901,413 
Class C shares    3,861,993    10,517,577 
Class R shares    3,926,178    8,754,400 
Dividends reinvested:         
Class A shares    4,170,366    8,369,273 
Class B shares    1,021,991    2,184,540 
Class C shares    1,529,636    3,634,175 
Class R shares    596,712    557,873 
Cost of shares redeemed:         
Class A shares    (41,638,154)    (69,138,619) 
Class B shares    (6,408,507)    (15,352,841) 
Class C shares    (18,186,530)    (48,987,737) 
Class R shares    (725,076)    (2,088,522) 
Increase (Decrease) in Net Assets         
from Capital Stock Transactions    (27,338,699)    (35,855,240) 
Total Increase (Decrease) in Net Assets    (16,699,207)    (45,526,549) 
Net Assets ($):         
Beginning of Period    341,094,786    386,621,335 
End of Period    324,395,579    341,094,786 
Undistributed investment income—net    1,173,740    2,215,264 

The Fund 23

    Six Months Ended     
    February 28, 2007    Year Ended 
    (Unaudited)    August 31, 2006 
Capital Share Transactions:         
Class A a         
Shares sold    1,738,396    4,576,250 
Shares issued for dividends reinvested    307,439    620,206 
Shares redeemed    (3,048,777)    (5,115,689) 
Net Increase (Decrease) in Shares Outstanding    (1,002,942)    80,767 
Class B a         
Shares sold    64,026    288,337 
Shares issued for dividends reinvested    75,355    161,203 
Shares redeemed    (470,824)    (1,136,123) 
Net Increase (Decrease) in Shares Outstanding    (331,443)    (686,583) 
Class C         
Shares sold    283,538    778,565 
Shares issued for dividends reinvested    113,025    269,614 
Shares redeemed    (1,335,846)    (3,631,537) 
Net Increase (Decrease) in Shares Outstanding    (939,283)    (2,583,358) 
Class R         
Shares sold    287,667    650,481 
Shares issued for dividends reinvested    43,869    41,360 
Shares redeemed    (52,846)    (154,340) 
Net Increase (Decrease) in Shares Outstanding    278,690    537,501 

a    During the period ended February 28, 2007, 27,317 Class B shares representing $370,696 were automatically 
    converted to 27,317 Class A shares and during the period ended August 31, 2006, 65,239 Class B shares 
    representing $883,487 were automatically converted to 65,225 Class A shares. 
See notes to financial statements. 

24

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 28, 2007        Year Ended August 31,     
Class A Shares    (Unaudited)    2006    2005    2004    2003 a 
Per Share Data ($):                     
Net asset value, beginning of period    13.45    13.81    13.85    13.39    12.50 
Investment Operations:                     
Investment income—net b    .44    .87    .85    .92    .48 
Net realized and unrealized                     
gain (loss) on investments    .48    (.28)    .02    .45    .70 
Total from Investment Operations    .92    .59    .87    1.37    1.18 
Distributions:                     
Dividends from investment income—net    (.48)    (.95)    (.91)    (.91)    (.29) 
Net asset value, end of period    13.89    13.45    13.81    13.85    13.39 
Total Return (%) c    7.00d    4.50    6.47    10.40    9.55d 
Ratios/Supplemental Data (%):                     
Ratio of total expenses                     
to average net assets    1.18e    1.15    1.15    1.18    1.33e 
Ratio of net expenses                     
to average net assets    1.18e    1.15    1.14    1.16    1.25e 
Ratio of net investment income                     
to average net assets    6.53e    6.40    6.09    6.60    6.31e 
Portfolio Turnover Rate    39.36d    54.43    62.54    62.65    21.71d 
Net Assets, end of period ($ x 1,000)    150,340    159,160    162,254    184,674    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. 

The Fund 25

Six Months Ended
    February 28, 2007        Year Ended August 31, 
Class B Shares    (Unaudited)    2006    2005    2004    2003 a 
Per Share Data ($):                     
Net asset value, beginning of period    13.45    13.80    13.84    13.38    12.50 
Investment Operations:                     
Investment income—net b    .41    .80    .78    .84    .44 
Net realized and unrealized                     
gain (loss) on investments    .46    (.27)    .02    .45    .70 
Total from Investment Operations    .87    .53    .80    1.29    1.14 
Distributions:                     
Dividends from investment income—net    (.44)    (.88)    (.84)    (.83)    (.26) 
Net asset value, end of period    13.88    13.45    13.80    13.84    13.38 
Total Return (%) c    6.63d    4.05    5.91    9.83    9.24d 
Ratios/Supplemental Data (%):                     
Ratio of total expenses to average net assets    1.71e    1.67    1.67    1.72    1.88e 
Ratio of net expenses to average net assets    1.71e    1.67    1.67    1.71    1.75e 
Ratio of net investment income                     
to average net assets    6.00e    5.88    5.57    6.06    5.77e 
Portfolio Turnover Rate    39.36d    54.43    62.54    62.65    21.71d 
Net Assets, end of period ($ x 1,000)    56,499    59,192    70,228    69,573    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.                     

26
Six Months Ended                 
February 28, 2007        Year Ended August 31,     
Class C Shares    (Unaudited)    2006    2005    2004    2003 a 
Per Share Data ($):                     
Net asset value, beginning of period    13.42    13.77    13.81    13.36    12.50 
Investment Operations:                     
Investment income—net b    .39    .76    .74    .81    .43 
Net realized and unrealized                     
gain (loss) on investments    .47    (.26)    .02    .45    .68 
Total from Investment Operations    .86    .50    .76    1.26    1.11 
Distributions:                     
Dividends from investment income—net    (.43)    (.85)    (.80)    (.81)    (.25) 
Net asset value, end of period    13.85    13.42    13.77    13.81    13.36 
Total Return (%) c    6.52d    3.80    5.66    9.53    9.00d 
Ratios/Supplemental Data (%):                     
Ratio of total expenses                     
to average net assets    1.94e    1.90    1.90    1.96    2.11e 
Ratio of net expenses                     
to average net assets    1.94e    1.90    1.90    1.94    2.00e 
Ratio of net investment income                     
to average net assets    5.78e    5.64    5.33    5.82    5.64e 
Portfolio Turnover Rate    39.36d    54.43    62.54    62.65    21.71d 
Net Assets, end of period ($ x 1,000)    92,487    102,211    140,505    155,189    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. 

The Fund 27

Six Months Ended
    February 28, 2007        Year Ended August 31,     
Class R Shares    (Unaudited)    2006    2005    2004    2003 a 
Per Share Data ($):                     
Net asset value, beginning of period    13.49    13.84    13.88    13.42    12.50 
Investment Operations:                     
Investment income—net b    .47    .92    .90    .94    .42 
Net realized and unrealized                     
gain (loss) on investments    .47    (.27)    .01    .46    .80 
Total from Investment Operations    .94    .65    .91    1.40    1.22 
Distributions:                     
Dividends from investment income—net    (.51)    (1.00)    (.95)    (.94)    (.30) 
Net asset value, end of period    13.92    13.49    13.84    13.88    13.42 
Total Return (%)    7.16c    4.85    6.76    10.75    9.80c 
Ratios/Supplemental Data (%):                     
Ratio of total expenses to average net assets    .86d    .84    .85    .90    1.35d 
Ratio of net expenses to average net assets    .85d    .84    .84    .90    1.00d 
Ratio of net investment income                     
to average net assets    6.87d    6.75    6.41    6.92    6.11d 
Portfolio Turnover Rate    39.36c    54.43    62.54    62.65    21.71c 
Net Assets, end of period ($ x 1,000)    25,069    20,532    13,634    11,265    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.                     
See notes to financial statements.                     

28

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 (the “Manager” or “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.

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

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.The fund no longer offers Class B shares, except in connection with dividend reinvestment and permitted

The Fund 29

exchanges of Class B shares. 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.

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

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

(a) Portfolio valuation: Investments in securities are valued 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 investments (which constitute a majority of the portfolio securities) are valued 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.

30

Restricted securities, as well as securities or other assets for which recent market quotations are not readily available, that are not valued by a pricing service approved by the Board of Directors, or are determined by the fund not to reflect accurately fair value, are valued at fair value as determined in good faith under the direction of the Board of Directors. The factors that may be considered when fair valuing a security include fundamental analytical data, the nature and duration of restrictions on disposition, an evaluation of the forces that influence the market in which the securities are purchased and sold and public trading in similar securities of the issuer or comparable issuers. Short-term investments, excluding U.S. Treasury Bills, are carried at amortized cost, which approximates value. Registered open-end investment companies that are not traded on an exchange are valued at their net asset value.

On September 20, 2006, the Financial Accounting Standards Board (FASB) released Statement of Financial Accounting Standards No. 157 “Fair Value Measurements” (“FAS 157”). FAS 157 establishes an authoritative definition of fair value, sets out a framework for measuring fair value, and requires additional disclosures about fair-value measurements. The application of FAS 157 is required for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. Management does not believe that the application of this standard will have a material impact on the financial statements of the fund.

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

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

The Fund 31

(c) Affiliated issuers: 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 U.S. generally accepted accounting principles.

On February 28, 2007, the Board of Directors declared a cash dividend per share of $.078 for Class A, $.072 for Class B, $.07 for Class C and $.082 for Class R from undistributed investment income-net, payable on March 1, 2007 (ex-dividend date) to shareholders of record as of the close of business on February 28, 2007.

(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.

On July 13, 2006, the FASB released FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the fund’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority.Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or

32

expense in the current year. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of the effective date. Management does not believe that the application of this standard will have a material impact on the financial statements of the fund.

The fund has an unused capital loss carryover of $2,210,721 available for federal income tax purposes to be applied against future net securities profits, if any, realized subsequent to August 31, 2006. If not applied, $54,897 of the carryover expires in fiscal 2012 and $2,155,824 expires in fiscal 2013.

The tax character of distributions paid to shareholders during the fiscal year ended August 31, 2006, were as follows: ordinary income of $23,927,527. The tax character of current year distributions will be determined at the end of the current fiscal year.

NOTE 2—Bank Line of Credit:

The fund participates with other Dreyfus-managed funds in a $350 million redemption credit facility (the “Facility”) to be utilized for temporary or emergency purposes, including the financing of redemptions. In connection therewith, the fund has agreed to pay commitment fees on its pro rata portion of the Facility. Interest is charged to the fund based on prevailing market rates in effect at the time of borrowing.

The average daily amount of borrowings outstanding under the line of credit during the period ended February 28, 2007 was approximately $12,400 with a related weighted average annualized interest rate of 5.75% .

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 the value of the fund’s average daily net assets and is payable monthly.

The Fund 33

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 the value of the fund’s average daily net assets.

During the period ended February 28, 2007, the Distributor retained $5,804 from commissions earned on sales of the fund’s Class A shares, and $124,020 and $8,989 from CDSC on redemptions of the fund’s Class B and Class C shares, respectively.

(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 the value of the average daily net assets of Class B shares and .75% of the value of the average daily net assets of Class C shares. During the period ended February 28, 2007, Class B and Class C shares were charged $142,430 and $361,658, 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 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 28, 2007, Class A, Class B and Class C shares were charged $197,988, $71,215 and $120,553, 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 28, 2007, the fund was charged $55,100 pursuant to the transfer agency agreement.

34

The fund compensates Mellon Bank, N.A., an affiliate of Dreyfus, under a custody agreement to provide custodial services for the fund. During the period ended February 28, 2007, the fund was charged $14,243 pursuant to the custody agreement.

During the period ended February 28, 2007, the fund was charged $2,044 for services performed by the Chief Compliance Officer.

The components of Due to The Dreyfus Corporation and affiliates in the Statement of Assets and Liabilities consist of: management fees $188,450, Rule 12b-1 distribution plan fees $75,721, shareholder services plan fees $58,046, custodian fees $5,644, chief compliance officer fees $2,726 and transfer agency per account fees $18,022.

(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 SEC, the fund invests its available cash in affiliated money market mutual funds. Management fees of the underlying money market mutual funds have been waived by Dreyfus.

NOTE 4—Securities Transactions:

The aggregate amount of purchases and sales of investment securities, excluding short-term securities, during the period ended February 28, 2007, amounted to $127,604,885, and $145,651,896, respectively.

At February 28, 2007, accumulated net unrealized appreciation on investments was $8,605,623, consisting of $9,596,809 gross unrealized appreciation and $991,186 gross unrealized depreciation.

At February 28, 2007, the cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes (see Statement of Investments).

The Fund 35

Dreyfus Bond Funds, Inc., held a special meeting of shareholders on September 20, 2006.The Proposal considered at the meeting, and the results, are as follows:

        Shares     
    Votes For        Authority Withheld 
To elect additional Board Members:             
Gordon J. Davis †    110,904,698        4,044,524 
Joni Evans †    110,962,066        3,987,156 
Arnold S. Hiatt †    110,268,438        4,680,784 
Burton N. Wallack    110,980,311        3,968,911 

† Each new Board member’s term commenced on November 7, 2006. 
In addition, Joseph S. DiMartino, David W. Burke,William Hodding Carter III, Ehud Houminer, Richard C. 
Leone, Hans C. Mautner, Robin A. Melvin and John E. Zuccotti will continue as Board members of the fund. 

36

At a meeting of the fund’s Board of Directors held on November 6, 2006, the Board considered the re-approval for an annual period of the fund’s Management Agreement, pursuant to which the Manager provides the fund with investment advisory and administrative services, and of the Manager’s Sub-Investment Advisory Agreement with Shenkman Capital Management, Inc. (“SCM”), pursuant to which SCM serves as sub-investment adviser and provides day-to-day management of the Fund’s portfolio. The Board members, none of whom are “interested persons” (as defined in the Investment Company Act of 1940, as amended) of the fund, were assisted in their review by independent legal counsel and met with counsel in executive session separate from representatives of the Manager.

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

The Board members also considered the Manager’s and SCM’s research and portfolio management capabilities and that the Manager also provides oversight of day-to-day fund operations, including fund accounting and administration and assistance in meeting legal and regulatory requirements. The Board members also considered the Manager’s extensive administrative, accounting, and compliance infrastructure, as well as the Manager’s supervisory activities over SCM.

The Fund 37

Comparative Analysis of the Fund’s Management Fee and Expense Ratio and Performance. The Board members reviewed reports prepared by Lipper, Inc., an independent provider of investment company data, which included information comparing the fund’s management fee and expense ratio with a group of comparable funds (the “Expense Group”) and with a broader group of funds (the “Expense Universe”) that were selected by Lipper. Included in the fund’s reports were comparisons of contractual and actual management fee rates and total operating expenses.

The Board members also reviewed the reports prepared by Lipper that presented the fund’s performance and placed significant emphasis on comparisons of total return performance for various periods ended September 30, 2006 and yield performance for one-year periods ended September 30th for the fund to the same group of funds as the fund’s Expense Group (the “Performance Group”) and to a group of funds that was broader than the fund’s Expense Universe (the “Performance Universe”) that also were selected by Lipper. The Manager previously had furnished the Board with a description of the methodology Lipper used to select the fund’s Expense Group and Expense Universe, and Performance Group and Performance Universe.The Manager also provided a comparison of the fund’s total returns to the returns of the fund’s benchmark index for each calendar year since the fund’s inception.

The Board reviewed the results of the Expense Group and Expense Universe comparisons for various periods ended September 30, 2006. The Board reviewed the range of management fees and expense ratios of the funds in the Expense Group and Expense Universe, and noted that the fund’s contractual management fee was higher than the Expense Group median and that the fund’s actual management fee was higher than the Expense Group and Expense Universe medians.The Board also noted that the fund’s total expense ratio was slightly lower than the Expense Group median and higher than the Expense Universe median.

With respect to the fund’s performance, the Board noted that the fund achieved total return results at the Performance Group median for the 1-year period, and lower than the Performance Group median for the

38

2-year and 3-year time periods, and achieved total return results lower than the Performance Universe median for the 1-year, 2-year, and 3-year periods. On a yield performance basis, the Board noted that the fund’s recent 1-year yield was at the Performance Group median and higher than the Performance Universe median, and that the fund’s 1-year yields for the prior two annual periods were lower than the Performance Group and Performance Universe medians.

In connection with the review of relative fund performance, the Board noted the fund’s improved relative performance results for the 1-year period. The Board members also considered the Fund’s investment process and how the fund has been marketed to and through intermediaries and to investors. Representatives of the Manager confirmed that the fund has been, and continues to be, marketed based on SCM’s investment process, and composite performance record and default history. These representatives also noted that the fund was structured to be a more conservative high yield offering with the express objective of seeking high total return to the extent consistent with prudent investment risk. Representatives of SCM noted that, unlike with respect to SCM’s composite performance record, the Board did not have the benefit of a “full credit cycle” against which to compare the fund’s performance. The Board members determined that consideration should be given to the fund’s design, SCM’s investment process, how the fund has been marketed, and that the Board also does not have the benefit of a full credit cycle against which to assess relative performance.The Board members further noted that SCM’s management of the Fund has been consistent with the prospectus mandate, the manner in which the fund has been marketed, and the disclosures made in connection therewith.The Board also considered the fund’s historical asset growth and rate of asset flows over the past year as indicating acceptance of the fund and its process among intermediaries and investors.

Representatives of the Manager reviewed with the Board members the fees paid to the Manager or its affiliates by the mutual funds managed by the Manager or its affiliates reported in the same Lipper cate-

The Fund 39

gory as the fund (the “Similar Funds”).The Manager’s representatives also reviewed the fees paid by institutional separate accounts managed by SCM (the “Separate Accounts” and, collectively with the Similar Funds, the “Similar Accounts”) that have similar investment objectives and policies as the fund.The Manager does not manage any high yield institutional separate accounts or wrap fee accounts. The Manager’s representatives explained the nature of each Similar Account and the differences, from the Manager’s and SCM’s perspective (as applicable), in providing services to the Similar Accounts as compared to the fund. The Manager’s representatives also reviewed the costs associated with distribution through intermediaries. The Manager’s representatives advised the Board that the management fees for the Separate Accounts reflected SCM’s independent pricing and cost structures. The Board discussed the relationship of the advisory fees paid in light of the services provided. The Board members considered the relevance of the fee information provided for the Similar Accounts to evaluate the appropriateness and reasonableness of the fund’s management fee and sub-advisory fee.

Analysis of Profitability and Economies of Scale. The Manager’s representatives reviewed the dollar amount of expenses allocated and profit received by the Manager for the fund and the method used to determine such expenses and profit. The Board previously had been provided with information prepared by an independent consulting firm regarding the Manager’s approach to allocating costs to, and determining the profitability of, individual funds and the entire Dreyfus mutual fund complex.The Board also had been informed that the methodology had also been reviewed by an independent registered public accounting firm which, like the consultant, found the methodology to be reasonable. The consulting firm also analyzed where any economies of scale might emerge in connection with the management of the fund.The Board members evaluated the profitability analysis in

40

light of the relevant circumstances for the fund, including any decline in fund assets from the prior year, and the extent to which economies of scale would be realized if the fund grows and whether fee levels reflect these economies of scale for the benefit of fund shareholders. The Board members also considered potential benefits to the Manager and SCM from acting as investment adviser and sub-investment adviser, respectively, to the fund and noted that there were no soft dollar arrangements in effect with respect to trading the fund’s portfolio.

It was noted that the Board members should consider the Manager’s profitability with respect to the fund as part of their evaluation of whether the fees under the Management Agreement bear a reasonable relationship to the mix of services provided by the Manager, including the nature, extent, and quality of such services and that a discussion of economies of scale is predicated on increasing assets and that, if the fund’s assets had been decreasing, the possibility that the Manager may have realized any economies of scale would be less. Since the Manager, and not the fund, pays SCM the sub-advisory fee, the Board did not consider SCM’s profitability to be relevant to its deliberations. It also was noted that the profitability percentage for managing the fund was within ranges determined by appropriate court cases to be reasonable given the services rendered and the fund’s overall performance and generally superior service levels provided.

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

• The Board concluded that the nature, extent, and quality of the services provided by the Manager and SCM are adequate and appropriate.

The Fund 41

• With respect to the fund’s overall performance, the Board considered the fund’s recent performance, as well as SCM’s presentations at the meeting and at prior Board meetings regarding SCM’s proprietary process for managing the fund, the fund’s investment objective and portfolio composition, the fund’s suitability profile, how it was marketed to intermediaries and investors, and the fund’s general success in asset gathering and retention in the intermediary channel, as significant factors in re-approving the fund’s management agreement and the sub-investment advisory agreement with SCM.

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

• The Board concluded, taking into account the factors discussed above, that the fee paid to the Manager by the fund was reasonable in light of comparative performance and expense and advisory fee information, costs of the services provided, and profits to be realized and benefits derived or to be derived by the Manager and SCM from their respective relationships with the fund.

• The Board determined that the economies of scale which may accrue to the Manager and its affiliates in connection with the management of the fund had been adequately considered by the Manager in connection with the management fee rate charged to the fund, and that, to the extent in the future it were to be determined that material economies of scale had not been shared with the fund, the Board would seek to have those economies of scale shared with the fund.

42

NOTES

For More Information

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

Mail    The Dreyfus Premier Family of Funds 
    144 Glenn Curtiss Boulevard, Uniondale, NY 11556-0144 

The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (“SEC”) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Forms N-Q are available on the SEC’s website at http://www.sec.gov and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-202-551-8090.

A description of the policies and procedures that the fund uses to determine how to vote proxies relating to portfolio securities, and information regarding how the fund voted these proxies for the 12-month period ended June 30, 2006, is available at http://www.dreyfus.com and on the SEC’s website at http://www.sec.gov. The description of the policies and procedures is also available without charge, upon request, by calling 1-800-645-6561.

Item 2. Code of Ethics.

Not applicable.

Item 3. Audit Committee Financial Expert.

Not applicable.

Item 4. Principal Accountant Fees and Services.

Not applicable.

Item 5. Audit Committee of Listed Registrants.

Not applicable.

Item 6. Schedule of Investments.

Not applicable.

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

Not applicable.

Item 8. Portfolio Managers of Closed-End Management Investment Companies.

Not applicable.

Item 9. Purchases of Equity Securities by Closed-End Management Investment Companies and Affiliated Purchasers.

Not applicable.

Item 10. Submission of Matters to a Vote of Security Holders.

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

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

Item 11. Controls and Procedures.

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

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

Item 12. Exhibits.

(a)(1) Not applicable.

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

(a)(3) Not applicable.

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

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/ J. David Officer 
    J. David Officer 
    President 
 
Date:    April 25, 2007 
 
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 
1940, this Report has been signed below by the following persons on behalf of the Registrant and in the 
capacities and on the dates indicated. 
 
By:    /s/ J. David Officer 
    J. David Officer 
    President 
 
Date:    April 25, 2007 
 
By:    /s/ James Windels 
    James Windels 
    Treasurer 
 
Date:    April 25, 2007 
 
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)