N-CSR 1 formncsr-semi.htm SEMI-ANNUAL REPORT

| 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 811-5877 |  |
DREYFUS STRATEGIC MUNICIPAL BOND FUND, INC.
| (Exact name of Registrant as specified in charter)
| c/o The Dreyfus Corporation |  |
| 200 Park Avenue |  |
| New York, New York 10166 |  |
| (Address of principal executive offices) |  | (Zip code)
| Mark N. Jacobs, Esq. |  |
| 200 Park Avenue |  |
| New York, New York 10166 |  |
| (Name and address of agent for service)
Registrant's telephone number, including area code: |  | (212) 922-6000
Date of fiscal year end: | 11/30 |  |
Date of reporting period: | 5/31/04 |  |

FORM N-CSR

Item 1. Reports to Stockholders.

Dreyfus
Strategic Municipal
Bond Fund, Inc.

SEMIANNUAL REPORT May 31, 2004

Dreyfus Strategic Municipal Bond Fund, Inc.

Protecting Your Privacy Our Pledge to You

THE FUND IS COMMITTED TO YOUR PRIVACY. On this page, you will find the Fund’s policies and practices for collecting, disclosing, and safeguarding “nonpublic personal information,” which may include financial or other customer information.These policies apply to individuals who purchase Fund shares for personal, family, or household purposes, or have done so in the past. This notification replaces all previous statements of the Fund’s consumer privacy policy, and may be amended at any time. We’ll keep you informed of changes as required by law.

YOUR ACCOUNT IS PROVIDED IN A SECURE ENVIRONMENT. The Fund maintains physical, electronic and procedural safeguards that comply with federal regulations to guard nonpublic personal information. The Fund’s agents and service providers have limited access to customer information based on their role in servicing your account.

THE FUND COLLECTS INFORMATION IN ORDER TO SERVICE AND ADMINISTER YOUR ACCOUNT.

The Fund collects a variety of nonpublic personal information, which may include:

- Information we receive from you, such as your name, address, and social security number.
- Information about your transactions with us, such as the purchase or sale of Fund shares.
- Information we receive from agents and service providers, such as proxy voting information.

THE FUND DOES NOT SHARE NONPUBLIC

PERSONAL INFORMATION WITH ANYONE, EXCEPT AS PERMITTED BY LAW.

Thank you for this opportunity to serve you.

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

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

Contents

THE FUND

2 | Letter from the Chairman
3 | Discussion of Fund Performance
6 | Statement of Investments
16 | Statement of Assets and Liabilities
17 | Statement of Operations
18 | Statement of Changes in Net Assets
19 | Financial Highlights
21 | Notes to Financial Statements
FOR MORE INFORMATION
Back Cover

Dreyfus Strategic Municipal Bond Fund, Inc.

The Fund

LETTER FROM THE CHAIRMAN

Dear Shareholder:

This semiannual report for Dreyfus Strategic Municipal Bond Fund, Inc. covers the six-month period from December 1, 2003, through May 31, 2004. Inside, you’ll find valuable information about how the fund was managed during the reporting period, including a discussion with the fund’s portfolio manager, James Welch.

Positive economic data continued to accumulate during the reporting period, as consumers, flush with extra cash from their 2003 federal tax refunds and mortgage refinancings, continued to spend. Corporations have become more willing to hire new workers and invest in new projects and equipment. In addition, many states and municipalities have reported an increase in tax revenues, helping to relieve some of the fiscal pressures that arose during the economic downturn.As the economy has gained strength, fixed-income investors apparently have grown more concerned that long-dormant inflationary pressures could resurface, and municipal bond prices recently have become more volatile.

Despite fixed-income investors’ current concerns, we believe that history confirms that bonds represent an important component of most investors’ long-term investment portfolios. As always, we encourage you to speak regularly with your financial advisor, who may be in the best position to suggest ways to position your portfolio for the opportunities and challenges of today’s financial markets.

Thank you for your continued confidence and support.

Sincerely,

Stephen E. Canter
Chairman and Ch ief Executive Officer
The Dreyfus Corporation
June 15, 2004

2

DISCUSSION OF FUND PERFORMANCE

James Welch, Portfolio Manager

How did Dreyfus Strategic Municipal Bond Fund, Inc. perform during the period?

For the six-month period ended May 31, 2004, the fund achieved a total return of –0.38%.1 During the same period, the fund provided aggregate income dividends of $0.3060 per share, which is equal to a distribution rate of 7.68%.2

Because of heightened market volatility in a recovering U.S. economy, municipal bonds generally ended the reporting period with prices that were lower than where they began. However, the fund increased its dividend distribution rate in February 2004, primarily because of the success of our leveraging strategy, which enabled the fund to lock in low prevailing borrowing rates on its shares of auction-rate preferred securities.

What is the fund’s investment approach?

The fund seeks to maximize current income exempt from federal income tax to the extent believed by Dreyfus to be consistent with the preservation of capital. In pursuing this goal, the fund invests at least 80% of its assets in municipal bonds. Under normal market conditions, the weighted average maturity of the fund’s portfolio is expected to exceed 10 years. Municipal bonds are classified as general obligation bonds, revenue bonds and notes. Under normal market conditions, the fund invests at least 80% of its net assets in municipal bonds considered investment grade or the unrated equivalent as determined by Dreyfus.

We look for bonds that we believe can provide high current income. We strive to find such opportunities through analysis of individual bonds’ structures. Within the context of our bond structure analyses, we pay particularly close attention to each bond’s maturity and early redemption features.

The Fund 3

DISCUSSION OF FUND PERFORMANCE (continued)

Over time, many of the fund’s older, higher-yielding bonds have matured or were redeemed by their issuers.We have generally attempted to replace those bonds with investments consistent with the fund’s investment policies.We have also sought to upgrade the fund with newly issued bonds that, in our opinion, have better structural or income characteristics than existing holdings. When such opportunities arise, we usually look to sell bonds that are close to their optimal redemption date or maturity. In addition, we conduct credit analysis of our holdings in an attempt to avoid potential defaults on interest and principal payments.

What other factors influenced the fund’s performance?

The fund was influenced by heightened market volatility throughout the reporting period. Gains achieved in advance of the Federal Reserve Board’s (the “Fed”) late-June 2003 reduction of short-term interest rates to 1%, a 45-year low, were erased during the summer of 2003, when evidence of stronger than expected economic growth sparked one of the worst six-week declines in the tax-exempt bond market’s history. Although municipal bond prices gradually recovered in the fall of 2003 as it became clearer that the labor market remained weak, keeping a lid on potential inflationary pressures, the market subsequently remained volatile through the first quarter of 2004.The market declined sharply in April and May 2004, when reports of unexpectedly strong job gains and higher energy prices rekindled investors’ inflation fears.

On the other hand, a strengthening economy benefited the fiscal conditions of many states and municipalities that previously had struggled with budget deficits. As a result, state and local governments had less need to borrow, issuing fewer municipal bonds during the first five months of 2004 than during the same period one year earlier. A reduced supply of tax-exempt securities and continued robust investor demand helped support municipal bond prices.

In this changing market environment, we maintained an investment posture that focused new purchases primarily on high-quality securities selling at slight premiums to their face values. High-quality, premium-priced bonds historically have retained more of their value during

4

market declines, and in our view, can serve as an effective complement to the fund’s core holdings of higher-yielding, seasoned bonds. Because of the risk that stronger economic growth might lead to higher interest rates, we gradually and modestly reduced the fund’s average duration —a measure of sensitivity to changing interest rates — in an effort to help protect the fund if and when the Fed begins to implement a less accommodative monetary policy.

Finally, the fund benefited during the reporting period from the effects of low interest rates on its leveraging strategy. By locking in prevailing low borrowing rates on one of the fund’s series of preferred-rate auction securities and investing the proceeds in relatively higher-yielding municipal bonds, we were able to increase the fund’s dividend distribution rate even while interest rates remained near historical lows.

What is the fund’s current strategy?

We have maintained the fund’s relatively conservative positioning —including a focus on high-quality, premium-priced bonds and a relatively short average duration — in the expectation that the Fed’s next move is likely to be an increase in short-term interest rates. In our view, these are prudent strategies after the municipal bond market’s strong performance over the past several years.

June 15, 2004

1 | Total return includes reinvestment of dividends and any capital gains paid, based upon net asset value per share. Past performance is no guarantee of future results. 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 | Distribution rate per share is based upon dividends per share paid from net investment income during the period, divided by the market price per share at the end of the period.

The Fund 5

STATEMENT OF INVESTMENTS |  |  |  |
May 31, 2004 (Unaudited) |  |  |  |
| Principal |  |  |
Long-Term Municipal Investments—141.8% | Amount ($) | Value ($) |
Alaska—4.5% |  |  |  |
Alaska Housing Finance Corp.: |  |  |  |
6.25%, 6/1/2035 | 5,905,000 |  | 6,195,054 |
6.05%, 6/1/2039 (Insured; MBIA) | 11,915,000 |  | 12,288,178 |
Arizona—2.8% |  |  |  |
Apache County Industrial Development Authority, PCR |  |  |  |
(Tuscon Electric Power Co.) 5.85%, 3/1/2028 | 2,220,000 |  | 2,156,020 |
Arizona Water Infrastructure Finance Authority, Revenue |  |  |  |
5%, 10/1/2021 | 3,000,000 |  | 3,076,560 |
Glendale Water and Sewer Revenue |  |  |  |
(Subordinated Lien) 5%, 7/1/2021 (Insured; AMBAC) | 2,060,000 |  | 2,104,434 |
Maricopa County Pollution Control Corp., PCR |  |  |  |
(El Paso Electric Co.) 6.25%, 5/1/2037 | 4,000,000 |  | 4,141,240 |
Arkansas—2.3% |  |  |  |
Arkansas Development Finance Authority, SFMR |  |  |  |
6.25%, 1/1/2032 | 4,195,000 |  | 4,413,308 |
Little Rock School District |  |  |  |
5.25%, 2/1/2030 (Insured; FSA) | 5,000,000 |  | 5,052,100 |
California—7.6% |  |  |  |
California |  |  |  |
5.50%, 4/1/2028 | 5,450,000 |  | 5,581,018 |
California Economic Recovery |  |  |  |
5.25%, 7/1/2014 (Insured; FGIC) | 7,435,000 |  | 8,190,470 |
California Department Water Resources, |  |  |  |
Power Supply Revenue 6%, 5/1/2015 | 12,500,000 |  | 13,825,625 |
California Health Facilities Financing Authority, Revenue |  |  |  |
(Cedars-Sinai Medical Center) 6.25%, 12/1/2034 | 3,750,000 |  | 3,969,900 |
Colorado—3.6% |  |  |  |
Colorado Health Facilities Authority, Revenue |  |  |  |
(American Housing Foundation 1, Inc.) |  |  |  |
8.50%, 12/1/2031 | 2,035,000 |  | 1,999,347 |
Denver City and County, Special Facilities Airport Revenue |  |  |  |
(United Air Lines) 6.875%, 10/1/2032 | 2,700,000 | a | 2,048,625 |
Northwest Parkway Public Highway Authority, Revenue |  |  |  |
(First Tier Subordinated) 7.125%, 6/15/2041 | 5,500,000 |  | 5,789,685 |
Silver Dollar Metropolitan District 7.05%, 12/1/2030 | 4,885,000 |  | 4,928,281 |
Connecticut—2.7% |  |  |  |
Connecticut Development Authority, PCR |  |  |  |
(Connecticut Light and Power) 5.95%, 9/1/2028 | 6,000,000 |  | 6,235,140 |

6

| Principal |  |  |
Long-Term Municipal Investments (continued) | Amount ($) | Value ($) |
Connecticut (continued) |  |  |  |
Connecticut Resource Recovery Authority |  |  |  |
(American Refunding-Fuel Company) |  |  |  |
6.45%, 11/15/2022 | 4,985,000 |  | 5,114,610 |
Delaware—1.0% |  |  |  |
Delaware Health Facilities Authority, Revenue |  |  |  |
(Beebe Medical Center) 6.80%, 6/1/2024 | 3,905,000 |  | 3,998,330 |
District of Columbia—1.4% |  |  |  |
Metropolitan Washington Airports Authority, |  |  |  |
Special Facilities Revenue |  |  |  |
(Caterair International Corp.) 10.125%, 9/1/2011 | 5,620,000 |  | 5,626,238 |
Florida—3.2% |  |  |  |
Florida Housing Finance Corp., Housing Revenue |  |  |  |
(Seminole Ridge Apartments) |  |  |  |
6%, 4/1/2041 (Collateralized; GNMA) | 6,415,000 |  | 6,616,623 |
Orange County Health Facilities Authority, Revenue: |  |  |  |
(Adventist Health System) 6.25%, 11/15/2024 | 3,000,000 |  | 3,159,870 |
(Orlando Regional Healthcare System) 6%, 10/1/2026 | 3,500,000 |  | 3,613,330 |
Georgia—.7% |  |  |  |
Savannah Economic Development Authority, |  |  |  |
Environmental Improvement Revenue |  |  |  |
(International Paper Company) 6.20%, 8/1/2027 | 2,670,000 |  | 2,731,544 |
Idaho—.3% |  |  |  |
Idaho Housing & Finance Association, SFMR |  |  |  |
6.35%, 1/1/2030 (Collateralized; FNMA) | 1,135,000 |  | 1,183,158 |
Illinois—6.0% |  |  |  |
Chicago O’Hare International Airport |  |  |  |
General Airport Revenue (3rd Lien B-2 XLCA): |  |  |  |
5.25%, 1/1/2027 (Insured; MBIA) | 2,685,000 |  | 2,679,576 |
6%, 1/1/2029 | 5,000,000 |  | 5,339,700 |
Illinois Health Facilities Authority, Revenue: |  |  |  |
(Advocate Network Health Care) 6.125%, 11/15/2022 | 5,000,000 |  | 5,403,250 |
(OSF Healthcare Systems) 6.25%, 11/15/2029 | 10,900,000 |  | 11,348,971 |
Indiana—1.7% |  |  |  |
Franklin Township School Building Corporporation |  |  |  |
6.125%, 1/15/2022 (Prerefunded 7/15/2010) | 6,000,000 | b | 7,008,720 |
Louisiana—2.4% |  |  |  |
Parish of De Soto, Environmental Improvement |  |  |  |
Revenue (International Paper Co.) 6.55%, 4/1/2019 | 2,900,000 |  | 3,027,339 |

The Fund 7

S T A T E M E N T O F I N V E S T M E N T S ( U n a u d i t e d ) (continued)

| Principal |  |  |
Long-Term Municipal Investments (continued) | Amount ($) | Value ($) |
Louisiana (continued) |  |  |  |
West Feliciana Parish, PCR: |  |  |  |
(Entergy Gulf States) 6.60%, 9/1/2028 | 3,750,000 |  | 3,828,900 |
(Utility-Entergy Gulf States) 7%, 11/1/2015 | 3,000,000 |  | 3,078,990 |
Maryland—2.7% |  |  |  |
Maryland Economic Development Corp., |  |  |  |
Student Housing Revenue (University |  |  |  |
of Maryland) 5.75%, 10/1/2033 | 2,550,000 |  | 2,560,736 |
Maryland Industrial Development Financing |  |  |  |
Authority, EDR (Medical Waste Associates |  |  |  |
Limited Partnership) 8.75%, 11/15/2010 | 3,710,000 |  | 3,296,112 |
Maryland State and Local Facilities Loan |  |  |  |
5%, 8/1/2017 | 5,000,000 |  | 5,280,200 |
Massachusetts—4.8% |  |  |  |
Massachusetts Bay Transportation Authority, |  |  |  |
Assessment Revenue 5%, 7/1/2028 | 5,000,000 |  | 4,954,850 |
Massachusetts Federal Highway |  |  |  |
5.75%, 12/15/2010 | 5,305,000 |  | 5,955,393 |
Massachusetts Health and Educational Facilities |  |  |  |
Authority, Revenue: |  |  |  |
(Beth Isreal) 10.653%, 7/1/2025 (Insured; AMBAC) | 3,250,000 | c | 3,268,785 |
(Civic Investments) 9%, 12/15/2015 | 2,000,000 |  | 2,301,340 |
(Partners Healthcare System) 5.75%, 7/1/2032 | 3,000,000 |  | 3,108,690 |
Pittsfield, SWDR (Vicon Recovery Associates) |  |  |  |
7.95%, 11/1/2004 | 310,000 |  | 310,245 |
Michigan—2.9% |  |  |  |
Michigan Hospital Finance Authority, HR |  |  |  |
(Genesys Health System Obligated Group) |  |  |  |
8.125%, 10/1/2021 (Prerefunded 10/1/2005) | 5,000,000 | b | 5,526,350 |
Michigan Strategic Fund, SWDR |  |  |  |
(Genesee Power Station) 7.50%, 1/1/2021 | 7,550,000 |  | 6,311,800 |
Mississippi—.8% |  |  |  |
Mississippi Business Finance Corporation, PCR |  |  |  |
(Systems Energy Resources, Inc.) 5.90%, 5/1/2022 | 3,160,000 |  | 3,182,626 |
Missouri—.6% |  |  |  |
Saint Louis Industrial Development Authority |  |  |  |
(Saint Louis Convention) 7.25%, 12/15/2035 | 2,625,000 |  | 2,421,930 |
Nebraska—.7% |  |  |  |
Nebraska Investment Finance Authority, SFMR |  |  |  |
10.656%, 3/1/2026 | 2,500,000 | c,d | 2,867,200 |
8 |  |  |  |

| Principal |  |  |
Long-Term Municipal Investments (continued) | Amount ($) | Value ($) |
Nevada—4.7% |  |  |  |
Clark County, IDR |  |  |  |
(Southwest Gas Corporation) 6.50%, 12/1/2033 | 5,000,000 |  | 5,032,300 |
Washoe County (Reno-Sparks Convention) |  |  |  |
6.40%, 7/1/2029 (Insured; |  |  |  |
FSA, Prerefunded 1/1/2010) | 8,000,000 | b | 9,245,520 |
Wasoe County Water Facility Revenue |  |  |  |
(Sierra Pacific Power Company) 5%, 3/1/2036 | 5,000,000 |  | 4,997,550 |
New Hampshire—3.6% |  |  |  |
New Hampshire Business Finance Authority, PCR |  |  |  |
(Public Service Co.): |  |  |  |
6%, Series D 5/1/2021 (Insured; MBIA) | 2,690,000 |  | 2,935,355 |
6%, Series E 5/1/2021 (Insured; MBIA) | 6,000,000 |  | 6,547,260 |
New Hampshire Industrial Development |  |  |  |
Authority, PCR (Connecticut Light) |  |  |  |
5.90%, 11/1/2016 | 5,400,000 |  | 5,544,666 |
New Jersey—5.8% |  |  |  |
New Jersey Economic Development Authority |  |  |  |
Special Facilities Revenue (Continental Airlines, Inc.): |  |  |  |
6.25%, 9/15/2019 | 3,620,000 |  | 2,846,297 |
6.25%, 9/15/2029 | 5,000,000 |  | 3,667,100 |
7.20%, 11/15/2030 | 7,000,000 |  | 5,814,270 |
New Jersey Educational Facilities Authority, Revenue |  |  |  |
Higher Education Capital Improvement |  |  |  |
5.25%, 9/1/2019 (Insured; AMBAC) | 3,000,000 |  | 3,154,620 |
Tobacco Settlement Financing Corporation |  |  |  |
7%, 6/1/2041 | 9,095,000 |  | 8,333,930 |
New York—5.9% |  |  |  |
New York City 5.75%, 8/1/2014 | 5,000,000 |  | 5,458,550 |
New York City Transitional Finance Authority, Revenue |  |  |  |
(Future Tax Secured): |  |  |  |
5.375%, 11/15/2021 | 5,000,000 |  | 5,274,400 |
5.25%, 2/1/2018 (Insured; MBIA) | 5,000,000 |  | 5,286,800 |
New York State Dormitory Authority, Revenue: |  |  |  |
City University Systems |  |  |  |
(Consolidated 4th General) 5.50%, 7/1/2017 | 3,060,000 |  | 3,250,577 |
Judicial Facility Lease |  |  |  |
(Suffolk County) 9.50%, 4/15/2014 | 605,000 |  | 846,528 |
(Marymount Manhattan College) |  |  |  |
6.25%, 7/1/2029 | 4,000,000 |  | 4,289,520 |

The Fund 9

S T A T E M E N T O F I N V E S T M E N T S ( U n a u d i t e d ) (continued)

| Principal |  |  |
Long-Term Municipal Investments (continued) | Amount ($) | Value ($) |
North Carolina—2.0% |  |  |  |
North Carolina Eastern Municipal Power Agency, |  |  |  |
Power Systems Revenue 6.70%, 1/1/2019 | 2,500,000 |  | 2,756,150 |
North Carolina Public Improvement |  |  |  |
5.25%, 3/1/2015 (Insured; MBIA) | 5,000,000 |  | 5,444,150 |
Ohio—6.4% |  |  |  |
Cuyahoga County, HR (Metrohealth Systems) |  |  |  |
6.15%, 2/15/2029 | 10,000,000 |  | 10,304,100 |
Cuyahoga County Hospital Facilities, Revenue |  |  |  |
(UHHS/CSAHS Cuyahoga Inc. & |  |  |  |
CSAHS/UHHS Canton Inc.) 7.50%, 1/1/2030 | 3,500,000 |  | 3,828,965 |
Mahoning County Hospital Facilities, Revenue |  |  |  |
(Forum Health Obligation Group) |  |  |  |
6%, 11/15/2032 | 4,000,000 |  | 4,132,520 |
Ohio Air Quality Development Authority, PCR |  |  |  |
(Cleveland Electric Illuminating Co.) |  |  |  |
6.10%, 8/1/2020 | 2,400,000 |  | 2,486,136 |
Ohio Housing Finance Agency, Mortgage Revenue |  |  |  |
10.790%, 3/1/2029 (Collateralized; GNMA) | 1,720,000 | c,d | 1,848,501 |
Ohio Water Development Authority, PCR |  |  |  |
(Cleveland Electric) 6.10%, 8/1/2020 | 4,000,000 |  | 4,143,560 |
Oklahoma—3.5% |  |  |  |
Oklahoma Development Finance Authority, Revenue |  |  |  |
(St. John Health System) 6%, 2/15/2029 | 9,000,000 |  | 9,535,680 |
Oklahoma Industries Authority, Health System |  |  |  |
Revenue (Obligation Group) |  |  |  |
5.75%, 8/15/2029 (Insured; MBIA) | 5,000,000 |  | 5,272,250 |
Oregon—1.4% |  |  |  |
Umatilla County Hospital Facility Authority, Revenue |  |  |  |
(Catholic Health Initiatives) 5.50%, 3/1/2022 | 2,500,000 |  | 2,575,300 |
Western Generation Agency |  |  |  |
Cogeneration Project Revenue |  |  |  |
(Wauna Cogeneration) 7.40%, 1/1/2016 | 3,250,000 |  | 3,310,515 |
Pennsylvania—1.4% |  |  |  |
Allegheny County Port Authority, Special |  |  |  |
Transportation Revenue 6.125%, 3/1/2029 |  |  |  |
(Insured; MBIA, Prerefunded 3/1/2009) | 4,750,000 | b | 5,417,803 |

10

| Principal |  |  |
Long-Term Municipal Investments (continued) | Amount ($) | Value ($) |
Pennsylvania (continued) |  |  |  |
Pennsylvania Housing Finance Agency, |  |  |  |
Multi-Family Development Revenue |  |  |  |
8.25%, 12/15/2019 | 269,000 |  | 269,546 |
Rhode Island—1.6% |  |  |  |
Rhode Island Health & Educational Building |  |  |  |
Corporation Higher Educational Facilities |  |  |  |
(University of Rhode Island) |  |  |  |
5.875%, 9/15/2029 (Insured; MBIA) | 5,910,000 |  | 6,403,130 |
South Carolina—8.0% |  |  |  |
Berkeley County School District Installment |  |  |  |
Purchase Revenue (Securing Assets |  |  |  |
For Education) 5%, 12/1/2028 | 3,510,000 |  | 3,350,681 |
Greenville County School District Installment |  |  |  |
Purchase Revenue (Building Equity |  |  |  |
Sooner Tomorrow) 5.50%, 12/1/2028 | 10,000,000 |  | 10,100,100 |
Greenville Hospital System, Hospital Facilities Revenue |  |  |  |
5.50%, 5/1/2026 (Insured; AMBAC) | 7,000,000 |  | 7,224,070 |
Richland County, Environmental Improvement Revenue |  |  |  |
(International Paper Company) 6.10%, 4/1/2023 | 6,500,000 |  | 6,619,665 |
South Carolina Medical Facilities, Hospital Facilities |  |  |  |
Revenue 6%, 7/1/2019 (Prerefunded 7/1/2009) | 5,000,000 | b | 5,676,400 |
Tennessee—4.1% |  |  |  |
Johnson City Health and Educational Facilities Board, HR |  |  |  |
(1st Mortgage-Mountain State Health): |  |  |  |
7.50%, 7/1/2025 | 2,000,000 |  | 2,248,480 |
7.50%, 7/1/2033 | 3,000,000 |  | 3,352,020 |
Memphis Center City Revenue Finance Corp. |  |  |  |
Sports Facility Revenue |  |  |  |
(Memphis Redbirds) 6.50%, 9/1/2028 | 6,000,000 |  | 6,005,760 |
Tennessee Housing Development Agency |  |  |  |
(Homeownership Program): |  |  |  |
6%, 1/1/2028 | 3,015,000 |  | 3,109,550 |
6.40%, 7/1/2031 | 1,925,000 |  | 2,036,708 |
Texas—22.6% |  |  |  |
Austin Airport System Revenue |  |  |  |
5.25%, 11/15/2017 (Insured; MBIA) | 2,500,000 |  | 2,636,275 |

The Fund 11

S T A T E M E N T O F I N V E S T M E N T S ( U n a u d i t e d ) (continued)

| Principal |  |  |
Long-Term Municipal Investments (continued) | Amount ($) | Value ($) |
Texas (continued) |  |  |  |
Dallas Fort Worth International Airport, Revenue: |  |  |  |
5.50%, 11/1/2021 (Insured; FSA) | 7,000,000 |  | 7,300,300 |
Facility Improvement Corp. |  |  |  |
(2001-A-1 Bombardier Inc.) 6.15%, 1/1/2016 | 3,000,000 |  | 2,993,880 |
Gregg County Health Facilities Development |  |  |  |
Corp., HR (Good Shepherd Medical Center) |  |  |  |
6.375%, 10/1/2025 | 2,500,000 |  | 2,752,125 |
Harris County Health Facilities |  |  |  |
Development Corp., HR (Memorial |  |  |  |
Hermann Healthcare) 6.375%, 6/1/2029 | 7,000,000 |  | 7,608,370 |
Katy Independent School District |  |  |  |
6.125%, 2/15/2032 | 11,360,000 |  | 12,381,832 |
Sabine River Authority, PCR (TXU Electric): |  |  |  |
6.45%, 6/1/2021 | 2,900,000 |  | 2,972,094 |
5.50%, 5/1/2022 | 5,490,000 |  | 5,804,687 |
Springhill Courtland Heights Public Facility Corp., MFHR |  |  |  |
5.85%, 12/1/2028 | 6,030,000 |  | 6,095,968 |
Texas: |  |  |  |
(Veterans ) 6%, 12/1/2030 | 3,935,000 |  | 4,129,940 |
(Veterans Housing Assistance Program) |  |  |  |
6.10%, 6/1/2031 | 8,510,000 |  | 8,913,374 |
Texas Department of Housing and Community Affairs: |  |  |  |
Home Mortgage Revenue |  |  |  |
12.198%, 7/2/2024 | 2,950,000 | c | 3,110,539 |
Residential Mortgage Revenue |  |  |  |
5.35%, 7/1/2033 | 5,735,000 |  | 5,745,151 |
Tomball Hospital Authority, Revenue: |  |  |  |
6.125%, 7/1/2023 | 3,680,000 |  | 3,681,288 |
(Tomball Regional Hospital) 6%, 7/1/2025 | 4,650,000 |  | 4,549,095 |
Tyler Health Facilities Development Corp., HR |  |  |  |
(East Texas Medical Center Regional Health |  |  |  |
Care System) 6.75%, 11/1/2025 | 5,850,000 |  | 5,797,292 |
Texas Turnpike Authority, |  |  |  |
Central Texas Turnpike System Revenue |  |  |  |
5.25%, 5/15/2042 (Insured; AMBAC) | 6,875,000 |  | 6,907,656 |

12

| Principal |  |  |
Long-Term Municipal Investments (continued) | Amount ($) | Value ($) |
Utah—1.0% |  |  |  |
Carbon County, SWDR (Sunnyside Cogeneration) |  |  |  |
7.10%, 8/15/2023 | 4,327,000 |  | 3,933,200 |
Virginia—5.1% |  |  |  |
Henrico County Economic Development Authority, |  |  |  |
Revenue (Bon Secours Health System) |  |  |  |
5.60%, 11/15/2030 (Insured; FSA) | 3,140,000 |  | 3,153,565 |
Henrico County Industrial Development Authority, |  |  |  |
Revenue (Bon Secours Health System) |  |  |  |
10.489%, 8/23/2027 | 7,500,000 | c | 9,169,275 |
Virginia Housing Development Authority |  |  |  |
Rental Housing 6.20%, 8/1/2024 | 8,520,000 |  | 8,931,346 |
Washington—3.5% |  |  |  |
Energy Northwest, Revenue |  |  |  |
(Wind Project) 6%, 7/1/2023 | 3,670,000 |  | 3,800,432 |
Washington Higher Education Facilities Authority, |  |  |  |
Revenue (Whitman College) 5.875%, 10/1/2029 | 10,000,000 |  | 10,469,400 |
Wisconsin—4.9% |  |  |  |
Badger Tobacco Asset Securitization Corp., |  |  |  |
Tobacco Settlement Revenue: |  |  |  |
7%, 6/1/2028 | 13,500,000 |  | 12,632,895 |
6.375%, 6/1/2032 | 2,150,000 |  | 1,827,823 |
Wisconsin Health and Educational Facilities |  |  |  |
Authority, Revenue (Aurora Health Care) |  |  |  |
6.40%, 4/15/2033 | 5,500,000 |  | 5,674,845 |
Wyoming—3.6% |  |  |  |
Sweetwater County, SWDR (FMC Corp.): |  |  |  |
7%, 6/1/2024 | 2,140,000 |  | 2,148,517 |
6.90%, 9/1/2024 | 2,465,000 |  | 2,485,583 |
Wyoming Student Loan Corp., |  |  |  |
Student Loan Revenue: |  |  |  |
6.20%, 6/1/2024 | 5,000,000 |  | 5,300,750 |
6.25%, 6/1/2029 | 5,000,000 |  | 5,269,050 |
Total Long-Term Investments |  |  |  |
(cost $576,732,142) |  |  | 585,253,919 |

The Fund 13

S T A T E M E N T O F I N V E S T M E N T S ( U n a u d i t e d ) (continued)

|  |  | Principal |  |  |
Short-Term Municipal Investments—3.5% | Amount ($) | Value ($) |
Alaska—1.3% |  |  |  |  |
Valez, Marine Terminal Revenue, VRDN |  |  |  |
(Exxon Pipeline Co. Project): |  |  |  |
1.01%, Series A |  | 3,700,000 | e | 3,700,000 |
1.01%, Series B |  | 1,000,000 | e | 1,000,000 |
1.01%, Series C |  | 700,000 | e | 700,000 |
Louisiana—2.2% |  |  |  |  |
East Baton Rouge Parish, PCR, VRDN |  |  |  |
(Exxon Project) 1.05% |  | 9,200,000 | e | 9,200,000 |
Rhode Island—0.0% |  |  |  |  |
Rhode Island Industrial Facilities Corp., |  |  |  |
Marine Terminal Revenue, VRDN |  |  |  |
(ExxonMobil Project) 1.01% | 100,000 | e | 100,000 |
Total Short-Term Investments |  |  |  |
(cost $ | 14,700,000) |  |  |  | 14,700,000 |
Total Investments (cost $ | 591,432,142) | 145.3% |  | 599,953,919 |
Liabilities, Less Cash and Receivables | (.3%) |  | (1,120,688) |
Preferred Stock, at redemption value | (45.0%) |  | (186,000,000) |
Net Assets |  | 100.0% |  | 412,833,231 |

14

Summary of Abbreviations |  |
AMBAC | American Municipal Bond | HR | Hospital Revenue
| Assurance Corporation | IDR | Industrial Development Revenue
EDR | Economic Development Revenue | MBIA | Municipal Bond Investors Assurance
FGIC | Financial Guaranty Insurance |  | Insurance Corporation
| Company | MFHR | Multi-Family Housing Revenue
FNMA | Federal National Mortgage | PCR | Pollution Control Revenue
| Association | SFMR | Single Family Mortgage Revenue
FSA | Financial Security Assurance | SWDR | Solid Waste Disposal Revenue
GNMA | Government National Mortgage | VRDN | Variable Rate Demand Notes
| Association | XLCA | XL Capital Assurance

Summary of Combined Ratings (Unaudited)

Fitch | or | Moody’s | or | Standard & Poor’s | Value (%) |
AAA |  | Aaa |  | AAA | 30.8 |
AA |  | Aa |  | AA | 17.9 |
A |  | A |  | A | 18.2 |
BBB |  | Baa |  | BBB | 16.5 |
BB |  | Ba |  | BB | 5.3 |
B |  | B |  | B | 2.1 |
F |  | MIG1/P1 |  | SP1/A1 | 2.5 |
Not Rated f |  | Not Rated f |  | Not Rated f | 6.7 |
|  |  |  |  | 100.0 |

a Non-income producing security, interest payments in default.

b | 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.
c | Inverse floater security—the interest rate is subject to change periodically.
d | 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 May 31, 2004 these securities amounted to $4,715,701 or 1.1% of net assets applicable to common shareholders.
e | Securities payable on demand.Variable interest rate—subject to periodic change.
f | Securities which, while not rated by Fitch, Moody’s and Standard & Poor’s, have been determined by the Investment Advisor to be of comparable quality to those rated securities in which the fund may invest.

See notes to financial statements.

The Fund 15

STATEMENT OF ASSETS AND LIABILITIES

May 31, 2004 (Unaudited) |  |  |  |
|  | Cost | Value |
Assets ($): |  |  |  |
Investments in securities—See Statement of Investments | 591,432,142 | 599,953,919 |
Cash |  |  | 38,157 |
Interest receivable |  |  | 10,205,002 |
Receivable for investment securities sold |  | 6,715,812 |
Prepaid expenses |  |  | 200,833 |
|  |  | 617,113,723 |
Liabilities ($): |  |  |  |
Due to The Dreyfus Corporation and affiliates—Note 3(a) |  | 379,828 |
Payable for investment securities purchased |  | 17,573,775 |
Dividends payable to Preferred shareholders |  | 153,264 |
Commissions payable |  |  | 50,018 |
Accrued expenses and other liabilities |  | 123,607 |
|  |  | 18,280,492 |
Auction Preferred Stock, Series A, B and C, par value |  |  |
$.001 per share (7,440 shares issued and outstanding |  |  |
at | $25,000 per share liquidation value)—Note 1 |  | 186,000,000 |
Net Assets applicable to Common Shareholders ($) |  | 412,833,231 |
Composition of Net Assets ($): |  |  |
Common Stock, par value, $.001 per share |  |  |
(48,181,284 shares issued and outstanding) |  | 48,181 |
Paid-in capital |  |  | 435,533,856 |
Accumulated undistributed investment income—net |  | 4,451,323 |
Accumulated net realized gain (loss) on investments |  | (35,721,906) |
Accumulated net unrealized appreciation |  |  |
(depreciation) on investments |  | 8,521,777 |
Net Assets applicable to Common Shareholders ($) |  | 412,833,231 |
Common Shares Outstanding |  |  |
(110 million shares of $.001 par value Common Stock authorized) |  | 48,181,284 |
Net Asset Value per share of Common Stock ($) |  | 8.57 |
See notes to financial statements. |  |  |  |

16

STATEMENT OF OPERATIONS |  |
Six Months Ended May 31, 2004 (Unaudited) |  |
Investment Income ($): |  |
Interest Income | 17,466,341 |
Expenses: |  |
Management fee—Note 3(a) | 1,535,928 |
Administration fee—Note 3(a) | 767,964 |
Commission fees—Note 1 | 245,683 |
Shareholders’ reports | 34,285 |
Directors’ fees and expenses—Note 3(b) | 31,027 |
Shareholder servicing costs | 18,990 |
Professional fees | 10,252 |
Registration fees | 6,941 |
Custodian fees | 3,240 |
Miscellaneous | 14,975 |
Total Expenses | 2,669,285 |
Investment Income—Net | 14,797,056 |
Realized and Unrealized Gain (Loss) on Investments—Note 4 ($): |  |
Net realized gain (loss) on investments | (11,044,609) |
Net unrealized appreciation (depreciation) on investments | (3,978,586) |
Net Realized and Unrealized Gain (Loss) on Investments | (15,023,195) |
Dividends on Preferred Stock | (1,175,768) |
Net (Decrease) in Net Assets Resulting from Operations | (1,401,907) |
See notes to financial statements. |  |

The Fund 17

STATEMENT OF CHANGES IN NET ASSETS

| Six Months Ended |  |  |
| May 31, 2004 |  | Year Ended |
| (Unaudited) |  | November 30, 2003 |
Operations ($): |  |  |  |
Investment income—net | 14,797,056 |  | 30,921,419 |
Net realized gain (loss) on investments | (11,044,609) |  | (5,523,575) |
Net unrealized appreciation |  |  |  |
(depreciation) on investments | (3,978,586) |  | 22,529,434 |
Dividends on Preferred Stock | (1,175,768) |  | (2,664,167) |
Net Increase (Decrease) in Net Assets |  |  |  |
Resulting from Operations | (1,401,907) |  | 45,263,111 |
Dividends to Common Shareholders from ($): |  |  |  |
Investment income—net | (14,734,042) |  | (29,005,474) |
Capital Stock Transactions ($): |  |  |  |
Dividends reinvested—Note 1(c) | 668,163 |  | 674,711 |
Total Increase (Decrease) in Net Assets | (15,467,786) |  | 16,932,348 |
Net Assets ($): |  |  |  |
Beginning of Period | 428,301,017 |  | 411,368,669 |
End of Period | 412,833,231 |  | 428,301,017 |
Undistributed investment income—net | 4,451,323 |  | 5,467,776 |
Capital Share Transactions (Common Shares): |  |  |  |
Increase in Common Shares Outstanding |  |  |  |
as a Result of Dividends Reinvested | 73,952 |  | 75,996 |
See notes to financial statements. |  |  |  |

18

FINANCIAL HIGHLIGHTS

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

|  | Six Months | Ended |  |  |  |  |  |  |  |  |  |  |
|  | May 31, 2004 |  |  |  | Year Ended November 30, |  |  |
|  | (Unaudited) |  | 2003 |  | 2002a |  | 2001 |  | 2000 |  | 1999 |
Per Share Data ($): |  |  |  |  |  |  |  |  |  |  |  |  |
Net asset value, |  |  |  |  |  |  |  |  |  |  |  |  |  |
beginning of period |  | 8.90 |  | 8.56 |  | 8.75 |  | 8.60 |  | 8.56 |  | 9.52 |
Investment Operations: |  |  |  |  |  |  |  |  |  |  |  |  |
Investment income—net |  | .31b |  | .64b |  | .70b |  | .72 |  | .70 |  | .58 |
Net realized and unrealized |  |  |  |  |  |  |  |  |  |  |  |  |
gain (loss) on investments |  | (.31) |  | .36 |  | (.26) |  | .11 |  | .06 |  | (.90) |
Dividends on Preferred Stock |  |  |  |  |  |  |  |  |  |  |  |
from net investment income | (.02) |  | (.06) |  | (.07) |  | (.12) |  | (.16) |  | (.02) |
Total from Investment Operations | (.02) |  | .94 |  | .37 |  | .71 |  | .60 |  | (.34) |
Distributions to |  |  |  |  |  |  |  |  |  |  |  |  |  |
Common Shareholders: |  |  |  |  |  |  |  |  |  |  |  |  |
Dividends from investment |  |  |  |  |  |  |  |  |  |  |  |  |
income—net |  |  | (.31) |  | (.60) |  | (.56) |  | (.56) |  | (.56) |  | (.58) |
Capital Stock transactions—net |  |  |  |  |  |  |  |  |  |  |  |
effect of Preferred Stock Offering | — |  | — |  | — |  | — |  | (.00)c |  | (.04) |
Net asset value, end of period | 8.57 |  | 8.90 |  | 8.56 |  | 8.75 |  | 8.60 |  | 8.56 |
Market value, end of period |  | 7.97 |  | 8.81 |  | 7.88 |  | 8.45 |  | 8 1 / 8 |  | 7 11 / 16 |
Total Return (%) | d |  | (6.30)e |  | 19.89 |  | (.36) |  | 10.72 |  | 13.30 |  | (19.36) |

The Fund 19

FINANCIAL HIGHLIGHTS (continued)

| Six Months Ended |  |  |  |  |  |  |  |  |  |
| May 31, 2004 |  |  | Year Ended November 30, |  |  |
| (Unaudited) | 2003 |  | 2002a |  | 2001 |  | 2000 |  | 1999 |
Ratios/Supplemental Data (%): |  |  |  |  |  |  |  |  |  |
Ratio of expenses to average |  |  |  |  |  |  |  |  |  |  |
net assets applicable |  |  |  |  |  |  |  |  |  |  |
to Common Shareholdersf,g | 1.25h | 1.28 |  | 1.28 |  | 1.27 |  | 1.34 |  | .91 |
Ratio of net investment |  |  |  |  |  |  |  |  |  |  |
income to average net |  |  |  |  |  |  |  |  |  |  |
assets applicable to |  |  |  |  |  |  |  |  |  |  |
Common Shareholdersf,g | 6.91h | 7.35 |  | 8.10 |  | 8.10 |  | 8.25 |  | 6.64 |
Portfolio Turnover Rate | 22.39e | 77.92 |  | 44.71 |  | 13.36 |  | 27.58 |  | 32.58 |
Asset coverage of |  |  |  |  |  |  |  |  |  |  |
Preferred Stock, |  |  |  |  |  |  |  |  |  |  |
end of period | 322 | 330 |  | 321 |  | 326 |  | 321 |  | 320 |
Net Assets, net of |  |  |  |  |  |  |  |  |  |  |
Preferred Stock, |  |  |  |  |  |  |  |  |  |  |
end of period ($ x 1,000) | 412,833 | 428,301 |  | 411,369 |  | 420,009 |  | 411,081 |  | 408,958 |
Preferred Stock outstanding, |  |  |  |  |  |  |  |  |  |  |
end of period ($ x 1,000) | 186,000 | 186,000 |  | 186,000 |  | 186,000 |  | 186,000 |  | 186,000 |

a As required, effective December 1, 2001, the fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing discount or permium on a scientific basis for debt securities on a daily basis.The effect of this change for the period ended November 30, 2002 was to increase net investment income per share and decrease net realized and unrealized gain (loss) on investments by less than $.01 and increase the ratio of net investment income to average net assets applicable to common shareholders from 8.08% to 8.10%.

Per share data and ratios/supplemental data for periods prior to December 1, 2001 have not been restated to reflect this change in presentation.

b | Based on average shares outstanding at each month end.
c | Amount represents less than $.01 per share.
d | Calculated based on market value.
e | Not annualized.
f | Does not reflect the effect of dividends to Preferred Stock shareholders.
g | The ratio of expenses to total average net assets and the ratio of net investment income to total average net assets were .87% and 4.82%, respectively, for the six months ended May 31, 2004, .86% and 5.10%, respectively, for the year ended November 30, 2003, .89% and 5.61%, respectively, for the year ended November 30, 2002, .89% and 5.64%, respectively, for the year ended November 30, 2001, .92% and 5.64%, respectively, for the year ended November 30, 2000 and .84% and 6.13%, respectively, for the year ended November 30, 1999.
h | Annualized.

See notes to financial statements.

20

NOTES TO FINANCIAL STATEMENTS (Unaudited)

NOTE 1—Significant Accounting Policies:

Dreyfus Strategic Municipal Bond Fund, Inc. (the “fund”) is registered under the Investment Company Act of 1940, as amended (the “Act”), as a diversified closed-end management investment company. The fund’s investment objective is to maximize current income exempt from federal income tax to the extent believed by the fund’s investment adviser to be 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”). Boston Safe Deposit and Trust Company (the “Custodian”) acts as the fund’s custodian. The Custodian is a wholly-owned subsidiary of Mellon. PFPC Global Fund Services (“PFPC”), a subsidiary of PNC Bank (“PNC”),serves as the fund’s transfer agent,div-idend-paying agent, registrar and plan agent.The fund’s Common Stock trades on the New York Stock Exchange under the ticker symbol DSM.

The fund has outstanding 2,480 shares of Series A, Series B and Series C for a total of 7,440 shares of Auction Preferred Stock (“APS”), with a liquidation preference of $25,000 per share (plus an amount equal to accumulated but unpaid dividends upon liquidation). APS dividend rates are determined pursuant to periodic auctions. Deutsche Bank, as Auction Agent, receives a fee from the fund for its services in connection with such auctions.The fund also compensates broker-dealers generally at an annual rate of .25% of the purchase price of the shares of APS placed by the broker-dealer in an auction.

The fund is subject to certain restrictions relating to the APS. Failure to comply with these restrictions could preclude the fund from declaring any distributions to common shareholders or repurchasing common shares and/or could trigger the mandatory redemption of APS at liquidation value.

The holders of the APS, voting as a separate class, have the right to elect at least two directors.The holders of the APS vote as a separate class on certain other matters, as required by law.The fund has designated Robin A. Pringle and John E. Zuccotti to represent holders of APS on the fund’s Board of Directors.

The Fund 21

NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)

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 municipal debt securities (excluding options and financial futures on municipal and U.S.Treasury securities) are valued on the last business day of each week and month 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 securities 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 the last business day of each week and month.

(b) Securities transactions and investment income: Securities transactions are recorded on a trade date basis. Realized gain and loss from securities transactions are recorded on the identified cost basis. Interest income, adjusted for amortization of discount and premium on investments, is earned from settlement date and recognized on the accrual basis. Securities purchased or sold on a when-issued or delayed-delivery basis may be settled a month or more after the trade date.

22

(c) Dividends to shareholders of Common Stock (“Common Share-holder(s)”): Dividends are recorded on the ex-dividend date. Dividends from investment income-net are declared and paid monthly. Dividends from net realized capital gain, if any, are normally declared and paid at least annually.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.

For Common Shareholders who elect to receive their distributions in additional shares of the fund, in lieu of cash, such distributions will be reinvested at the lower of the market price or net asset value per share (but not less than 95% of the market price) based on the record date’s respective prices. If the net asset value per share on the record date is lower than the market price per share, shares will be issued by the fund at the record date’s net asset value on the payable date of the distribution. If net asset value per share is less than 95% of the market value, shares will be issued by the fund at 95% of the market value. If the market price is lower than the net assets value per share on the record date, PFPC will purchase fund shares in the open market commencing on the payable date and reinvest those shares accordingly.As a result of purchasing fund shares in the open market, fund shares outstanding will not be affected by this form of reinvestment.

On May 28, 2004, the Board of Directors declared a cash dividend to Common Shareholders of $.051 per share from investment income-net, payable on June 28, 2004 to Common Shareholders of record as of the close of business on June 14, 2004.

(d) Dividends to Shareholders of APS: For APS, dividends are currently reset annually for Series A and B and every 7 days for series C. The dividend rate in effect at May 31, 2004 were as follows: Series A —1.55%, Series B—1.25% and Series C—1.05%.

The Fund 23

NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)

(e) 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 Internal Revenue Code of 1986 as amended, and to make distributions of income and net realized capital gain sufficient to relieve it from substantially all federal income and excise taxes.

The fund has an unused capital loss carryover of $24,677,297 available for federal income tax purposes to be applied against future net securities profits, if any, realized subsequent to November 30, 2003. If not applied, $3,964,163 of the carryover expires in fiscal 2007, $5,542,712 expires in fiscal 2008, $442,201 expires in fiscal 2009, $9,253,314 expires in fiscal 2010 and $5,474,907 expires in fiscal 2011.

The tax character of distributions paid to shareholders during the fiscal year ended November 30, 2003 was as follows: tax exempt income $31,669,641. 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 $100 million unsecured line of credit primarily to be utilized for temporary or emergency purposes. Interest is charged to the fund based on prevailing market rates in effect at the time of borrowings. During the period ended May 31, 2004, the fund did not borrow under the line of credit.

NOTE 3—Investment Advisory Fee, Administration Fee and Other Transactions With Affiliates:

(a) The fee payable by the fund, pursuant to the provisions of an Investment Advisory Agreement with Dreyfus, is payable monthly based on an annual rate of .50 of 1% of the value of the fund’s average weekly net assets.The fund also has an Administration Agreement with Dreyfus, a Custody Agreement with the Custodian and a Transfer Agency and Registrar Agreement with PFPC. The fund pays in the aggregate for administration, custody and transfer agency services a

24

monthly fee based on an annual rate of .25 of 1% of the value of the fund’s average weekly net assets; out-of pocket transfer agency and custody expenses are paid separately by the fund.

The components of Due to the Dreyfus Corporation and affiliates in the Statement of Assets and Liabilities consist of: management fee $379,828.

(b) Each Board member also serves as a Board member of other funds within the Dreyfus complex. Annual retainer fees and attendance fees are allocated to each fund based on net assets.

NOTE 4—Securities Transactions:

The aggregate amount of purchases and sales of investment securities, excluding short-term securities, during the period ended May 31, 2004, amounted to $134,837,697 and $137,712,344, respectively.

At May 31, 2004, accumulated net unrealized appreciation on investments was $8,521,777, consisting of $22,661,057 gross unrealized appreciation and $14,139,280 gross unrealized depreciation.

At May 31,2004,the cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments).

NOTE 5—Legal Matters:

Two class actions (which have been consolidated) have been filed against Mellon Financial and Mellon Bank, N.A., and Dreyfus and Founders Asset Management LLC (the “Investment Advisers”), and the directors of all or substantially all of the Dreyfus funds, alleging that the Investment Advisers improperly used assets of the Dreyfus funds, in the form of directed brokerage commissions and 12b-1 fees, to pay brokers to promote sales of Dreyfus funds,and that the use of fund assets to make these payments was not properly disclosed to investors.The complaints further allege that the directors breached their fiduciary duties to fund shareholders under the Investment Company Act of 1940 and at com-

The Fund 25

NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)

mon law. The complaints seek unspecified compensatory and punitive damages, rescission of the funds’ contracts with the Investment Advisers, an accounting of all fees paid, and an award of attorneys’ fees and litigation expenses. Dreyfus and the Dreyfus funds believe the allegations to be totally without merit and will defend the actions vigorously.

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

26

PROXY RESULTS ( U n a u d i t e d )

At the annual shareholders’ meeting held on May 14, 2004, the Fund’s Common Stockholders and Auction Preferred Stockholders voted together as a single class with respect to the proposal below as follows:

|  | Shares |  |
| For |  | Authority Withheld |
To elect two Class II Directors:† |  |  |  |
Ehud Houminer | 42,816,970 |  | 709,251 |
Robin A. Pringle | 7,402 |  | 1 |

† The terms of these Class II Directors expire in 2007.

The Fund 27

NOTES

28

OFFICERS AND DIRECTORS

D rey f u s S t ra te g i c M u n i c i p a l B o n d Fu n d , I n c .

200 Park Avenue New York, NY 10166

Directors
Joseph S. DiMartino
David W. Burke
William Hodding Carter, III
Ehud Houminer
Richard C. Leone
Hans C. Mautner
Robin A. Pringle †
John E. Zuccotti †
† Auction Preferred Stock Directors
Officers
President
Stephen E. Canter
Executive Vice Presidents
Stephen R. Byers
A. Paul Disdier
Vice President
Mark N. Jacobs
Secretary
John B. Hammalian
Assistant Secretaries
Steven F. Newman
Michael A. Rosenberg
Treasurer
James Windels
Assistant Treasurers
Gregory S. Gruber
Kenneth J. Sandgren
Compliance Officer
William Germenis
Portfolio Managers
Joseph P. Darcy
A. Paul Disdier
Douglas J. Gaylor

Portfolio Managers (continued) |
Joseph A. Irace |
Colleen A. Meehan |
W. Michael Petty |
Scott Sprauer |
James Welch |
Monica S.Wieboldt |
Bill Vasiliou |
Investment Adviser |
and Administrator |
The Dreyfus Corporation |
Custodian |
Boston Safe Deposit and Trust Company |
Counsel |
Stroock & Stroock & Lavan LLP |
Transfer Agent, |
Dividend-Paying Agent, |
Registrar and Disbursing Agent |
PFPC Global Fund Services |
(Common Stock) |
Deutsche Bank (Auction Preferred Stock) |
Auction Agent |
Deutsche Bank (Auction Preferred Stock) |
Stock Exchange Listing |
NYSE Symbol: DSM |
Initial SEC Effective Date |
11/22/89 |

The Net Asset Value appears in the following publications: Barron’s, Closed-End Bond Funds section under the heading “Municipal Bond Funds” every Monday;Wall Street Journal, Mutual Funds section under the heading “Closed-End Funds” every Monday; New York Times, Business section under the heading “Closed-End Bond Funds—Municipal Bond Funds” every Monday.

Notice is hereby given in accordance with Section 23(c) of the Investment Company Act of 1940,as amended,that the fund may purchase shares of its common stock in the open market when it can do so at prices below the then current net asset value per share.

The Fund 29

For More Information

Dreyfus Strategic Municipal
Bond Fund, Inc.
200 Park Avenue
New York, NY 10166
Manager
The Dreyfus Corporation
200 Park Avenue
New York, NY 10166
Custodian
Boston Safe Deposit and Trust Company
One Boston Place
Boston, MA 02108
Transfer Agent,
Dividend-Paying Agent,
Registrar and Disbursing Agent
PFPC Global Fund Services
(Common Stock)
101 Federal Street
Boston, MA 02110

© 2004 Dreyfus Service Corporation

0852SA0504

Item 2. Code of Ethics.

Not applicable.

Item 3. Audit Committee Financial Expert.

Not applicable.

Item 4. Principal Accountant Fees and Services.

Not applicable.

Item 5. Audit Committee of Listed Registrants.

Not applicable.

Item 6. [Reserved]

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

Investment Companies.

Not applicable.

Item 8. Purchases of Equity Securities by Closed-End Management Investment Companies and Affiliated Purchasers.

Not applicable.

Item 9. Submission of Matters to a Vote of Security Holders.

The Fund has a Nominating Committee, which is responsible for selecting and nominating persons for election or appointment by the Fund’s Board as Board members. The Committee has adopted a Nominating Committee Charter (“Charter”). Pursuant to the Charter, the Committee will consider recommendations for nominees from shareholders submitted to the Secretary of the Fund, c/o The Dreyfus Corporation Legal Department, 200 Park Avenue, 8th Floor West, 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 Fund 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.

-2-

Item 10. Controls and Procedures.

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

(b) There were no changes to the Registrant's internal control over financial reporting that occurred during the Registrant's most recently ended fiscal half-year that have materially affected, or are reasonably likely to materially affect, the Registrant's internal control over financial reporting.

Item 11. 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.

-3-

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 STRATEGIC MUNICIPAL BOND FUND, INC.
By: | /s/Stephen E. Canter
| Stephen E. Canter
| President
Date: | July 28, 2004

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

By: | /s/Stephen E. Canter
| Stephen E. Canter
| Chief Executive Officer
Date: | July 28, 2004
By: | /s/James Windels
| James Windels
| Chief Financial Officer
Date: | July 28, 2004

EXHIBIT INDEX

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

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

-4-