Exhibit 17(g) (BULL LOGO) Merrill Lynch Investment Managers Annual Report September 30, 2002 Core Bond Portfolio & Intermediate Term Portfolio of Merrill Lynch Bond Fund, Inc. www.mlim.ml.com This report is not authorized for use as an offer of sale or a solicitation of an offer to buy shares of the Fund unless accompanied or preceded by the Fund's current prospectus. Past performance results shown in this report should not be considered a representation of future performance. Investment return and principal value of shares will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Statements and other information herein are as dated and are subject to change. Merrill Lynch Bond Fund, Inc. Box 9011 Princeton, NJ 08543-9011 Printed on post-consumer recycled paper Core Bond Portfolio & Intermediate Term Portfolio TO OUR SHAREHOLDERS Investment Environment During the last 12 months, the U.S. economy has grown a respectable 2.4% and inflation has trended lower. Interest rates have declined dramatically with ten-year U.S. Treasury yields plunging by about 100 basis points (1.00%) from 4.55% to 3.60%. Based on historical evidence, this would appear to be the perfect environment for equities. However, this is not a typical economic recovery. This is an environment where the U.S. economy has had to absorb a number of shocks from the deflating of the asset bubble, an overleveraged corporate America, high-profile bankruptcies, scandals and fraud, potential threats of terrorist attacks, worldwide political instability, higher oil prices, and a potential war with Iraq. In retrospect, it is not too hard to see why equities have done so poorly, in our opinion. The unmanaged Standard & Poor's (S&P) 500 Index has underperformed 30-year U.S. Treasury bonds for the last five years by more than 10% for the period ended September 30, 2002. The S&P 500 Index posted results of -1.62% compared to +9.35% for Treasuries. This is unprecedented by historical standards. The traditional mechanisms to stimulate demand are working to some extent. The largest fiscal package since the early 1960s, at roughly 2.5% of gross domestic product (GDP) implemented in the fourth quarter of 2001 has served to help some sectors of the economy, most notably the aerospace and defense sector. This sector should continue to be supported because national security will be a high priority for years to come. Monetary policy, the other traditional form of stimulus, has also worked well to help stimulate growth in those sectors affected by interest rates. This would include consumer purchases of durable goods expected to last three years or more, such as household appliances and automobiles, and the sector probably most sensitive to interest rates, the housing market. Automobile purchases have been remarkably strong, running at a 17 million annual selling rate, which is undoubtedly being helped by 0% financing by the automobile companies. This is very strong but nothing compares to the contribution to growth in the economy from the surge in mortgage refinancing and the buying of new and existing homes. The housing market has continued to defy expectations coming in at annual selling rates of 1 million and 5.28 million units (as of August 2002) for new and existing homes. These levels are even higher than the record levels recorded in 2001. In addition, cash- out refinancing on existing homes is expected to add $150 billion - $200 billion to consumers' potential buying power. It is estimated that this could add 1% - 1.5% to GDP growth over the next three to six months. One notable sector that has failed to benefit from lower interest rates is equities. Traditional wisdom suggests that lower interest rates (more specifically the Federal Funds rate) of 75 basis points or more below current levels would be the signal to take more risk and buy equities. The logic appears sound as lower interest rates make equities seem more attractive to other asset classes and the present value of future earnings discounted at lower interest rates should help lift prices. However, the excesses of the 1990s are still being worked off and overcapacity in areas such as technology and telecommunications are still downsizing. In addition, the economic malaise that the United States is experiencing is not isolated to our shores, as it does not appear that the United States can count on foreign economies to help lift its growth prospects. The Eurozone area is struggling with maintaining inflation targets under 2% and fiscal deficits as a percent of GDP of under 3%. The Maastrict Treaty requirements along with high unemployment are keeping growth very weak with GDP expected to come in at 0.5% for 2002 and 1.5% for 2003. This is considerably lower than the United States. Japan continues to struggle with deflation and a paralyzed banking system. The Japanese government recently announced plans to buy stocks from banks to allow the banking system to raise capital requirements and attempt to improve the flow of credit to the real economy. This desperate attempt to solve the banking systems problems is a potentially dangerous strategy. Merrill Lynch Bond Fund, Inc., Core Bond Portfolio & Intermediate Term Portfolio September 30, 2002 However, on a more positive note we do believe that over the next six months--12 months recovery will take place. The double dose of fiscal policy and monetary policy will set the foundation for recovery while the low level of business inventories, cash-out refinancing and strong productivity gains will help to sustain growth. Fiscal Year in Review For the 12-month period ended September 30, 2002, Core Bond Portfolio's Class A, Class B, Class C and Class D Shares had total returns of +7.71%, +6.89%, +6.83% and +7.44%, respectively. For the same period, Intermediate Term Portfolio's Class A, Class B, Class C and Class D Shares had total returns of +7.43%, +6.97%, +6.97% and +7.32%, respectively. This compares to the +8.60% return for the Portfolios' unmanaged benchmark, the Lehman Brothers Aggregate Bond Index. (Investment results shown do not reflect sales charges and would be lower if sales charges were included. Complete performance information can be found on pages 3--7 of this report to shareholders.) For the 12-month period ended September 30, 2002, the Portfolios slightly underperformed the Lehman Brothers Aggregate Bond Index. This underperformance can mainly be attributed to our exposure to spread sectors such as corporates and asset-backed securities. In addition, our exposure to emerging markets detracted slightly from our relative performance. During the first half of the fiscal year, we continued to manage the Portfolios with a pro-cyclical bias. That is, the Portfolios were structured with a slight short duration bias and a significant overweight to spread sectors. These sectors would include corporates, mortgage-backed securities, asset-backed securities and commercial mortgage-backed securities. It appeared that after the terrible events of September 11, 2002, the U.S. economy was well on its way to recovery as economic growth registered 3% for the six- month period ended March 31, 2002. The Portfolios were well positioned with an average overweight to the mortgage market and corporate market of 3%--8% of net assets for these asset classes and an underweight to Treasury and agency issues. However, as we moved through the second quarter of 2002, a change in strategy appeared warranted. As economic data weakened and, more importantly, equities began to test September 2001 lows, we started to alter our strategy. This strategy involved reducing our mortgage overweight from 8% of net assets to 2% and taking advantage of the steep yield curve by rolling a large portion of our agency mortgages. This strategy allowed us to mitigate the negative effects that lower interest rates have on high dollar-priced mortgages. We also altered our allocation to the corporate sector from a 6% overweight to neutral as market-based indicators such as equity prices, equity volatility, swap spreads and valuation gave us clues as to our allocation decision. Going forward, we are positioning the Portfolios defensively. Our corporate overweights are in low beta sectors such as aerospace and defense, banks, utilities and real estate investment trusts. In Conclusion We appreciate your ongoing interest in Core Bond and Intermediate Term Portfolios of Merrill Lynch Bond Fund, Inc., and we look forward to assisting you with your financial needs in the months and years ahead. Sincerely, (Terry K. Glenn) Terry K. Glenn President and Director (Patrick Maldari) Patrick Maldari Vice President and Portfolio Manager (James J. Pagano) James J. Pagano Vice President and Portfolio Manager October 29, 2002 Merrill Lynch Bond Fund, Inc., Core Bond Portfolio & Intermediate Term Portfolio September 30, 2002 PERFORMANCE DATA About Fund Performance Investors are able to purchase shares of the Fund through the Merrill Lynch Select Pricing SM System, which offers four pricing alternatives: * Class A Shares incur a maximum initial sales charge (front-end load) of 4% and bear no ongoing distribution or account maintenance fees for Core Bond Portfolio. Intermediate Term Portfolio incurs a maximum initial sales charge (front-end load) of 1% and bears no ongoing distribution or account maintenance fees. Class A Shares are available only to eligible investors. * Class B Shares are subject to a maximum contingent deferred sales charge of 4% if redeemed during the first year, decreasing 1% each year thereafter to 0% after the fourth year for Core Bond Portfolio. Intermediate Term Portfolio is subject to a maximum contingent deferred sales charge of 1% if redeemed within one year of purchase. In addition, Core Bond Portfolio is subject to a distribution fee of 0.50% and an account maintenance fee of 0.25%. Intermediate Term Portfolio is subject to a 0.25% distribution fee and a 0.25% account maintenance fee. These shares automatically convert to Class D Shares after approximately 10 years. (There is no initial sales charge for automatic share conversions.) * Class C Shares are subject to a distribution fee of 0.55% and an account maintenance fee of 0.25% for Core Bond Portfolio. Intermediate Term Portfolio is subject to a distribution fee of 0.25% and an account maintenance fee of 0.25%. In addition, Class C Shares are subject to a 1% contingent deferred sales charge if redeemed within one year of purchase. * Class D Shares incur a maximum initial sales charge of 4% and an account maintenance fee of 0.25% (but no distribution fee) for Core Bond Portfolio. Intermediate Term Portfolio incurs a maximum initial sales charge of 1% and an account maintenance fee of 0.10% (but no distribution fee). None of the past results shown should be considered a representation of future performance. Performance results do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Figures shown in the "Recent Performance Results" and "Average Annual Total Return" tables assume reinvestment of all dividends and capital gains distributions at net asset value on the payable date. Investment return and principal value of shares will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Dividends paid to each class of shares will vary because of the different levels of account maintenance, distribution and transfer agency fees applicable to each class, which are deducted from the income available to be paid to shareholders. Recent Performance Results Ten Years/ 6-Month 12-Month Since Inception Standardized As of September 30, 2002 Total Return Total Return Total Return 30-Day Yield Core Bond Portfolio Class A Shares* +7.82% +7.71% +88.02% 3.74% Core Bond Portfolio Class B Shares* +7.41 +6.89 +74.21 3.14 Core Bond Portfolio Class C Shares* +7.38 +6.83 +67.10 3.09 Core Bond Portfolio Class D Shares* +7.59 +7.44 +74.82 3.51 Intermediate Term Portfolio Class A Shares* +7.76 +7.43 +88.64 3.79 Intermediate Term Portfolio Class B Shares* +7.57 +6.97 +83.37 3.31 Intermediate Term Portfolio Class C Shares* +7.57 +6.97 +70.48 3.31 Intermediate Term Portfolio Class D Shares* +7.70 +7.32 +76.13 3.69 Lehman Brothers Aggregate Bond Index** +8.45 +8.60 +103.71/+106.37/+91.58 -- *Investment results shown do not reflect sales charges; results shown would be lower if a sales charge was included. Total investment returns are based on changes in net asset values for the periods shown, and assume reinvestment of all dividends and capital gains distributions at net asset value on the payable date. The Core Bond Portfolio's ten-year/since inception periods are ten years for Class A & Class B Shares and from 10/21/94 for Class C & Class D Shares. The Intermediate Term Portfolio's ten-year/since inception periods are ten years for Class A Shares, from 11/13/92 for Class B Shares and from 10/21/94 for Class C & Class D Shares. **This unmanaged market-weighted Index is comprised of investment- grade corporate bonds (rated BBB or better), mortgages and U.S. Treasury and Government agency issues with at least one year to maturity. Ten-year/since inception total returns are from ten years, from 11/30/92 and from 10/31/94. Merrill Lynch Bond Fund, Inc., Core Bond Portfolio & Intermediate Term Portfolio September 30, 2002 PERFORMANCE DATA (continued) Total Return Based on a $10,000 Investment--Core Bond Portfolio A line graph illustrating the growth of a $10,000 investment in ML Bond Fund, Inc.'s Core Bond Portfolio++ Class A and Class B Shares* compared to a similar investment in Lehman Brothers Aggregate Bond Index++++. Values illustrated are as follows: ML Bond Fund, Inc.'s Core Bond Portfolio++ Class A Shares* Date Value September 1992 $ 9,600.00 September 1993 $10,825.00 September 1994 $10,172.00 September 1995 $11,691.00 September 1996 $12,112.00 September 1997 $13,229.00 September 1998 $14,559.00 September 1999 $14,311.00 September 2000 $15,039.00 September 2001 $16,759.00 September 2002 $18,051.00 ML Bond Fund, Inc.'s Core Bond Portfolio++ Class B Shares* Date Value September 1992 $10,000.00 September 1993 $11,191.00 September 1994 $10,438.00 September 1995 $11,903.00 September 1996 $12,237.00 September 1997 $13,264.00 September 1998 $14,486.00 September 1999 $14,131.00 September 2000 $14,737.00 September 2001 $16,298.00 September 2002 $17,421.00 Lehman Brothers Aggregate Bond Index++++ Date Value September 1992 $10,000.00 September 1993 $10,998.00 September 1994 $10,643.00 September 1995 $12,140.00 September 1996 $12,735.00 September 1997 $13,972.00 September 1998 $15,580.00 September 1999 $15,523.00 September 2000 $16,608.00 September 2001 $18,759.00 September 2002 $20,372.00 A line graph illustrating the growth of a $10,000 investment in ML Bond Fund, Inc.'s Core Bond Portfolio++ Class C and Class D Shares* compared to a similar investment in Lehman Brothers Aggregate Bond Index++++. Values illustrated are as follows: ML Bond Fund, Inc.'s Core Bond Portfolio++ Class C Shares* Date Value 10/21/1994** $10,000.00 September 1995 $11,460.00 September 1996 $11,787.00 September 1997 $12,757.00 September 1998 $13,937.00 September 1999 $13,577.00 September 2000 $14,151.00 September 2001 $15,641.00 September 2002 $16,709.00 ML Bond Fund, Inc.'s Core Bond Portfolio++ Class D Shares* Date Value 10/21/1994** $ 9,600.00 September 1995 $11,061.00 September 1996 $11,440.00 September 1997 $12,464.00 September 1998 $13,682.00 September 1999 $13,404.00 September 2000 $14,051.00 September 2001 $15,619.00 September 2002 $16,781.00 Lehman Brothers Aggregate Bond Index++++ Date Value 10/31/1994** $10,000.00 September 1995 $11,416.00 September 1996 $11,975.00 September 1997 $13,138.00 September 1998 $14,650.00 September 1999 $14,596.00 September 2000 $15,616.00 September 2001 $17,639.00 September 2002 $19,156.00 *Assuming maximum sales charge, transaction costs and other operating expenses, including advisory fees. **Commencement of operations. ++The Portfolio invests primarily in long-term, fixed-income securities that are rated in the four highest categories of the recognized rating agencies (Baa or better by Moody's Investors Service, Inc. or BBB or better by Standard & Poor's Corp.). ++++This unmanaged market-weighted Index is comprised of investment- grade corporate bonds (rated BBB or better), mortgages and U.S. Treasury and Government agency issues with at least one year to maturity. The starting date for the Index in the Class C & Class D Shares' graph is from 10/31/94. Past performance is not predictive of future performance. Merrill Lynch Bond Fund, Inc., Core Bond Portfolio & Intermediate Term Portfolio September 30, 2002 PERFORMANCE DATA (continued) Average Annual Total Return--Core Bond Portfolio % Return Without % Return With Sales Charge Sales Charge** Class A Shares* One Year Ended 9/30/02 +7.71% +3.40% Five Years Ended 9/30/02 +6.41 +5.55 Ten Years Ended 9/30/02 +6.52 +6.08 *Maximum sales charge is 4%. **Assuming maximum sales charge. % Return % Return Without CDSC With CDSC** Class B Shares* One Year Ended 9/30/02 +6.89% +2.89% Five Years Ended 9/30/02 +5.60 +5.60 Ten Years Ended 9/30/02 +5.71 +5.71 *Maximum contingent deferred sales charge is 4% and is reduced to 0% after four years. **Assuming payment of applicable contingent deferred sales charge. % Return % Return Without CDSC With CDSC** Class C Shares* One Year Ended 9/30/02 +6.83% +5.83% Five Years Ended 9/30/02 +5.55 +5.55 Inception (10/21/94) through 9/30/02 +6.68 +6.68 *Maximum contingent deferred sales charge is 1% and is reduced to 0% after one year. **Assuming payment of applicable contingent deferred sales charge. % Return Without % Return With Sales Charge Sales Charge** Class D Shares* One Year Ended 9/30/02 +7.44% +3.14% Five Years Ended 9/30/02 +6.13 +5.27 Inception (10/21/94) through 9/30/02 +7.28 +6.73 *Maximum sales charge is 4%. **Assuming maximum sales charge. Merrill Lynch Bond Fund, Inc., Core Bond Portfolio & Intermediate Term Portfolio September 30, 2002 PERFORMANCE DATA (continued) Total Return Based on a $10,000 Investment--Intermediate Term Portfolio A line graph illustrating the growth of a $10,000 investment in ML Bond Fund, Inc.'s Intermediate Term Portfolio++ Class A Shares* compared to a similar investment in Lehman Brothers Aggregate Bond Index++++. Values illustrated are as follows: ML Bond Fund, Inc.'s Intermediate Term Portfolio++ Class A Shares* Date Value September 1992 $ 9,900.00 September 1993 $11,028.00 September 1994 $10,559.00 September 1995 $11,967.00 September 1996 $12,513.00 September 1997 $13,588.00 September 1998 $14,891.00 September 1999 $14,864.00 September 2000 $15,610.00 September 2001 $17,382.00 September 2002 $18,673.00 Lehman Brothers Aggregate Bond Index++++ Date Value September 1992 $10,000.00 September 1993 $10,998.00 September 1994 $10,643.00 September 1995 $12,140.00 September 1996 $12,735.00 September 1997 $13,972.00 September 1998 $15,580.00 September 1999 $15,523.00 September 2000 $16,608.00 September 2001 $18,759.00 September 2002 $20,372.00 A line graph illustrating the growth of a $10,000 investment in ML Bond Fund, Inc.'s Intermediate Term Portfolio++ Class B Shares* compared to a similar investment in Lehman Brothers Aggregate Bond Index++++. Values illustrated are as follows: ML Bond Fund, Inc.'s Intermediate Term Portfolio++ Class B Shares* Date Value 11/13/1992** $10,000.00 September 1993 $11,330.00 September 1994 $10,795.00 September 1995 $12,169.00 September 1996 $12,658.00 September 1997 $13,687.00 September 1998 $14,911.00 September 1999 $14,808.00 September 2000 $15,473.00 September 2001 $17,143.00 September 2002 $18,338.00 Lehman Brothers Aggregate Bond Index++++ Date Value 11/30/1992** $10,000.00 September 1993 $11,141.00 September 1994 $10,782.00 September 1995 $12,298.00 September 1996 $12,901.00 September 1997 $14,154.00 September 1998 $15,783.00 September 1999 $15,725.00 September 2000 $16,824.00 September 2001 $19,003.00 September 2002 $20,637.00 A line graph illustrating the growth of a $10,000 investment in ML Bond Fund, Inc.'s Intermediate Term Portfolio++ Class C and Class D Shares* compared to a similar investment in Lehman Brothers Aggregate Bond Index++++. Values illustrated are as follows: ML Bond Fund, Inc.'s Intermediate Term Portfolio++ Class C Shares* Date Value 10/21/1994** $10,000.00 September 1995 $11,325.00 September 1996 $11,777.00 September 1997 $12,718.00 September 1998 $13,866.00 September 1999 $13,769.00 September 2000 $14,386.00 September 2001 $15,937.00 September 2002 $17,048.00 ML Bond Fund, Inc.'s Intermediate Term Portfolio++ Class D Shares* Date Value 10/21/1994** $ 9,900.00 September 1995 $11,251.00 September 1996 $11,753.00 September 1997 $12,761.00 September 1998 $13,959.00 September 1999 $13,920.00 September 2000 $14,605.00 September 2001 $16,247.00 September 2002 $17,436.00 Lehman Brothers Aggregate Bond Index++++ Date Value 10/31/1994** $10,000.00 September 1995 $11,416.00 September 1996 $11,975.00 September 1997 $13,138.00 September 1998 $14,650.00 September 1999 $14,596.00 September 2000 $15,616.00 September 2001 $17,639.00 September 2002 $19,156.00 *Assuming maximum sales charge, transaction costs and other operating expenses, including advisory fees. **Commencement of operations. ++The Portfolio invests primarily in bonds rated in the four highest rating categories (Baa or higher by Moody's Investors Service, Inc. or BBB or higher by Standard & Poor's Corp.), with an average remaining maturity of three-to-ten years, depending on market conditions. ++++This unmanaged market-weighted Index is comprised of investment- grade corporate bonds (rated BBB or better), mortgages and U.S. Treasury and Government agency issues with at least one year to maturity. The starting date for the Index is from 11/30/92 in the Class B Shares' graph and from 10/31/94 in the Class C & Class D Shares' graph. Past performance is not predictive of future performance. Merrill Lynch Bond Fund, Inc., Core Bond Portfolio & Intermediate Term Portfolio September 30, 2002 PERFORMANCE DATA (concluded) Average Annual Total Return--Intermediate Term Portfolio % Return Without % Return With Sales Charge Sales Charge** Class A Shares* One Year Ended 9/30/02 +7.43% +6.36% Five Years Ended 9/30/02 +6.57 +6.35 Ten Years Ended 9/30/02 +6.55 +6.45 *Maximum sales charge is 1%. **Assuming maximum sales charge. % Return % Return Without CDSC With CDSC** Class B Shares* One Year Ended 9/30/02 +6.97% +5.97% Five Years Ended 9/30/02 +6.02 +6.02 Inception (11/13/92) through 9/30/02 +6.33 +6.33 *Maximum contingent deferred sales charge is 1% and is reduced to 0% after one year. **Assuming payment of applicable contingent deferred sales charge. % Return % Return Without CDSC With CDSC** Class C Shares* One Year Ended 9/30/02 +6.97% +5.97% Five Years Ended 9/30/02 +6.04 +6.04 Inception (10/21/94) through 9/30/02 +6.94 +6.94 *Maximum contingent deferred sales charge is 1% and is reduced to 0% after one year. **Assuming payment of applicable contingent deferred sales charge. % Return Without % Return With Sales Charge Sales Charge** Class D Shares* One Year Ended 9/30/02 +7.32% +6.25% Five Years Ended 9/30/02 +6.44 +6.23 Inception (10/21/94) through 9/30/02 +7.38 +7.25 *Maximum sales charge is 1%. **Assuming maximum sales charge. Merrill Lynch Bond Fund, Inc., Core Bond Portfolio & Intermediate Term Portfolio September 30, 2002 SCHEDULE OF INVESTMENTS S&P Moody's Face Industries Rating+++ Rating+++ Amount Issue Cost Value Bonds Core Bond Portfolio Asset-Backed AAA Aaa $ 8,000,000 Advanta Mortgage Loan Trust, 7.75% due Securities** 10/25/2026 $ 8,278,125 $ 8,839,726 - --17.6% AAA Aaa 16,000,000 Banc of America Commercial Mortgage Inc., 7.197% due 5/15/2010 16,207,188 18,699,326 NR* Aaa 11,133,520 Bank of America Mortgage Securities, Series 2002-IA, Class 1B, 4.64% due 8/25/2032 11,244,676 11,220,501 AAA Aaa 9,466,000 CIT Equipment Collateral, Series 2002-VT1, Class A2, 2.90% due 6/21/2004 9,465,496 9,528,757 AAA Aaa 4,516 Contimortgage Home Equity Loan Trust, 5.84% due 5/15/2016 4,515 4,556 AAA Aaa 6,697,341 Countrywide Asset-Backed Certificates, 6.102% due 8/25/2026 6,697,195 6,797,005 NR* Aaa 10,770,951 CountryWide Home Loan, Series 2001-24, Class 1A6, 6% due 1/25/2032 10,824,241 11,067,368 NR* Aaa 8,798,744 EQCC Home Equity Loan Trust, Series 1999-1, Class A3F, 5.915% due 11/20/2024 8,961,214 9,015,165 A A3 9,000,000 First Dominion Funding I, 2.60% due 7/10/2013 (a)(b) 8,966,133 8,302,500 NR* Aaa 9,000,000 First Union-Chase Commercial Mortgage, Series 1999-C2, Class A2, 6.645% due 4/15/2009 8,533,828 10,184,654 AAA NR* 6,429,500 General Electric Capital Commercial Mortgage Corporation, Series 2001-3, Class A2, 6.07% due 6/10/2038 6,493,885 7,093,009 AAA NR* 9,747,945 General Motors Acceptance Corporation, Mortgage Corporation Loan Trust, 6.25% due 1/25/2032 9,864,039 9,975,365 AAA Aaa 12,125,000 Household Automotive Trust, Series 2002-1, Class A2, 2.75% due 5/17/2005 12,124,037 12,229,012 AAA Aaa 10,729,445 Household Home Equity Loan Trust, Series 2002-2, Class A, 2.098% due 4/20/2032 (a) 10,729,445 10,697,274 AAA Aaa 11,850,000 Ikon Receivables LLC, Series 2002-1, Class A2, 2.91% due 2/15/2005 11,849,972 11,897,290 AAA Aaa 10,500,000 LB-UBS Commercial Mortgage Trust, Series 2002-C1, Class A3, 6.226% due 3/15/2026 10,551,553 11,711,687 A+ A2 4,777,895 MBNA Master Credit Card Trust, Series 1999-F, Class B, 2.14% due 1/16/2007 (a) 4,786,753 4,778,373 AAA NR* 5,000,000 Nationslink Funding Corporation, Series 1999-2, Class A3, 7.181% due 12/20/2006 4,920,508 5,634,520 AAA Aaa 11,528,266 Option One Mortgage Loan Trust, Series 2002-4, Class A, 2.07% due 7/25/2032 (a) 11,528,266 11,478,516 AAA NR* 5,642,668 Residential Funding Mortgage Securities Inc., Series 2001-S23, Class 2A1, 5.50% due 10/25/2031 5,762,756 5,708,688 NR* Aaa 262,584 Saxon Asset Securities Trust, 6.265% due 7/25/2023 262,585 262,284 Security Life of Denver: NR* NR* 23,000,000 0.33% due 10/01/2002 (d) 23,000,000 25,882,289 NR* NR* 27,000,000 0.44% due 3/31/2003 27,000,000 27,000,000 AAA Aaa 8,261,351 Structured Asset Securities Corporation, Series 2002-9, Class A2, 2.114% due 10/25/2027 (a) 8,261,351 8,249,963 A A2 9,600,000 Superior Wholesale Inventory Financing Trust, Series 2001-A7, 2.223% due 6/15/2006 (a) 9,612,825 9,601,248 AAA Aaa 6,100,000 Washington Mutual Inc., Series 2002-AR4, Class A7, 5.59% due 4/25/2032 6,036,141 6,303,528 AAA Aaa 7,564,526 Wells Fargo Mortgage-Backed Securities Trust, Series 2002-A, Class A2, 5.90% due 3/25/2032 7,693,864 7,666,708 -------------- -------------- 259,660,591 269,829,312 Merrill Lynch Bond Fund, Inc., Core Bond Portfolio & Intermediate Term Portfolio September 30, 2002 SCHEDULE OF INVESTMENTS (continued) S&P Moody's Face Industries Rating+++ Rating+++ Amount Issue Cost Value Bonds (continued) Core Bond Portfolio Automotive BBB+ Baa1 $ 4,460,000 Ford Motor Company, 7.45% due 7/16/2031 $ 4,286,017 $ 3,670,607 & Equipment - --0.2% Canadian BBB- Baa3 475,000 Abitibi Consolidated Inc., 8.55% due Corporates++ 8/01/2010 (2) 497,879 501,633 - --0.0% Canadian Canada Government Bond (3): Sovereigns++ AAA Aaa 400,000 6.375% due 11/30/2004 419,346 437,638 - --1.4% AAA Aaa 2,820,000 5.25% due 11/05/2008 2,870,014 3,141,243 Province of Ontario (3): AA Aa2 4,440,000 3.50% due 9/17/2007 4,414,426 4,521,572 AA Aa2 3,750,000 5.50% due 10/01/2008 3,884,430 4,178,764 Province of Quebec (3): A+ A1 2,520,000 5% due 7/17/2009 2,649,820 2,687,356 A+ A1 4,700,000 7.50% due 9/15/2029 5,248,697 6,081,494 A+ Aa3 750,000 Province of Saskatchewan, 8% due 7/15/2004 (3) 800,125 825,583 -------------- -------------- 20,286,858 21,873,650 Chemicals BBB+ Baa1 1,805,000 Chevron Phillips Chemical Company, 5.375% - --0.2% due 6/15/2007 1,796,155 1,909,490 BBB- Ba1 915,000 Methanex Corporation, 8.75% due 8/15/2012 915,000 947,025 -------------- -------------- 2,711,155 2,856,515 Finance A- A2 2,015,000 AT&T Capital Corporation, 6.60% due 5/15/2005 1,993,447 2,085,781 - --0.6% A+ A1 1,755,000 American General Finance, 5.375% due 9/01/2009 1,742,364 1,816,509 Capital One Bank: BBB- Baa2 307,000 6.50% due 7/30/2004 305,019 290,638 BBB- Baa2 1,460,000 6.875% due 2/01/2006 1,450,382 1,371,584 A A2 2,155,000 Household Finance Corporation, 7% due 5/15/2012 2,110,542 2,076,183 AA Aa3 830,000 Texaco Capital Inc., 8.625% due 6/30/2010 954,679 1,062,963 -------------- -------------- 8,556,433 8,703,658 Finance-- BB&T Corporation: Banks--5.2% A- A2 4,765,000 6.50% due 8/01/2011 4,864,173 5,440,148 A- A2 900,000 4.75% due 10/01/2012 891,369 910,680 A- A1 2,050,000 Banc One Corp., 8% due 4/29/2027 2,257,840 2,570,212 A+ Aa2 2,340,000 Bank of America Corp., 4.875% due 9/15/2012 2,331,272 2,364,984 A+ Aa2 1,920,000 The Bank of New York, 5.20% due 7/01/2007 1,916,525 2,073,554 Bank One Corp.: A Aa3 2,500,000 6.875% due 8/01/2006 2,586,660 2,818,967 A Aa3 1,215,000 4.125% due 9/01/2007 1,213,153 1,252,036 A+ Aa2 6,815,000 BankAmerica Corp., 5.875% due 2/15/2009 6,877,948 7,385,409 Citigroup Inc.: AA- Aa1 2,200,000 5.70% due 2/06/2004 2,224,251 2,301,083 AA- Aa1 2,360,000 5.75% due 5/10/2006 2,533,565 2,557,098 AA- Aa1 3,424,000 6.50% due 1/18/2011 3,496,231 3,810,816 A+ Aa2 2,770,000 6.625% due 6/15/2032 2,732,633 2,887,780 A A1 4,600,000 FleetBoston Financial Corp., 7.25% due 9/15/2005 4,804,167 5,032,938 BB+ NR* 1,010,000 Hudson United Bancorp Inc., 8.20% due 9/15/2006 1,039,440 1,113,985 Inter-American Development Bank: AAA Aaa 4,180,000 4.375% due 9/20/2012 4,161,608 4,247,181 AAA Aaa 6,743,000 6.80% due 10/15/2025 8,005,267 8,090,339 A+ Aa3 1,280,000 Marshall & Ilsley Bank, 4.125% due 9/04/2007 1,276,070 1,325,940 Merrill Lynch Bond Fund, Inc., Core Bond Portfolio & Intermediate Term Portfolio September 30, 2002 SCHEDULE OF INVESTMENTS (continued) S&P Moody's Face Industries Rating+++ Rating+++ Amount Issue Cost Value Bonds (continued) Core Bond Portfolio Finance-- A+ Aa3 $ 3,525,000 National City Bank of Indiana, 4% due Banks 9/28/2007 $ 3,520,206 $ 3,632,629 (concluded) A Aa3 4,500,000 US Bancorp, 1.97% due 9/16/2005 (a) 4,500,000 4,496,593 A A1 2,240,000 Wachovia Corporation, 4.95% due 11/01/2006 2,354,636 2,392,490 BBB+ A3 2,300,000 Washington Mutual Inc., 7.50% due 8/15/2006 2,433,965 2,597,521 A+ Aa2 4,670,000 Wells Fargo Bank, 6.45% due 2/01/2011 5,028,545 5,266,233 Wells Fargo & Co.: A+ Aa2 2,500,000 7.25% due 8/24/2005 2,619,142 2,794,765 A+ Aa2 2,750,000 5.125% due 2/15/2007 2,749,092 2,955,004 -------------- -------------- 76,417,758 80,318,385 Finance-- A A2 2,415,000 American Honda Finance, 2% due Other--6.5% 10/03/2005 (a)(b) 2,414,251 2,414,758 CIT Group Inc.: A A2 900,000 5.625% due 5/17/2004 920,348 921,631 A A2 905,000 7.25% due 8/15/2005 874,925 955,037 A A2 800,000 6.50% due 2/07/2006 822,678 841,578 BBB Baa1 2,115,000 Cendant Corporation, 6.875% due 8/15/2006 2,096,494 2,126,876 Chrysler Financial Company LLC (a): BBB+ A3 2,389,000 1.985% due 2/03/2003 2,385,838 2,385,170 BBB+ A3 2,389,000 1.99% due 3/06/2003 2,385,142 2,383,637 A A3 3,370,000 CountryWide Home Loan, 5.625% due 7/15/2009 3,352,779 3,535,079 Ford Motor Credit Company: BBB+ A3 20,000,000 1.878% due 2/13/2003 (a) 19,918,080 19,774,080 BBB+ A3 4,240,000 7.25% due 10/25/2011 4,176,469 3,919,456 AAA Aaa 2,050,000 General Electric Capital Corporation, 6.75% due 3/15/2032 2,091,682 2,198,730 General Motors Acceptance Corp.: BBB+ A2 25,000,000 2.135% due 7/21/2003 (a) 24,881,504 24,692,575 BBB+ A2 4,550,000 7% due 2/01/2012 4,538,443 4,440,204 BBB+ A2 3,100,000 8% due 11/01/2031 3,065,962 3,004,743 A A1 3,000,000 Golden West Financial Corporation, 4.75% due 10/01/2012 2,978,970 3,016,383 A+ Aa3 2,050,000 Goldman Sachs Group, Inc., 7.625% due 8/17/2005 2,134,825 2,310,247 AA- A1 1,070,000 International Lease Finance Corporation, 5.625% due 6/01/2007 1,091,849 1,098,740 A A2 1,465,000 John Hancock Financial Services, 5.625% due 12/01/2008 1,460,927 1,544,901 Lehman Brothers Holdings, Inc.: A A2 2,900,000 6.625% due 4/01/2004 2,934,284 3,062,093 A A2 500,000 7% due 2/01/2008 510,261 561,632 A A2 3,535,000 6.625% due 1/18/2012 3,725,035 3,873,459 BBB Baa2 2,920,000 MBNA Corporation, 6.25% due 1/17/2007 2,913,576 3,023,780 AA Aa3 2,020,000 Principal Life Global, 6.25% due 2/15/2012 (b) 1,994,609 2,174,172 A- A2 1,415,000 Regions Financial Corporation, 6.375% due 5/15/2012 1,411,392 1,596,612 A+ A1 2,965,000 Verizon Global Funding Corporation, 6.75% due 12/01/2005 3,013,093 3,125,617 -------------- -------------- 98,093,416 98,981,190 Food A+ A1 2,270,000 Archer-Daniels-Midland, 5.935% due Distribution-- 10/01/2032 2,253,225 2,253,225 0.1% Gas BBB Baa3 1,440,000 The Coastal Corporation, 6.50% due 6/01/2008 1,406,825 964,800 Transmission-- 0.1% Merrill Lynch Bond Fund, Inc., Core Bond Portfolio & Intermediate Term Portfolio September 30, 2002 SCHEDULE OF INVESTMENTS (continued) S&P Moody's Face Industries Rating+++ Rating+++ Amount Issue Cost Value Bonds (continued) Core Bond Portfolio Hotels--0.1% BBB- Ba1 $ 1,881,000 Starwood Hotels & Resorts, 7.375% due 5/01/2007 (b) $ 1,875,075 $ 1,824,570 Industrial-- BBB+ Baa2 5,010,000 Coors Brewing Company, 6.375% due 5/15/2012 5,375,260 5,669,511 Consumer A A1 4,346,000 Pepsi Bottling Holdings Inc., 5.625% due Goods--0.9% 2/17/2009 (b) 4,527,257 4,729,765 BBB Baa3 2,670,000 Tyson Foods, Inc., 6.625% due 10/01/2004 2,665,007 2,836,691 -------------- -------------- 12,567,524 13,235,967 Industrial-- BBB Baa2 1,175,000 Allete Inc., 7.80% due 2/15/2008 1,211,055 1,332,604 Energy--2.6% BBB+ Baa2 2,160,000 AmerenEnergy Generating, 7.95% due 6/01/2032 2,151,965 2,456,497 BBB+ Baa1 685,000 Anadarko Finance Company, 7.50% due 5/01/2031 703,841 812,967 BBB+ Baa1 1,037,000 Anadarko Petroleum Corporation, 5.375% due 3/01/2007 1,031,494 1,110,113 Apache Corporation: A- A3 475,000 6.25% due 4/15/2012 471,618 535,321 A- A3 690,000 7.625% due 7/01/2019 720,492 818,719 A A2 1,920,000 Colonial Pipeline, 7.63% due 4/15/2032 (b) 1,919,482 2,271,706 Conoco Inc.: A- A3 3,550,000 5.90% due 4/15/2004 3,615,666 3,725,537 A- A3 2,980,000 6.95% due 4/15/2029 3,353,390 3,366,378 Kinder Morgan Energy: BBB+ Baa1 1,560,000 5.35% due 8/15/2007 (b) 1,558,939 1,622,832 BBB+ Baa1 1,600,000 6.75% due 3/15/2011 1,611,244 1,728,054 BBB Baa2 4,650,000 Kinder Morgan Inc., 6.50% due 9/01/2012 (b) 4,636,794 4,835,502 A+ A1 3,880,000 Motiva Enterprises LLC, 5.20% due 9/15/2012 (b) 3,867,817 3,937,571 A- Baa1 1,940,000 Murphy Oil Corporation, 6.375% due 5/01/2012 1,933,637 2,162,854 Ocean Energy Inc.: BBB- Baa3 1,015,000 4.375% due 10/01/2007 1,012,351 1,028,798 BBB- Baa3 2,020,000 7.25% due 10/01/2011 2,072,455 2,312,876 BBB A3 4,035,000 Oncor Electric Delivery, 6.375% due 5/01/2012 (b) 4,026,244 4,385,750 A- Baa2 1,275,000 Transocean Sedco Forex, 6.50% due 4/15/2003 1,291,446 1,298,009 -------------- -------------- 37,189,930 39,742,088 Industrial-- A A2 2,300,000 Alcoa Inc., 2.063% due 12/06/2004 (a) 2,300,000 2,299,432 Manu- A+ A3 990,000 Boeing Capital Corporation, 7.10% due 9/27/2005 1,029,740 1,080,529 facturing-- Daimler-Chrysler NA Holdings: 3.4% BBB+ A3 18,777,000 7.125% due 4/10/2003 19,153,760 19,130,984 BBB+ A3 2,600,000 6.40% due 5/15/2006 2,598,934 2,791,438 BBB- Baa3 475,000 Domtar Inc., 7.875% due 10/15/2011 511,785 544,973 A A2 625,000 Emerson Electric Company, 6% due 8/15/2032 614,594 632,802 A+ A1 3,330,000 First Data Corporation, 6.75% due 7/15/2005 3,380,911 3,652,900 BBB Baa2 1,900,000 Lockheed Martin Corporation, 8.50% due 12/01/2029 2,474,548 2,523,006 BBB Baa2 1,255,000 Martin Marietta Corp., 7.375% due 4/15/2013 1,206,821 1,501,308 BBB- Baa3 1,790,000 Noranda Inc., 7.25% due 7/15/2012 1,777,524 1,898,189 BBB- Baa3 9,524,000 Northrop Grumman Corporation, 7.125% due 2/15/2011 10,251,901 10,816,483 BBB+ A3 1,220,000 Praxair Inc., 6.375% due 4/01/2012 1,214,522 1,364,159 Raytheon Company: BBB- Baa3 2,090,000 8.30% due 3/01/2010 2,353,548 2,456,469 BBB- Baa3 1,980,000 6.75% due 3/15/2018 1,679,738 2,057,562 -------------- -------------- 50,548,326 52,750,234 Merrill Lynch Bond Fund, Inc., Core Bond Portfolio & Intermediate Term Portfolio September 30, 2002 SCHEDULE OF INVESTMENTS (continued) S&P Moody's Face Industries Rating+++ Rating+++ Amount Issue Cost Value Bonds (continued) Core Bond Portfolio Industrial-- BBB+ Baa1 $ 2,090,000 AOL Time Warner Inc., 6.875% due 5/01/2012 $ 1,774,614 $ 1,901,900 Services-- Aramark Services Inc.: 2.8% BBB- Baa3 2,475,000 6.75% due 8/01/2004 2,507,208 2,578,829 BBB- Baa3 2,105,000 6.375% due 2/15/2008 2,100,916 2,157,012 BB+ Ba2 4,700,000 Circus Circus Enterprises, Inc., 6.70% due 11/15/2096 4,689,519 4,716,022 Clear Channel Communications: BBB- Baa3 1,755,000 7.875% due 6/15/2005 1,834,411 1,827,824 BBB- Baa3 935,000 7.65% due 9/15/2010 842,921 988,600 BBB- Ba1 2,880,000 HCA Inc., 6.30% due 10/01/2012 2,859,293 2,846,310 Kroger Company: BBB- Baa3 1,680,000 6.20% due 6/15/2012 1,679,026 1,772,502 BBB- Baa3 1,845,000 7.50% due 4/01/2031 1,910,301 2,029,083 BBB- Baa3 2,775,000 Liberty Media Corporation, 7.875% due 7/15/2009 2,804,748 2,910,453 BBB Baa2 505,000 Safeway Inc., 6.50% due 3/01/2011 518,616 550,736 BBB Baa3 600,000 SuperValu Inc., 7.50% due 5/15/2012 614,913 637,496 Tele-Communications Inc.: BBB+ Baa3 2,747,000 8.25% due 1/15/2003 2,754,781 2,735,204 BBB+ Baa3 2,355,000 9.80% due 2/01/2012 2,715,631 2,344,471 Tenet Healthcare Corporation: BBB Baa3 1,395,000 5% due 7/01/2007 1,382,319 1,447,925 BBB Baa3 2,510,000 6.875% due 11/15/2031 (d) 2,328,452 2,645,676 BBB Ba1 5,350,000 USA Waste Services Inc., 6.50% due 12/15/2002 5,326,816 5,367,077 A- A3 2,230,000 Viacom Inc., 7.875% due 7/30/2030 2,418,084 2,684,585 -------------- -------------- 41,062,569 42,141,705 Industrial-- AAA Aaa 1,425,000 Continental Airlines, 6.563% due 2/15/2012 1,425,000 1,536,319 Transporta- Southwest Airlines Co.: tion--0.3% A Baa1 460,000 8% due 3/01/2005 466,268 512,788 A Baa1 1,880,000 7.875% due 9/01/2007 1,872,238 2,171,904 -------------- -------------- 3,763,506 4,221,011 Real Estate BBB+ Baa1 4,550,000 EOP Operating LP, 7.375% due 11/15/2003 4,558,577 4,762,544 Investment BBB+ Baa2 610,000 Health Care Properties Inc., 7.48% due Trust--1.1% 4/05/2004 635,536 648,241 Health Care Properties Investors Inc.: BBB+ Baa2 1,430,000 6.50% due 2/15/2006 1,476,696 1,520,856 BBB+ Baa2 2,575,000 6.45% due 6/25/2012 2,567,326 2,715,662 BBB+ Baa1 6,675,000 Prologis Trust, 7% due 10/01/2003 6,740,331 6,909,346 -------------- -------------- 15,978,466 16,556,649 Supranational A A2 4,455,000 Corporacion Andina de Fomento, 6.875% due - --0.3% 3/15/2012 4,405,817 4,762,707 Tobacco--0.1% BBB- Baa2 940,000 RJ Reynolds Tobacco Holdings, 6.50% due 6/01/2007 938,421 990,703 Utilities-- A A2 1,510,000 360 Communications Co., 7.50% due 3/01/2006 1,542,719 1,660,696 Communi- AT&T Corporation: cations-- BBB+ Baa2 3,490,000 6% due 3/15/2009 3,304,331 3,141,000 1.3% BBB+ Baa2 935,000 7.30% due 11/15/2011 787,241 902,275 AT&T Wireless Services Inc.: BBB Baa2 1,465,000 8.125% due 5/01/2012 1,281,945 1,128,050 BBB Baa2 835,000 8.75% due 3/01/2031 932,633 601,200 A A2 1,545,000 Alltel Corporation, 7% due 7/01/2012 1,538,897 1,716,563 BBB+ Baa2 1,130,000 CenturyTel Inc., 7.875% due 8/15/2012 (b) 1,122,983 1,236,949 BBB Baa2 780,000 Citizens Communications Company, 7.625% due 8/15/2008 769,454 733,200 Merrill Lynch Bond Fund, Inc., Core Bond Portfolio & Intermediate Term Portfolio September 30, 2002 SCHEDULE OF INVESTMENTS (continued) S&P Moody's Face Industries Rating+++ Rating+++ Amount Issue Cost Value Bonds (concluded) Core Bond Portfolio Utilities-- A+ A2 $ 3,200,000 GTE Corporation, 6.84% due 4/15/2018 $ 3,200,037 $ 3,060,442 Communi- BBB- Baa3 5,920,000 Sprint Capital Corporation, 5.70% due cations 11/15/2003 5,974,124 5,390,989 (concluded) A A2 150,000 Vodafone Group PLC, 7.75% due 2/15/2010 159,137 169,650 -------------- -------------- 20,613,501 19,741,014 Utilities-- BBB+ A3 1,345,000 Alabama Power Capital Trust, 5.50% due Electric 10/01/2042 (a) 1,342,001 1,342,001 & Gas-- BBB Baa1 4,950,000 Cincinnati Gas & Electric Company, 5.70% due 2.0% 9/15/2012 4,969,676 5,040,560 Commonwealth Edison Company: A- A3 175,000 6.15% due 3/15/2012 (b) 175,153 195,839 BBB+ Baa1 1,970,000 6.95% due 7/15/2018 1,961,568 2,069,067 BBB Baa1 2,350,000 Conectiv Inc., 5.30% due 6/01/2005 (b) 2,349,364 2,415,986 A+ A1 985,000 Consolidated Edison Inc., 7.15% due 12/01/2009 1,064,458 1,153,848 BBB+ Baa1 3,475,000 Constellation Energy Group, 6.125% due 9/01/2009 3,469,475 3,510,817 Dominion Resources Inc.: BBB+ Baa1 2,185,000 7.625% due 7/15/2005 2,227,262 2,399,097 BBB+ Baa1 785,000 8.125% due 6/15/2010 904,756 912,465 BBB+ Baa2 935,000 Exelon Corporation, 6.75% due 5/01/2011 978,235 1,033,740 A A1 1,970,000 Mississippi Power, 6.05% due 5/01/2003 1,997,846 2,007,530 BBB Baa1 1,350,000 PSEG Power, 6.95% due 6/01/2012 (b) 1,347,340 1,307,772 BBB Baa1 1,765,000 Pepco Holdings Inc., 6.45% due 8/15/2012 (b) 1,760,358 1,828,964 BBB+ Baa1 2,270,000 Southern Power Company, 6.25% due 7/15/2012 (b) 2,266,799 2,466,255 BBB A2 1,060,000 Tampa Electric, 6.375% due 8/15/2012 1,051,488 1,080,532 BBB- Baa2 2,000,000 Teco Energy Inc., 7% due 5/01/2012 1,997,800 1,792,980 -------------- -------------- 29,863,579 30,557,453 Yankee A- A1 1,200,000 BSCH Issuances Ltd., 7.625% due 9/14/2010 (1) 1,246,894 1,268,208 Corporates++ A- Baa1 4,910,000 British Telecom PLC, 8.375% due 12/15/2010 (2) 5,274,129 5,768,273 - --1.7% France Telecom (2): BBB- Baa3 935,000 9.25% due 3/01/2011 930,877 1,019,960 BBB- Baa3 1,095,000 9.75% due 3/01/2031 1,155,972 1,210,900 A A1 2,495,000 HSBC Holding PLC, 7.50% due 7/15/2009 (1) 2,636,480 2,942,406 Morgan Stanley TRACERS (b)(1): NR* A3 4,920,000 5.854% due 3/01/2007 (a) 5,058,374 5,129,690 NR* Baa1 4,920,000 6.726% due 6/15/2012 5,197,731 5,330,869 A A2 1,330,000 Norsk Hydro A/S, 6.36% due 1/15/2009 (2) 1,317,870 1,455,834 BBB- Baa1 2,500,000 Pemex Project Funding Master Trust, 9.125% due 10/13/2010 (1) 2,559,681 2,662,500 -------------- -------------- 25,378,008 26,788,640 Yankee Federal Republic of Brazil (3): Sovereigns++ B+ B2 1,975,000 11.625% due 4/15/2004 1,941,953 1,545,437 - --1.3% B+ B2 3,545,000 14.50% due 10/15/2009 2,137,170 1,976,337 A- A3 2,300,000 Korea Development Bank, 7.125% due 4/22/2004 (1) 2,283,210 2,458,831 AAA Aaa 2,350,000 Republic of Finland, 5.875% due 2/27/2006 (3) 2,431,728 2,596,644 AA Aa2 6,800,000 Republic of Italy, 4.375% due 10/25/2006 (3) 6,629,848 7,209,129 BBB- Baa2 3,120,000 United Mexican States, 9.875% due 2/01/2010 (3) 3,586,035 3,541,200 -------------- -------------- 19,009,944 19,327,578 Total Investments in Bonds--49.8% 737,364,823 762,593,294 Merrill Lynch Bond Fund, Inc., Core Bond Portfolio & Intermediate Term Portfolio September 30, 2002 SCHEDULE OF INVESTMENTS (continued) S&P Moody's Face Industries Rating+++ Rating+++ Amount Issue Cost Value U.S. Government & Agency Obligations Core Bond Portfolio U.S. Fannie Mae: Government & AAA Aaa $11,150,000 6% (c)** $ 11,553,981 $ 11,578,573 Agency AAA Aaa 80,600,000 6% (c)** 82,196,881 82,908,223 Obligations AAA Aaa 50,000,000 7.50% (c)** 52,670,388 52,688,600 - --58.0% AAA Aaa 15,000,000 8% (c)** 15,993,234 16,004,490 AAA Aaa 29,400,000 7% due 7/15/2005 31,515,903 32,989,034 AAA Aaa 17,890,000 5.25% due 6/15/2006 18,275,671 19,401,365 AAA Aaa 5,000,000 7.125% due 3/15/2007 5,475,391 5,847,705 AAA Aaa 10,800,000 6.375% due 6/15/2009 11,446,555 12,450,078 AAA Aaa 7,525,000 6% due 5/15/2011 7,748,644 8,461,486 AAA Aaa 13,689,581 6% due 6/01/2016** 13,638,244 14,229,622 AAA Aaa 6,230,735 6.50% due 7/01/2016** 6,281,360 6,528,830 AAA Aaa 1,834,656 6.50% due 8/01/2016** 1,843,829 1,922,430 AAA Aaa 5,374,361 6% due 2/01/2017** 5,418,361 5,586,375 AAA Aaa 7,581,693 6.50% due 4/01/2017** 7,773,693 7,944,420 AAA Aaa 4,187,318 7% due 11/18/2027** 4,084,107 4,258,861 AAA Aaa 12,450,000 7.125% due 1/15/2030 13,850,442 15,434,165 AAA Aaa 5,468,346 8% due 9/01/2030** 5,663,011 5,846,732 AAA Aaa 63,154,036 6.50% due 6/01/2031** 62,737,088 65,494,278 AAA Aaa 8,250,271 7% due 6/01/2031** 8,351,466 8,616,181 AAA Aaa 8,612,333 6.50% due 7/01/2031** 8,539,667 8,931,473 AAA Aaa 4,827,101 7% due 9/01/2031** 5,003,378 5,041,188 AAA Aaa 189,329 7% due 11/01/2031** 195,129 197,726 AAA Aaa 139,511 6% due 1/01/2032** 135,914 143,508 AAA Aaa 4,511,438 6% due 2/01/2032** 4,436,717 4,640,704 AAA Aaa 3,778,311 7% due 3/01/2032** 3,903,119 3,946,015 AAA Aaa 3,817,883 7% due 4/01/2032** 3,944,000 3,987,211 AAA Aaa 25,464,106 7% due 7/01/2032** 26,305,598 26,593,470 AAA Aaa 26,610,317 7% due 8/01/2032** 27,472,944 27,791,437 Freddie Mac: AAA Aaa 36,400,000 6% (c)** 37,110,248 37,487,887 AAA Aaa 16,000,000 6.50% (c)** 16,706,458 16,748,496 AAA Aaa 56,943,328 6.50% (c)** 58,836,760 59,062,816 AAA Aaa 13,000,000 8% (c)** 13,858,921 13,843,154 AAA Aaa 24,700,000 7% due 7/15/2005 26,478,376 27,734,765 AAA Aaa 14,115,000 6.625% due 9/15/2009 15,146,511 16,523,344 AAA Aaa 5,699,655 5.57% due 7/15/2022** 5,816,754 5,774,942 AAA Aaa 26,243,112 Ginnie Mae, 6.50% due 5/15/2031** 26,193,906 27,397,549 U.S. Treasury Bonds & Notes: AAA Aaa 8,600,000 7.50% due 2/15/2005 9,396,057 9,729,421 AAA Aaa 22,750,000 6.50% due 5/15/2005 24,223,586 25,417,801 AAA Aaa 2,680,000 5.75% due 11/15/2005 2,839,796 2,976,684 AAA Aaa 7,150,000 6.25% due 2/15/2007 7,656,734 8,266,351 AAA Aaa 54,768,000 3.25% due 8/15/2007 55,614,655 56,449,542 AAA Aaa 8,740,000 6.125% due 8/15/2007 9,390,663 10,127,475 AAA Aaa 6,240,000 4.75% due 11/15/2008 6,355,961 6,853,030 AAA Aaa 3,760,000 6.50% due 2/15/2010 4,226,764 4,537,557 AAA Aaa 5,380,000 5% due 2/15/2011 5,294,915 5,976,421 AAA Aaa 39,850,000 4.375% due 8/15/2012 41,829,440 42,371,748 AAA Aaa 6,130,000 7.50% due 11/15/2016 7,519,168 8,127,037 AAA Aaa 3,740,000 8.125% due 8/15/2019 4,835,598 5,285,087 AAA Aaa 13,030,000 7.25% due 8/15/2022 16,165,935 17,214,871 AAA Aaa 2,680,000 6.25% due 8/15/2023 2,961,314 3,195,900 AAA Aaa 2,680,000 6.625% due 2/15/2027 3,092,091 3,370,414 AAA Aaa 12,523,000 5.375% due 2/15/2031 13,829,767 13,916,184 Total Investments in U.S. Government & Agency Obligations--58.0% 861,835,093 887,852,656 Merrill Lynch Bond Fund, Inc., Core Bond Portfolio & Intermediate Term Portfolio September 30, 2002 SCHEDULE OF INVESTMENTS (concluded) Face Industries Amount Issue Cost Value Short-Term Securities Core Bond Portfolio Commercial Paper***--12.0% Conoco Inc.: $ 3,491,000 1.87% due 10/02/2002 $ 3,490,819 $ 3,490,819 25,000,000 1.86% due 10/15/2002 24,981,917 24,981,917 23,260,000 Forrestal Funding Master Trust, 1.78% due 11/05/2002 23,219,747 23,219,747 20,000,000 Morgan Stanley, 1.77% due 10/09/2002 19,992,133 19,992,133 19,000,000 Phillips Petroleum Co., 1.86% due 10/22/2002 18,979,385 18,979,385 Sears Roebuck Acceptance Corporation: 15,000,000 2% due 10/08/2002 14,994,167 14,994,167 8,293,000 2% due 10/11/2002 8,288,393 8,288,393 19,590,000 2% due 10/16/2002 19,573,675 19,573,675 Textron Financial Corporation 10,200,000 1.90% due 10/03/2002 10,198,923 10,198,923 4,797,000 1.92% due 10/09/2002 4,794,953 4,794,953 35,300,000 UBS Finance (Delaware) Inc., 1.97% due 10/01/2002 35,300,000 35,300,000 Total Investments in Short-Term Securities--12.0% 183,814,112 183,814,112 Total Investments--119.8% 1,783,014,028 1,834,260,062 Nominal Value Premiums Covered by Options Received Options Options Written--0.0% 73,000,000 Swaption, expiring 11/05/2002 (e) (153,300) (149,650) Total Options Written--0.0% (153,300) (149,650) Total Investments, Net of Options Written--119.8% $1,782,860,728 1,834,110,412 ============== Liabilities in Excess of Other Assets--(19.8%) (303,753,728) -------------- Net Assets--100.0% $1,530,356,684 ============== *Not Rated. **Asset-Backed and Mortgage-Backed Obligations are subject to principal paydowns as a result of prepayments or refinancings of the underlying instruments. As a result, the average life may be substantially less than the original maturity. ***Commercial Paper is traded on a discount basis; the interest rates shown reflect the discount rates paid at the time of purchase by the Portfolio. ++Corresponding industry groups for foreign securities: (1)Financial Institution. (2)Industrial. (3)Government Entity. +++Ratings of issues shown have not been audited by Deloitte & Touche LLP. (a) Floating rate note. (b) The security may be offered and sold to "qualified institutional buyers" under Rule 144A of the Securities Act of 1933. (c) Represents a "to-be-announced" (TBA) transaction. The Portfolio has committed to purchasing securities for which all specific information is not available at this time. (d) Restricted securities as to resale. The value of the Portfolio's investments in restricted securities was approximately $28,528,000, representing 1.9% of net assets. Acquisition Issue Date Cost Value Security Life of Denver, 0.33% due 10/01/2002 3/28/2002 $23,000,000 $ 25,882,289 Tenet Healthcare Corporation, 6.875% due 11/15/2031 10/30/2001 2,328,452 2,645,676 ----------- ------------- Total $25,328,452 $ 28,527,965 =========== ============= (e) This European style swaption, which can be exercised only on the expiration date, represents a standby commitment whereby the Portfolio is obligated to enter into a predetermined interest rate swap contract upon exercise of the swaption. See Notes to Financial Statements. Merrill Lynch Bond Fund, Inc., Core Bond Portfolio & Intermediate Term Portfolio September 30, 2002 SCHEDULE OF INVESTMENTS S&P Moody's Face Industries Rating+++ Rating+++ Amount Issue Cost Value Bonds Intermediate Term Portfolio Asset-Backed AAA Aaa $ 4,000,000 Advanta Mortgage Loan Trust, 7.75% due Securities** 10/25/2026 $ 4,139,063 $ 4,419,863 - --18.3% NR* Aaa 3,711,173 Bank of America Mortgage Securities, Series 2002-IA, Class 1B, 4.64% due 8/25/2032 3,748,225 3,740,167 AAA Aaa 3,018,000 CIT Equipment Collateral, Series 2002-VT1, Class A2, 2.90% due 6/21/2004 3,017,839 3,038,008 NR* Aaa 3,590,317 CountryWide Home Loan, Series 2001-24, Class 1A6, 6% due 1/25/2032 3,608,080 3,689,123 AAA Aaa 2,838,305 EQCC Home Equity Loan Trust, Series 1999-1, Class A3F, 5.915% due 11/20/2024 2,890,714 2,908,118 AAA NR* 3,249,315 General Motors Acceptance Corporation, Mortgage Corporation Loan Trust, 6.25% due 1/25/2032 3,288,013 3,325,121 AAA Aaa 3,900,000 Household Automotive Trust, Series 2002-1, Class A2, 2.75% due 5/17/2005 3,899,690 3,933,455 AAA Aaa 3,440,666 Household Home Equity Loan Trust, Series 2002-2, Class A, 2.12% due 4/20/2032 (c) 3,440,666 3,430,349 AAA Aaa 3,800,000 Ikon Receivables LLC, Series 2002-1, Class A2, 2.91% due 2/15/2005 3,799,991 3,815,165 AAA Aaa 3,250,000 LB-UBS Commercial Mortgage Trust, Series 2002-C1, Class A3, 6.226% due 3/15/2026 3,265,957 3,625,046 A+ A2 1,515,955 MBNA Master Credit Card Trust, Series 1999-F, Class B, 2.14% due 1/16/2007 (c) 1,518,766 1,516,107 AAA NR* 10,000,000 Nationslink Funding Corporation, Series 1999-2, Class A3, 7.181% due 12/20/2006 10,000,000 11,269,039 AAA Aaa 3,696,828 Option One Mortgage Loan Trust, Series 2002-4, Class A, 2.07% due 7/25/2032 (c) 3,696,828 3,680,874 AAA NR* 1,796,496 Residential Funding Mortgage Securities Inc., Series 2001-S23, Class 2A1, 5.50% due 10/25/2031 1,834,729 1,817,515 Security Life of Denver: NR* NR* 9,000,000 0.33% due 10/01/2002 (d) 9,000,000 10,127,852 NR* NR* 10,000,000 0.44% due 3/31/2003 10,000,000 10,000,000 AAA Aaa 2,618,399 Structured Asset Securities Corporation, Series 2002-9, Class A2, 2.114% due 10/25/2027 (c) 2,618,399 2,614,790 A A2 3,025,000 Superior Wholesale Inventory Financing Trust, Series 2001-A7, 2.205% due 6/15/2006 (c) 3,029,042 3,025,393 AAA Aaa 6,900,000 Washington Mutual Inc., Series 2002-AR4, Class A7, 5.59% due 4/25/2032 6,827,766 7,130,221 AAA Aaa 2,410,499 Wells Fargo Mortgage-Backed Securities Trust, Series 2002-A, Class A-2, 5.90% due 3/25/2032 2,451,713 2,443,060 -------------- -------------- 86,075,481 89,549,266 Automotive BBB+ Baa1 1,250,000 Ford Motor Company, 7.45% due 7/16/2031 1,200,125 1,028,758 & Equipment - --0.2% Canadian BBB- Baa3 150,000 Abitibi Consolidated Inc., 8.55% due Corporates++ 8/01/2010 (2) 157,225 158,410 - --0.0% Canadian AAA Aaa 900,000 Canada Government Bond, 6.375% due Sovereigns++ 11/30/2004 (3) 943,529 984,686 - --1.3% Province of Ontario (3): AA Aa2 1,455,000 3.50% due 9/17/2007 1,446,619 1,481,731 AA Aa2 950,000 5.50% due 10/01/2008 991,953 1,058,620 Province of Quebec (3): A+ A1 1,080,000 5% due 7/17/2009 1,135,637 1,151,724 A+ A1 1,250,000 7.50% due 9/15/2029 1,404,173 1,617,419 A+ Aa3 210,000 Province of Saskatchewan, 8% due 7/15/2004 (3) 225,041 231,163 -------------- -------------- 6,146,952 6,525,343 Merrill Lynch Bond Fund, Inc., Core Bond Portfolio & Intermediate Term Portfolio September 30, 2002 SCHEDULE OF INVESTMENTS (continued) S&P Moody's Face Industries Rating+++ Rating+++ Amount Issue Cost Value Bonds (continued) Intermediate Term Portfolio Chemicals BBB+ Baa1 $ 570,000 Chevron Phillips Chemical Company, 5.375% - --0.2% due 6/15/2007 $ 567,207 $ 602,997 BBB- Ba1 295,000 Methanex Corporation, 8.75% due 8/15/2012 295,000 305,325 -------------- -------------- 862,207 908,322 Finance--0.6% A A2 670,000 AT&T Capital Corporation, 6.60% due 5/15/2005 662,833 693,535 A+ A1 575,000 American General Finance, 5.375% due 9/01/2009 570,860 595,153 Capital One Bank: BBB- Baa2 105,000 6.50% due 7/30/2004 104,322 99,404 BBB- Baa2 490,000 6.875% due 2/01/2006 486,678 460,326 A A2 700,000 Household Finance Corporation, 7% due 5/15/2012 685,559 674,398 AA Aa3 330,000 Texaco Capital Inc., 8.625% due 6/30/2010 379,571 422,624 -------------- -------------- 2,889,823 2,945,440 Finance-- BB&T Corporation: Banks--5.4% A- A2 755,000 6.50% due 8/01/2011 773,780 861,975 A- A1 1,100,000 4.75% due 10/01/2012 1,089,451 1,113,054 A- A1 700,000 Banc One Corp., 8% due 4/29/2027 770,970 877,633 A+ Aa2 755,000 Bank of America Corp., 4.875% due 9/15/2012 752,184 763,061 A+ Aa2 640,000 The Bank of New York, 5.20% due 7/01/2007 638,842 691,185 Bank One Corp.: A Aa3 800,000 6.875% due 8/01/2006 827,731 902,070 A Aa3 380,000 4.125% due 9/01/2007 379,422 391,583 A+ Aa2 2,370,000 BankAmerica Corp., 5.875% due 2/15/2009 2,387,828 2,568,367 Citigroup Inc.: AA- Aa1 730,000 5.70% due 2/06/2004 749,450 763,541 AA- Aa1 770,000 5.75% due 5/10/2006 826,629 834,307 AA- Aa1 1,200,000 6.50% due 1/18/2011 1,224,593 1,335,566 A+ Aa2 925,000 6.625% due 6/15/2032 912,522 964,331 A A1 1,600,000 FleetBoston Financial Corp., 7.25% due 9/15/2005 1,598,144 1,750,587 BB+ NR* 335,000 Hudson United Bancorp Inc., 8.20% due 9/15/2006 344,766 369,490 Inter-American Development Bank: AAA Aaa 920,000 4.375% due 9/20/2012 915,952 934,786 AAA Aaa 2,590,000 6.80% due 10/15/2025 3,074,734 3,107,516 A+ Aa3 450,000 Marshall & Ilsley Bank, 4.125% due 9/04/2007 448,619 466,151 A+ Aa3 1,150,000 National City Bank of Indiana, 4% due 9/28/2007 1,148,436 1,185,113 A Aa3 1,475,000 US Bancorp, 1.97% due 9/16/2005 (c) 1,475,000 1,473,883 A A1 735,000 Wachovia Corporation, 4.95% due 11/01/2006 772,615 785,036 BBB+ A3 800,000 Washington Mutual Inc., 7.50% due 8/15/2006 794,840 903,486 A+ Aa2 1,510,000 Wells Fargo Bank, 6.45% due 2/01/2011 1,625,932 1,702,786 Wells Fargo & Co.: A+ Aa2 800,000 7.25% due 8/24/2005 838,125 894,325 A+ Aa2 950,000 5.125% due 2/15/2007 949,687 1,020,820 -------------- -------------- 25,320,252 26,660,652 Merrill Lynch Bond Fund, Inc., Core Bond Portfolio & Intermediate Term Portfolio September 30, 2002 SCHEDULE OF INVESTMENTS (continued) S&P Moody's Face Industries Rating+++ Rating+++ Amount Issue Cost Value Bonds (continued) Intermediate Term Portfolio Finance-- A+ A2 $ 785,000 American Honda Finance, 2.032% due Other--6.8% 10/03/2005 (a)(c) $ 784,757 $ 784,921 CIT Group Inc.: A A2 245,000 5.625% due 5/17/2004 250,539 250,889 A A2 295,000 7.25% due 8/15/2005 285,197 311,310 A A2 300,000 6.50% due 2/07/2006 308,504 315,592 Chrysler Financial Company LLC (c): BBB+ A3 758,000 1.985% due 2/03/2003 756,997 756,785 BBB+ A3 758,000 1.99% due 3/06/2003 756,776 756,298 A A3 1,105,000 CountryWide Home Loan, 5.625% due 7/15/2009 1,099,353 1,159,128 Ford Motor Credit Company: BBB+ A3 6,500,000 2.55% due 4/17/2003 (c) 6,480,606 6,419,550 BBB+ A3 1,665,000 7.25% due 10/25/2011 1,641,009 1,539,126 AAA Aaa 660,000 General Electric Capital Corporation, 6.75% due 3/15/2032 673,420 707,884 General Motors Acceptance Corp.: BBB+ A2 9,500,000 3.31% due 10/16/2003 (c) 9,551,619 9,453,469 BBB+ A2 305,000 6.85% due 6/17/2004 311,332 315,926 BBB+ A2 807,000 7.75% due 1/19/2010 855,721 835,566 BBB+ A2 1,309,000 8% due 11/01/2031 1,294,627 1,268,777 A A1 980,000 Golden West Financial Corporation, 4.75% due 10/01/2012 973,130 985,352 A+ Aa3 675,000 Goldman Sachs Group, Inc., 7.625% due 8/17/2005 702,930 760,691 AA- A1 410,000 International Lease Finance Corporation, 5.625% due 6/01/2007 418,372 421,013 A A2 480,000 John Hancock Financial Services, 5.625% due 12/01/2008 478,666 506,179 Lehman Brothers Holdings, Inc.: A A2 1,000,000 6.625% due 4/01/2004 1,011,822 1,055,894 A A2 90,000 7% due 2/01/2008 90,798 101,094 A A2 1,155,000 6.625% due 1/18/2012 1,217,091 1,265,585 BBB Baa2 945,000 MBNA Corporation, 6.25% due 1/17/2007 942,921 978,586 AA Aa3 760,000 Principal Life Global, 6.25% due 2/15/2012 (a) 750,447 818,005 A- A2 470,000 Regions Financial Corporation, 6.375% due 5/15/2012 468,802 530,324 A+ A1 1,130,000 Verizon Global Funding Corporation, 6.75% due 12/01/2005 1,148,329 1,191,213 -------------- -------------- 33,253,765 33,489,157 Food A+ A1 745,000 Archer-Daniels-Midland, 5.935% due 10/01/2032 739,495 739,494 Distribution - --0.2% Gas BBB Baa3 500,000 The Coastal Corporation, 6.50% due 6/01/2008 488,481 335,000 Transmission - --0.1% Hotels--0.1% BBB- Ba1 626,000 Starwood Hotels & Resorts, 7.375% due 5/01/2007 (a) 624,028 607,220 Merrill Lynch Bond Fund, Inc., Core Bond Portfolio & Intermediate Term Portfolio September 30, 2002 SCHEDULE OF INVESTMENTS (continued) S&P Moody's Face Industries Rating+++ Rating+++ Amount Issue Cost Value Bonds (continued) Intermediate Term Portfolio Industrial-- A A2 $ 660,000 Coca-Cola Enterprises, 6.125% due 8/15/2011 $ 670,344 $ 742,284 Consumer BBB+ Baa2 1,645,000 Coors Brewing Company, 6.375% due 5/15/2012 1,764,352 1,861,546 Goods--1.1% A A1 1,455,000 Pepsi Bottling Holdings Inc., 5.625% due 2/17/2009 (a) 1,519,265 1,583,481 BBB Baa3 910,000 Tyson Foods, Inc., 6.625% due 10/01/2004 908,298 966,812 -------------- -------------- 4,862,259 5,154,123 Industrial-- BBB Baa2 470,000 Allete Inc., 7.80% due 2/15/2008 484,422 533,042 Energy--2.8% BBB+ Baa2 705,000 AmerenEnergy Generating, 7.95% due 6/01/2032 702,377 801,773 Anadarko Finance Company: BBB+ Baa1 285,000 6.75% due 5/01/2011 287,273 320,082 BBB+ Baa1 250,000 7.50% due 5/01/2031 256,876 296,703 Apache Corporation: A- A3 105,000 6.25% due 4/15/2012 104,252 118,334 A- A3 275,000 7.625% due 7/01/2019 287,153 326,301 A A2 800,000 Colonial Pipeline, 7.63% due 4/15/2032 (a) 799,784 946,544 Conoco Inc.: A- A3 1,170,000 5.90% due 4/15/2004 1,192,277 1,227,853 A- A3 950,000 6.95% due 4/15/2029 1,069,034 1,073,174 Kinder Morgan Energy: BBB+ Baa1 510,000 5.35% due 8/15/2007 (a) 509,653 530,541 BBB+ Baa1 815,000 6.75% due 3/15/2011 824,467 880,228 BBB Baa2 1,520,000 Kinder Morgan Inc., 6.50% due 9/01/2012 (a) 1,515,683 1,580,637 A+ A1 1,265,000 Motiva Enterprises LLC, 5.20% due 9/15/2012 (a) 1,261,028 1,283,770 A- Baa1 648,000 Murphy Oil Corporation, 6.375% due 5/01/2012 645,875 722,438 Ocean Energy Inc.: BBB- Baa3 330,000 4.375% due 10/01/2007 329,139 334,486 BBB- Baa3 690,000 7.25% due 10/01/2011 707,918 790,042 BBB A3 1,470,000 Oncor Electric Delivery, 6.375% due 5/01/2012 (a) 1,466,810 1,597,783 A- Baa2 485,000 Transocean Sedco Forex, 6.50% due 4/15/2003 491,256 493,752 -------------- -------------- 12,935,277 13,857,483 Industrial-- A A2 775,000 Alcoa Inc., 2.063% due 12/06/2004 (c) 775,000 774,809 Manu- A+ A3 330,000 Boeing Capital Corporation, 7.10% due facturing 9/27/2005 343,247 360,176 - --3.6% Daimler-Chrysler NA Holdings: BBB+ A3 6,001,000 7.125% due 4/10/2003 6,121,410 6,114,131 BBB+ A3 900,000 6.40% due 5/15/2006 899,631 966,267 BBB- Baa3 155,000 Domtar Inc., 7.875% due 10/15/2011 167,004 177,833 A A2 205,000 Emerson Electric Company, 6% due 8/15/2032 201,587 207,559 A+ A1 1,090,000 First Data Corporation, 6.75% due 7/15/2005 1,136,647 1,195,694 BBB Baa2 620,000 Lockheed Martin Corporation, 8.50% due 12/01/2029 807,484 823,297 BBB Baa2 530,000 Martin Marietta Corp., 7.375% due 4/15/2013 578,131 634,018 BBB- Baa3 685,000 Noranda Inc., 7.25% due 7/15/2012 680,226 726,402 BBB- Baa3 3,070,000 Northrop Grumman Corporation, 7.125% due 2/15/2011 3,306,073 3,486,624 BBB+ A3 395,000 Praxair Inc., 6.375% due 4/01/2012 393,227 441,674 Raytheon Company: BBB- Baa3 675,000 8.30% due 3/01/2010 760,117 793,357 BBB- Baa3 660,000 6.75% due 3/15/2018 660,788 685,854 -------------- -------------- 16,830,572 17,387,695 Merrill Lynch Bond Fund, Inc., Core Bond Portfolio & Intermediate Term Portfolio September 30, 2002 SCHEDULE OF INVESTMENTS (continued) S&P Moody's Face Industries Rating+++ Rating+++ Amount Issue Cost Value Bonds (continued) Intermediate Term Portfolio Industrial BBB+ Baa1 $ 675,000 AOL Time Warner Inc., 6.875% due 5/01/2012 $ 573,141 $ 614,250 - --Services Aramark Services Inc.: - --2.6% BBB- Baa3 825,000 6.75% due 8/01/2004 835,736 859,610 BBB- Baa3 690,000 6.375% due 2/15/2008 688,661 707,049 BBB Baa1 785,000 Cendant Corporation, 6.875% due 8/15/2006 778,131 789,408 BB+ Ba2 1,570,000 Circus Circus Enterprises, Inc., 6.70% due 11/15/2096 1,540,845 1,575,352 Clear Channel Communications: BBB- Baa3 570,000 7.875% due 6/15/2005 594,302 593,652 BBB- Baa3 300,000 7.65% due 9/15/2010 270,456 317,198 BBB- Ba1 940,000 HCA Inc., 6.30% due 10/01/2012 933,241 929,004 Kroger Company: BBB- Baa3 550,000 6.20% due 6/15/2012 549,681 580,284 BBB- Baa3 580,000 7.50% due 4/01/2031 601,642 637,869 BBB- Baa3 900,000 Liberty Media Corporation, 7.875% due 7/15/2009 909,648 943,931 BBB Baa2 185,000 Safeway Inc., 6.50% due 3/01/2011 189,988 201,755 BBB Baa3 200,000 SuperValu Inc., 7.50% due 5/15/2012 204,971 212,499 Tele-Communications Inc.: BBB+ Baa3 920,000 8.25% due 1/15/2003 922,606 916,050 BBB+ Baa3 785,000 9.80% due 2/01/2012 905,210 781,490 Tenet Healthcare Corporation: BBB Baa3 425,000 5% due 7/01/2007 421,137 441,124 BBB Baa3 840,000 6.875% due 11/15/2031 (d) 779,243 885,405 Viacom Inc.: A- A3 45,000 5.625% due 8/15/2012 44,933 47,132 A- A3 710,000 7.875% due 7/30/2030 771,679 854,734 -------------- -------------- 12,515,251 12,887,796 Industrial-- AAA Aaa 475,000 Continental Airlines, 6.563% due 2/15/2012 475,000 512,106 Transporta- Southwest Airlines Co.: tion--0.3% A Baa1 110,000 8% due 3/01/2005 109,407 122,623 A Baa1 630,000 7.875% due 9/01/2007 634,441 727,819 -------------- -------------- 1,218,848 1,362,548 Real Estate BBB+ Baa1 1,320,000 EOP Operating LP, 7.375% due 11/15/2003 1,318,706 1,381,661 Investment BBB+ Baa2 195,000 Health Care Properties Inc., 7.48% due Trust--1.1% 4/05/2004 203,163 207,225 Health Care Properties Investors Inc.: BBB+ Baa2 465,000 6.50% due 2/15/2006 480,184 494,544 BBB+ Baa2 840,000 6.45% due 6/25/2012 837,497 885,886 BBB+ Baa1 2,500,000 Prologis Trust, 7% due 10/01/2003 2,536,736 2,587,770 -------------- -------------- 5,376,286 5,557,086 Supranational A A2 1,485,000 Corporacion Andina de Fomento, 6.875% due - --0.3% 3/15/2012 1,468,606 1,587,569 Tobacco BBB- Baa2 315,000 RJ Reynolds Tobacco Holdings, 6.50% due - --0.1% 6/01/2007 314,471 331,991 Utilities-- A A2 500,000 360 Communications Co., 7.50% due 3/01/2006 510,834 549,900 Communica- AT&T Corporation: tions--1.2% BBB+ Baa2 1,160,000 6% due 3/15/2009 1,096,093 1,044,000 BBB+ Baa2 300,000 7.30% due 11/15/2011 252,591 289,500 AT&T Wireless Services Inc.: BBB Baa2 395,000 8.125% due 5/01/2012 336,578 304,150 BBB Baa2 372,000 8.75% due 3/01/2031 415,496 267,840 Merrill Lynch Bond Fund, Inc., Core Bond Portfolio & Intermediate Term Portfolio September 30, 2002 SCHEDULE OF INVESTMENTS (continued) S&P Moody's Face Industries Rating+++ Rating+++ Amount Issue Cost Value Bonds (concluded) Intermediate Term Portfolio Utilities-- A A2 $ 510,000 Alltel Corporation, 7% due 7/01/2012 $ 507,986 $ 566,632 Communi- BBB+ Baa2 365,000 CenturyTel Inc., 7.875% due 8/15/2012 (a) 362,733 399,545 cations BBB Baa2 240,000 Citizens Communications Company, 7.625% (concluded) due 8/15/2008 238,824 225,600 A+ A2 1,010,000 GTE Corporation, 6.84% due 4/15/2018 1,012,271 965,952 BBB- Baa3 1,400,000 Sprint Capital Corporation, 5.70% due 11/15/2003 1,361,364 1,274,896 -------------- -------------- 6,094,770 5,888,015 Utilities-- BBB+ A3 420,000 Alabama Power Capital Trust, 5.50% due Electric 10/01/2042 (c) 419,063 419,063 & Gas-- BBB Baa1 1,685,000 Cincinnati Gas & Electric Company, 5.70% due 2.0% 9/15/2012 1,691,863 1,715,827 BBB+ Baa1 660,000 Commonwealth Edison Company, 6.95% due 7/15/2018 666,925 693,190 BBB Baa1 775,000 Conectiv Inc., 5.30% due 6/01/2005 (a) 774,809 796,761 A+ A1 330,000 Consolidated Edison Inc., 7.15% due 12/01/2009 356,621 386,568 BBB+ Baa1 1,135,000 Constellation Energy Group, 6.125% due 9/01/2009 1,133,195 1,146,698 Dominion Resources Inc.: BBB+ Baa1 740,000 7.625% due 7/15/2005 749,074 812,509 BBB+ Baa1 160,000 8.125% due 6/15/2010 186,244 185,980 BBB+ Baa2 300,000 Exelon Corporation, 6.75% due 5/01/2011 313,872 331,681 A A1 660,000 Mississippi Power, 6.05% due 5/01/2003 670,381 672,574 BBB Baa1 440,000 PSEG Power, 6.95% due 6/01/2012 (a) 439,133 426,237 BBB Baa1 575,000 Pepco Holdings Inc., 6.45% due 8/15/2012 (a) 573,488 595,838 BBB+ Baa1 740,000 Southern Power Company, 6.25% due 7/15/2012 (a) 738,957 803,977 BBB A2 350,000 Tampa Electric, 6.375% due 8/15/2012 347,190 356,780 BBB- Baa2 670,000 Teco Energy Inc., 7% due 5/01/2012 669,263 600,648 -------------- -------------- 9,730,078 9,944,331 Yankee A- A1 400,000 BSCH Issuances Ltd., 7.625% due 9/14/2010 (1) 415,631 422,736 Corporates++ A- Baa1 1,780,000 British Telecom PLC, 8.375% due 12/15/2010 (2) 1,907,140 2,091,146 - --1.9% France Telecom (2): BBB- Baa3 300,000 9.25% due 3/01/2011 298,677 327,260 BBB- Baa3 400,000 9.75% due 3/01/2031 422,314 442,338 A A1 915,000 HSBC Holding PLC, 7.50% due 7/15/2009 (1) 966,722 1,079,079 Morgan Stanley TRACERS (a)(1): NR* A3 1,620,000 5.854% due 3/01/2007 (c) 1,665,562 1,689,044 NR* Baa1 1,620,000 6.726% due 6/15/2012 1,711,448 1,755,286 A A2 340,000 Norsk Hydro A/S, 6.36% due 1/15/2009 (2) 336,899 372,168 BBB- Baa1 855,000 Pemex Project Funding Master Trust, 9.125% due 10/13/2010 (1) 875,411 910,575 -------------- -------------- 8,599,804 9,089,632 Yankee Federal Republic of Brazil (3): Sovereigns++ B+ B2 775,000 11.625% due 4/15/2004 762,032 606,437 - --1.4% B+ B2 1,375,000 14.50% due 10/15/2009 828,939 766,562 A- A3 800,000 Korea Development Bank, 7.125% due 4/22/2004 (1) 818,290 855,246 AAA Aaa 700,000 Republic of Finland, 5.875% due 2/27/2006 (3) 724,344 773,469 AA Aa2 2,380,000 Republic of Italy, 4.375% due 10/25/2006 (3) 2,322,797 2,523,195 BBB- Baa2 1,020,000 United Mexican States, 9.875% due 2/01/2010 (3) 1,172,358 1,157,700 -------------- -------------- 6,628,760 6,682,609 Total Investments in Bonds--51.6% 244,332,816 252,677,940 Merrill Lynch Bond Fund, Inc., Core Bond Portfolio & Intermediate Term Portfolio September 30, 2002 SCHEDULE OF INVESTMENTS (continued) S&P Moody's Face Industries Rating+++ Rating+++ Amount Issue Cost Value U.S. Government & Agency Obligations Intermediate Term Portfolio U.S. Fannie Mae: Government & AAA Aaa $ 3,000,000 6% (b)** $ 3,108,694 $ 3,115,311 Agency AAA Aaa 16,900,000 6% (b)** 17,235,735 17,383,982 Obligations AAA Aaa 29,500,000 6.50% (b)** 30,464,136 30,570,319 - --54.9% AAA Aaa 17,300,000 7.50% (b)** 18,223,954 18,230,256 AAA Aaa 3,600,000 8% (b)** 3,838,376 3,841,078 AAA Aaa 10,000,000 7% due 7/15/2005** 10,719,695 11,220,760 AAA Aaa 5,950,000 5.25% due 6/15/2006 6,078,270 6,452,662 AAA Aaa 1,660,000 7.125% due 3/15/2007 1,817,830 1,941,438 AAA Aaa 3,590,000 6.375% due 6/15/2009 3,804,920 4,138,498 AAA Aaa 2,500,000 6% due 5/15/2011 2,574,300 2,811,125 AAA Aaa 2,986,287 6% due 5/01/2016** 2,975,089 3,104,094 AAA Aaa 1,008,253 6% due 6/01/2016** 1,004,472 1,048,028 AAA Aaa 3,178,291 6% due 2/01/2017** 3,204,312 3,303,672 AAA Aaa 5,898,377 6.50% due 4/01/2017** 6,047,749 6,180,570 AAA Aaa 2,057,583 7% due 11/18/2027** 2,006,866 2,092,738 AAA Aaa 4,140,000 7.125% due 1/15/2030 4,617,194 5,132,325 AAA Aaa 1,134,447 8% due 9/01/2030** 1,174,862 1,212,946 AAA Aaa 7,099,345 7% due 2/01/2031** 7,333,886 7,415,478 AAA Aaa 6,249,648 6.50% due 6/01/2031** 6,205,216 6,481,235 AAA Aaa 13,677,195 7% due 9/01/2031** 14,176,662 14,283,795 AAA Aaa 1,765,345 6% due 2/01/2032** 1,736,107 1,815,928 AAA Aaa 2,290,731 7% due 4/01/2032** 2,366,401 2,392,327 Freddie Mac: AAA Aaa 9,000,000 6% (b)** 9,179,951 9,268,983 AAA Aaa 3,000,000 6.50% (b)** 3,132,461 3,140,343 AAA Aaa 8,000,000 6.50% (b)** 8,262,444 8,297,768 AAA Aaa 5,000,000 8% (b)** 5,330,354 5,324,290 AAA Aaa 8,000,000 7% due 7/15/2005 8,575,992 8,982,920 AAA Aaa 4,690,000 6.625% due 9/15/2009 5,032,741 5,490,222 AAA Aaa 1,810,319 5.57% due 7/15/2022** 1,847,512 1,834,232 AAA Aaa 2,963,815 6% due 6/01/2032** 2,919,821 3,052,443 AAA Aaa 9,372,871 Ginnie Mae, 6.50% due 4/15/2032** 9,355,297 9,784,008 U.S. Treasury Bonds & Notes: AAA Aaa 2,810,000 7.50% due 2/15/2005 3,070,107 3,179,032 AAA Aaa 7,400,000 6.50% due 5/15/2005 7,879,320 8,267,768 AAA Aaa 880,000 5.75% due 11/15/2005 932,470 977,419 AAA Aaa 2,340,000 6.25% due 2/15/2007 2,505,840 2,705,351 AAA Aaa 5,069,000 3.25% due 8/15/2007 5,153,151 5,224,634 AAA Aaa 2,960,000 6.125% due 8/15/2007 3,180,072 3,429,900 AAA Aaa 2,040,000 4.75% due 11/15/2008 2,086,993 2,240,414 AAA Aaa 1,220,000 6.50% due 2/15/2010 1,371,450 1,472,292 AAA Aaa 1,755,000 5% due 2/15/2011 1,727,135 1,949,558 AAA Aaa 12,425,000 4.375% due 8/15/2012 13,042,069 13,211,266 AAA Aaa 2,000,000 7.50% due 11/15/2016 2,453,236 2,651,562 AAA Aaa 1,220,000 8.125% due 8/15/2019 1,606,554 1,724,012 AAA Aaa 4,250,000 7.25% due 8/15/2022 5,272,917 5,614,981 AAA Aaa 880,000 6.25% due 8/15/2023 972,372 1,049,400 AAA Aaa 880,000 6.625% due 2/15/2027 1,020,990 1,106,703 AAA Aaa 4,430,000 5.375% due 2/15/2031 4,889,062 4,922,837 Total Investments in U.S. Government & Agency Obligations--54.9% 261,515,037 269,070,903 Merrill Lynch Bond Fund, Inc., Core Bond Portfolio & Intermediate Term Portfolio September 30, 2002 SCHEDULE OF INVESTMENTS (concluded) S&P Moody's Face Industries Rating+++ Rating+++ Amount Issue Cost Value Short-Term Securities Intermediate Term Portfolio Commercial Paper***--15.6% Clipper Receivables Corp.: $11,720,000 1.77% due 10/17/2002 $ 11,710,780 $ 11,710,780 6,700,000 1.77% due 10/22/2002 6,693,082 6,693,082 10,150,000 Conoco Inc., 1.86% due 10/15/2002 10,142,658 10,142,658 13,690,000 Morgan Stanley, 1.77% due 10/03/2002 13,688,654 13,688,654 4,300,000 Sears Roebuck Acceptance Corporation, 2% due 10/16/2002 4,296,417 4,296,417 12,430,000 Textron Inc., 1.89% due 10/10/2002 12,424,127 12,424,127 17,480,000 UBS Finance (Delaware) Inc., 1.97% due 10/01/2002 17,480,000 17,480,000 Total Investments in Short-Term Securities--15.6% 76,435,718 76,435,718 Total Investments--122.1% 582,283,571 598,184,561 Nominal Value Premium Covered by Options Received Options Options Written--0.0% 23,000,000 Swaption, expiring 11/05/2002 (e) (48,300) (47,150) Total Options Written--0.0% (48,300) (47,150) Total Investments, Net of Options Written--122.1% $ 582,235,271 598,137,411 ============== Liabilities in Excess of Other Assets--(22.1%) (108,435,729) -------------- Net Assets--100.0% $ 489,701,682 ============== *Not Rated. **Asset-Backed and Mortgage-Backed Obligations are subject to principal paydowns as a result of prepayments or refinancings of the underlying instruments. As a result, the average life may be substantially less than the original maturity. ***Commercial Paper is traded on a discount basis; the interest rates shown reflect the discount rates paid at the time of purchase by the Portfolio. ++Corresponding industry groups for foreign securities: (1)Financial Institution. (2)Industrial. (3)Government Entity. +++Ratings of issues shown have not been audited by Deloitte & Touche LLP. (a)The security may be offered and sold to "qualified institutional buyers" under Rule 144A of the Securities Act of 1933. (b)Represents a "to-be-announced" (TBA) transaction. The Portfolio has committed to purchasing securities for which all specific information is not available at this time. (c)Floating rate note. (d)Restricted securities as to resale. The value of the Portfolio's investments in restricted securities was approximately $11,013,000, representing 2.2% of net assets. Acquisition Issue Date Cost Value Security Life of Denver, 0.33% due 10/01/2002 3/28/2002 $ 9,000,000 $10,127,852 Tenet Healthcare Corporation, 6.875% due 11/15/2031 10/30/2001 779,243 885,405 ------------ ----------- Total $ 9,779,243 $11,013,257 ============ =========== (e)This European style swaption, which can be exercised only on the expiration date, represents a standby commitment whereby the Portfolio is obligated to enter into a predetermined interest rate swap contract upon exercise of the swaption. See Notes to Financial Statements. Merrill Lynch Bond Fund, Inc., Core Bond Portfolio & Intermediate Term Portfolio September 30, 2002 FINANCIAL INFORMATION Statements of Assets and Liabilities as of September 30, 2002 Core Bond Intermediate Portfolio Term Portfolio Assets: Investments, at value* (including securities loaned of $0 and $1,054,170, respectively) $1,834,260,062 $ 598,184,561 Investments held as collateral for loaned securities, at value -- 1,110,001 Cash -- 802,157 Receivables: Securities sold 196,694,134 76,210,216 Interest 13,793,529 4,499,885 Capital shares sold 3,203,304 2,003,614 Principal paydowns 650,636 -- Loaned securities -- 10,134 Prepaid registration fees and other assets 42,888 28,598 -------------- -------------- Total assets 2,048,644,553 682,849,166 -------------- -------------- Liabilities: Collateral on securities loaned, at value -- 1,110,001 Options written, at value** 149,650 47,150 Payables: Securities purchased 506,653,898 184,589,262 Capital shares redeemed 5,162,882 6,489,806 Custodian bank 2,817,464 -- Dividends to shareholders 1,780,109 580,378 Investment adviser 426,508 138,276 Distributor 400,777 68,492 Accrued expenses and other liabilities 896,581 124,119 -------------- -------------- Total liabilities 518,287,869 193,147,484 -------------- -------------- Net Assets: Net assets $1,530,356,684 $ 489,701,682 ============== ============== Net Assets Class A Common Stock, $.10 par value++ $ 5,607,895 $ 1,660,535 Consist of: Class B Common Stock, $.10 par value++++ 4,235,332 1,205,873 Class C Common Stock, $.10 par value++++++ 955,413 106,442 Class D Common Stock, $.10 par value++++++++ 2,488,194 1,186,105 Paid-in capital in excess of par 1,543,756,689 487,027,661 -------------- -------------- Undistributed (accumulated) investment income (loss)--net 454,769 (26,579) Accumulated realized capital losses on investments--net (78,391,292) (17,360,495) Unrealized appreciation on investments--net 51,249,684 15,902,140 -------------- -------------- Total accumulated losses--net (26,686,839) (1,484,934) -------------- -------------- Net assets $1,530,356,684 $ 489,701,682 ============== ============== Net Class A: Net assets $ 645,819,715 $ 195,514,503 Asset ============== ============== Value: Shares outstanding 56,078,952 16,605,347 ============== ============== Net asset value and redemption price per share $ 11.52 $ 11.77 ============== ============== Class B: Net assets $ 487,745,970 $ 141,992,517 ============== ============== Shares outstanding 42,353,322 12,058,733 ============== ============== Net asset value and redemption price per share $ 11.52 $ 11.78 ============== ============== Class C: Net assets $ 110,065,164 $ 12,535,315 ============== ============== Shares outstanding 9,554,130 1,064,421 ============== ============== Net asset value and redemption price per share $ 11.52 $ 11.78 ============== ============== Class D: Net assets $ 286,725,835 $ 139,659,347 ============== ============== Shares outstanding 24,881,940 11,861,048 ============== ============== Net asset value and redemption price per share $ 11.52 $ 11.77 ============== ============== *Identified cost $1,783,014,028 $ 582,283,571 ============== ============== **Premiums received 153,300 48,300 ============== ============== ++Authorized shares--Class A 250,000,000 100,000,000 ============== ============== ++++Authorized shares--Class B 250,000,000 50,000,000 ============== ============== ++++++Authorized shares--Class C 100,000,000 50,000,000 ============== ============== ++++++++Authorized shares--Class D 100,000,000 50,000,000 ============== ============== See Notes to Financial Statements. Merrill Lynch Bond Fund, Inc., Core Bond Portfolio & Intermediate Term Portfolio September 30, 2002 FINANCIAL INFORMATION (continued) Statements of Operations for the Year Ended September 30, 2002 Core Intermediate Bond Term Portfolio Portfolio Investment Interest $ 73,826,882 $ 23,507,509 Income: Securities lending--net 2,960 2,731 -------------- -------------- Total income 73,829,842 23,510,240 -------------- -------------- Expenses: Investment advisory fees 5,161,476 1,658,740 Account maintenance and distribution fees--Class B 3,701,867 641,565 Transfer agent fees--Class A 923,105 399,239 Transfer agent fees--Class B 894,552 297,972 Account maintenance and distribution fees--Class C 756,676 29,907 Account maintenance fees--Class D 609,421 131,603 Transfer agent fees--Class D 397,157 286,359 Accounting services 417,686 134,284 Transfer agent fees--Class C 175,566 13,162 Registration fees 108,589 50,772 Custodian fees 83,567 38,350 Printing and shareholder reports 80,943 21,196 Professional fees 67,062 32,591 Pricing fees 24,382 19,936 Directors' fees and expenses 20,069 6,728 Other 46,696 25,236 -------------- -------------- Total expenses 13,468,814 3,787,640 -------------- -------------- Investment income--net 60,361,028 19,722,600 -------------- -------------- Realized & Realized gain on investments--net 17,898,677 7,001,082 Unrealized Change in unrealized appreciation on investments--net 23,126,185 5,553,942 Gain on -------------- -------------- Investments--Net: Total realized and unrealized gain on investments--net 41,024,862 12,555,024 -------------- -------------- Net Increase in Net Assets Resulting from Operations $ 101,385,890 $ 32,277,624 ============== ============== See Notes to Financial Statements. Merrill Lynch Bond Fund, Inc., Core Bond Portfolio & Intermediate Term Portfolio September 30, 2002 FINANCIAL INFORMATION (continued) Statements of Changes in Net Assets Core Bond Portfolio For the Year Ended September 30, Increase (Decrease) in Net Assets: 2002 2001 Operations: Investment income--net $ 60,361,028 $ 68,261,340 Realized gain on investments--net 17,898,677 5,256,133 Change in unrealized appreciation/depreciation on investments--net 23,126,185 53,516,793 -------------- -------------- Net increase in net assets resulting from operations 101,385,890 127,034,266 -------------- -------------- Dividends to Investment income--net: Shareholders: Class A (26,610,817) (30,082,991) Class B (19,459,138) (25,158,749) Class C (3,656,190) (3,346,835) Class D (10,820,648) (9,672,765) -------------- -------------- Net decrease in net assets resulting from dividends to shareholders (60,546,793) (68,261,340) -------------- -------------- Capital Share Net increase in net assets derived from capital Transactions: share transactions 180,304,214 100,721,161 -------------- -------------- Net Assets: Total increase in net assets 221,143,311 159,494,087 Beginning of year 1,309,213,373 1,149,719,286 -------------- -------------- End of year* $1,530,356,684 $1,309,213,373 ============== ============== *Undistributed investment income--net $ 454,769 -- ============== ============== See Notes to Financial Statements. Merrill Lynch Bond Fund, Inc., Core Bond Portfolio & Intermediate Term Portfolio September 30, 2002 FINANCIAL INFORMATION (continued) Statements of Changes in Net Assets (concluded) Intermediate Term Portfolio For the Year Ended September 30, Increase (Decrease) in Net Assets: 2002 2001 Operations: Investment income--net $ 19,722,600 $ 23,743,317 Realized gain on investments--net 7,001,082 5,280,415 Change in unrealized appreciation/depreciation on investments--net 5,553,942 14,347,388 -------------- -------------- Net increase in net assets resulting from operations 32,277,624 43,371,120 -------------- -------------- Dividends to Investment income--net: Shareholders: Class A (8,421,184) (9,163,958) Class B (5,229,775) (6,799,706) Class C (241,533) (202,103) Class D (5,907,394) (7,577,550) -------------- -------------- Net decrease in net assets resulting from dividends to shareholders (19,799,886) (23,743,317) -------------- -------------- Capital Share Net increase in net assets derived from capital share Transactions: transactions 36,757,309 24,888,072 -------------- -------------- Net Assets: Total increase in net assets 49,235,047 44,515,875 Beginning of year 440,466,635 395,950,760 -------------- -------------- End of year* $ 489,701,682 $ 440,466,635 ============== ============== *Accumulated investment loss--net $ (26,579) -- ============== ============== See Notes to Financial Statements. Merrill Lynch Bond Fund, Inc., Core Bond Portfolio & Intermediate Term Portfolio September 30, 2002 FINANCIAL INFORMATION (continued) Financial Highlights Core Bond Portfolio The following per share data and ratios have been derived Class A from information provided in the financial statements. For the Year Ended September 30, Increase (Decrease) in Net Asset Value: 2002 2001 2000 1999 1998 Per Share Net asset value, beginning of year $ 11.21 $ 10.68 $ 10.88 $ 11.78 $ 11.40 Operating --------- --------- --------- --------- --------- Performance: Investment income--net .53 .66 .72 .70 .73 Realized and unrealized gain (loss) on investments--net .31 .53 (.20) (.90) .38 --------- --------- --------- --------- --------- Total from investment operations .84 1.19 .52 (.20) 1.11 --------- --------- --------- --------- --------- Less dividends from investment income--net (.53) (.66) (.72) (.70) (.73) --------- --------- --------- --------- --------- Net asset value, end of year $ 11.52 $ 11.21 $ 10.68 $ 10.88 $ 11.78 ========= ========= ========= ========= ========= Total Investment Based on net asset value per share 7.71% 11.44% 5.09% (1.70%) 10.05% Return:* ========= ========= ========= ========= ========= Ratios to Average Expenses .59% .61% .57% .57% .58% Net Assets: ========= ========= ========= ========= ========= Investment income--net 4.68% 6.03% 6.79% 6.22% 6.32% ========= ========= ========= ========= ========= Supplemental Net assets, end of year (in thousands) $ 645,820 $ 519,815 $ 489,778 $ 535,188 $ 600,655 Data: ========= ========= ========= ========= ========= Portfolio turnover 281.67% 262.47% 94.67% 79.06% 149.41% ========= ========= ========= ========= ========= The following per share data and ratios have been derived Class B from information provided in the financial statements. For the Year Ended September 30, Increase (Decrease) in Net Asset Value: 2002 2001 2000 1999 1998 Per Share Net asset value, beginning of year $ 11.21 $ 10.68 $ 10.88 $ 11.78 $ 11.40 Operating --------- --------- --------- --------- --------- Performance: Investment income--net .44 .57 .64 .61 .64 Realized and unrealized gain (loss) on investments--net .31 .53 (.20) (.90) .38 --------- --------- --------- --------- --------- Total from investment operations .75 1.10 .44 (.29) 1.02 --------- --------- --------- --------- --------- Less dividends from investment income--net (.44) (.57) (.64) (.61) (.64) --------- --------- --------- --------- --------- Net asset value, end of year $ 11.52 $ 11.21 $ 10.68 $ 10.88 $ 11.78 ========= ========= ========= ========= ========= Total Investment Based on net asset value per share 6.89% 10.59% 4.29% (2.45%) 9.21% Return:* ========= ========= ========= ========= ========= Ratios to Average Expenses 1.36% 1.38% 1.34% 1.33% 1.34% Net Assets: ========= ========= ========= ========= ========= Investment income--net 3.93% 5.25% 6.02% 5.46% 5.56% ========= ========= ========= ========= ========= Supplemental Net assets, end of year (in thousands) $ 487,746 $ 511,166 $ 455,162 $ 636,115 $ 685,345 Data: ========= ========= ========= ========= ========= Portfolio turnover 281.67% 262.47% 94.67% 79.06% 149.41% ========= ========= ========= ========= ========= *Total investment returns exclude the effects of sales charges. See Notes to Financial Statements. Merrill Lynch Bond Fund, Inc., Core Bond Portfolio & Intermediate Term Portfolio September 30, 2002 FINANCIAL INFORMATION (continued) Financial Highlights (continued) Core Bond Portfolio The following per share data and ratios have been derived Class C from information provided in the financial statements. For the Year Ended September 30, Increase (Decrease) in Net Asset Value: 2002 2001 2000 1999 1998 Per Share Net asset value, beginning of year $ 11.21 $ 10.68 $ 10.88 $ 11.79 $ 11.40 Operating --------- --------- --------- --------- --------- Performance: Investment income--net .43 .57 .64 .61 .63 Realized and unrealized gain (loss) on investments--net .31 .53 (.20) (.91) .39 --------- --------- --------- --------- --------- Total from investment operations .74 1.10 .44 (.30) 1.02 --------- --------- --------- --------- --------- Less dividends from investment income--net (.43) (.57) (.64) (.61) (.63) --------- --------- --------- --------- --------- Net asset value, end of year $ 11.52 $ 11.21 $ 10.68 $ 10.88 $ 11.79 ========= ========= ========= ========= ========= Total Investment Based on net asset value per share 6.83% 10.53% 4.23% (2.58%) 9.25% Return:* ========= ========= ========= ========= ========= Ratios to Average Expenses 1.42% 1.44% 1.39% 1.38% 1.40% Net Assets: ========= ========= ========= ========= ========= Investment income--net 3.85% 5.16% 5.96% 5.41% 5.50% ========= ========= ========= ========= ========= Supplemental Net assets, end of year (in thousands) $ 110,065 $ 76,963 $ 55,889 $ 79,581 $ 77,464 Data: ========= ========= ========= ========= ========= Portfolio turnover 281.67% 262.47% 94.67% 79.06% 149.41% ========= ========= ========= ========= ========= The following per share data and ratios have been derived Class D from information provided in the financial statements. For the Year Ended September 30, Increase (Decrease) in Net Asset Value: 2002 2001 2000 1999 1998 Per Share Net asset value, beginning of year $ 11.21 $ 10.68 $ 10.88 $ 11.79 $ 11.41 Operating --------- --------- --------- --------- --------- Performance: Investment income--net .50 .63 .70 .67 .70 Realized and unrealized gain (loss) on investments--net .31 .53 (.20) (.91) .38 --------- --------- --------- --------- --------- Total from investment operations .81 1.16 .50 (.24) 1.08 --------- --------- --------- --------- --------- Less dividends from investment income--net (.50) (.63) (.70) (.67) (.70) --------- --------- --------- --------- --------- Net asset value, end of year $ 11.52 $ 11.21 $ 10.68 $ 10.88 $ 11.79 ========= ========= ========= ========= ========= Total Investment Based on net asset value per share 7.44% 11.16% 4.83% (2.03%) 9.77% Return:* ========= ========= ========= ========= ========= Ratios to Average Expenses .84% .86% .82% .82% .82% Net Assets: ========= ========= ========= ========= ========= Investment income--net 4.43% 5.75% 6.55% 5.98% 6.07% ========= ========= ========= ========= ========= Supplemental Net assets, end of year (in thousands) $ 286,726 $ 201,269 $ 148,890 $ 135,401 $ 123,202 Data: ========= ========= ========= ========= ========= Portfolio turnover 281.67% 262.47% 94.67% 79.06% 149.41% ========= ========= ========= ========= ========= *Total investment returns exclude the effects of sales charges. See Notes to Financial Statements. Merrill Lynch Bond Fund, Inc., Core Bond Portfolio & Intermediate Term Portfolio September 30, 2002 FINANCIAL INFORMATION (continued) Financial Highlights (continued) Intermediate Term Portfolio The following per share data and ratios have been derived Class A from information provided in the financial statements. For the Year Ended September 30, Increase (Decrease) in Net Asset Value: 2002 2001 2000 1999 1998 Per Share Net asset value, beginning of year $ 11.47 $ 10.93 $ 11.11 $ 11.83 $ 11.49 Operating --------- --------- --------- --------- --------- Performance: Investment income--net .52 .67 .71 .70 .73 Realized and unrealized gain (loss) on investments--net .30 .54 (.18) (.72) .34 --------- --------- --------- --------- --------- Total from investment operations .82 1.21 .53 (.02) 1.07 --------- --------- --------- --------- --------- Less dividends from investment income--net (.52) (.67) (.71) (.70) (.73) --------- --------- --------- --------- --------- Net asset value, end of year $ 11.77 $ 11.47 $ 10.93 $ 11.11 $ 11.83 ========= ========= ========= ========= ========= Total Investment Based on net asset value per share 7.43% 11.35% 5.02% (.18%) 9.59% Return:* ========= ========= ========= ========= ========= Ratios to Average Expenses .66% .84% .78% .73% .67% Net Assets: ========= ========= ========= ========= ========= Investment income--net 4.57% 5.94% 6.51% 6.09% 6.27% ========= ========= ========= ========= ========= Supplemental Net assets, end of year (in thousands) $ 195,515 $ 176,589 $ 144,352 $ 161,113 $ 200,679 Data: ========= ========= ========= ========= ========= Portfolio turnover 314.59% 259.80% 143.77% 113.52% 111.03% ========= ========= ========= ========= ========= The following per share data and ratios have been derived Class B from information provided in the financial statements. For the Year Ended September 30, Increase (Decrease) in Net Asset Value: 2002 2001 2000 1999 1998 Per Share Net asset value, beginning of year $ 11.47 $ 10.93 $ 11.11 $ 11.83 $ 11.50 Operating --------- --------- --------- --------- --------- Performance: Investment income--net .46 .61 .66 .64 .67 Realized and unrealized gain (loss) on investments--net .31 .54 (.18) (.72) .33 --------- --------- --------- --------- --------- Total from investment operations .77 1.15 .48 (.08) 1.00 --------- --------- --------- --------- --------- Less dividends from investment income--net (.46) (.61) (.66) (.64) (.67) --------- --------- --------- --------- --------- Net asset value, end of year $ 11.78 $ 11.47 $ 10.93 $ 11.11 $ 11.83 ========= ========= ========= ========= ========= Total Investment Based on net asset value per share 6.97% 10.79% 4.49% (.69%) 8.94% Return:* ========= ========= ========= ========= ========= Ratios to Average Expenses 1.17% 1.35% 1.30% 1.24% 1.18% Net Assets: ========= ========= ========= ========= ========= Investment income--net 4.06% 5.46% 5.98% 5.58% 5.75% ========= ========= ========= ========= ========= Supplemental Net assets, end of year (in thousands) $ 141,993 $ 129,162 $ 120,250 $ 162,211 $ 178,464 Data: ========= ========= ========= ========= ========= Portfolio turnover 314.59% 259.80% 143.77% 113.52% 111.03% ========= ========= ========= ========= ========= *Total investment returns exclude the effects of sales charges. See Notes to Financial Statements. Merrill Lynch Bond Fund, Inc., Core Bond Portfolio & Intermediate Term Portfolio September 30, 2002 FINANCIAL INFORMATION (concluded) Financial Highlights (concluded) Intermediate Term Portfolio The following per share data and ratios have been derived Class C from information provided in the financial statements. For the Year Ended September 30, Increase (Decrease) in Net Asset Value: 2002 2001 2000 1999 1998 Per Share Net asset value, beginning of year $ 11.47 $ 10.93 $ 11.11 $ 11.83 $ 11.49 Operating --------- --------- --------- --------- --------- Performance: Investment income--net .46 .61 .65 .64 .67 Realized and unrealized gain (loss) on investments--net .31 .54 (.18) (.72) .34 --------- --------- --------- --------- --------- Total from investment operations .77 1.15 .47 (.08) 1.01 --------- --------- --------- --------- --------- Less dividends from investment income--net (.46) (.61) (.65) (.64) (.67) --------- --------- --------- --------- --------- Net asset value, end of year $ 11.78 $ 11.47 $ 10.93 $ 11.11 $ 11.83 ========= ========= ========= ========= ========= Total Investment Based on net asset value per share 6.97% 10.78% 4.48% (.70%) 9.03% Return:* ========= ========= ========= ========= ========= Ratios to Average Expenses 1.16% 1.36% 1.30% 1.24% 1.20% Net Assets: ========= ========= ========= ========= ========= Investment income--net 4.02% 5.41% 5.97% 5.57% 5.70% ========= ========= ========= ========= ========= Supplemental Net assets, end of year (in thousands) $ 12,535 $ 4,600 $ 2,859 $ 3,904 $ 4,832 Data: ========= ========= ========= ========= ========= Portfolio turnover 314.59% 259.80% 143.77% 113.52% 111.03% ========= ========= ========= ========= ========= The following per share data and ratios have been derived Class D from information provided in the financial statements. For the Year Ended September 30, Increase (Decrease) in Net Asset Value: 2002 2001 2000 1999 1998 Per Share Net asset value, beginning of year $ 11.47 $ 10.93 $ 11.11 $ 11.83 $ 11.50 Operating --------- --------- --------- --------- --------- Performance: Investment income--net .51 .66 .70 .69 .71 Realized and unrealized gain (loss) on investments--net .30 .54 (.18) (.72) .33 --------- --------- --------- --------- --------- Total from investment operations .81 1.20 .52 (.03) 1.04 --------- --------- --------- --------- --------- Less dividends from investment income--net (.51) (.66) (.70) (.69) (.71) --------- --------- --------- --------- --------- Net asset value, end of year $ 11.77 $ 11.47 $ 10.93 $ 11.11 $ 11.83 ========= ========= ========= ========= ========= Total Investment Based on net asset value per share 7.32% 11.24% 4.92% (.28%) 9.39% Return:* ========= ========= ========= ========= ========= Ratios to Average Expenses .76% .94% .88% .83% .77% Net Assets: ========= ========= ========= ========= ========= Investment income--net 4.47% 5.88% 6.41% 6.01% 6.16% ========= ========= ========= ========= ========= Supplemental Net assets, end of year (in thousands) $ 139,659 $ 130,116 $ 128,490 $ 136,467 $ 106,294 Data: ========= ========= ========= ========= ========= Portfolio turnover 314.59% 259.80% 143.77% 113.52% 111.03% ========= ========= ========= ========= ========= *Total investment returns exclude the effects of sales charges. See Notes to Financial Statements. Merrill Lynch Bond Fund, Inc., Core Bond Portfolio & Intermediate Term Portfolio September 30, 2002 NOTES TO FINANCIAL STATEMENTS 1. Significant Accounting Policies: The Core Bond Portfolio and the Intermediate Term Portfolio ("Portfolio" or "Portfolios") are two of the three portfolios in Merrill Lynch Bond Fund, Inc. (the "Fund"), which is registered under the Investment Company Act of 1940 as a diversified, open-end management investment company. The Portfolios' financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, which may require the use of management accruals and estimates. Each Portfolio offers four classes of shares under the Merrill Lynch Select Pricing SM System. Shares of Class A and Class D are sold with a front-end sales charge. Shares of Class B and Class C may be subject to a contingent deferred sales charge. All classes of shares have identical voting, dividend, liquidation and other rights and the same terms and conditions, except that Class B, Class C and Class D Shares bear certain expenses related to the account maintenance of such shares, and Class B and Class C Shares also bear certain expenses related to the distribution of such shares. Each class has exclusive voting rights with respect to matters relating to its account maintenance and distribution expenditures. Income, expenses (other than expenses attributable to a specific class) and realized and unrealized gains and losses on investments are allocated daily to each class based on its relative net assets. The following is a summary of significant accounting policies followed by the Portfolios. (a) Valuation of investments--Portfolio securities that are traded on stock exchanges are valued at the last sale price as of the close of business on the day the securities are being valued, or lacking any sales, at the mean between closing bid and asked prices. Securities traded in the over-the-counter market are valued at the most recent bid prices as obtained from one or more dealers that make markets in the securities. Portfolio securities that are traded both in the over-the-counter market and on a stock exchange are valued according to the broadest and most representative market, and it is expected that for debt securities this ordinarily will be the over-the-counter market. Short-term securities are valued at amortized cost, which approximates market value. Options written or purchased are valued at the last sale price in the case of exchange-traded options. In the case of options traded in the over-the-counter market, valuation is the last asked price (options written) or the last bid price (options purchased). Financial futures contracts and options thereon, which are traded on exchanges, are valued at their closing price at the close of such exchanges. Securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith by or under the direction of the Board of Directors of the Fund, including valuations furnished by a pricing service retained by the Fund which may use a matrix system for valuations. (b) Repurchase agreements--The Portfolios invest in U.S. government securities pursuant to repurchase agreements. Under such agreements, the counterparty agrees to repurchase the security at a mutually agreed upon time and price. The Portfolios take possession of the underlying securities, mark to market such securities and, if necessary, receive additions to such securities daily to ensure that the contract is fully collateralized. If the counterparty defaults and the fair value of the collateral declines, liquidation of the collateral by the Portfolios may be delayed or limited. (c) Derivative financial instruments--Each Portfolio may engage in various portfolio investment strategies to increase or decrease the level of risk to which each Portfolio is exposed more quickly and efficiently than transactions in other types of instruments. Losses may arise due to changes in the value of the contract or if the counterparty does not perform under the contract. * Financial futures contracts--The Portfolios may purchase or sell financial futures contracts and options on such futures contracts for the purpose of hedging the market risk on existing securities or the intended purchase of securities. Futures contracts are contracts for delayed delivery of securities at a specific future date and at a specific price or yield. Upon entering into a contract, each Portfolio deposits and maintains as collateral such initial margin as required by the exchange on which the transaction is effected. Pursuant to the contract, each Portfolio agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as variation margin and are recorded by each Portfolio as unrealized gains or losses. When the contract is closed, each Portfolio records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. * Options--The Portfolios are authorized to purchase and write call and put options. When each Portfolio writes an option, an amount equal to the premium received by each Portfolio is reflected as an asset and an equivalent liability. The amount of the liability is subsequently marked to market to reflect the current market value of the option written. When a security is purchased or sold through an exercise of an option, the related premium paid (or received) is added to (or deducted from) the basis of the security acquired or deducted from (or added to) the proceeds of the security sold. When an option expires (or each Portfolio enters into a closing transaction), each Portfolio realizes a gain or loss on the option to the extent of the premiums received or paid (or loss or gain to the extent the cost of the closing transaction exceeds the premium paid or received). Written and purchased options are non-income producing investments. * Interest rate swaps--The Portfolios are authorized to enter into swap agreements for the purpose of hedging the market risk on existing securities. In an interest rate swap, the Portfolios exchange with another party their respective commitments to pay or receive interest on a specified notional principal amount. When the swap agreement is closed, the Portfolios record a realized gain or loss equal to the difference between the value of the swap agreement at the time it was entered into and the value at the time it was closed. (d) Income taxes--It is the Portfolios' policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no Federal income tax provision is required. (e) Security transactions and investment income--Security transactions are recorded on the dates the transactions are entered into (the trade dates). Realized gains and losses on security transactions are determined on the identified cost basis. Interest income is recognized on the accrual basis. As required, effective October 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing all premiums and discounts on debt securities. The cumulative effect of this accounting change had no impact on total net assets of the Fund's Portfolios, but resulted in a reduction in cost of securities (which in return results in a corresponding increase in net unrealized appreciation and a corresponding increase in accumulated net investment loss), based on securities held by the Fund's Portfolios as of September 30, 2001 as follows: Corresponding Corresponding Increase to Increase Accumulated to Net Net Decrease Unrealized Investment Portfolio to Cost Appreciation Loss Core Bond $(1,565,139) $1,565,139 $(1,565,139) Intermediate Term $ (682,097) $ 682,097 $ (682,097) The effect of this change for the year ended September 30, 2002 was as follows: Increase Increase (Decrease) Increase Net Net Net Investment Unrealized Realized Portfolio Loss Appreciation Gains Core Bond $(168,625) $(126,088) $1,859,852 Intermediate Term $ (77,286) $ 26,571 $ 732,812 The statements of changes in net assets and financial highlights for prior periods have not been restated to reflect this change in presentation. (f) Prepaid registration fees--Prepaid registration fees are charged to expense as the related shares are issued. Merrill Lynch Bond Fund, Inc., Core Bond Portfolio & Intermediate Term Portfolio September 30, 2002 NOTES TO FINANCIAL STATEMENTS (continued) (g) Dividends and distributions--Dividends from net investment income are declared daily and paid monthly. Distributions of capital gains are recorded on the ex-dividend dates. (h) Expenses--Certain expenses have been allocated to the individual Portfolios in the Fund on a pro rata basis based upon the respective aggregate net asset value of each Portfolio included in the Fund. (i) Securities lending--The Portfolios may lend securities to financial institutions that provide cash or securities issued or guaranteed by the U.S. government as collateral, which will be maintained at all times in an amount equal to at least 100% of the current market value of the loaned securities. Where the Portfolios receive securities as collateral for the loaned securities, it collects a fee from the borrower. The Portfolios typically receive the income on the loaned securities but do not receive the income on the collateral. Where the Portfolios receive cash collateral, it may invest such collateral and retain the amount earned on such investment, net of any amount rebated to the borrower. Loans of securities are terminable at any time and the borrower, after notice, is required to return borrowed securities within five business days. The Portfolios may pay reasonable finder's, lending agent, administrative and custodial fees in connection with its loans. In the event that the borrower defaults on its obligation to return borrowed securities because of insolvency or for any other reason, the Portfolios could experience delays and costs in gaining access to the collateral. The Portfolios also could suffer a loss where the value of the collateral falls below the market value of the borrowed securities, in the event of borrower default or in the event of losses on investments made with cash collateral. (j) Custodian bank--The Core Bond Portfolio recorded an amount payable to the custodian bank reflecting an overnight overdraft, which resulted from a failed trade that settled the next day. (k) Reclassification--Accounting principles generally accepted in the United States of America require that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. Accordingly, the current year's permanent book/tax difference on the Core Bond Portfolio of $2,205,674 has been reclassified between accumulated net realized capital losses and undistributed net investment income. In addition, the current year's permanent book/tax difference on the Intermediate Term Portfolio of $732,804 has been reclassified between accumulated net realized capital losses and undistributed net investment income. These reclassifications have no effect on net assets or net asset values per share. 2. Investment Advisory Agreement and Transactions with Affiliates: The Fund has entered into an Investment Advisory Agreement with Fund Asset Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc. ("PSI"), an indirect, wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the limited partner. The Fund has also entered into a Distribution Agreement and Distribution Plans with FAM Distributors, Inc. ("FAMD" or the "Distributor"), which is a wholly-owned subsidiary of Merrill Lynch Group, Inc. FAM is responsible for the management of the Fund's Portfolios and provides the necessary personnel, facilities, equipment and certain other services necessary to the operations of the Fund. For such services, FAM receives at the end of each month a fee with respect to each Portfolio at the annual rates set forth below which are based upon the aggregate average daily value of the Fund's net assets at the following annual rates: .50% of the Fund's average daily net assets not exceeding $250 million; .45% of the average daily net assets in excess of $250 million but not exceeding $500 million; .40% of average daily net assets in excess of $500 million but not exceeding $750 million; and .35% of average daily net assets in excess of $750 million. For the year ended September 30, 2002, the aggregate average daily net assets of the Fund, including the Fund's High Income Portfolio, was approximately $3,942,079,000. Pursuant to the Distribution Plans adopted by the Fund in accordance with Rule 12b-1 under the Investment Company Act of 1940, the Fund pays the Distributor ongoing account maintenance and distribution fees. The fees are accrued daily and paid monthly at annual rates based upon the average daily net assets of the shares of each Portfolio as follows: Merrill Lynch Bond Fund, Inc., Core Bond Portfolio & Intermediate Term Portfolio September 30, 2002 Account Distribution Maintenance Fees Fees Portfolio Class B Class C Class D Class B Class C Core .25% .25% .25% .50% .55% Intermediate Term .25% .25% .10% .25% .25% Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), a subsidiary of ML & Co., also provides account maintenance and distribution services to the Fund. The ongoing account maintenance fee compensates the Distributor and MLPF&S for providing account maintenance services to Class B, Class C and Class D shareholders. The ongoing distribution fee compensates the Distributor and MLPF&S for providing shareholder and distribution-related services to Class B and Class C shareholders. For the year ended September 30, 2002, FAMD earned underwriting discounts and direct commissions and MLPF&S earned dealer concessions on sales of each Portfolio's Class A and Class D Shares as follows: FAMD MLPF&S Portfolio Class A Class D Class A Class D Core Bond $1,694 $9,668 $17,045 $112,477 Intermediate Term $ 177 $ 768 $ 2,340 $ 8,818 For the year ended September 30, 2002, MLPF&S received contingent deferred sales charges of $917,512 relating to transactions in Class B Shares, amounting to $862,622 and $54,890 in the Core Bond Portfolio and Intermediate Term Portfolio, respectively, and $49,249 relating to transactions in Class C Shares, amounting to $48,419 and $830 in the Core Bond Portfolio and Intermediate Term Portfolio, respectively. Furthermore, MLPF&S received contingent deferred sales charges of $1,402 relating to transactions subject to front-end sales charge waivers in Class D Shares in the Core Bond Portfolio. The Fund has received an exemptive order from the Securities and Exchange Commission permitting it to lend portfolio securities to MLPF&S or its affiliates. Pursuant to that order, the Fund also has retained QA Advisors, LLC ("QA Advisors"), an affiliate of FAM, as the securities lending agent for a fee based on a share of the returns on investment of cash collateral. QA Advisors may, on behalf of the Fund, invest cash collateral received by the Fund for such loans, among other things, in a private investment company managed by QA Advisors or in registered money market funds advised by FAM or its affiliates. As of September 30, 2002, cash collateral of $499,501 was invested in the Money Market Series of the Merrill Lynch Liquidity Series, LLC and $610,500 was invested in the Merrill Lynch Premier Institutional Fund for the Intermediate Term Portfolio. For the year ended September 30, 2002, QA Advisors received $869 and $1,196 in securities lending agent fees for the Core Bond Portfolio and Intermediate Term Portfolio, respectively. Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of ML & Co., is the Fund's transfer agent. During the year ended September 30, 2002, the Portfolios paid Merrill Lynch Security Pricing Service, an affiliate of MLPF&S, $16,546 for security price quotations to compute the net asset values of the Portfolios. For the year ended September 30, 2002, the Portfolios reimbursed FAM $56,431 for certain accounting services. Certain officers and/or directors of the Fund are officers and/or directors of FAM, PSI, FAMD, FDS, and/or ML & Co. 3. Investments: Purchases and sales of investments, excluding short-term securities, for the year ended September 30, 2002 were as follows: Intermediate Core Bond Term Portfolio Portfolio Purchases $ 4,420,342,894 $ 1,543,855,615 --------------- --------------- Sales $ 4,044,525,844 $ 1,461,505,963 =============== =============== Net realized gains (losses) for the year ended September 30, 2002 and net unrealized gains as of September 30, 2002 were as follows: Realized Unrealized Core Bond Portfolio Gains (Losses) Gains Long-term investments $ 20,265,264 $ 51,246,034 Short-term investments (124) -- Options written -- 3,650 Financial futures contracts (2,366,463) -- ------------ -------------- Total $ 17,898,677 $ 51,249,684 ============ ============== Merrill Lynch Bond Fund, Inc., Core Bond Portfolio & Intermediate Term Portfolio September 30, 2002 NOTES TO FINANCIAL STATEMENTS (continued) Realized Unrealized Intermediate Term Portfolio Gains (Losses) Gains Long-term investments $ 7,452,657 $ 15,900,990 Short-term investments 452 -- Options written -- 1,150 Financial futures contracts (452,027) -- ------------ -------------- Total $ 7,001,082 $ 15,902,140 ============ ============== As of September 30, 2002, net unrealized appreciation for Federal income tax purposes was as follows: Intermediate Core Bond Term Portfolio Portfolio Gross unrealized appreciation $ 56,613,270 $ 17,394,498 Gross unrealized depreciation (5,827,365) (1,647,172) ------------ -------------- Net unrealized appreciation $ 50,785,905 $ 15,747,326 ============ ============== The aggregate cost of investments, net of options written, at September 30, 2002 for Federal income tax purposes was $1,783,324,507 for the Core Bond Portfolio and $582,390,085 for the Intermediate Term Portfolio. Transactions in call options written for the year ended September 30, 2002 were as follows: Nominal Value Premiums Core Bond Portfolio Covered Received Outstanding call options written, beginning of year -- -- Options written 103,000,000 $ 274,003 Options expired (30,000,000) (120,703) ------------ -------------- Outstanding call options written, end of year 73,000,000 $ 153,300 ============ ============== Nominal Value Premiums Intermediate Term Portfolio Covered Received Outstanding call options written, beginning of year -- -- Options written 32,600,000 $ 86,925 Options expired (9,600,000) (38,625) ------------ -------------- Outstanding call options written, end of year 23,000,000 $ 48,300 ============ ============== 4. Capital Share Transactions: Net increase in net assets derived from capital share transactions for the year ended September 30, 2002 was $180,304,214 for the Core Bond Portfolio and $36,757,309 for the Intermediate Term Portfolio. Net increase in net assets derived from capital share transactions for the year ended September 30, 2001 was $100,721,161 for the Core Bond Portfolio and $24,888,072 for the Intermediate Term Portfolio. Transactions in capital shares for each class were as follows: Core Bond Portfolio Class A Shares for the Year Dollar Ended September 30, 2002 Shares Amount Shares sold 22,329,750 $ 250,091,666 Shares issued to shareholders in reinvestment of dividends 621,812 6,939,302 ------------ -------------- Total issued 22,951,562 257,030,968 Shares redeemed (13,254,009) (148,214,506) ------------ -------------- Net increase 9,697,553 $ 108,816,462 ============ ============== Core Bond Portfolio Class A Shares for the Year Dollar Ended September 30, 2001 Shares Amount Shares sold 12,164,635 $ 133,485,683 Shares issued resulting from reorganization 3,325 36,469 Shares issued to shareholders in reinvestment of dividends 434,363 4,759,193 ------------ -------------- Total issued 12,602,323 138,281,345 Shares redeemed (12,099,127) (132,360,014) ------------ -------------- Net increase 503,196 $ 5,921,331 ============ ============== Core Bond Portfolio Class B Shares for the Year Dollar Ended September 30, 2002 Shares Amount Shares sold 13,231,420 $ 148,085,296 Shares issued to shareholders in reinvestment of dividends 1,085,140 12,096,134 ------------ -------------- Total issued 14,316,560 160,181,430 Automatic conversion of shares (2,052,254) (22,932,960) Shares redeemed (15,519,910) (173,196,566) ------------ -------------- Net decrease (3,255,604) $ (35,948,096) ============ ============== Merrill Lynch Bond Fund, Inc., Core Bond Portfolio & Intermediate Term Portfolio September 30, 2002 Core Bond Portfolio Class B Shares for the Year Dollar Ended September 30, 2001 Shares Amount Shares sold 15,196,397 $ 166,702,376 Shares issued resulting from reorganization 692,835 7,599,924 Shares issued to shareholders in reinvestment of dividends 1,209,395 13,248,556 ------------ -------------- Total issued 17,098,627 187,550,856 Automatic conversion of shares (1,491,340) (16,360,136) Shares redeemed (12,633,216) (138,208,375) ------------ -------------- Net increase 2,974,071 $ 32,982,345 ============ ============== Core Bond Portfolio Class C Shares for the Year Dollar Ended September 30, 2002 Shares Amount Shares sold 4,655,739 $ 51,997,577 Shares issued to shareholders in reinvestment of dividends 211,715 2,362,338 ------------ -------------- Total issued 4,867,454 54,359,915 Shares redeemed (2,177,960) (24,354,570) ------------ -------------- Net increase 2,689,494 $ 30,005,345 ============ ============== Core Bond Portfolio Class C Shares for the Year Dollar Ended September 30, 2001 Shares Amount Shares sold 2,723,779 $ 29,948,729 Shares issued resulting from reorganization 303,906 3,334,855 Shares issued to shareholders in reinvestment of dividends 195,095 2,138,486 ------------ -------------- Total issued 3,222,780 35,422,070 Shares redeemed (1,591,360) (17,413,040) ------------ -------------- Net increase 1,631,420 $ 18,009,030 ============ ============== Core Bond Portfolio Class D Shares for the Year Dollar Ended September 30, 2002 Shares Amount Shares sold 10,754,653 $ 120,080,117 Automatic conversion of shares 2,051,406 22,932,960 Shares issued to shareholders in reinvestment of dividends 679,532 7,588,372 ------------ -------------- Total issued 13,485,591 150,601,449 Shares redeemed (6,550,329) (73,170,946) ------------ -------------- Net increase 6,935,262 $ 77,430,503 ============ ============== Core Bond Portfolio Class D Shares for the Year Dollar Ended September 30, 2001 Shares Amount Shares sold 7,569,027 $ 82,986,487 Automatic conversion of shares 1,490,152 16,360,136 Shares issued resulting from reorganization 41,484 455,320 Shares issued to shareholders in reinvestment of dividends 457,543 5,021,327 ------------ -------------- Total issued 9,558,206 104,823,270 Shares redeemed (5,550,006) (61,014,815) ------------ -------------- Net increase 4,008,200 $ 43,808,455 ============ ============== Intermediate Term Portfolio Class A Shares for the Year Dollar Ended September 30, 2002 Shares Amount Shares sold 6,989,331 $ 79,900,318 Shares issued to shareholders in reinvestment of dividends 176,296 2,008,174 ------------ -------------- Total issued 7,165,627 81,908,492 Shares redeemed (5,959,413) (68,085,582) ------------ -------------- Net increase 1,206,214 $ 13,822,910 ============ ============== Intermediate Term Portfolio Class A Shares for the Year Dollar Ended September 30, 2001 Shares Amount Shares sold 6,791,319 $ 76,190,646 Shares issued to shareholders in reinvestment of dividends 218,863 2,450,488 ------------ -------------- Total issued 7,010,182 78,641,134 Shares redeemed (4,815,089) (53,778,401) ------------ -------------- Net increase 2,195,093 $ 24,862,733 ============ ============== Intermediate Term Portfolio Class B Shares for the Year Dollar Ended September 30, 2002 Shares Amount Shares sold 4,821,326 $ 55,263,074 Shares issued to shareholders in reinvestment of dividends 326,275 3,721,914 ------------ -------------- Total issued 5,147,601 58,984,988 Automatic conversion of shares (491,794) (5,626,588) Shares redeemed (3,859,531) (44,001,785) ------------ -------------- Net increase 796,276 $ 9,356,615 ============ ============== Merrill Lynch Bond Fund, Inc., Core Bond Portfolio & Intermediate Term Portfolio September 30, 2002 NOTES TO FINANCIAL STATEMENTS (concluded) Intermediate Term Portfolio Class B Shares for the Year Dollar Ended September 30, 2001 Shares Amount Shares sold 4,132,716 $ 46,326,155 Shares issued to shareholders in reinvestment of dividends 268,441 3,009,963 ------------ -------------- Total issued 4,401,157 49,336,118 Automatic conversion of shares (504,530) (5,657,718) Shares redeemed (3,632,706) (40,657,509) ------------ -------------- Net increase 263,921 $ 3,020,891 ============ ============== Intermediate Term Portfolio Class C Shares for the Year Dollar Ended September 30, 2002 Shares Amount Shares sold 878,088 $ 10,147,486 Shares issued to shareholders in reinvestment of dividends 12,245 140,123 ------------ -------------- Total issue 890,333 10,287,609 Shares redeemed (226,962) (2,584,460) ------------ -------------- Net increase 663,371 $ 7,703,149 ============ ============== Intermediate Term Portfolio Class C Shares for the Year Dollar Ended September 30, 2001 Shares Amount Shares sold 329,668 $ 3,690,415 Shares issued to shareholders in reinvestment of dividends 11,519 129,194 ------------ -------------- Total issue 341,187 3,819,609 Shares redeemed (201,641) (2,248,628) ------------ -------------- Net increase 139,546 $ 1,570,981 ============ ============== Intermediate Term Portfolio Class D Shares for the Year Dollar Ended September 30, 2002 Shares Amount Shares sold 5,113,073 $ 58,478,637 Automatic conversion of shares 491,794 5,626,588 Shares issued to shareholders in reinvestment of dividends 130,728 1,491,286 ------------ -------------- Total issued 5,735,595 65,596,511 Shares redeemed (5,220,812) (59,721,876) ------------ -------------- Net increase 514,783 $ 5,874,635 ============ ============== Intermediate Term Portfolio Class D Shares for the Year Dollar Ended September 30, 2001 Shares Amount Shares sold 4,622,934 $ 51,827,764 Automatic conversion of shares 504,530 5,657,718 Shares issued to shareholders in reinvestment of dividends 115,319 1,292,278 ------------ -------------- Total issued 5,242,783 58,777,760 Shares redeemed (5,648,611) (63,344,293) ------------ -------------- Net decrease (405,828) $ (4,566,533) ============ ============== 5. Short-Term Borrowings: The Portfolios, along with certain other funds managed by FAM and its affiliates, are a party to a $1,000,000,000 credit agreement with Bank One, N.A. and certain other lenders. The Portfolios may borrow under the credit agreement to fund shareholder redemptions and for other lawful purposes other than for leverage. The Portfolios may borrow up to the maximum amount allowable under the Portfolios' current prospectus and statement of additional information, subject to various other legal, regulatory or contractual limits. The Portfolios pay a commitment fee of .09% per annum based on the Portfolios' pro rata share of the unused portion of the credit agreement. Amounts borrowed under the credit agreement bear interest at a rate equal to, at each fund's election, the Federal Funds rate plus .50% or a base rate as determined by Bank One, N.A. On November 30, 2001, the credit agreement was renewed for one year under the same terms. The Portfolios did not borrow under the credit agreement during the year ended September 30, 2002. 6. Distributions to Shareholders: The tax character of distributions paid during the fiscal years ended September 30, 2002 and September 30, 2001 was as follows: Core Bond Portfolio 9/30/2002 9/30/2001 Distributions paid from: Ordinary income $ 60,546,793 $ 68,261,340 ------------- ------------- Total taxable distributions $ 60,546,793 $ 68,261,340 ============= ============= Merrill Lynch Bond Fund, Inc., Core Bond Portfolio & Intermediate Term Portfolio September 30, 2002 Intermediate Term Portfolio 9/30/2002 9/30/2001 Distributions paid from: Ordinary income $ 19,799,886 $ 23,743,317 ------------- ------------- Total taxable distributions $ 19,799,886 $ 23,743,317 ============= ============= As of September 30, 2002, the components of accumulated losses on a tax basis were as follows: Core Intermediate Bond Term Portfolio Portfolio Undistributed ordinary income--net $ 3,210,970 $ 1,127,844 Undistributed long-term capital gains--net -- -- ------------- ------------- Total undistributed earnings--net 3,210,970 1,127,844 Capital loss carryforward (71,958,304)* (16,564,635)* Unrealized gains--net 42,060,495** 13,951,857** ------------- ------------- Total accumulated losses--net $(26,686,839) $ (1,484,934) ============= ============= *On September 30, 2002, the Fund had a net capital loss carryforward of $71,958,304 in the Core Bond Portfolio, of which $8,081,540 expires in 2003, $2,604,196 expires in 2005, $305,137 expires in 2007, $28,409,262 expires in 2008, and $32,558,169 expires in 2009 and $16,564,635 in the Intermediate Term Portfolio, of which $518,233 expires in 2003, $275,942 expires in 2005, $7,450,661 expires in 2008, and $8,319,799 expires in 2009. These amounts will be available to offset like amounts of any future taxable gains. **The difference between book-basis and tax-basis net unrealized losses is attributable primarily to the tax deferral of losses on wash sales, the tax deferral of losses on straddles, the difference between book and tax amortization methods for premiums and discounts on fixed income securities, book/tax differences in the accrual of income on contingent debt obligations and the deferral of post- October capital losses for tax purposes (Core Bond Portfolio only). Merrill Lynch Bond Fund, Inc., Core Bond Portfolio & Intermediate Term Portfolio September 30, 2002 INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders, Merrill Lynch Bond Fund, Inc.: We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of Core Bond and Intermediate Term Portfolios of Merrill Lynch Bond Fund, Inc. as of September 30, 2002, the related statements of operations for the year then ended and changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years presented. These financial statements and the financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned at September 30, 2002 by correspondence with the custodian and brokers; where replies were not received, we performed other auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements and financial highlights present fairly, in all material respects, the financial position of Core Bond and Intermediate Term Portfolios of Merrill Lynch Bond Fund, Inc. as of September 30, 2002, the results of their operations, the changes in their net assets, and the financial highlights for the respective stated periods in conformity with accounting principles generally accepted in the United States of America. Deloitte & Touche LLP New York, New York November 14, 2002 IMPORTANT TAX INFORMATION (unaudited) Of the ordinary income dividends paid monthly to shareholders from Core Bond and Intermediate Term Portfolios of Merrill Lynch Bond Fund, Inc. during the fiscal year ended September 30, 2002, 10.25% and 10.04%, respectively, were attributable to Federal obligations. In calculating the foregoing percentages, expenses of the Portfolios have been allocated on a pro rata basis. The law varies in each state as to whether and what percentage of dividend income attributable to Federal obligations is exempt from state income tax. We recommend that you consult your tax adviser to determine if any portion of the dividends you received is exempt from state income tax. Please retain this information for your records. Merrill Lynch Bond Fund, Inc., Core Bond Portfolio & Intermediate Term Portfolio September 30, 2002 OFFICERS AND DIRECTORS Number of Portfolios Other in Fund Director- Position(s) Length Complex ships Held of Time Overseen by Held by Name, Address & Age with Fund Served Principal Occupation(s) During Past 5 Years Director Director Interested Director Terry K. Glenn* President 1999 to Chairman, Americas Region since 2001, 118 Funds None P.O. Box 9011 and present and Executive Vice President since 1983 of 169 Princeton, Director and 1985 Fund Asset Management, L.P. ("FAM") and Portfolios NJ 08543-9011 to present Merrill Lynch Investment Managers, L.P. Age: 62 ("MLIM"); President of Merrill Lynch Mutual Funds since 1999; President of FAM Distributors, Inc. ("FAMD") since 1986 and Director thereof since 1991; Executive Vice President and Director of Princeton Services, Inc. ("Princeton Services") since 1993; President of Princeton Administrators, L.P. since 1988; Director of Financial Data Services, Inc. since 1985. *Mr. Glenn is a director, trustee or member of an advisory board of certain other investment companies for which FAM or MLIM acts as investment adviser. Mr. Glenn is an "interested person," as described in the Investment Company Act, of the Fund based on his positions as Chairman (Americas Region) and Executive Vice President of FAM and MLIM; President of FAMD; Executive Vice President of Princeton Services; and President of Princeton Administrators, L.P. The Director's term is unlimited. Directors serve until their resignation, removal or death, or until December 31 of the year in which they turn 72. As Fund President, Mr. Glenn serves at the pleasure of the Board of Directors. Number of Portfolios Other in Fund Director- Position(s) Length Complex ships Held of Time Overseen by Held by Name, Address & Age with Fund Served* Principal Occupation(s) During Past 5 Years Director Director Independent Directors Ronald W. Forbes Director 1978 to Professor Emeritus of Finance, School of 45 Funds None P.O. Box 9011 present Business, State University of New York at Albany 54 Princeton, since 2000; and Professor thereof from 1989 Portfolios Age: 62 to 2000. NJ 08543-9011 Cynthia A. Director 1994 to Professor, Harvard Business School since 1989. 45 Funds Unum- Montgomery present 54 Provident P.O. Box 9011 Portfolios Corpora- Princeton, tion; NJ 08543-9011 Newell Age: 50 Rubber- maid Inc. Charles C. Reilly Director 1990 to Self-employed financial consultant since 1990. 45 Funds None P.O. Box 9011 present 54 Princeton, Portfolios NJ 08543-9011 Age: 71 Kevin A. Ryan Director 1992 to Founder and currently Director Emeritus of The 45 Funds None P.O. Box 9011 present Boston University Center for the Advancement 54 Princeton, of Ethics and Character and Director thereof Portfolios NJ 08543-9011 from 1989 to 1999; Professor from 1982 to 1999 Age: 69 at Boston University. Roscoe S. Suddarth Director 2000 to President, Middle East Institute from 1995 to 45 Funds None P.O. Box 9011 present 2001. 54 Princeton, Portfolios NJ 08543-9011 Age: 67 Merrill Lynch Bond Fund, Inc., Core Bond Portfolio & Intermediate Term Portfolio September 30, 2002 OFFICERS AND DIRECTORS (concluded) Number of Portfolios Other in Fund Director- Position(s) Length Complex ships Held of Time Overseen by Held by Name, Address & Age with Fund Served* Principal Occupation(s) During Past 5 Years Director Director Independent Directors (concluded) Richard R. West Director 1978 to Dean Emeritus of New York University, Leonard 45 Funds Bowne & P.O. Box 9011 present N. Stern School of Business Administration 54 Co., Inc.; Princeton, NJ 08543-9011 since 1994. Portfolios Vornado Age: 63 Realty Trust; Alexander's Inc. Edward D. Zinbarg Director 2000 to Self-employed financial consultant since 1994. 45 Funds None P.O. Box 9011 present 54 Princeton, Portfolios NJ 08543-9011 Age: 67 *The Director's term is unlimited. Directors serve until their resignation, removal or death, or until December 31 of the year in which they turn 72. Position(s) Length Held of Time Name, Address & Age with Fund Served* Principal Occupation(s) During Past 5 Years Fund Officers Donald C. Burke Vice 1993 to First Vice President of FAM and MLIM since 1997 and Treasurer thereof P.O. Box 9011 President present since 1999; Senior Vice President and Treasurer of Princeton Services Princeton, and and 1999 since 1999; Vice President of FAMD since 1999; Vice President of FAM and NJ 08543-9011 Treasurer to present MLIM from 1990 to 1997; Director of Taxation of MLIM since 1990. Age: 42 Patrick Maldari Vice 2002 to Managing Director of Americas Fixed Income for MLIM since 2000; P.O. Box 9011 President present Director of Fixed Income Institutional Business from 1997 to 2000. Princeton, and NJ 08543-9011 Portfolio Age: 40 Manager James J. Pagano Vice 2002 to Senior Fixed Income Analyst since 1998; Risk Manager from 1997 to 1998. P.O. Box 9011 President present Princeton, and NJ 08543-9011 Portfolio Age: 39 Manager Bradley J. Lucido Secretary 2002 to Director (Legal Advisory) of MLIM since 2002; Vice President of MLIM P.O. Box 9011 present from 1999 to 2002; Attorney associated with MLIM since 1995. Princeton, NJ 08543-9011 Age: 36 *Officers of the Fund serve at the pleasure of the Board of Directors. Further information about the Fund's Officers and Directors is available in the Fund's Statement of Additional Information, which can be obtained without charge by calling 1-800-MER-FUND. Custodian State Street Bank and Trust Company P.O. Box 351 Boston, MA 02101 Transfer Agent Financial Data Services, Inc. 4800 Deer Lake Drive East Jacksonville, FL 32246-6484 800-637-3863