UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT
COMPANIES
Investment Company Act file number 811-2857
Name of Fund: Core Bond Portfolio of Merrill Lynch Bond Fund, Inc.
Intermediate Term Portfolio of Merrill Lynch Bond
Fund, Inc.
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Terry K. Glenn, President,
Core Bond Portfolio and Intermediate Term Portfolio of Merrill Lynch
Bond Fund, Inc., 800 Scudders Mill Road, Plainsboro, NJ, 08536.
Mailing address: P.O. Box 9011, Princeton, NJ, 08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 09/30/03
Date of reporting period: 10/01/02 - 09/30/03
Item 1 - Attach shareholder report
(BULL LOGO)
Merrill Lynch Investment Managers
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.
A description of the policies and procedures that the Fund uses to
determine how to vote proxies relating to portfolio securities is
available (1) without charge, upon request, by calling toll-free
1-800-MER-FUND (1-800-637-3863); (2) on www.mutualfunds.ml.com; and
(3) on the Securities and Exchange Commission's website at
http://www.sec.gov.
Merrill Lynch Bond Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
(BULL LOGO)
Merrill Lynch Investment Managers
www.mlim.ml.com
Core Bond Portfolio & Intermediate Term Portfolio
of
Merrill Lynch Bond Fund, Inc.
Annual Report
September 30, 2003
A Letter From the President
Dear Shareholder
Now in its final quarter, 2003 has been a meaningful year in many
respects. After one of the most significant equity market downturns
in many investors' memories, this year finally brought hopeful signs
for a sustainable economic recovery. Sub par economic growth of 1.4%
in the first quarter of 2003 increased to projected growth of more
than 4% in the second half of the year. With that good news, fixed
income investments, which had become the asset class of choice
during the long equity market decline, faced new challenges.
Earlier in the year, the Federal Reserve Board continued its
accommodative monetary policy, lowering the Federal Funds rate in
June to 1%, its lowest level since 1958. With this move, long-term
interest rates continued to be volatile, as investors began to
anticipate the impact of future Federal Reserve Board moves and
economic revitalization. As of September 30, 2003, the ten-year
Treasury bond was yielding 3.96%. This compared to a yield of 3.83%
six months earlier and 3.63% one year ago.
Against this backdrop, our portfolio managers continued to work
diligently to deliver on our commitment to provide superior
performance within reasonable expectations for risk and return. With
that said, remember also that the advice and guidance of a skilled
financial advisor often can mean the difference between successful
and unsuccessful investing. A financial professional can help you
choose those investments that will best serve you as you plan for
your financial future.
Finally, I am proud to premiere a new look to our shareholder
communications. Our portfolio manager commentaries have been trimmed
and organized in such a way that you can get the information you
need at a glance, in plain language. Today's markets are confusing
enough. We want to help you put it all in perspective. The report's
new size also allows us certain mailing efficiencies.
We thank you for trusting Merrill Lynch Investment Managers with
your investment assets, and we look forward to serving you in the
months and years ahead.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President and Director
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
We are pleased to present to you the management team of
Core Bond Portfolio & Intermediate Term Portfolio
Senior Portfolio Managers Pat Maldari and James Pagano co-head the
Merrill Lynch Bond Fund--Core Bond Portfolio and Intermediate Term
Portfolio team. Mr. Maldari, who joined Merrill Lynch Investment
Managers in 1984, received a bachelor's degree from Montclair State
University. He is a CFA(R) charterholder and a member of the
Association for Investment Management and Research (AIMR) and the
New York Society of Security Analysts (NYSSA). Mr. Pagano joined
Merrill Lynch Investment Managers in 1997. He received a bachelor's
degree from the United States Naval Academy and is a CFA
charterholder. The portfolio management team also includes John
Burger and Frank Viola, the corporate and mortgage-backed managers,
respectively. Mr. Burger earned a bachelor's degree from Cornell
University. He is a CFA charterholder and a member of the AIMR and
NYSSA. Mr. Viola earned a bachelor's degree from Pennsylvania State
University. He is a CFA charterholder, an associate of the Society
of Actuaries and a member of the American Academy of Actuaries. The
team has a combined 65 years of investment experience.
Table of Contents
A Letter From the President 2
A Discussion With Your Fund's Portfolio Managers 4
Performance Data 6
Schedule of Investments 14
Financial Information 36
Financial Highlights 41
Notes to Financial Statements 51
Independent Auditor's Report 61
Officers and Directors 62
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
Discussion With Your Fund's Portfolio Managers
We slowly increased the Fund's exposure to higher-beta sectors
during the fiscal year, based on our belief that the markets would
continue to reward investors for taking on greater risk.
How did the Portfolios perform during the fiscal year in light of
the existing market conditions?
For the 12-month period ended September 30, 2003, Core Bond
Portfolio's Class A, Class B, Class C and Class I Shares had total
returns of +5.51%, +4.96%, +4.91% and +5.77%, respectively. For the
same period, Intermediate Term Portfolio's Class A, Class B, Class C
and Class I Shares had total returns of +5.69%, +5.17%, +5.16% and
+5.78%, respectively. The Portfolios' returns were competitive with
the +5.41% return of the unmanaged benchmark Lehman Aggregate Bond
Index for the year ended September 30, 2003. (Portfolio results
shown do not reflect sales charges and would be lower if sales
charges were included. Complete performance information can be found
on pages 6--13 of this report to shareholders.)
In the first half of the fiscal year, uncertainty over the impending
war in Iraq, coupled with fears of terrorism in the United States,
hurt consumer confidence. This, in turn, upset the prospects for
economic growth. Gross domestic product (GDP) for the first quarter
of 2003 grew at only 1.4%, the same rate of growth as the
disappointing fourth quarter of 2002. In March, as fighting
commenced in Iraq, the uncertainty began to lift. When all-out war
ended soon after, we saw a surge in economic activity that
ultimately led to significant volatility in interest rates.
At the beginning of March, the yield on the ten-year Treasury note
stood at 3.70%. In the six months that followed, interest rates
bottomed at 3.10% and peaked at 4.60%, before ending the fiscal year
at 4.20% on September 30, 2003. The surge in economic activity was
most pronounced in July and August, leading many to believe that
economic growth in the third quarter would exceed 5%. In response to
the dramatic acceleration in growth, interest rates spiked 150 basis
points (1.5%) from 3.10% on June 15, 2003 to 4.60% on September 2,
2003. It appeared that investors had begun to factor in a potential
tightening by the Federal Reserve Board and renewed inflationary
pressures.
The Portfolios were able to avoid much of the interest rate
volatility by maintaining a meaningful position in spread sectors
throughout the period. That is, we focused on areas with a lower
correlation to Treasury issues, which therefore were less vulnerable
to fluctuations in interest rates. This strategy also provided for
more attractive total returns, as the market was clearly rewarding
investors for taking on risk. For example, high yield investments,
as measured by the unmanaged Credit Suisse First Boston High Yield
Index, returned +28.04% for the 12 months ended September 30, 2003.
Equities, as measured by the unmanaged Standard & Poor's 500 (S&P
500) Index, returned +24.40%; investment grade corporate bonds, as
measured by the unmanaged Merrill Lynch Corporate Master Index,
returned +11.04%; and Treasury issues, as measured by the unmanaged
Merrill Lynch U.S. Treasury Master Index, returned +3.23% for the
same period.
Our emphasis on spread sectors included a focus on corporate bonds
(both investment grade and high yield), agency mortgage collateral
and collateralized mortgage obligations (CMOs), non-agency CMOs,
asset-backed securities and commercial mortgage-backed securities
(CMBS). By strategically managing these sectors and taking advantage
of opportunities available across markets, we were able to
consistently add value to each of the Portfolios. In general, we
remained overweight in these sectors throughout the period, with
positions 12% - 17% above the benchmark.
What changes were made to the Portfolios during the period?
The most significant change was increasing the risk profile of the
Portfolios. At the start of the fiscal year, we had no exposure to
the high yield sector. Slowly, we established a high yield
allocation, ending the period with approximately 5% of total assets
in high yield. Given market dynamics during the period, we felt
justified in taking on the additional risk associated with high
yield securities. When it appeared that the credit cycle was about
to turn, and that cumulative default rates would continue to decline
from their peak of about 11% in the third quarter of 2002, we
believed that investors would be compensated for taking on the risk
of moving down the credit spectrum. At the same time, we increased
our allocation in corporate bonds rated BBB from 15% of total assets
to 25%. We also continued to add to our overweight position in the
investment-grade corporate area, increasing the overall corporate
overweight from approximately 2% of total assets at the beginning of
the period to 5% at the close of the period.
We used the derivatives market to express our views on spread
sectors. Throughout the period, we added to our overweight positions
in spread product through the use of total return swaps in the high
yield, mortgage and CMBS sectors. By using the derivative market, we
were able to receive the return of the appropriate index in exchange
for a floating-rate payment.
The Portfolios continued to maintain a duration profile relatively
close to that of the benchmark throughout the period. Given the
steepness of the yield curve and the attractive absolute yields
available further out on the curve, we made a conscious decision not
to stray too short relative to the benchmark, even though interest
rates were at historic lows.
How were the Portfolios positioned at the close of the period?
The Portfolios remained positioned to take advantage of
opportunities in higher-beta sectors, such as BBB-rated corporate
bonds and high yield securities that have greater sensitivity to the
overall economy. It would be expected that these sectors perform
well relative to U.S. Treasury securities when the U.S. economy is
expanding. This is based on our belief that the yield curve will
maintain its upward slope, which tends to be conducive to spread
sectors. In general, improving economic conditions should continue
to support the high yield and investment-grade corporate bond
sectors. In addition, recent downward pressure on the U.S. dollar
should continue to exert upward pressure on the long end of the
Treasury yield curve. A weaker dollar could potentially raise import
prices and discourage foreign investors from purchasing U.S. assets.
The inflationary pressures induced by a weaker dollar, coupled with
foreign investors keeping assets in their local country or simply
not purchasing U.S. assets, will pressure U.S. assets. This, in
turn, will pressure the long end of the Treasury yield curve and
force yields upward.
We intend to maintain our overweights to the mortgage sector and
CMBS. In our view, interest rate volatility should be relatively
muted as compared to prior cycles, which would be more conducive to
owning mortgage-backed securities (MBS). We expect the yield spread
between MBS and Treasury issues to tighten as interest rate
volatility stabilizes. This would allow MBS to outperform its
Treasury counterparts on a duration-adjusted basis. We also believe
that investors who had the ability to refinance their mortgages have
already done so. This has positive implications for the sector in
that it effectively reduces refinancing risk.
We intend to maintain our overweights to spread sectors at 15%--17%
above the benchmark and we will also continue to use the derivatives
market to help implement our overall asset allocation decision.
Given the relatively benign near-term interest rate forecast, we
will continue to maintain a duration close to that of the benchmark.
We do not expect the Federal Reserve Board to increase interest
rates in the near term and, in fact, anticipate that monetary policy
will remain on hold for some time to ensure a sustainable economic
recovery.
Patrick Maldari
Vice President and Portfolio Manager
James J. Pagano
Vice President and Portfolio Manager
October 8, 2003
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
Performance Data
About Fund Performance
Effective April 14, 2003, Class A Shares were redesignated Class I
Shares and Class D Shares were redesignated Class A Shares.
Investors are able to purchase shares of the Fund through multiple
pricing alternatives:
* Class A 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).
* Effective December 1, 2002, Class B Shares are subject to a
maximum contingent deferred sales charge of 4%, declining to 0%
after six years for Core Bond Portfolio. Class B Shares for Core
Bond Portfolio purchased prior to December 1, 2002 will maintain the
four-year schedule. Intermediate Term Portfolio is subject to a
maximum contingent deferred sales charge of 1%, declining to 0%
after three years. Class B Shares for Intermediate Term Portfolio
purchased prior to December 1, 2002 will maintain the one-year
schedule. 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 A 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 I 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 I Shares are
available only to eligible investors.
* Class R Shares do not incur a maximum sales charge (front-end
load) or deferred sales charge. These shares are subject to a
distribution fee of 0.25% and an account maintenance fee of 0.25%.
Class R Shares are available only to certain retirement plans.
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
each of the following 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.
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
Performance Data (continued)
Recent Performance Results
Ten-Year/
6-Month 12-Month Since Inception Standardized
As of September 30, 2003 Total Return Total Return Total Return 30-day Yield
Core Bond Portfolio Class A Shares* +2.54% +5.51% +84.45% +2.24%
Core Bond Portfolio Class B Shares* +2.27 +4.96 +63.39 +1.82
Core Bond Portfolio Class C Shares* +2.25 +4.91 +75.30 +1.77
Core Bond Portfolio Class I Shares* +2.67 +5.77 +76.36 +2.47
Core Bond Portfolio Class R Shares* +2.74 -- + 4.97 +2.09
Intermediate Portfolio Class A Shares* +2.62 +5.69 +86.15 +2.24
Intermediate Portfolio Class B Shares* +2.40 +5.17 +70.20 +1.86
Intermediate Portfolio Class C Shares* +2.40 +5.16 +79.29 +1.85
Intermediate Portfolio Class I Shares* +2.66 +5.78 +79.15 +2.34
Intermediate Portfolio Class R Shares* +2.73 -- + 4.90 +1.87
Lehman Brothers Aggregate Bond Index** +2.35 +5.41 +95.26/+102.44/+4.48 --
ML Corporate Master Index*** +4.95 +11.04 +104.65/+114.36/+8.61 --
*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 B & Class I Shares, from 10/21/94 for Class A & Class C Shares
and from 1/03/03 for Class R Shares. The Intermediate Term
Portfolio's ten-year/since inception periods are ten years for Class
I & Class B Shares, from 10/21/94 for Class A & Class C Shares and
from 1/03/03 for Class R 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 for ten years,
from 10/21/94 and from 1/03/03.
***This unmanaged Index is comprised of all investment grade
corporate bonds rated BBB or higher, of all maturities. Ten-
year/since inception total returns are for ten years, from 10/21/94
and from 1/03/03.
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
Performance Data (continued)
TOTAL RETURN BASED ON A $10,000 INVESTMENT--CORE BOND PORTFOLIO
Class A & Class C Shares
A line graph illustrating the growth of a $10,000 investment in
ML Bond Fund, Inc.'s Core Bond Portfolio++ Class A and Class C
Shares* compared to a similar investment in Lehman Brothers
Aggregate Bond Index++++ and Merrill Lynch U.S. Corporate
Master++++++. Values illustrated are as follows:
ML Bond Fund, Inc.'s Core Bond Portfolio++
Class A Shares*
Date Value
10/21/1994** $ 9,600.00
September 1995 $11,059.00
September 1996 $11,441.00
September 1997 $12,464.00
September 1998 $13,682.00
September 1999 $13,404.00
September 2000 $14,049.00
September 2001 $15,620.00
September 2002 $16,782.00
September 2003 $17,707.00
ML Bond Fund, Inc.'s Core Bond Portfolio++
Class C Shares*
Date Value
10/21/1994** $10,000.00
September 1995 $11,458.00
September 1996 $11,786.00
September 1997 $12,757.00
September 1998 $13,936.00
September 1999 $13,576.00
September 2000 $14,148.00
September 2001 $15,641.00
September 2002 $16,710.00
September 2003 $17,530.00
Lehman Brothers Aggregate Bond Index++++
Date Value
10/31/1994** $10,000.00
September 1995 $11,445.00
September 1996 $12,006.00
September 1997 $13,172.00
September 1998 $14,688.00
September 1999 $14,634.00
September 2000 $15,657.00
September 2001 $17,685.00
September 2002 $19,205.00
September 2003 $20,244.00
Merrill Lynch U.S. Corporate Master++++++
Date Value
10/31/1994** $10,000.00
September 1995 $11,702.00
September 1996 $12,272.00
September 1997 $13,649.00
September 1998 $15,107.00
September 1999 $14,952.00
September 2000 $15,803.00
September 2001 $17,944.00
September 2002 $19,305.00
September 2003 $21,436.00
*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.
++++++This unmanaged Index is comprised of all investment grade
corporate bonds rated BBB or higher, of all maturities.
Past performance is not predictive of future performance.
Average Annual Total Return--Core Bond Portfolio
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
One Year Ended 9/30/03 +5.51% +1.29%
Five Years Ended 9/30/03 +5.29 +4.44
Inception (10/21/94)
through 9/30/03 +7.09 +6.60
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
One Year Ended 9/30/03 +4.91% +3.91%
Five Years Ended 9/30/03 +4.69 +4.69
Inception (10/21/94)
through 9/30/03 +6.48 +6.48
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after one year.
**Assuming payment of applicable contingent deferred sales charge.
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
Performance Data (continued)
TOTAL RETURN BASED ON A $10,000 INVESTMENT--CORE BOND PORTFOLIO
Class B & Class I Shares
A line graph illustrating the growth of a $10,000 investment in
ML Bond Fund, Inc.'s Core Bond Portfolio++ Class B and Class I
Shares* compared to a similar investment in Lehman Brothers
Aggregate Bond Index++++ and Merrill Lynch U.S. Corporate
Master++++++. Values illustrated are as follows:
ML Bond Fund, Inc.'s Core Bond Portfolio++
Class B Shares*
Date Value
September 1993 $10,000.00
September 1994 $ 9,327.00
September 1995 $10,634.00
September 1996 $10,935.00
September 1997 $11,852.00
September 1998 $12,944.00
September 1999 $12,627.00
September 2000 $13,166.00
September 2001 $14,563.00
September 2002 $15,567.00
September 2003 $16,339.00
ML Bond Fund, Inc.'s Core Bond Portfolio++
Class I Shares*
Date Value
September 1993 $ 9,600.00
September 1994 $ 9,021.00
September 1995 $10,366.00
September 1996 $10,741.00
September 1997 $11,731.00
September 1998 $12,909.00
September 1999 $12,689.00
September 2000 $13,333.00
September 2001 $14,861.00
September 2002 $16,007.00
September 2003 $16,931.00
Lehman Brothers Aggregate Bond Index++++
Date Value
September 1993 $10,000.00
September 1994 $ 9,678.00
September 1995 $11,038.00
September 1996 $11,579.00
September 1997 $12,704.00
September 1998 $14,166.00
September 1999 $14,114.00
September 2000 $15,101.00
September 2001 $17,057.00
September 2002 $18,523.00
September 2003 $19,526.00
Merrill Lynch U.S. Corporate Master++++++
Date Value
September 1993 $10,000.00
September 1994 $ 9,595.00
September 1995 $11,172.00
September 1996 $11,716.00
September 1997 $13,031.00
September 1998 $14,424.00
September 1999 $14,276.00
September 2000 $15,088.00
September 2001 $17,132.00
September 2002 $18,431.00
September 2003 $20,465.00
*Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
++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.
++++++This unmanaged Index is comprised of all investment grade
corporate bonds rated BBB or higher, of all maturities.
Past performance is not predictive of future performance.
Average Annual Total Return--Core Bond Portfolio
% Return % Return
Without CDSC With CDSC**
Class B Shares*
One Year Ended 9/30/03 +4.96% +0.96%
Five Years Ended 9/30/03 +4.77 +4.44
Ten Years Ended 9/30/03 +5.03 +5.03
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after six years.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class I Shares*
One Year Ended 9/30/03 +5.77% +1.54%
Five Years Ended 9/30/03 +5.57 +4.71
Ten Years Ended 9/30/03 +5.84 +5.41
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
Performance Data (continued)
TOTAL RETURN BASED ON A $10,000 INVESTMENT--CORE BOND PORTFOLIO
Class R Shares
A line graph illustrating the growth of a $10,000 investment in
ML Bond Fund, Inc.'s Core Bond Portfolio++ Class R Shares* compared
to a similar investment in Lehman Brothers Aggregate Bond Index++++
and Merrill Lynch U.S. Corporate Master++++++. Values illustrated
are as follows:
ML Bond Fund, Inc.'s Core Bond Portfolio++
Class R Shares*
Date Value
1/03/2003** $10,000.00
September 2003 $10,497.00
Lehman Brothers Aggregate Bond Index++++
Date Value
1/03/2003** $10,000.00
September 2003 $10,448.00
Merrill Lynch U.S. Corporate Master++++++
Date Value
1/03/2003** $10,000.00
September 2003 $10,861.00
*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 higher by Moody's Investors
Service, Inc. or BBB or higher by Standard & Poor's Corp.).
++++This unmanaged market-weighted Index is comprised investment-
grade corporate bonds (rated BBB or better), mortgages and U.S.
Treasury and government agency issues with at least one year to
maturity.
++++++This unmanaged Index is comprised of all investment grade
corporate bonds rated BBB or higher, of all maturities.
Past performance is not predictive of future performance.
Aggregate Total Return--Core Bond Portfolio
% Return Without
Sales Charge
Class R Shares
Inception (1/03/03)
through 9/30/03 +4.97%
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
Performance Data (continued)
TOTAL RETURN BASED ON A $10,000 INVESTMENT--
INTERMEDIATE TERM PORTFOLIO
Class A & Class C Shares
A line graph illustrating the growth of a $10,000 investment in
ML Bond Fund, Inc.'s Intermediate Term Portfolio++ Class A and
Class C 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
10/21/1994** $ 9,900.00
September 1995 $11,249.00
September 1996 $11,752.00
September 1997 $12,761.00
September 1998 $13,959.00
September 1999 $13,920.00
September 2000 $14,603.00
September 2001 $16,247.00
September 2002 $17,437.00
September 2003 $18,429.00
ML Bond Fund, Inc.'s Intermediate Term Portfolio++
Class C Shares*
Date Value
10/21/1994** $10,000.00
September 1995 $11,323.00
September 1996 $11,777.00
September 1997 $12,717.00
September 1998 $13,865.00
September 1999 $13,769.00
September 2000 $14,384.00
September 2001 $15,937.00
September 2002 $17,048.00
September 2003 $17,929.00
Lehman Brothers Aggregate Bond Index++++
Date Value
10/21/1994** $10,000.00
September 1995 $11,445.00
September 1996 $12,006.00
September 1997 $13,172.00
September 1998 $14,688.00
September 1999 $14,634.00
September 2000 $15,657.00
September 2001 $17,685.00
September 2002 $19,205.00
September 2003 $20,244.00
*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.
Past performance is not predictive of future performance.
Average Annual Total Return--Intermediate Term Portfolio
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
One Year Ended 9/30/03 +5.69% +4.63%
Five Years Ended 9/30/03 +5.71 +5.50
Inception (10/21/94)
through 9/30/03 +7.20 +7.08
*Maximum sales charge is 1%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
One Year Ended 9/30/03 +5.16% +4.16%
Five Years Ended 9/30/03 +5.27 +5.27
Inception (10/21/94)
through 9/30/03 +6.75 +6.75
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after one year.
**Assuming payment of applicable contingent deferred sales charge.
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
Performance Data (continued)
TOTAL RETURN BASED ON A $10,000 INVESTMENT--
INTERMEDIATE TERM PORTFOLIO
Class B & Class I Shares
A line graph illustrating the growth of a $10,000 investment in
ML Bond Fund, Inc.'s Intermediate Term Portfolio++ Class B and
Class I 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
September 1993 $10,000.00
September 1994 $ 9,528.00
September 1995 $10,740.00
September 1996 $11,173.00
September 1997 $12,081.00
September 1998 $13,161.00
September 1999 $13,070.00
September 2000 $13,654.00
September 2001 $15,129.00
September 2002 $16,184.00
September 2003 $17,020.00
ML Bond Fund, Inc.'s Intermediate Term Portfolio++
Class I Shares*
Date Value
September 1993 $ 9,900.00
September 1994 $ 9,480.00
September 1995 $10,741.00
September 1996 $11,233.00
September 1997 $12,198.00
September 1998 $13,368.00
September 1999 $13,344.00
September 2000 $14,012.00
September 2001 $15,606.00
September 2002 $16,765.00
September 2003 $17,736.00
Lehman Brothers Aggregate Bond Index++++
Date Value
September 1993 $10,000.00
September 1994 $ 9,678.00
September 1995 $11,038.00
September 1996 $11,579.00
September 1997 $12,704.00
September 1998 $14,166.00
September 1999 $14,114.00
September 2000 $15,101.00
September 2001 $17,057.00
September 2002 $18,523.00
September 2003 $19,526.00
*Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
++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.
Past performance is not predictive of future performance.
Average Annual Total Return--Intermediate Term Portfolio
% Return % Return
Without CDSC With CDSC**
Class B Shares*
One Year Ended 9/30/03 +5.17% +4.17%
Five Years Ended 9/30/03 +5.28 +5.28
Ten Years Ended 9/30/03 +5.46 +5.46
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after three years.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class I Shares*
One Year Ended 9/30/03 +5.78% +4.73%
Five Years Ended 9/30/03 +5.82 +5.60
Ten Years Ended 9/30/03 +6.00 +5.90
*Maximum sales charge is 1%.
**Assuming maximum sales charge.
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
Performance Data (concluded)
TOTAL RETURN BASED ON A $10,000 INVESTMENT--
INTERMEDIATE TERM PORTFOLIO
Class R Shares
A line graph illustrating the growth of a $10,000 investment in
ML Bond Fund, Inc.'s Intermediate Term Portfolio++ Class R 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 R Shares*
Date Value
1/03/2003** $10,000.00
September 2003 $10,490.00
Lehman Brothers Aggregate Bond Index++++
Date Value
1/03/2003** $10,000.00
September 2003 $10,448.00
*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 investment-
grade corporate bonds (rated BBB or better), mortgages and U.S.
Treasury and government agency issues with at least one year to
maturity.
Past performance is not predictive of future performance.
Aggregate Total Return--Intermediate Term Portfolio
% Return Without
Sales Charge
Class R Shares
Inception (1/03/03) through 9/30/03 +4.90%
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
Schedule of Investments Core Bond Portfolio
S&P Moody's Face Value
Ratings++++ Ratings++++ Amount Asset-Backed Securities++--16.6% (in U.S. dollars)
AAA Aaa $ 6,420,593 Advanta Mortgage Loan Trust, Series 1999-3,
Class A4, 7.75% due 10/26/2026 $ 6,862,638
CIT Equipment Collateral:
AAA Aaa 621,408 Series 2002-VT1, Class A2, 2.90% due 6/21/2004 622,047
AAA Aaa 16,600,000 Series 2003-VT1, Class A3A, 1.25% due 4/20/2007 16,620,634
AAA Aaa 16,300,000 CIT Group Home Equity Loan Trust, Series 2003-1,
Class A2, 2.35% due 4/20/2027 16,394,701
California Infrastructure PG&E, Series 1997-1:
AAA Aaa 3,700,000 Class A6, 6.38% due 9/25/2008 3,975,689
AAA Aaa 5,267,013 Class A7, 6.42% due 9/25/2008 5,651,258
Capital Auto Receivables Asset Trust, Series 2003-2:
AAA Aaa 13,600,000 Class A3B, 1.16% due 2/15/2007 13,597,760
A+ Aa3 4,550,000 Class B1, 1.40% due 1/15/2009 4,548,635
AAA Aaa 10,850,000 Capital One Auto Finance Trust, Series 2003-A,
Class A3B, 1.28% due 10/15/2007 10,874,356
AAA Aaa 28,722,967 Centex Home Equity, Series 2003-B, Class AV, 1.40% due
6/25/2033 28,713,293
Chase Credit Card Master Trust, Class C:
BBB Baa2 9,750,000 Series 2000-3, 1.82% due 1/15/2008 9,769,878
BBB Baa2 17,000,000 Series 2003-1, 2.22% due 4/15/2008 (b) 17,124,044
AAA Aaa 215 Contimortgage Home Equity Loan Trust, Series 1998-3,
Class A10, 5.84% due 5/15/2016 215
AAA NR* 23,050,000 CountryWide Asset-Backed Certificates, Series 2003-BC3,
Class A2, 1.43% due 9/25/2033 23,016,849
AAA Aaa 1,052,369 EQCC Home Equity Loan Trust, Series 1999-1, Class A3F,
5.915% due 11/20/2024 1,053,749
BBB Baa2 5,700,000 First Bankcard Master Credit Card Trust, Series 2001-1A,
Class C, 2.27% due 11/15/2006 (c) 5,710,980
Household Automotive Trust:
AAA Aaa 3,022,737 Series 2002-1, Class A2, 2.75% due 5/17/2005 3,028,952
AAA Aaa 7,700,000 Series 2002-3, Class A3A, 2.75% due 6/18/2007 7,828,883
AAA Aaa 6,551,624 Household Home Equity Loan Trust, Series 2002-2,
Class A, 1.42% due 4/20/2032 (b) 6,549,984
A+ A2 5,325,793 MBNA Master Credit Card Trust, Series 1999-F, Class B,
1.52% due 1/16/2007 (b) 5,328,456
Option One Mortgage Loan Trust:
AAA Aaa 7,571,240 Series 2002-4, Class A, 1.38% due 7/25/2032 (b) 7,556,920
AAA Aaa 28,930,734 Series 2003-4, Class A2, 1.44% due 7/25/2033 28,899,243
Residential Asset Securities Corporation:
AAA Aaa 12,900,000 Series 2002-KS8, Class A2, 3.04% due 6/25/2023 13,059,792
AAA Aaa 32,180,096 Series 2003-KS5, Class AIIB, 1.41% due 7/25/2033 32,101,184
AAA Aaa 34,137,548 Saxon Asset Securities Trust, Series 2002-3, Class AV,
1.52% due 12/25/2032 34,177,608
A A2 10,700,000 Superior Wholesale Inventory Financing Trust,
Series 2001, Class A7, 1.52% due 6/15/2006 (b) 10,674,962
Total Asset-Backed Securities (Cost--$313,135,172) 313,742,710
Government & Agency Obligations--15.4%
Fannie Mae:
AAA Aaa 11,550,000 6.375% due 6/15/2009 13,300,737
AAA Aaa 8,050,000 6% due 5/15/2011 9,095,993
AAA Aaa 13,310,000 7.125% due 1/15/2030 16,345,652
Federal Home Loan Bank:
AAA Aaa 26,500,000 1.53% due 12/05/2005 26,492,130
AAA Aaa 32,900,000 1.46% due 12/12/2005 32,882,991
AAA Aaa 15,090,000 Freddie Mac, 6.625% due 9/15/2009 17,572,079
U.S. Treasury Bonds & Notes:
AAA Aaa 53,968,000 7% due 7/15/2006 61,481,371
AAA Aaa 5,320,000 3.125% due 9/15/2008 5,393,980
AAA Aaa 9,460,000 4.75% due 11/15/2008 10,304,381
AAA Aaa 5,700,000 6.50% due 2/15/2010 6,764,076
AAA Aaa 8,160,000 5% due 2/15/2011 8,947,946
AAA Aaa 19,970,000 4.25% due 8/15/2013 20,471,586
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
Schedule of Investments (continued) Core Bond Portfolio
S&P Moody's Face Value
Ratings++++ Ratings++++ Amount Government & Agency Obligations (in U.S. dollars)
U.S. Treasury Bonds & Notes (concluded):
AAA Aaa $ 9,290,000 7.50% due 11/15/2016 (g) $ 12,127,082
AAA Aaa 5,670,000 8.125% due 8/15/2019 7,858,268
AAA Aaa 19,750,000 7.25% due 8/15/2022 25,580,101
AAA Aaa 4,090,000 6.25% due 8/15/2023 4,781,304
AAA Aaa 4,090,000 6.625% due 2/15/2027 5,020,156
AAA Aaa 6,845,000 5.375% due 2/15/2031 7,345,541
Total Government & Agency Obligations
(Cost--$284,135,834) 291,765,374
Government Agency Mortgage-Backed Securities++--27.1%
Fannie Mae:
AAA Aaa 21,040,722 5% due 7/01/2018 21,578,247
AAA Aaa 1,257,048 6% due 2/01/2017 1,312,152
AAA Aaa 26,990,477 6% due 3/01/2033 27,855,492
AAA Aaa 20,212,509 6.50% due 6/01/2031 - 11/01/2032 21,070,284
AAA Aaa 30,954,793 7% due 6/01/2031 - 8/01/2032 32,753,223
AAA Aaa 34,497 7.50% due 3/01/2009 36,397
AAA Aaa 23,027,375 7.50% due 10/01/2022 - 5/01/2033 24,578,281
AAA Aaa 13,068,691 8% due 9/01/2030 - 7/01/2032 14,090,906
Freddie Mac:
AAA Aaa 17,216,489 4.50% due 8/01/2018 17,377,221
AAA Aaa 22,039,111 5% due 6/01/2018 - 10/15/2018 22,574,167
AAA Aaa 34,900,000 5% due 10/15/2033 34,889,111
AAA Aaa 7,995,071 5.50% due 7/01/2016 - 2/01/2018 8,274,476
AAA Aaa 91,360,000 5.50% due 10/15/2033 - 11/15/2033 93,072,746
AAA Aaa 22,673,933 6% due 5/01/2016 - 11/15/2018 23,576,400
AAA Aaa 79,924,000 6% due 10/15/2033 - 11/15/2033 82,536,320
AAA Aaa 7,666,611 6.50% due 3/01/2016 - 10/01/2017 8,066,544
AAA Aaa 48,540,059 6.50% due 1/01/2029 - 11/15/2033 50,639,144
AAA Aaa 5,936,600 7% due 9/01/2031 - 4/01/2032 6,269,163
AAA Aaa 1,011,395 7.50% due 1/01/2030 1,082,123
Government National Mortgage Association:
AAA Aaa 8,000,000 5% due 12/15/2018 8,207,504
AAA Aaa 11,650,881 6.50% due 5/15/2031 - 10/15/2031 12,243,964
Total Government Agency Mortgage-Backed Securities
(Cost--$504,536,067) 512,083,865
Non-Government Agency Mortgage-Backed Securities++--9.9%
Collateralized NR* Aaa 49,848 Blackrock Capital Finance LP, Series 1997-R2,
Mortgage Class AP, 8.05% due 12/25/2035 (a)(b) 49,848
Obligations AAA Aaa 66,406 Collateralized Mortgage Obligation Trust, Series 57,
- --5.2% Class D, 9.90% due 2/01/2019 66,992
AAA Aaa 10,970,000 Collateralized Mortgage Pass-Through Certificates,
Series 2003-FL8, Class A2, 1.32% due 7/15/2015 (a)(b) 10,970,000
AAA NR* 12,045,726 Deutsche Mortgage Securities, Inc., Series 2003-1,
Class 1A1, 4.50% due 4/25/2033 12,149,162
NR* Aaa 2,034,531 First Union NB-Bank of America Commercial Mortgage
Trust, Series 2001-C1, Class A1, 5.711% due 3/15/2033 2,192,399
AAA NR* 1,667,372 GS Mortgage Securities Corporation II, Series 1998-C1,
Class A1, 6.06% due 10/18/2030 1,757,493
AAA Aaa 21,750,000 Granite Mortgages PLC, Series, 2003-2, Class 1A2,
1.27% due 7/20/2020 21,750,000
Housing Securities Inc.:
NR* NR* 108,940 1994-1 AB2, 6.50% due 3/25/2009 73,024
NR* NR* 68,927 Series 1994-2, Class B1, 6.50% due 7/25/2009 53,053
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
Schedule of Investments (continued) Core Bond Portfolio
S&P Moody's Face Value
Ratings++++ Ratings++++ Amount Non-Government Agency Mortgage-Backed Securities++ (in U.S. dollars)
Collateralized NR* Aaa $ 211,245 Ocwen Residential MBS Corporation, Series 1998-R2,
Mortgage Class AP, 6.712% due 11/25/2034 (a)(b) $ 200,682
Obligations AAA Aaa 29,700,000 RMAC, Series 2003-NS2A, Class A2C, 1.42% due 9/12/2035 29,737,125
(concluded) AAA Aaa 6,896,500 Structured Asset Securities Corporation, Series
2002-9, Class A2, 1.42% due 10/25/2027 (b) 6,887,711
Washington Mutual Inc.:
BB NR* 301,080 Series 2000-1, Class B1, 5.12% due 1/25/2040 (a)(b) 299,386
AAA Aaa 3,431,808 Series 2002-AR4, Class A7, 5.526% due 4/26/2032 3,507,544
AAA Aaa 950,037 Series 2002-S2, Class 1A2, 6.50% due 3/25/2032 960,696
AAA Aaa 7,115,982 Series 2003-AR1, Class A2, 2.92% due 3/25/2033 7,122,687
--------------
97,777,802
Commercial Greenwich Capital Commercial Funding Corporation:
Mortgage-Backed AAA Aaa 11,900,000 Series 2002-C1, Class A4, 4.948% due 1/11/2035 12,248,183
Securities--4.7% AAA Aaa 23,543,790 Series 2003-FL1, Class A, 1.44% due 1/05/2006 (b) 23,536,969
AAA Aaa 9,800,000 LB-UBS Commercial Mortgage Trust, Series 2002-C1,
Class A3, 6.226% due 3/15/2026 10,951,846
AAA NR* 7,900,000 Nationslink Funding Corporation, Series 1999-2,
Class A3, 7.181% due 6/20/2031 8,785,139
AAA NR* 799,725 Nomura Asset Securities Corporation, Series 1995-MD3,
Class A1B, 8.15% due 3/04/2020 861,614
AAA Aaa 32,592,000 Wachovia Bank Commercial Mortgage Trust, Series
2003-WHL2, Class A3, 1.44% due 6/15/2013 (b)(c) 32,592,000
--------------
88,975,751
Total Non-Government Agency Mortgage-Backed
Securities (Cost--$184,532,717) 186,753,553
Industry+++ Corporate Bonds & Notes--36.5%
Building BBB+ Baa1 1,770,000 Hanson Australia Funding, 5.25% due 3/15/2013 1,797,621
Products--0.1%
Cable--U.S.--0.4% BB- Ba3 3,900,000 Echostar DBS Corporation, 5.75% due 10/01/2008 (a) 3,904,875
BBB- Ba2 3,625,000 Rogers Cable Inc., 6.25% due 6/15/2013 3,620,469
--------------
7,525,344
Canadian BB+ Ba1 525,000 Abitibi Consolidated Inc., 8.55% due 8/01/2010 (3) 573,244
Corporates** BBB+ Baa2 1,900,000 Potash Corporation of Saskatchewan, 4.875% due
- --0.1% 3/01/2013 (3) 1,890,711
--------------
2,463,955
Chemicals--0.1% BBB- Ba1 1,015,000 Methanex Corporation, 8.75% due 8/15/2012 1,091,125
Commercial Waste Management Inc.:
Services & BBB Baa3 1,810,000 7.375% due 8/01/2010 2,115,825
Supplies--0.2% BBB Baa3 1,890,000 6.375% due 11/15/2012 2,089,947
--------------
4,205,772
Containers--0.3% Sealed Air Corporation:
BBB Baa3 1,965,000 5.375% due 4/15/2008 2,049,491
BBB Baa3 2,650,000 6.95% due 5/15/2009 (a) 2,962,165
--------------
5,011,656
Diversified--0.1% A- Baa3 1,680,000 Brascan Corporation, 5.75% due 3/01/2010 1,779,451
Finance--0.8% Household Finance Corporation:
A A1 2,375,000 4.625% due 1/15/2008 2,496,693
A A1 1,905,000 5.875% due 2/01/2009 2,088,912
A A1 4,565,000 6.75% due 5/15/2011 5,206,414
BBB- Ba1 1,895,000 IOS Capital LLC, 7.25% due 6/30/2008 1,838,150
Texaco Capital Inc.:
AA Aa3 885,000 8.625% due 6/30/2010 1,133,313
AA Aa3 55,000 8.625% due 11/15/2031 77,782
A- A3 2,790,000 Textron Financial Corporation, 2.75% due 6/01/2006 2,792,542
--------------
15,633,806
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
Schedule of Investments (continued) Core Bond Portfolio
S&P Moody's Face Value
Ratings++++ Ratings++++ Amount Corporate Bonds & Notes (in U.S. dollars)
Finance-- A- A2 $ 1,085,000 BB&T Corporation, 4.75% due 10/01/2012 $ 1,096,851
Banks--3.3% A- A1 2,050,000 Banc One Corp., 8% due 4/29/2027 2,595,523
A+ Aa2 1,675,000 Bank of America Corporation, 4.875% due 1/15/2013 1,705,113
A+ Aa2 4,630,000 BankAmerica Corp., 5.875% due 2/15/2009 5,153,232
BBB- Baa2 2,785,000 Capital One Bank, 4.875% due 5/15/2008 2,884,773
Citigroup Inc.:
A+ Aa2 5,530,000 7.25% due 10/01/2010 6,550,168
A+ Aa2 3,580,000 4.875% due 5/07/2015 3,560,095
A+ Aa2 3,436,000 6.625% due 6/15/2032 3,793,550
BB+ Baa3 1,880,000 Firstbank Puerto Rico, 7.625% due 12/20/2005 1,967,253
FleetBoston Financial Corporation:
A A1 430,000 3.85% due 2/15/2008 441,180
A- A2 995,000 6.375% due 5/15/2008 1,120,275
BB+ NR* 1,115,000 Hudson United Bancorp Inc., 8.20% due 9/15/2006 1,244,649
BBB+ A3 4,805,000 PNC Funding Corp., 6.125% due 2/15/2009 5,423,259
BB+ Ba1 5,520,000 Provident Bank, 6.375% due 1/15/2004 5,609,700
A+ Aa3 1,990,000 Suntrust Bank, 5.45% due 12/01/2017 2,122,651
A- A3 780,000 Synovus Financial, 4.875% due 2/15/2013 783,743
A+ Aa3 4,980,000 U.S. Bancorp, 1.29% due 9/16/2005 (b) 4,983,028
Washington Mutual Inc.:
BBB+ A3 2,875,000 7.50% due 8/15/2006 3,264,172
BBB+ A3 3,065,000 4.375% due 1/15/2008 3,178,607
A+ Aa1 4,110,000 Wells Fargo & Co., 5.125% due 2/15/2007 4,414,198
A+ Aa1 495,000 Wells Fargo Bank, 6.45% due 2/01/2011 564,265
--------------
62,456,285
Finance-- A+ A1 2,675,000 American Honda Finance, 1.42% due 10/03/2005 (a)(b) 2,684,983
Other--6.4% A A2 6,865,000 Bear Stearns Company Inc., 5.70% due 11/15/2014 7,321,811
BBB Baa2 2,620,000 Certegy Inc., 4.75% due 9/15/2008 (a) 2,725,741
A A3 3,740,000 Countrywide Home Loan, 5.625% due 7/15/2009 4,063,506
Deutsche Telekom International Finance:
BBB+ Baa3 2,500,000 5.25% due 7/22/2013 2,526,530
BBB+ Baa3 2,360,000 8.75% due 6/15/2030 2,993,667
A+ A2 185,000 Diageo Capital PLC, 3.50% due 11/19/2007 188,315
Ford Motor Credit Company:
BBB A3 1,930,000 6.50% due 1/25/2007 2,039,639
BBB A3 1,125,000 7.20% due 6/15/2007 1,212,504
BBB A3 11,575,000 7% due 10/01/2013 11,648,501
General Motors Acceptance Corp.:
BBB A3 26,700,000 3.03% due 5/19/2005 27,028,490
BBB A3 1,750,000 6.875% due 8/28/2012 1,810,580
BBB A3 4,682,000 8% due 11/01/2031 4,809,257
A+ A1 800,000 Golden West Financial Corporation, 4.75% due 10/01/2012 817,016
Goldman Sachs Group, Inc.:
A+ Aa3 15,245,000 6.875% due 1/15/2011 17,529,387
A+ Aa3 670,000 5.25% due 4/01/2013 692,244
NR* A1 1,935,000 International Lease Finance Corporation, 2.95% due
5/23/2006 1,957,262
Lehman Brothers Holdings, Inc.:
A A2 275,000 4% due 1/22/2008 283,120
A A2 4,855,000 3.50% due 8/07/2008 4,864,773
BBB Baa2 1,785,000 MBNA America Bank NA, 7.125% due 11/15/2012 2,047,374
MBNA Corporation:
BBB Baa2 3,240,000 6.25% due 1/17/2007 3,559,704
BBB Baa2 870,000 5.625% due 11/30/2007 945,310
A A2 1,765,000 Mellon Funding Corporation, 5% due 12/01/2014 1,803,260
A+ Aa3 2,745,000 Morgan Stanley Dean Witter, 6.75% due 4/15/2011 3,136,209
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
Schedule of Investments (continued) Core Bond Portfolio
S&P Moody's Face Value
Ratings++++ Ratings++++ Amount Corporate Bonds & Notes (in U.S. dollars)
Finance--Other AA Aa3 $ 3,265,000 Principal Life Global, 6.25% due 2/15/2012 (a) $ 3,626,377
(concluded) A- A2 755,000 Regions Financial Corporation, 6.375% due 5/15/2012 847,695
BBB- Baa1 2,275,000 UFJ Finance Aruba A.E.C., 6.75% due 7/15/2013 2,383,427
Verizon Global Funding Corporation:
A+ A2 4,275,000 6.875% due 6/15/2012 4,876,582
A+ A2 858,000 7.375% due 9/01/2012 1,011,833
--------------
121,435,097
Food A+ A1 970,000 Archer-Daniels-Midland, 5.935% due 10/01/2032 995,172
Distribution
- --0.1%
Gaming--0.4% BB+ Ba1 7,770,000 MGM Mirage Inc., 6% due 10/01/2009 7,808,850
Industrial-- BBB- Ba1 4,350,000 American Greetings, 6.10% due 8/01/2028 4,404,375
Consumer A A2 5,905,000 Brown-Forman Corporation, 3% due 3/15/2008 5,839,401
Goods--1.1% BBB Baa2 3,650,000 Cadbury Schweppes US Finance LLC, 5.125% due
10/01/2013 (a) 3,702,721
A A3 2,395,000 Coca-Cola HBC Finance BV, 5.125% due 9/17/2013 (a) 2,463,619
AA Aa3 59,000 Eli Lilly & Company, 7.125% due 6/01/2025 71,556
BBB+ Baa1 4,210,000 Miller Brewing Company, 5.50% due 8/15/2013 (a) 4,398,768
--------------
20,880,440
Industrial-- BBB+ Baa1 3,200,000 AGL Capital Corporation, 4.45% due 4/15/2013 3,104,496
Energy--1.3% Anadarko Finance Company:
BBB+ Baa1 90,000 6.75% due 5/01/2011 104,010
BBB+ Baa1 760,000 7.50% due 5/01/2031 918,627
BBB+ Baa1 1,037,000 Anadarko Petroleum Corporation, 5.375% due 3/01/2007 1,124,968
A A2 1,830,000 Colonial Pipeline, 7.63% due 4/15/2032 (a) 2,297,272
BBB+ A3 230,000 Consolidated Natural Gas, 5.375% due 11/01/2006 248,248
A- A3 1,420,000 Duke Energy Corporation, 4.50% due 4/01/2010 1,452,847
A- A3 2,889,273 Kern River Funding Corporation, 4.893% due 4/30/2018 (a) 2,903,257
Kinder Morgan Energy:
BBB+ Baa1 1,740,000 5.35% due 8/15/2007 1,875,556
BBB+ Baa1 1,675,000 6.75% due 3/15/2011 1,922,749
BBB- Baa3 2,150,000 MidAmerican Energy Holdings, 5.875% due 10/01/2012 2,273,709
NR* A1 1,540,000 Motiva Enterprises LLC, 5.20% due 9/15/2012 (a) 1,585,612
BBB Baa2 1,725,000 TGT Pipeline LLC, 5.20% due 6/01/2018 (a) 1,674,928
BBB+ Baa1 3,280,000 Texas Gas Transmission, 4.60% due 6/01/2015 (a) 3,167,719
--------------
24,653,998
Industrial-- A- A2 2,475,000 Alcoa Inc., 1.426% due 12/06/2004 (b) 2,481,143
Manufacturing-- BBB- Baa3 4,015,000 Cia Brasileira de Bebida, 8.75% due 9/15/2013 (a) 4,055,150
4.1% Daimler-Chrysler NA Holdings:
BBB+ A3 10,985,000 6.90% due 9/01/2004 11,465,099
BBB+ A3 19,250,000 1.94% due 9/26/2005 (b) 19,249,673
BBB+ A3 3,160,000 6.40% due 5/15/2006 3,427,368
BBB+ A3 3,570,000 7.75% due 1/18/2011 4,080,813
BBB- Baa3 415,000 Domtar Inc., 7.875% due 10/15/2011 494,648
A A2 600,000 Emerson Electric Company, 6% due 8/15/2032 630,560
AAA Aaa 8,145,000 General Electric Company, 5% due 2/01/2013 8,349,619
BBB Baa1 3,025,000 General Motors Corporation, 7.20% due 1/15/2011 3,187,554
BBB- Baa3 2,400,000 Inco Limited, 7.75% due 5/15/2012 2,840,657
BB+ Baa3 2,335,000 Jabil Circuit Inc., 5.875% due 7/15/2010 2,425,140
BBB Baa2 1,425,000 Martin Marietta Corp., 7.375% due 4/15/2013 1,673,558
Raytheon Company:
BBB- Baa3 8,115,000 8.30% due 3/01/2010 9,931,226
BBB- Baa3 2,440,000 6.75% due 3/15/2018 2,739,115
--------------
77,031,323
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
Schedule of Investments (continued) Core Bond Portfolio
S&P Moody's Face Value
Ratings++++ Ratings++++ Amount Corporate Bonds & Notes (in U.S. dollars)
Industrial-- BBB+ Baa1 $ 9,224,000 AOL Time Warner Inc., 6.875% due 5/01/2012 $ 10,349,586
Services--5.1% Aramark Services Inc.:
BBB- Baa3 2,740,000 6.75% due 8/01/2004 2,843,651
BBB- Baa3 2,355,000 6.375% due 2/15/2008 2,560,208
Cendant Corporation:
BBB Baa1 2,365,000 6.875% due 8/15/2006 2,621,286
BBB Baa1 2,315,000 6.25% due 1/15/2008 2,542,662
BB+ Ba2 5,210,000 Circus Circus Enterprises, Inc., 6.70% due 11/15/2096 5,229,538
BBB- NR* 1,945,000 Clear Channel Communications, 7.875% due 6/15/2005 2,135,863
Comcast Corporation:
BBB Baa3 2,900,000 5.85% due 1/15/2010 3,136,037
BBB Baa3 2,110,000 7.05% due 3/15/2033 2,312,503
BBB- Ba1 3,190,000 HCA Inc., 6.30% due 10/01/2012 3,251,325
BBB Baa3 5,315,000 Kroger Company, 6.80% due 4/01/2011 6,075,949
BBB Ba1 4,155,000 Lenfest Communications, Inc., 10.50% due 6/15/2006 4,937,249
Liberty Media Corporation:
BBB- Baa3 19,600,000 2.64% due 9/17/2006 (b) 19,496,277
BBB- Baa3 1,295,000 7.875% due 7/15/2009 1,497,775
BBB- Baa3 4,355,000 5.70% due 5/15/2013 4,348,311
BBB Ba1 1,370,000 Manor Care Inc., 6.25% due 5/01/2013 1,404,250
BBB- Baa3 3,948,000 News America Holdings, 9.25% due 2/01/2013 5,165,216
News America Inc.:
BBB- Baa3 1,070,000 6.55% due 3/15/2033 1,119,540
BBB- Baa3 1,440,000 6.75% due 1/09/2038 1,561,120
BBB+ Baa1 2,395,000 PHH Corporation, 6% due 3/01/2008 2,586,648
BBB Baa3 655,000 SuperValu Inc., 7.50% due 5/15/2012 746,602
BBB Baa3 2,990,000 Tele-Communications Inc., 9.80% due 2/01/2012 3,946,223
BBB- Baa3 2,035,000 USA Interactive, 7% due 1/15/2013 2,295,417
BBB- Baa3 2,890,000 Univision Communication Inc., 7.85% due 7/15/2011 3,429,739
--------------
95,592,975
Industrial-- AAA Aaa 1,995,000 American Airlines, 3.857% due 7/09/2010 1,994,601
Transportation BBB+ Baa2 1,260,000 Burlington Northern Santa Fe Corporation, 7.95%
- --0.9% due 8/15/2030 1,577,752
AAA Aaa 2,080,000 Continental Airlines, 6.563% due 2/15/2012 2,250,680
BBB Baa1 4,875,000 Norfolk Southern Corporation, 7.25% due 2/15/2031 5,642,189
Southwest Airlines Co.:
A Baa1 1,140,000 8% due 3/01/2005 1,226,769
A Baa1 2,380,000 7.875% due 9/01/2007 2,746,565
Union Pacific Corporation:
BBB Baa3 1,355,000 7.25% due 11/01/2008 1,575,982
A A1 920,000 4.698% due 1/02/2024 899,024
--------------
17,913,562
Insurance--1.2% BBB+ Baa2 2,430,000 Berkley (WR) Corporation, 5.125% due 9/30/2010 2,492,181
AA- A2 985,000 Marsh & McLennan Companies Inc., 3.625% due 2/15/2008 1,002,605
NR* NR* 240,000 Massmutual Global Funding, 7% due 7/07/2006 269,068
BBB+ Baa3 5,530,000 NLV Financial Corporation, 7.50% due 8/15/2033 (a) 5,773,226
AA- Aa3 3,795,000 New York Life Insurance, 5.875% due 5/15/2033 (a) 3,796,708
A+ A1 1,265,000 Progressive Corporation, 6.25% due 12/01/2032 1,346,353
A- Baa1 5,365,000 Security Benefit Life, 7.45% due 10/01/2033 (a) 5,352,875
A- A2 2,100,000 Travelers Property Casualty, 6.375% due 3/15/2033 2,232,359
--------------
22,265,375
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
Schedule of Investments (continued) Core Bond Portfolio
S&P Moody's Face Value
Ratings++++ Ratings++++ Amount Corporate Bonds & Notes (in U.S. dollars)
Leisure--0.0% BBB- Ba1 $ 350,000 Hilton Hotels Corporation, 7.625% due 12/01/2012 $ 382,375
Metal-- BBB+ Baa2 730,000 Placer Dome Inc., 6.375% due 3/01/2033 748,435
Other--0.0%
Oil A- Baa1 1,330,000 EnCana Corp., 4.75% due 10/15/2013 1,337,355
Refineries BBB Baa2 3,745,000 Enterprise Products Operating LP, 6.875% due 3/01/2033 4,036,661
- --0.6% BBB Baa3 5,375,000 Ultramar Diamond Shamrock, 6.75% due 10/15/2037 5,916,827
--------------
11,290,843
Paper--1.1% BB+ Ba2 6,275,000 Boise Cascade Corporation, 7.66% due 5/27/2005 6,643,204
BBB+ Baa2 3,050,000 Celulosa Arauco y Constitucion SA, 5.125% due
7/09/2013 (a) 3,004,894
BBB Baa2 5,620,000 Champion International Corp., 6.65% due 12/15/2037 6,438,738
A- Baa2 1,940,000 Inversiones CMPC SA, 4.875% due 6/18/2013 (a) 1,872,195
BBB Baa3 1,685,000 Norske Skog Industrier ASA, 6.125% due 10/15/2015 (a) 1,733,376
BBB- Baa3 1,840,000 Rock-Tenn Company, 5.625% due 3/15/2013 1,858,061
--------------
21,550,468
Real Estate BBB Baa2 2,335,000 Centerpoint Properties, 4.75% due 8/01/2010 2,386,351
Investment BBB Baa3 1,410,000 Developers Divers Realty, 6.625% due 1/15/2008 1,543,692
Trust--1.8% BBB+ Baa1 4,180,000 Duke Realty Corporation, 5.25% due 1/15/2010 4,382,400
BBB+ Baa1 4,970,000 EOP Operating LP, 7.375% due 11/15/2003 5,003,249
BBB+ Baa2 675,000 Health Care Properties Inc., 7.48% due 4/05/2004 689,741
Health Care Properties Investors Inc.:
BBB+ Baa2 1,585,000 6.50% due 2/15/2006 1,705,977
BBB+ Baa2 2,855,000 6.45% due 6/25/2012 3,084,491
BBB- Ba1 1,575,000 Highwoods Realty LP, 8% due 12/01/2003 1,591,314
BBB- Baa3 1,913,000 Nationwide Health Properties, 6.59% due 7/07/2038 1,907,556
BBB+ NR* 7,465,000 Prologis Trust, 7% due 10/01/2003 7,465,000
BBB Baa2 1,480,000 Shurgard Storage Centers, 5.875% due 3/15/2013 1,550,516
BBB Baa3 1,865,000 United Dominion Realty Trust, Inc., 6.50% due 6/15/2009 2,071,308
--------------
33,381,595
Retail-- BBB+ Baa1 595,000 Limited Brands Inc., 6.125% due 12/01/2012 648,235
Stores--0.0%
Supranational A A2 2,845,000 Corporacion Andina de Fomento, 6.875% due 3/15/2012 3,159,205
- --0.2%
Utilities-- BBB Baa3 486,000 AT&T Broadband Corporation, 8.375% due 3/15/2013 602,093
Communications BBB Baa2 1,728,000 AT&T Wireless Services Inc., 8.75% due 3/01/2031 2,137,258
- --1.2% BBB+ Baa2 1,285,000 CenturyTel Inc., 7.875% due 8/15/2012 1,571,680
A+ A3 5,070,000 GTE Corporation, 6.84% due 4/15/2018 5,749,126
BBB Baa2 2,820,000 Harris Corporation, 6.35% due 2/01/2028 2,990,173
Sprint Capital Corporation:
BBB- Baa3 340,000 8.375% due 3/15/2012 401,057
BBB- Baa3 2,890,000 6.90% due 5/01/2019 2,962,892
BBB- Baa3 360,000 8.75% due 3/15/2032 427,764
B- Ba3 2,721,000 US West Communications, 7.20% due 11/01/2004 2,795,828
A+ A2 2,245,000 Verizon New York Inc., 6.875% due 4/01/2012 2,563,473
--------------
22,201,344
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
Schedule of Investments (continued) Core Bond Portfolio
S&P Moody's Face Value
Ratings++++ Ratings++++ Amount Corporate Bonds & Notes (in U.S. dollars)
Utilities-- NR* Baa2 $ 3,240,000 AEP Texas Central Company, 6.65% due 2/15/2033 (a) $ 3,393,965
Electric BBB+ A3 1,485,000 Alabama Power Capital Trust, 5.50% due 10/01/2042 (b) 1,523,432
& Gas--2.8% A A2 1,340,000 Australian Gas Light Company, 5.30% due 9/25/2015 (a) 1,373,452
CenterPoint Energy, Inc. (a):
BBB- Ba1 1,500,000 7.25% due 9/01/2010 1,570,431
BBB Ba1 1,535,000 7.875% due 4/01/2013 1,724,468
BBB Baa1 2,685,000 Cincinnati Gas & Electric Company, 5.70% due 9/15/2012 2,853,202
A- A2 1,400,000 Consolidated Edison Company of New York Inc., 3.625%
due 8/01/2008 1,413,859
Consumers Energy (a):
BBB- Baa3 1,255,000 4.25% due 4/15/2008 1,272,035
BBB- Baa3 1,770,000 4% due 5/15/2010 1,706,094
Dominion Resources Inc.:
BBB+ Baa1 2,185,000 7.625% due 7/15/2005 2,398,195
BBB+ Baa1 5,755,000 5.25% due 8/01/2033 5,759,587
BBB- Baa3 5,555,000 Entergy Gulf States, Inc., 5.25% due 8/01/2015 (a) 5,387,011
A- A2 4,850,000 FPL Group Capital Inc., 1.44% due 3/30/2005 4,848,947
BBB Baa2 1,900,000 New York State Electric & Gas, 5.75% due 5/01/2023 1,806,649
BBB Baa3 2,495,000 Nisource Finance Corporation, 5.40% due 7/15/2014 2,532,033
BBB Baa1 2,605,000 PSE&G Power, 6.95% due 6/01/2012 2,940,735
BBB Baa1 1,990,000 Pepco Holdings Inc., 4% due 5/15/2010 1,921,313
BBB- Baa3 2,425,000 Public Service Company of New Mexico, 4.40% due
9/15/2008 2,484,556
BBB+ Baa1 2,520,000 Southern Power Company, 6.25% due 7/15/2012 2,765,501
A- Baa1 2,875,000 Vectren Utility Holdings, 5.25% due 8/01/2013 2,921,282
--------------
52,596,747
Yankee A- A2 1,285,000 BSCH Issuances Ltd., 7.625% due 9/14/2010 (1) 1,569,040
Corporates** A- Baa1 6,755,000 British Telecom PLC, 8.125% due 12/15/2010 (4) 8,311,514
- --1.6% A- A2 2,450,000 Codelco Inc., 6.375% due 11/30/2012 (3) (a) 2,653,722
France Telecom (4):
BBB Baa3 5,395,000 9% due 3/01/2011 6,590,084
BBB Baa3 1,830,000 9.75% due 3/01/2031 2,443,301
BBB+ Baa1 2,475,000 Koninklijke (KPN) NV, 8% due 10/01/2010 (3) 2,991,533
Pemex Project Funding Master Trust (1):
BBB- Baa1 2,780,000 9.125% due 10/13/2010 3,329,050
BBB- Baa1 2,590,000 7.375% due 12/15/2014 2,784,250
--------------
30,672,494
Yankee Bundesrepublic Deutschland (2):
Sovereigns** AAA Aaa 3,330,000 6% due 7/04/2007 4,290,828
- --1.2% AAA Aaa 3,880,000 5.50% due 1/04/2031 4,983,451
A- A3 2,260,000 Korea Development Bank, 4.25% due 11/13/2007 (1) 2,318,206
A- Baa1 1,925,000 Republic of Chile, 5.50% due 1/15/2013 (2) 2,002,000
United Mexican States (2):
BBB- Baa2 4,645,000 9.875% due 2/01/2010 5,922,375
BBB- Baa2 2,305,000 6.375% due 1/16/2013 2,431,775
--------------
21,948,635
Total Investments in Corporate Bonds & Notes
(Cost--$660,859,190) 689,122,183
Shares
Held Preferred Stock--0.0%
500 Home Ownership Funding 2 (a) 267,531
Total Investments in Preferred Stock (Cost--$500,000) 267,531
Total Long-Term Investments (Cost--$1,947,698,980) 1,993,735,216
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
Schedule of Investments (continued) Core Bond Portfolio
Face Value
Industry+++ Amount Short-Term Investments--13.5% (in U.S. dollars)
Commercial $ 23,608,000 CDC Corporation, 1.04% due 10/15/2003 $ 23,598,452
Paper*** 5,000,000 Falcon Asset Securitization, 1.06% due 10/01/2003 5,000,000
20,000,000 Jupiter Securitization, 1.05% due 10/14/2003 19,992,417
30,000,000 NBNZ International Ltd., 1.06% due 10/14/2003 29,988,517
25,000,000 Textron Financial Corporation, 1.15% due 10/10/2003 24,992,812
UBS AG:
12,500,000 1.035% due 10/02/2003 12,499,641
25,000,000 1.05% due 10/06/2003 24,996,354
21,000,000 VF Corporation, 1.15% due 10/09/2003 20,994,633
--------------
162,062,826
Shares
Held
92,528,750 Merrill Lynch Premier Institutional Fund (d)(e) 92,528,750
Total Short-Term Investments (Cost--$254,591,576) 254,591,576
Number of
Options Purchased Contracts Options Purchased--0.0%
Call Options 326 Eurodollar, expiring December 2003 at USD 97.75,
Purchased--0.0% Broker Greenwich Capital Markets 330,075
Total Options Purchased (Premiums Paid--$205,217) 330,075
Total Investments (Cost--$2,202,495,773) 2,248,656,867
Number of
Options Written Contracts Options Written--0.0%
Call Options 326 Eurodollar, expiring December 2003 at USD 98.5,
Written--0.0% Broker Greenwich Capital Markets (44,825)
Put Options 326 Eurodollar, expiring December 2003 at USD 98,
Written--0.0% Broker Greenwich Capital Markets (209,863)
Total Options Written (Premiums Received--$275,183) (254,688)
Total Investments, Net of Options Written (Cost--$2,202,220,590)--119.0% 2,248,402,179
Variation Margin on Financial Futures Contracts (f)--(0.1%) (840,879)
Unrealized Depreciation on Forward Foreign Exchange Contracts (h)--0.0% (280,805)
Unrealized Appreciation on Swaps (i)--0.0% 66,931
Liabilities in Excess of Other Assets--(18.9%) (357,566,374)
--------------
Net Assets--100.0% $1,889,781,052
==============
*Not Rated.
**Corresponding industry groups for foreign securities:
(1) Financial Institution.
(2) Government Entity.
(3) Industrial.
(4) Telecommunications.
***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.
++Asset-Backed and Mortgage-Backed Obligations are subject to
principal paydowns as a result of prepayments or refinancings of the
underlying mortgage instruments. As a result, the average life may
be substantially less than the original maturity.
++++Ratings of issues shown are unaudited.
+++For Portfolio compliance purposes, "Industry" means any one or
more of the industry sub-classifications used by one or more widely
recognized market indexes or ratings group indexes, and/or as
defined by Portfolio management. This definition may not apply for
purposes of this report, which may combine such industry sub-
classifications for reporting ease. These industry classifications
are unaudited.
(a)The security may be offered and sold to "qualified institutional
buyers" under Rule 144A of the Securities Act of 1933.
(b)Floating rate note.
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
Schedule of Investments (continued)
Core Bond Portfolio
(c)Restricted securities as to resale. The value of the Portfolio's
investment in restricted securities was approximately $38,303,000,
representing 2.0% of net assets.
Acquisition
Issue Date Cost Value
First Bankcard Master
Credit Card Trust, Series
2001-1A, Class C,
2.27% due 11/15/2006 4/07/2003 $ 5,686,641 $ 5,710,980
Wachovia Bank Commercial
Mortgage Trust, Series
2003-WHL2, Class A3,
1.44% due 6/15/2013 6/13/2003 32,592,000 32,592,000
----------- ------------
Total $38,278,641 $ 38,302,980
=========== ============
(d) Investments in companies considered to be an affiliate of the
Portfolio (such companies are defined as "Affiliated Companies" in
Section 2(a)(3) of the Investment Company Act of 1940) are as
follows:
Interest/
Net Dividend
Affiliate Activity Income
Merrill Lynch Liquidity Series,
LLC Money Market Series -- $37,840
Merrill Lynch Premier
Institutional Fund 92,528,750 $32,870
(e) Security was purchased with the cash proceeds from securities
loans.
(f) Financial futures contracts purchased as of September 30, 2003
were as follows:
Number of Expiration Face Unrealized
Contracts Issue Date Value Losses
328 Eurodollar December 2004 $326,361,476 $ (9,676)
---------
Total Unrealized Losses--Net $ (9,676)
=========
Financial futures contracts sold as of September 30, 2003 were as
follows:
Number of Expiration Face Unrealized
Contracts Issue Date Value Losses
875 Ten-Year
U.S. Treasury December
Note Futures 2003 $96,527,194 $ (3,769,681)
-------------
Total Unrealized Losses--Net $ (3,769,681)
=============
(g) All or a portion of security held as collateral in connection
with open financial futures contracts.
(h) Forward foreign exchange contracts as of September 30, 2003 were
as follows:
Foreign Currency Expiration Unrealized
Sold Date Depreciation
Euro 8,000,000 December 2003 $ (280,805)
-------------
Total Unrealized Depreciation on Forward
Foreign Exchange Contracts--Net
(US$ Commitment--$9,015,600) $ (280,805)
=============
(i) Swap contracts entered into as of September 30, 2003 were as
follows:
Unrealized
Notional Appreciation
Amount (Depreciation)
Receive a variable rate return equal
to Lehman Brothers High Yield Index
Total Return and pay floating rate
based on 1-month USD LIBOR,
plus .15%
Broker, Credit Suisse
First Boston International
Expires March 2004 $17,300,000 --
Sold credit default protection
on Sprint Capital Corp. and
receive 1.50%
Broker, Morgan Stanley
Capital Services Inc.
Expires September 2008 $ 5,490,000 $ 83,695
Sold credit default protection on
Comcast Cable Communications
and receive 1.15%
Broker, Morgan Stanley
Capital Services Inc.
Expires September 2008 $ 5,490,000 92,007
Receive a variable rate return
equal to JP Morgan U.S. Agency
Mortgage Index Total Return
and pay floating rate based on
1-month USD LIBOR, minus .22%
Broker, JP Morgan Chase Bank
Expires January 2004 $17,250,000 --
TRAC-X HYDIS 100 Index
and receive 4.50%
Broker, JP Morgan Chase Bank
Expires June 2008 $18,810,000 (141,075)
TRAC-X HYDIS 100 Index
and receive 4.50%
Broker, Morgan Stanley
Capital Services Inc.
Expires June 2008 $ 3,450,000 144,469
TRAC-X HYDIS 100 Index
and receive 4.50%
Broker, Bear Stearns
Credit Products Inc.
Expires June 2008 $ 3,450,000 146,625
Receive a variable rate return
equal to JP Morgan U.S. Agency
Mortgage Index Total Return
and pay floating rate based on
1-month USD LIBOR, minus .25%
Broker, JP Morgan Chase Bank
Expires January 2004 $16,150,000 --
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
Schedule of Investments (concluded)
Core Bond Portfolio
Unrealized
Notional Appreciation
Amount (Depreciation)
Receive a variable rate return equal
to CMBS Investment Grade Index
Total Return and pay floating rate
based on 1-month USD LIBOR,
minus .40%
Broker, Deutsche Bank AG,
London
Expires October 2003 $54,800,000 --
Receive a variable rate return equal
to JP Morgan U.S. Agency Mortgage
Index Total Return and pay floating
rate based on 1-month USD LIBOR,
minus .30%
Broker, JP Morgan Chase Bank
Expires April 2004 $18,100,000 --
Receive a variable rate return equal
to Lehman Brothers U.S. High Yield
Index and pay floating rate based
on 1-month USD LIBOR, plus .10%
Broker, Lehman Brothers
Special Finance
Expires December 2003 $ 3,800,000 --
Receive a variable rate return equal
to JP Morgan U.S. Agency Mortgage
Index Total Return and pay floating
rate based on 1-month USD LIBOR,
minus .30%
Broker, JP Morgan Chase Bank
Expires November 2003 $19,750,000 --
Receive a variable rate return equal
to U.S. Treasury Index Total Return
and pay floating rate based on
1-month USD LIBOR, minus .20%
Broker, Lehman Brothers Special
Finance
Expires December 2003 $86,100,000 --
Receive a variable rate return equal
to CMBS AAA Index Total Return
and pay floating rate based on
4-month USD LIBOR, minus .60%
Broker, Lehman Brothers Special
Finance
Expires January 2004 $27,800,000 --
Unrealized
Notional Appreciation
Amount (Depreciation)
Receive a variable rate return equal
to Lehman Brothers U.S. High Yield
Index Total Return and pay floating
rate based on 1-month USD LIBOR,
plus .10%
Broker, Credit Suisse First Boston
International
Expires December 2003 $ 5,750,000 --
Bought credit default protection on
Tyson Foods Inc. and pay 1.36%
Broker, Morgan Stanley Capital
Services Inc.
Expires September 2008 $ 5,490,000 $ (147,626)
Bought credit default protection on
Weyerhaeuser Co. and pay .73%
Broker, Morgan Stanley Capital
Services Inc.
Expires September 2008 $ 5,490,000 (33,906)
Receive a variable rate return equal
to JP Morgan U.S. Agency Mortgage
Index Total Return and pay floating
rate based on 1-month USD LIBOR,
minus .25%
Broker, JP Morgan Chase Bank
Expires January 2004 $58,000,000 --
Receive a variable rate based on
3-month USD LIBOR, plus .50%
which is capped at a fixed coupon
of 8% and callable quarterly
beginning March 29, 2004 and pay
floating rate based on 3-month
USD LIBOR
Broker, JP Morgan Chase Bank
Expires September 2009 $59,000,000 (77,258)
-------------
Total $ 66,931
=============
See Notes to Financial Statements.
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
Schedule of Investments Intermediate Term Portfolio
S&P Moody's Face Value
Ratings++++ Ratings++++ Amount Asset-Backed Securities++--14.0% (in U.S. dollars)
AAA Aaa $3,210,297 Advanta Mortgage Loan Trust, Series 1999-3, Class A
4, 7.75% due 10/25/2026 $ 3,431,319
CIT Equipment Collateral:
AAA Aaa 177,882 Series 2002-VT1, Class A2, 2.90% due 6/21/2004 178,065
AAA Aaa 4,000,000 Series 2003-VT1, Class A3A, 1.25% due 4/20/2007 4,004,972
AAA Aaa 4,750,000 CIT Group Home Equity Loan Trust, Series 2003-1,
Class A2, 2.35% due 4/20/2027 4,777,597
California Infrastructure PG&E, Series 1997-1:
AAA Aaa 1,100,000 Class A6, 6.38% due 9/25/2008 1,181,962
AAA Aaa 1,546,279 Class A7, 6.42% due 9/25/2008 1,659,085
Capital Auto Receivables Asset Trust, Series 2003-2:
AAA Aaa 4,050,000 Class A3B, 1.16% due 2/15/2007 4,049,333
A+ Aa3 1,350,000 Class B1, 1.40% due 1/15/2009 1,349,595
AAA Aaa 3,200,000 Capital One Auto Finance Trust, Series 2003-A,
Class A3B, 1.28% due 10/15/2007 3,207,183
AAA Aaa 5,253,026 Centex Home Equity, Series 2003-B, Class AV, 1.40%
due 6/25/2033 5,251,257
Chase Credit Card Master Trust, Class C:
BBB Baa2 2,850,000 Series 2000-3, 1.82% due 1/15/2008 2,855,811
BBB Baa2 5,200,000 Series 2003-1, 2.22% due 4/15/2008 (b) 5,237,943
AAA NR* 4,200,000 CountryWide Asset-Backed Certificates, Series 2003-BC3,
Class A2, 1.43% due 9/25/2033 4,193,960
AAA Aaa 305,035 EQCC Home Equity Loan Trust, Series 1999-1, Class A3F,
5.915% due 11/20/2024 305,434
BBB Baa2 1,700,000 First Bankcard Master Credit Card Trust, Series 2001-1A,
Class C, 2.27% due 11/15/2006 (c) 1,703,275
Household Automotive Trust:
AAA Aaa 871,621 Series 2002-1, Class A2, 2.75% due 5/17/2005 873,413
AAA Aaa 2,300,000 Series 2002-3, Class A3A, 2.75% due 6/18/2007 2,338,498
AAA Aaa 1,886,074 Household Home Equity Loan Trust, Series 2002-2, Class A,
1.42% due 4/20/2032 (b) 1,885,602
A+ A2 1,515,955 MBNA Master Credit Card Trust, Series 1999-F, Class B,
1.52% due 1/16/2007 (b) 1,516,713
Option One Mortgage Loan Trust:
AAA Aaa 2,179,599 Series 2002-4, Class A, 1.38% due 7/25/2032 (b) 2,175,477
AAA Aaa 5,335,787 Series 2003-4, Class A2, 1.43% due 7/25/2033 5,329,979
Residential Asset Securities Corporation:
AAA Aaa 3,800,000 Series 2002-KS8, Class A2, 3.04% due 6/25/2023 3,847,071
AAA Aaa 5,935,658 Series 2003-KS5, Class AIIB, 1.41% due 7/25/2033 5,921,103
AAA Aaa 6,312,363 Saxon Asset Securities Trust, Series 2002-3, Class AV,
1.52% due 12/25/2032 6,319,770
A A2 3,025,000 Superior Wholesale Inventory Financing Trust, Series
2001, Class A7, 1.52% due 6/15/2006 (b) 3,017,922
Total Asset-Backed Securities (Cost--$76,366,671) 76,612,339
Government & Agency Obligations--15.1%
Fannie Mae:
AAA Aaa 3,390,000 6.375% due 6/15/2009 3,903,853
AAA Aaa 2,360,000 6% due 5/15/2011 2,666,651
AAA Aaa 3,900,000 7.125% due 1/15/2030 4,789,485
Federal Home Loan Bank:
AAA Aaa 4,900,000 1.53% due 12/05/2005 4,898,545
AAA Aaa 6,050,000 1.46% due 12/12/2005 6,046,872
AAA Aaa 4,430,000 Freddie Mac, 6.625% due 9/15/2009 5,158,669
U.S. Treasury Bonds & Notes:
AAA Aaa 485,000 1.875% due 9/30/2004 488,884
AAA Aaa 20,140,000 7% due 7/15/2006 (g) 22,943,871
AAA Aaa 480,000 3% due 2/15/2008 488,288
AAA Aaa 2,000,000 3.125% due 9/15/2008 2,027,812
AAA Aaa 2,740,000 4.75% due 11/15/2008 2,984,567
AAA Aaa 1,650,000 6.50% due 2/15/2010 1,958,022
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
Schedule of Investments (continued) Intermediate Term Portfolio
S&P Moody's Face Value
Ratings++++ Ratings++++ Amount Government & Agency Obligations (in U.S. dollars)
U.S. Treasury Bonds & Notes (concluded):
AAA Aaa $2,360,000 5% due 2/15/2011 $ 2,587,886
AAA Aaa 755,000 3.875% due 2/15/2013 754,646
AAA Aaa 1,655,000 4.25% due 8/15/2013 1,696,569
AAA Aaa 2,690,000 7.50% due 11/15/2016 (g) 3,511,502
AAA Aaa 1,640,000 8.125% due 8/15/2019 2,272,938
AAA Aaa 5,710,000 7.25% due 8/15/2022 7,395,563
AAA Aaa 1,180,000 6.25% due 8/15/2023 1,379,447
AAA Aaa 1,180,000 6.625% due 2/15/2027 1,448,358
AAA Aaa 2,960,000 5.375% due 2/15/2031 3,176,450
Total Government & Agency Obligations
(Cost--$80,301,882) 82,578,878
Government Agency Mortgage-Backed Securities++--26.4%
Fannie Mae:
AAA Aaa 4,664,294 5% due 1/01/2018 - 7/01/2018 4,779,717
AAA Aaa 3,202,267 6% due 5/01/2016 - 2/01/2017 3,342,642
AAA Aaa 2,275,541 6% due 6/01/2033 2,348,430
AAA Aaa 12,447,536 6.50% due 6/01/2031 - 11/01/2032 12,975,505
AAA Aaa 6,456,748 7% due 2/01/2031 - 4/01/2032 6,833,705
AAA Aaa 8,155,141 7.50% due 11/01/2027 - 5/01/2033 8,703,536
AAA Aaa 192,987 8% due 9/01/2030 208,475
Freddie Mac:
AAA Aaa 5,327,777 4.50% due 4/01/2018 - 9/01/2018 5,377,516
AAA Aaa 5,521,620 5% due 10/15/2018 5,652,759
AAA Aaa 3,650,000 5% due 10/15/2033 3,648,861
AAA Aaa 2,372,554 5.50% due 7/01/2016 2,455,455
AAA Aaa 33,050,000 5.50% due 10/15/2033 - 11/15/2033 33,680,061
AAA Aaa 5,065,791 6% due 5/01/2016 - 11/15/2018 5,266,953
AAA Aaa 28,060,000 6% due 10/15/2033 - 11/15/2033 28,979,642
AAA Aaa 2,347,965 6.50% due 5/01/2016 - 6/01/2016 2,470,316
AAA Aaa 6,000,000 6.50% due 11/15/2033 6,253,128
AAA Aaa 2,716,648 7% due 10/01/2031 - 4/01/2032 2,868,818
Government National Mortgage Association:
AAA Aaa 3,600,000 5% due 12/15/2018 3,693,377
AAA Aaa 4,081,587 6.50% due 4/15/2032 4,287,840
Total Government Agency Mortgage-Backed Securities
(Cost--$141,967,223) 143,826,736
Non-Government Agency Mortgage-Backed Securities++--8.7%
Collateralized AAA Aaa 3,250,000 Collateralized Mortgage Pass-Through Certificates,
Mortgage Series 2003-FL8, Class A2, 1.32% due 7/15/2015 (a)(b) 3,250,000
Obligations--4.7% AAA NR* 2,539,993 Deutsche Mortgage Securities, Inc., Series 2003-1,
Class 1A1, 4.50% due 4/25/2033 2,561,804
AAA Aaa 6,400,000 Granite Mortgages PLC, Series 2003-2, Class 1A2, 1.27%
due 7/20/2020 6,400,000
AAA Aaa 5,600,000 RMAC, Series 2003-NS2A, Class A2C, 1.42% due 9/12/2035 5,607,000
AAA Aaa 1,960,998 Structured Asset Securities Corporation, Series 2002-9,
Class A2, 1.41% due 10/25/2027 (b) 1,958,499
Washington Mutual Inc.:
AAA Aaa 3,382,782 Series 2002-AR4, Class A7, 5.535% due 4/26/2032 3,457,436
AAA Aaa 282,443 Series 2002-S2, Class 1A2, 6.50% due 3/25/2032 285,612
AAA Aaa 2,165,733 Series 2003-AR1, Class A2, 2.92% due 3/25/2033 2,167,774
--------------
25,688,125
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
Schedule of Investments (continued) Intermediate Term Portfolio
S&P Moody's Face Value
Ratings++++ Ratings++++ Amount Non-Government Agency Mortgage-Backed Securities++ (in U.S. dollars)
Commercial Greenwich Capital Commercial Funding Corporation:
Mortgage-Backed AAA Aaa $3,750,000 Series 2002-C1, Class A4, 4.948% due 1/11/2035 $ 3,859,722
Securities--4.0% AAA Aaa 5,370,478 Series 2003-FL1, Class A, 1.44% due 7/05/2018 (b) 5,368,922
AAA Aaa 3,100,000 LB-UBS Commercial Mortgage Trust, Series 2002-C1,
Class A3, 6.226% due 3/15/2026 3,464,359
AAA NR* 2,500,000 Nationslink Funding Corporation, Series 1999-2,
Class A3, 7.181% due 6/20/2031 2,780,107
AAA Aaa 6,000,000 Wachovia Bank Commercial Mortgage Trust, Series 2003-
WHL2, Class A3, 1.44% due 6/15/2013 (b)(c) 6,000,000
--------------
21,473,110
Total Non-Government Agency Mortgage-Backed Securities
(Cost--$46,377,142) 47,161,235
Industry+++ Corporate Bonds & Notes--36.8%
Building BBB+ Baa1 605,000 Hanson Australia Funding, 5.25% due 3/15/2013 614,441
Products--0.1%
Cable--U.S. BB- Ba3 1,140,000 Echostar DBS Corporation, 5.75% due 10/01/2008 (a) 1,141,425
- --0.4% BBB- Ba2 1,070,000 Rogers Cable Inc., 6.25% due 6/15/2013 1,068,662
--------------
2,210,087
Canadian BB+ Ba1 150,000 Abitibi Consolidated Inc., 8.55% due 8/01/2010 (3) 163,784
Corporates** BBB+ Baa2 575,000 Potash Corporation of Saskatchewan, 4.875%
- --0.1% due 3/01/2013 (3) 572,189
--------------
735,973
Chemicals--0.1% BBB- Ba1 295,000 Methanex Corporation, 8.75% due 8/15/2012 317,125
Commercial Waste Management Inc.:
Services BBB Baa3 560,000 7.375% due 8/01/2010 654,620
& Supplies--0.2% BBB Baa3 585,000 6.375% due 11/15/2012 646,888
--------------
1,301,508
Containers--0.2% Sealed Air Corporation:
BBB Baa3 580,000 5.375% due 4/15/2008 604,939
BBB Baa3 450,000 6.95% due 5/15/2009 (a) 503,009
--------------
1,107,948
Diversified--0.1% A- Baa3 570,000 Brascan Corporation, 5.75% due 3/01/2010 603,742
Finance--0.9% Household Finance Corporation:
A A1 715,000 4.625% due 1/15/2008 751,636
A A1 515,000 5.875% due 2/01/2009 564,719
A A1 1,385,000 6.75% due 5/15/2011 1,579,602
BBB- Ba1 545,000 IOS Capital LLC, 7.25% due 6/30/2008 528,650
AA Aa3 330,000 Texaco Capital Inc., 8.625% due 6/30/2010 422,591
A- A3 810,000 Textron Financial Corporation, 2.75% due 6/01/2006 810,738
--------------
4,657,936
Finance-- A- A2 560,000 BB&T Corporation, 4.75% due 10/01/2012 566,117
Banks--3.4% A- A1 700,000 Banc One Corp., 8% due 4/29/2027 886,276
A+ Aa2 435,000 Bank of America Corporation, 4.875% due 1/15/2013 442,821
A+ Aa2 1,370,000 BankAmerica Corp., 5.875% due 2/15/2009 1,524,822
BBB- Baa2 820,000 Capital One Bank, 4.875% due 5/15/2008 849,376
Citigroup Inc.:
A+ Aa2 1,600,000 7.25% due 10/01/2010 1,895,166
A+ Aa2 1,050,000 4.875% due 5/07/2015 1,044,162
A+ Aa2 925,000 6.625% due 6/15/2032 1,021,255
BB+ Baa3 560,000 Firstbank Puerto Rico, 7.625% due 12/20/2005 585,990
FleetBoston Financial Corporation:
A A1 120,000 3.85% due 2/15/2008 123,120
A- A2 320,000 6.375% due 5/15/2008 360,290
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
Schedule of Investments (continued) Intermediate Term Portfolio
S&P Moody's Face Value
Ratings++++ Ratings++++ Amount Corporate Bonds & Notes (in U.S. dollars)
Finance-- BB+ NR* $ 335,000 Hudson United Bancorp Inc., 8.20% due 9/15/2006 $ 373,953
Banks BBB+ A3 1,445,000 PNC Funding Corp., 6.125% due 2/15/2009 1,630,928
(concluded) BB+ Ba1 1,635,000 Provident Bank, 6.375% due 1/15/2004 1,661,569
A+ Aa3 575,000 Suntrust Bank, 5.45% due 12/01/2017 613,329
A- A3 245,000 Synovus Financial, 4.875% due 2/15/2013 246,176
A+ Aa3 1,475,000 U.S. Bancorp, 1.29% due 9/16/2005 (b) 1,475,897
Washington Mutual Inc.:
BBB+ A3 800,000 7.50% due 8/15/2006 908,291
BBB+ A3 890,000 4.375% due 1/15/2008 922,989
A+ Aa1 950,000 Wells Fargo & Co., 5.125% due 2/15/2007 1,020,313
A+ Aa1 135,000 Wells Fargo Bank, 6.45% due 2/01/2011 153,891
--------------
18,306,731
Finance-- A+ A1 785,000 American Honda Finance, 1.42% due 10/03/2005 (a)(b) 787,930
Other--6.4% A A2 2,030,000 Bear Stearns Company Inc., 5.70% due 11/15/2014 2,165,080
BBB Baa2 770,000 Certegy Inc., 4.75% due 9/15/2008 (a) 801,076
A A3 1,105,000 Countrywide Home Loan, 5.625% due 7/15/2009 1,200,581
Deutsche Telekom International Finance:
BBB+ Baa3 740,000 5.25% due 7/22/2013 747,853
BBB+ Baa3 730,000 8.75% due 6/15/2030 926,007
Ford Motor Credit Company:
BBB A3 560,000 6.50% due 1/25/2007 591,812
BBB A3 330,000 7.20% due 6/15/2007 355,668
BBB A3 3,400,000 7% due 10/01/2013 3,421,590
General Motors Acceptance Corp.:
BBB A3 8,250,000 3.03% due 5/19/2005 8,351,500
BBB A3 1,354,000 8% due 11/01/2031 1,390,802
A+ A1 225,000 Golden West Financial Corporation, 4.75% due 10/01/2012 229,786
Goldman Sachs Group, Inc.:
A+ Aa3 4,340,000 6.875% due 1/15/2011 4,990,327
A+ Aa3 340,000 5.25% due 4/01/2013 351,288
NR* A1 570,000 International Lease Finance Corporation, 2.95% due
5/23/2006 576,558
A A2 1,410,000 Lehman Brothers Holdings, Inc., 3.50% due 8/07/2008 1,412,838
BBB Baa2 510,000 MBNA America Bank NA, 7.125% due 11/15/2012 584,964
MBNA Corporation:
BBB Baa2 945,000 6.25% due 1/17/2007 1,038,247
BBB Baa2 200,000 5.625% due 11/30/2007 217,313
A A2 500,000 Mellon Funding Corporation, 5% due 12/01/2014 510,839
A+ Aa3 780,000 Morgan Stanley Dean Witter, 6.75% due 4/15/2011 891,163
AA Aa3 760,000 Principal Life Global, 6.25% due 2/15/2012 (a) 844,118
A- A2 80,000 Regions Financial Corporation, 6.375% due 5/15/2012 89,822
BBB- Baa1 675,000 UFJ Finance Aruba A.E.C., 6.75% due 7/15/2013 707,171
Verizon Global Funding Corporation:
A+ A2 1,260,000 6.875% due 6/15/2012 1,437,308
A+ A2 215,000 7.375% due 9/01/2012 253,548
--------------
34,875,189
Food A+ A1 265,000 Archer-Daniels-Midland, 5.935% due 10/01/2032 271,877
Distribution--
0.1%
Gaming--0.4% BB+ Ba1 2,270,000 MGM Mirage Inc., 6% due 10/01/2009 2,281,350
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
Schedule of Investments (continued) Intermediate Term Portfolio
S&P Moody's Face Value
Ratings++++ Ratings++++ Amount Corporate Bonds & Notes (in U.S. dollars)
Industrial-- BBB- Ba1 $1,300,000 American Greetings, 6.10% due 8/01/2028 $ 1,316,250
Consumer Goods-- A A2 1,690,000 Brown-Forman Corporation, 3% due 3/15/2008 1,671,226
1.1% BBB Baa2 1,070,000 Cadbury Schweppes US Finance LLC, 5.125% due
10/01/2013 (a) 1,085,455
A A3 700,000 Coca-Cola HBC Finance BV, 5.125% due 9/17/2013 (a) 720,056
BBB+ Baa1 1,245,000 Miller Brewing Company, 5.50% due 8/15/2013 (a) 1,300,823
--------------
6,093,810
Industrial-- BBB+ Baa1 945,000 AGL Capital Corporation, 4.45% due 4/15/2013 916,796
Energy--1.5% Anadarko Finance Company:
BBB+ Baa1 285,000 6.75% due 5/01/2011 329,366
BBB+ Baa1 250,000 7.50% due 5/01/2031 302,180
A A2 800,000 Colonial Pipeline, 7.63% due 4/15/2032 (a) 1,004,272
A- A3 430,000 Duke Energy Corporation, 4.50% due 4/01/2010 439,947
A- A3 889,007 Kern River Funding Corporation, 4.893% due 4/30/2018 (a) 893,310
Kinder Morgan Energy:
BBB+ Baa1 510,000 5.35% due 8/15/2007 549,732
BBB+ Baa1 815,000 6.75% due 3/15/2011 935,547
BBB- Baa3 645,000 MidAmerican Energy Holdings, 5.875% due 10/01/2012 682,113
NR* A1 440,000 Motiva Enterprises LLC, 5.20% due 9/15/2012 (a) 453,032
BBB Baa2 510,000 TGT Pipeline LLC, 5.20% due 6/01/2018 (a) 495,196
BBB+ Baa1 965,000 Texas Gas Transmission, 4.60% due 6/01/2015 (a) 931,966
--------------
7,933,457
Industrial-- A- A2 775,000 Alcoa Inc., 1.426% due 12/06/2004 (b) 776,924
Manufacturing BBB- Baa3 1,175,000 Cia Brasileira de Bebida, 8.75% due 9/15/2013 (a) 1,186,750
- --4.1% Daimler-Chrysler NA Holdings:
BBB+ A3 3,350,000 6.90% due 9/01/2004 3,496,412
BBB+ A3 5,000,000 1.94% due 9/26/2005 (b) 4,999,915
BBB+ A3 900,000 6.40% due 5/15/2006 976,149
BBB+ A3 1,110,000 7.75% due 1/18/2011 1,268,824
BBB- Baa3 155,000 Domtar Inc., 7.875% due 10/15/2011 184,748
A A2 205,000 Emerson Electric Company, 6% due 8/15/2032 215,441
AAA Aaa 2,300,000 General Electric Company, 5% due 2/01/2013 2,357,781
BBB Baa1 895,000 General Motors Corporation, 7.20% due 1/15/2011 943,095
BBB- Baa3 700,000 Inco Limited, 7.75% due 5/15/2012 828,525
BB+ Baa3 685,000 Jabil Circuit Inc., 5.875% due 7/15/2010 711,444
BBB Baa2 530,000 Martin Marietta Corp., 7.375% due 4/15/2013 622,446
Raytheon Company:
BBB- Baa3 2,425,000 8.30% due 3/01/2010 2,967,742
BBB- Baa3 660,000 6.75% due 3/15/2018 740,908
--------------
22,277,104
Industrial-- BBB+ Baa1 4,513,000 AOL Time Warner Inc., 6.875% due 5/01/2012 5,063,712
Services--5.5% Aramark Services Inc.:
BBB- Baa3 825,000 6.75% due 8/01/2004 856,209
BBB- Baa3 690,000 6.375% due 2/15/2008 750,125
Cendant Corporation:
BBB Baa1 785,000 6.875% due 8/15/2006 870,067
BBB Baa1 700,000 6.25% due 1/15/2008 768,839
BB+ Ba2 1,570,000 Circus Circus Enterprises, Inc., 6.70% due 11/15/2096 1,575,887
BBB- NR* 570,000 Clear Channel Communications, 7.875% due 6/15/2005 625,934
Comcast Corporation:
BBB Baa3 865,000 5.85% due 1/15/2010 935,404
BBB Baa3 620,000 7.05% due 3/15/2033 679,503
BBB- Ba1 940,000 HCA Inc., 6.30% due 10/01/2012 958,071
BBB Baa3 1,570,000 Kroger Company, 6.80% due 4/01/2011 1,794,777
BBB Ba1 1,250,000 Lenfest Communications, Inc., 10.50% due 6/15/2006 1,485,334
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
Schedule of Investments (continued) Intermediate Term Portfolio
S&P Moody's Face Value
Ratings++++ Ratings++++ Amount Corporate Bonds & Notes (in U.S. dollars)
Industrial-- Liberty Media Corporation:
Services BBB- Baa3 5,650,000 2.64% due 9/17/2006 (b) $ 5,620,100
(concluded) BBB- Baa3 370,000 7.875% due 7/15/2009 427,936
BBB- Baa3 1,280,000 5.70% due 5/15/2013 1,278,034
BBB Ba1 400,000 Manor Care Inc., 6.25% due 5/01/2013 410,000
BBB- Baa3 1,160,000 News America Holdings, 9.25% due 2/01/2013 1,517,642
News America Inc.:
BBB- Baa3 325,000 6.55% due 3/15/2033 340,047
BBB- Baa3 435,000 6.75% due 1/09/2038 471,588
BBB+ Baa1 725,000 PHH Corporation, 6% due 3/01/2008 783,015
BBB Baa3 200,000 SuperValu Inc., 7.50% due 5/15/2012 227,970
BBB Baa3 785,000 Tele-Communications Inc., 9.80% due 2/01/2012 1,036,049
BBB- Baa3 585,000 USA Interactive, 7% due 1/15/2013 659,862
BBB- Baa3 865,000 Univision Communication Inc., 7.85% due 7/15/2011 1,026,548
--------------
30,162,653
Industrial-- AAA Aaa 590,000 American Airlines, 3.857% due 7/09/2010 589,882
Transportation BBB+ Baa2 375,000 Burlington Northern Santa Fe Corporation, 7.95%
- --0.9% due 8/15/2030 469,569
AAA Aaa 475,000 Continental Airlines, 6.563% due 2/15/2012 513,977
BBB Baa1 1,455,000 Norfolk Southern Corporation, 7.25% due 2/15/2031 1,683,976
Southwest Airlines Co.:
A Baa1 110,000 8% due 3/01/2005 118,372
A Baa1 630,000 7.875% due 9/01/2007 727,032
Union Pacific Corporation:
BBB Baa3 400,000 7.25% due 11/01/2008 465,234
A A1 275,000 4.698% due 1/02/2024 268,730
--------------
4,836,772
Insurance--1.2% BBB+ Baa2 705,000 Berkley (WR) Corporation, 5.125% due 9/30/2010 723,040
AA- A2 300,000 Marsh & McLennan Companies Inc., 3.625% due 2/15/2008 305,362
BBB+ Baa3 1,640,000 NLV Financial Corporation, 7.50% due 8/15/2033 (a) 1,712,132
AA- Aa3 1,125,000 New York Life Insurance, 5.875% due 5/15/2033 (a) 1,125,506
A+ A1 370,000 Progressive Corporation, 6.25% due 12/01/2032 393,795
A- Baa1 1,570,000 Security Benefit Life, 7.45% due 10/01/2033 (a) 1,566,452
A- A2 640,000 Travelers Property Casualty, 6.375% due 3/15/2033 680,338
--------------
6,506,625
Metal--Other% BBB+ Baa2 250,000 Placer Dome Inc., 6.375% due 3/01/2033 256,313
- --0.0
Oil A- Baa1 390,000 EnCana Corp., 4.75% due 10/15/2013 392,157
Refineries BBB Baa2 1,115,000 Enterprise Products Operating LP, 6.875% due
- --0.6% 3/01/2033 1,201,836
BBB Baa3 1,665,000 Ultramar Diamond Shamrock, 6.75% due 10/15/2037 1,832,840
--------------
3,426,833
Paper--1.2% BB+ Ba2 1,855,000 Boise Cascade Corporation, 7.66% due 5/27/2005 1,963,848
BBB+ Baa2 1,020,000 Celulosa Arauco y Constitucion SA, 5.125% due
7/09/2013 (a) 1,004,915
BBB Baa2 1,740,000 Champion International Corp., 6.65% due 12/15/2037 1,993,488
A- Baa2 545,000 Inversiones CMPC SA, 4.875% due 6/18/2013 (a) 525,952
BBB Baa3 495,000 Norske Skog Industrier ASA, 6.125% due 10/15/2015 (a) 509,211
BBB- Baa3 550,000 Rock-Tenn Company, 5.625% due 3/15/2013 555,399
--------------
6,552,813
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
Schedule of Investments (continued) Intermediate Term Portfolio
S&P Moody's Face Value
Ratings++++ Ratings++++ Amount Corporate Bonds & Notes (in U.S. dollars)
Real Estate BBB Baa2 $ 695,000 Centerpoint Properties, 4.75% due 8/01/2010 $ 710,284
Investment BBB Baa3 410,000 Developers Divers Realty, 6.625% due 1/15/2008 448,875
Trust--1.8% BBB+ Baa1 1,260,000 Duke Realty Corporation, 5.25% due 1/15/2010 1,321,010
BBB+ Baa1 1,320,000 EOP Operating LP, 7.375% due 11/15/2003 1,328,831
BBB+ Baa2 195,000 Health Care Properties Inc., 7.48% due 4/05/2004 199,258
Health Care Properties Investors Inc.:
BBB+ Baa2 465,000 6.50% due 2/15/2006 500,492
BBB+ Baa2 840,000 6.45% due 6/25/2012 907,521
BBB- Ba1 470,000 Highwoods Realty LP, 8% due 12/01/2003 474,868
BBB- Baa3 550,000 Nationwide Health Properties, 6.59% due 7/07/2038 548,435
BBB+ NR* 2,500,000 Prologis Trust, 7% due 10/01/2003 2,500,000
BBB Baa2 155,000 Shurgard Storage Centers, 5.875% due 3/15/2013 162,385
BBB Baa3 555,000 United Dominion Realty Trust, Inc., 6.50% due 6/15/2009 616,395
--------------
9,718,354
Retail-- BBB+ Baa1 195,000 Limited Brands Inc., 6.125% due 12/01/2012 212,447
Stores--0.0%
Supranational A A2 690,000 Corporacion Andina de Fomento, 6.875% due 3/15/2012 766,204
- --0.1%
Utilities-- BBB Baa3 191,000 AT&T Broadband Corporation, 8.375% due 3/15/2013 236,625
Communications BBB Baa2 507,000 AT&T Wireless Services Inc., 8.75% due 3/01/2031 627,077
- --1.1% BBB+ Baa2 340,000 CenturyTel Inc., 7.875% due 8/15/2012 415,853
A+ A3 1,010,000 GTE Corporation, 6.84% due 4/15/2018 1,145,290
BBB Baa2 850,000 Harris Corporation, 6.35% due 2/01/2028 901,293
Sprint Capital Corporation:
BBB- Baa3 85,000 8.375% due 3/15/2012 100,264
BBB- Baa3 865,000 6.90% due 5/01/2019 886,817
BBB- Baa3 115,000 8.75% due 3/15/2032 136,647
B- Ba3 776,000 US West Communications, 7.20% due 11/01/2004 797,340
A+ A2 715,000 Verizon New York Inc., 6.875% due 4/01/2012 816,429
--------------
6,063,635
Utilities-- NR* Baa2 980,000 AEP Texas Central Company, 6.65% due 2/15/2033 (a) 1,026,570
Electric BBB+ A3 420,000 Alabama Power Capital Trust, 5.50% due 10/01/2042 (b) 430,870
& Gas--2.9% A A2 390,000 Australian Gas Light Company, 5.30% due 9/25/2015 (a) 399,736
CenterPoint Energy, Inc. (a):
BBB- Ba1 440,000 7.25% due 9/01/2010 460,660
BBB Ba1 475,000 7.875% due 4/01/2013 533,630
BBB Baa1 845,000 Cincinnati Gas & Electric Company, 5.70% due 9/15/2012 897,935
A- A2 415,000 Consolidated Edison Company of New York Inc.,
3.625% due 8/01/2008 419,108
Consumers Energy (a):
BBB- Baa3 370,000 4.25% due 4/15/2008 375,022
BBB- Baa3 520,000 4% due 5/15/2010 501,225
Dominion Resources Inc.:
BBB+ Baa1 740,000 7.625% due 7/15/2005 812,203
BBB+ Baa1 1,700,000 5.25% due 8/01/2033 1,701,355
BBB- Baa3 1,640,000 Entergy Gulf States, Inc., 5.25% due 8/01/2015 (a) 1,590,405
A- A2 1,420,000 FPL Group Capital Inc., 1.44% due 3/30/2005 1,419,692
BBB Baa2 565,000 New York State Electric & Gas, 5.75% due 5/01/2023 537,240
BBB Baa3 740,000 Nisource Finance Corporation, 5.40% due 7/15/2014 750,984
BBB Baa1 745,000 PSE&G Power, 6.95% due 6/01/2012 841,016
BBB Baa1 585,000 Pepco Holdings Inc., 4% due 5/15/2010 564,808
BBB- Baa3 705,000 Public Service Company of New Mexico, 4.40% due
9/15/2008 722,314
BBB+ Baa1 740,000 Southern Power Company, 6.25% due 7/15/2012 812,092
A- Baa1 850,000 Vectren Utility Holdings, 5.25% due 8/01/2013 863,683
--------------
15,660,548
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
Schedule of Investments (continued) Intermediate Term Portfolio
S&P Moody's Face Value
Ratings++++ Ratings++++ Amount Corporate Bonds & Notes (in U.S. dollars)
Yankee A- A2 $ 400,000 BSCH Issuances Ltd., 7.625% due 9/14/2010 (1) $ 488,417
Corporates** A- Baa1 1,815,000 British Telecom PLC, 8.125% due 12/15/2010 (4) 2,233,219
- --1.7% A- A2 850,000 Codelco Inc., 6.375% due 11/30/2012 (3) (a) 920,679
France Telecom (4):
BBB Baa3 1,585,000 9% due 3/01/2011 1,936,104
BBB Baa3 600,000 9.75% due 3/01/2031 801,082
BBB+ Baa1 725,000 Koninklijke (KPN) NV, 8% due 10/01/2010 (3) 876,308
Pemex Project Funding Master Trust (1):
BBB- Baa1 855,000 9.125% due 10/13/2010 1,023,863
BBB- Baa1 745,000 7.375% due 12/15/2014 800,875
--------------
9,080,547
Yankee A- A3 745,000 Korea Development Bank, 4.25% due 11/13/2007 (1) 764,187
Sovereigns** A- Baa1 575,000 Republic of Chile, 5.50% due 1/15/2013 (2) 598,000
- --0.7% United Mexican States (2):
BBB- Baa2 1,330,000 9.875% due 2/01/2010 1,695,750
BBB- Baa2 695,000 6.375% due 1/16/2013 733,225
--------------
3,791,162
Total Investments in Corporate Bonds & Notes
(Cost--$192,873,994) 200,623,184
Total Long-Term Investments (Cost--$537,886,912) 550,802,372
Short-Term Investments--18.7%
Commercial 18,300,000 CDC Corporation, 1.04% due 10/15/2003 18,292,599
Paper*** 15,000,000 NBNZ International Ltd., 1.06% due 10/14/2003 14,994,258
14,400,000 Newport Funding Corp., 1.12% due 10/01/2003 14,400,000
17,100,000 Park Avenue Receivables Corp., 1.04% due 10/20/2003 17,090,614
14,200,000 Polonius Inc., 1.06% due 10/14/2003 14,194,565
--------------
78,972,036
Shares
Held
23,262,500 Merrill Lynch Premier Institutional Fund (d)(e) 23,262,500
Total Short-Term Investments (Cost--$102,234,536) 102,234,536
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
Schedule of Investments (continued) Intermediate Term Portfolio
Number of Value
Options Purchased Contracts Options Purchased--0.0% (in U.S. dollars)
Call Options 96 Eurodollar, expiring December 2003 at USD 97.75,
Purchased--0.0% Broker Greenwich Capital Markets $ 97,200
Total Options Purchased (Premiums Paid--$60,432) 97,200
Total Investments (Cost--$640,181,880)--119.7% 653,134,108
Number of
Options Written Contracts Options Written--0.0%
Call Options Written--0.0% 96 Eurodollar, expiring December 2003 at USD 98.5,
Broker Greenwich Capital Markets (13,200)
Put Options Written--0.0% 96 Eurodollar, expiring December 2003 at USD 98,
Broker Greenwich Capital Markets (61,800)
Total Options Written (Premiums Received--$80,736) (75,000)
Total Investments, Net of Options Written
(Cost--$640,101,144)--119.7% 653,059,108
Variation Margin on Financial Futures
Contracts (f)--(0.1%) (305,188)
Unrealized Appreciation on Swaps (h)--0.0% 21,805
Liabilities in Excess of Other Assets--(19.6%) (107,118,485)
--------------
Net Assets--100.0% $ 545,657,240
==============
*Not Rated.
**Corresponding industry groups for foreign securities:
(1) Financial Institution.
(2) Government Entity.
(3) Industrial.
(4) Telecommunications.
***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.
++Asset-Backed and Mortgage-Backed Obligations are subject to
principal paydowns as a result of prepayments or refinancings of the
underlying mortgage instruments. As a result, the average life may
be substantially less than the original maturity.
++++Ratings of issues shown are unaudited.
+++For Portfolio compliance purposes, "Industry" means any one or
more of the industry sub-classifications used by one or more widely
recognized market indexes or ratings group indexes, and/or as
defined by Portfolio management. This definition may not apply for
purposes of this report, which may combine such industry sub-
classifications for reporting ease. These industry classifications
are unaudited.
(a) The security may be offered and sold to "qualified institutional
buyers" under Rule 144A of the Securities Act of 1933.
(b) Floating rate note.
(c) Restricted securities as to resale. The value of the Portfolio's
investment in restricted securities was approximately $7,703,000,
representing 1.4% of net assets.
Acquisition
Issue Date Cost Value
First Bankcard Master
Credit Card Trust, Series
2001-1A, Class C,
2.27% due 11/15/2006 4/07/2003 $ 1,696,016 $ 1,703,275
Wachovia Bank Commercial
Mortgage Trust, Series
2003-WHL2, Class A3,
1.44% due 6/15/2013 6/13/2003 6,000,000 6,000,000
------------ ------------
Total $ 7,696,016 $ 7,703,275
============ ============
(d) Investments in companies considered to be an affiliate of the
Portfolio (such companies are defined as "Affiliated Companies" in
Section 2(a)(3) of the Investment Company Act of 1940) are as
follows:
Interest/
Net Dividend
Affiliate Activity Income
Merrill Lynch Liquidity Series,
LLC Money Market Series $ (499,501) $5,144
Merrill Lynch Premier Institutional Fund 22,652,000 $4,190
(e) Security was purchased with the cash proceeds from securities
loans.
(f) Financial futures contracts purchased as of September 30, 2003
were as follows:
Number of Expiration Face Unrealized
Contracts Issue Date Value Losses
97 Eurodollar December 2004 $96,515,437 $ (2,862)
---------
Total Unrealized Losses--Net $ (2,862)
=========
Financial futures contracts sold as of September 30, 2003 were as
follows:
Number of Expiration Face Unrealized
Contracts Issue Date Value Losses
309 Ten-Year
U.S. Treasury December
Note Futures 2003 $34,090,316 $ (1,328,809)
-------------
Total Unrealized Losses--Net $ (1,328,809)
=============
(g) All or a portion of security held as collateral in connection
with open financial futures contracts.
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
Schedule of Investments (continued)
Intermediate Term Portfolio
(h) Swap contracts entered into as of September 30, 2003 were as
follows:
Unrealized
Notional Appreciation
Amount (Depreciation)
Receive a variable rate return equal
to Lehman Brothers Yield Index
Total Return and pay floating rate
based on 1-month USD LIBOR,
plus .15%
Broker, Credit Suisse
First Boston International
Expires March 2004 $ 5,250,000 --
Sold credit default protection
on Sprint Capital Corp. and
receive 1.50%
Broker, Morgan Stanley
Capital Services Inc.
Expires September 2008 $ 1,625,000 $ 24,773
Sold credit default protection on
Comcast Cable Communications
and receive 1.15%
Broker, Morgan Stanley
Capital Services Inc.
Expires September 2008 $ 1,625,000 27,233
Receive a variable rate return equal
to JP Morgan U.S. Agency Mortgage
Index Total Return and pay floating
rate based on 1-month USD LIBOR,
minus .22%
Broker, JP Morgan Chase Bank
Expires January 2004 $ 5,250,000 --
TRAC-X HYDIS 100 Index
and receive 4.50%
Broker, JP Morgan Chase Bank
Expires June 2008 $ 1,000,000 (41,212)
TRAC-X HYDIS 100 Index
and receive 4.50%
Broker, Morgan Stanley
Capital Services Inc.
Expires June 2008 $ 1,000,000 41,875
TRAC-X HYDIS 100 Index
and receive 4.50%
Broker, Bear Stearns
Credit Products Inc.
Expires June 2008 $ 1,000,000 42,500
Receive a variable rate return equal
to JP Morgan U.S. Agency Mortgage
Index Total Return and pay floating
rate based on 1-month USD LIBOR,
minus .25%
Broker, JP Morgan Chase Bank
Expires January 2004 $ 4,900,000 --
Unrealized
Notional Appreciation
Amount (Depreciation)
Receive a variable rate return equal
to CMBS Investment Grade Index
Total Return and pay floating rate
based on 1-month USD LIBOR,
minus .40%
Broker, Deutsche Bank AG, London
Expires October 2003 $ 17,300,000 --
Receive a variable rate return equal
to JP Morgan U.S. Agency Mortgage
Index Total Return and pay floating
rate based on 1-month USD LIBOR,
minus .30%
Broker, JP Morgan Chase Bank
Expires April 2004 $ 5,500,000 --
Receive a variable rate return equal
to Lehman Brothers U.S. High Yield
Index and pay floating rate based
on 1-month USD LIBOR, plus .10%
Broker, Lehman Brothers
Special Finance
Expires December 2003 $ 1,140,000 --
Receive a variable rate return equal
to JP Morgan U.S. Agency Mortgage
Index Total Return and pay floating
rate based on 1-month USD LIBOR,
minus .30%
Broker, JP Morgan Chase Bank
Expires November 2003 $ 5,750,000 --
Receive a variable rate return equal
to U.S. Treasury Index Total Return
and pay floating rate based on
1-month USD LIBOR, minus .20%
Broker, Lehman Brothers
Special Finance
Expires December 2003 $25,400,000 --
Receive a variable rate return equal
to CMBS AAA Index Total Return
and pay floating rate based on
4-month USD LIBOR, minus .60%
Broker, Lehman Brothers
Special Finance
Expires January 2004 $ 8,100,000 --
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
Schedule of Investments (concluded)
Intermediate Term Portfolio
Unrealized
Notional Appreciation
Amount (Depreciation)
Receive a price return equal to
Lehman Brothers U.S. High Yield
Index Total Return and pay floating
rate based on 1-month USD LIBOR,
plus .10%
Broker, Credit Suisse
First Boston International
Expires December 2003 $ 1,700,000 --
Bought credit default protection on
Tyson Foods Inc. and pay 1.36%
Broker, Morgan Stanley
Capital Services Inc.
Expires September 2008 $ 1,625,000 $ (43,696)
Bought credit default protection on
Weyerhaeuser Co. and pay .73%
Broker, Morgan Stanley
Capital Services Inc.
Expires September 2008 $ 1,625,000 (10,036)
Receive a variable rate equal to
JP Morgan U.S. Agency Mortgage
Index Total Return and pay floating
rate based on 1-month USD LIBOR,
minus .25%
Broker, JP Morgan Chase Bank
Expires January 2004 $17,000,000 --
Receive a variable rate based on
3-month USD LIBOR, plus .50%
which is capped at a fixed coupon
of 8% and callable quarterly
beginning March 29, 2004 and pay
floating rate based on 3-month
USD LIBOR
Broker, JP Morgan Chase Bank
Expires September 2009 $14,500,000 (19,632)
------------
Total $ 21,805
============
See Notes to Financial Statements.
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
Statements of Assets and Liabilities
Core Intermediate
Bond Term
As of September 30, 2003 Portfolio Portfolio
Assets
Investments, at value* (including securities loaned of
$90,283,110 and $22,631,115, respectively) $2,248,326,792 $ 653,036,908
Options purchased, at value** 330,075 97,200
Unrealized appreciation on swaps 66,931 21,805
Cash -- 25,568
Receivables:
Securities sold 46,812,522 10,687,442
Interest 14,030,444 4,097,298
Swaps 9,435,825 2,519,824
Swaptions closed 4,430,943 1,292,980
Capital shares sold 2,391,451 564,586
Principal paydowns 20,549 --
Prepaid registration fees and other assets 24,226 212,706
-------------- --------------
Total assets 2,325,869,758 672,556,317
-------------- --------------
Liabilities
Collateral on securities loaned, at value 92,528,750 23,262,500
Options written, at value*** 254,688 75,000
Unrealized depreciation on forward foreign exchange contracts 280,805 --
Payables:
Securities purchased 323,631,033 97,847,751
Swaptions closed 8,052,000 2,440,000
Capital shares redeemed 7,688,758 2,274,122
Dividends to shareholders 1,384,373 364,961
Variation margin 840,879 305,188
Distributor 447,681 79,623
Other affiliates 224,934 94,107
Reorganization costs 75,746 8,112
Investment adviser 37,998 10,982
Accrued expenses and other liabilities 641,061 136,731
-------------- --------------
Total liabilities 436,088,706 126,899,077
-------------- --------------
Net Assets
Net assets $1,889,781,052 $ 545,657,240
============== ==============
Net Assets Consist of
Class A Common Stock, $.10 par value++ $ 4,125,426 $ 1,308,404
Class B Common Stock, $.10 par value++++ 3,837,725 1,186,720
Class C Common Stock, $.10 par value++++++ 1,123,150 229,825
Class I Common Stock, $.10 par value++++++++ 7,027,367 1,817,688
Class R Common Stock, $.10 par value++++++++++ 390 1,007
Paid-in capital in excess of par 1,874,489,661 532,172,456
-------------- --------------
Undistributed investment income--net 3,149,876 1,276,931
Accumulated realized capital losses on investments--net (46,170,630) (3,983,889)
Unrealized appreciation on investments--net 42,198,087 11,648,098
-------------- --------------
Total accumulated earnings (losses)--net (822,667) 8,941,140
============== ==============
Net Assets $1,889,781,052 $ 545,657,240
============== ==============
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
Statements of Assets and Liabilities (concluded)
Core Intermediate
Bond Term
As of September 30, 2003 Portfolio Portfolio
Net Asset Value
Class A:
Net assets $ 484,029,603 $ 157,127,985
============== ==============
Shares outstanding 41,254,262 13,084,042
============== ==============
Net asset value and redemption price per share $ 11.73 $ 12.01
============== ==============
Class B:
Net assets $ 449,985,588 $ 142,521,762
============== ==============
Shares outstanding 38,377,254 11,867,195
============== ==============
Net asset value and redemption price per share $ 11.73 $ 12.01
============== ==============
Class C:
Net assets $ 131,739,143 $ 27,604,965
============== ==============
Shares outstanding 11,231,504 2,298,245
============== ==============
Net asset value and redemption price per share $ 11.73 $ 12.01
============== ==============
Class I:
Net assets $ 823,980,990 $ 218,281,571
============== ==============
Shares outstanding 70,273,667 18,176,876
============== ==============
Net asset value and redemption price per share $ 11.73 $ 12.01
============== ==============
Class R:
Net assets $ 45,728 $ 120,957
============== ==============
Shares outstanding 3,896 10,073
============== ==============
Net asset value and redemption price per share $ 11.74 $ 12.01
============== ==============
*Identified cost $2,202,290,556 $ 640,121,448
============== ==============
**Premiums paid $ 205,217 $ 60,432
============== ==============
***Premiums received $ 275,183 $ 80,736
============== ==============
++Authorized shares--Class A 100,000,000 50,000,000
============== ==============
++++Authorized shares--Class B 250,000,000 50,000,000
============== ==============
++++++Authorized shares--Class C 100,000,000 50,000,000
============== ==============
++++++++Authorized shares--Class I 250,000,000 100,000,000
============== ==============
++++++++++Authorized shares--Class R 250,000,000 100,000,000
============== ==============
See Notes to Financial Statements.
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
Statements of Operations
Core Intermediate
Bond Term
For the Year Ended September 30, 2003 Portfolio Portfolio
Investment Income
Interest $ 74,137,142 $ 22,450,692
Securities lending--net 70,710 9,334
Dividends 40,381 --
-------------- --------------
Total income 74,248,233 22,460,026
-------------- --------------
Expenses
Investment advisory fees 6,401,284 1,973,904
Account maintenance and distribution fees--Class B 3,627,220 746,829
Transfer agent fees--Class I 1,170,480 460,245
Transfer agent fees--Class B 850,124 340,269
Transfer agent fees--Class A 622,200 325,049
Accounting services 507,096 181,549
Account maintenance fees--Class A 973,900 150,455
Account maintenance and distribution fees--Class C 1,014,254 113,737
Registration fees 135,488 75,680
Transfer agent fees--Class C 228,004 53,522
Printing and shareholder reports 179,940 50,318
Custodian fees 79,272 39,743
Professional fees 115,946 31,657
Pricing fees 40,776 27,293
Directors' fees and expenses 27,981 8,157
Account maintenance and distribution fees--Class R 36 137
Transfer agent fees--Class R 12 70
Other 144,764 54,135
-------------- --------------
Total expenses 16,118,777 4,632,749
-------------- --------------
Investment income--net 58,129,456 17,827,277
-------------- --------------
Realized & Unrealized Gain (Loss) on Investments & Foreign Currency Transactions--Net
Realized gain (loss) on:
Investments--net 49,506,135 15,168,083
Foreign currency transactions--net (591,693) --
Change in unrealized appreciation/depreciation on:
Investments--net (14,603,414) (4,254,042)
Foreign currency transactions--net (312,321) --
-------------- --------------
Total realized and unrealized gain on investments and foreign
currency transactions--net 33,998,707 10,914,041
-------------- --------------
Net Increase in Net Assets Resulting from Operations $ 92,128,163 $ 28,741,318
============== ==============
See Notes to Financial Statements.
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
Statements of Changes in Net Assets Core Bond Portfolio
For the Year Ended
September 30,
Increase (Decrease) in Net Assets: 2003 2002
Operations
Investment income--net $ 58,129,456 $ 60,361,028
Realized gain on investments and foreign currency
transactions--net 48,914,442 17,898,677
Change in unrealized appreciation/depreciation on investments
and foreign currency transactions--net (14,915,735) 23,126,185
-------------- --------------
Net increase in net assets resulting from operations 92,128,163 101,385,890
-------------- --------------
Dividends to Shareholders
Investment income--net:
Class A (13,668,069) (10,820,648)
Class B (14,714,869) (19,459,138)
Class C (3,758,594) (3,656,190)
Class I (27,905,411) (26,610,817)
Class R (208) --
-------------- --------------
Net decrease in net assets resulting from dividends to
shareholders (60,047,151) (60,546,793)
-------------- --------------
Capital Share Transactions
Net increase in net assets derived from capital share
transactions 327,343,356 180,304,214
-------------- --------------
Net Assets
Total increase in net assets 359,424,368 221,143,311
Beginning of year 1,530,356,684 1,309,213,373
-------------- --------------
End of year* $1,889,781,052 $1,530,356,684
============== ==============
*Undistributed investment income--net $ 3,149,876 $ 454,769
============== ==============
See Notes to Financial Statements.
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
Statements of Changes in Net Assets (concluded) Intermediate Term Portfolio
For the Year Ended
September 30,
Increase (Decrease) in Net Assets: 2003 2002
Operations
Investment income--net $ 17,827,277 $ 19,722,600
Realized gain on investments--net 15,168,083 7,001,082
Change in unrealized appreciation/depreciation on
investments--net (4,254,042) 5,553,942
-------------- --------------
Net increase in net assets resulting from operations 28,741,318 32,277,624
-------------- --------------
Dividends to Shareholders
Investment income--net:
Class A (5,287,413) (5,907,394)
Class B (4,642,386) (5,229,775)
Class C (695,153) (241,533)
Class I (7,701,842) (8,421,184)
Class R (777) --
-------------- --------------
Net decrease in net assets resulting from dividends to
shareholders (18,327,571) (19,799,886)
-------------- --------------
Capital Share Transactions
Net increase in net assets derived from capital share
transactions 45,541,811 36,757,309
-------------- --------------
Net Assets
Total increase in net assets 55,955,558 49,235,047
Beginning of year 489,701,682 440,466,635
-------------- --------------
End of year* $ 545,657,240 $ 489,701,682
============== ==============
*Undistributed (accumulated distributions in excess of)
investment income--net $ 1,276,931 $ (26,579)
============== ==============
See Notes to Financial Statements.
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
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: 2003 2002 2001 2000 1999
Per Share Operating Performance
Net asset value, beginning of year $ 11.52 $ 11.21 $ 10.68 $ 10.88 $ 11.79
----------- ---------- ---------- ---------- -----------
Investment income--net .39++ .50 .63 .70 .67
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net .23 .31 .53 (.20) (.91)
----------- ---------- ---------- ---------- -----------
Total from investment operations .62 .81 1.16 .50 (.24)
----------- ---------- ---------- ---------- -----------
Less dividends from investment
income--net (.41) (.50) (.63) (.70) (.67)
----------- ---------- ---------- ---------- -----------
Net asset value, end of year $ 11.73 $ 11.52 $ 11.21 $ 10.68 $ 10.88
=========== ========== ========== ========== ===========
Total Investment Return*
Based on net asset value per share 5.51% 7.44% 11.16% 4.83% (2.03%)
=========== ========== ========== ========== ===========
Ratios to Average Net Assets
Expenses .85% .84% .86% .82% .82%
=========== ========== ========== ========== ===========
Investment income--net 3.39% 4.43% 5.75% 6.55% 5.98%
=========== ========== ========== ========== ===========
Supplemental Data
Net assets, end of year (in thousands) $ 484,030 $ 286,726 $ 201,269 $ 148,890 $ 135,401
=========== ========== ========== ========== ===========
Portfolio turnover 287.00% 281.67% 262.47% 94.67% 79.06%
=========== ========== ========== ========== ===========
*Total investment returns exclude the effects of sales charges.
++Based on average shares outstanding.
++++Effective April 14, 2003, Class D Shares were redesignated Class
A Shares.
See Notes to Financial Statements.
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
Financial Highlights (continued) Core Bond Portfolio
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: 2003 2002 2001 2000
Per Share Operating Performance
Net asset value, beginning of year $ 11.52 $ 11.21 $ 10.68 $ 10.88 $ 11.78
----------- ---------- ---------- ---------- -----------
Investment income--net .34++ .44 .57 .64 .61
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net .22 .31 .53 (.20) (.90)
----------- ---------- ---------- ---------- -----------
Total from investment operations .56 .75 1.10 .44 (.29)
----------- ---------- ---------- ---------- -----------
Less dividends from investment
income--net (.35) (.44) (.57) (.64) (.61)
----------- ---------- ---------- ---------- -----------
Net asset value, end of year $ 11.73 $ 11.52 $ 11.21 $ 10.68 $ 10.88
=========== ========== ========== ========== ===========
Total Investment Return*
Based on net asset value per share 4.96% 6.89% 10.59% 4.29% (2.45%)
=========== ========== ========== ========== ===========
Ratios to Average Net Assets
Expenses 1.36% 1.36% 1.38% 1.34% 1.33%
=========== ========== ========== ========== ===========
Investment income--net 2.94% 3.93% 5.25% 6.02% 5.46%
=========== ========== ========== ========== ===========
Supplemental Data
Net assets, end of year (in thousands) $ 449,985 $ 487,746 $ 511,166 $ 455,162 $ 636,115
=========== ========== ========== ========== ===========
Portfolio turnover 287.00% 281.67% 262.47% 94.67% 79.06%
=========== ========== ========== ========== ===========
*Total investment returns exclude the effects of sales charges.
++Based on average shares outstanding.
See Notes to Financial Statements.
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
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: 2003 2002 2001 2000
Per Share Operating Performance
Net asset value, beginning of year $ 11.52 $ 11.21 $ 10.68 $ 10.88 $ 11.79
----------- ---------- ---------- ---------- -----------
Investment income--net .33++ .43 .57 .64 .61
Realized and unrealized gain (loss)
on investments and foreign currency
transactions--net .23 .31 .53 (.20) (.91)
----------- ---------- ---------- ---------- -----------
Total from investment operations .56 .74 1.10 .44 (.30)
----------- ---------- ---------- ---------- -----------
Less dividends from investment
income--net (.35) (.43) (.57) (.64) (.61)
----------- ---------- ---------- ---------- -----------
Net asset value, end of year $ 11.73 $ 11.52 $ 11.21 $ 10.68 $ 10.88
=========== ========== ========== ========== ===========
Total Investment Return*
Based on net asset value per share 4.91% 6.83% 10.53% 4.23% (2.58%)
=========== ========== ========== ========== ===========
Ratios to Average Net Assets
Expenses 1.42% 1.42% 1.44% 1.39% 1.38%
=========== ========== ========== ========== ===========
Investment income--net 2.86% 3.85% 5.16% 5.96% 5.41%
=========== ========== ========== ========== ===========
Supplemental Data
Net assets, end of year (in
thousands) $ 131,739 $ 110,065 $ 76,963 $ 55,889 $ 79,581
=========== ========== ========== ========== ===========
Portfolio turnover 287.00% 281.67% 262.47% 94.67% 79.06%
=========== ========== ========== ========== ===========
*Total investment returns exclude the effects of sales charges.
++Based on average shares outstanding.
See Notes to Financial Statements.
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
Financial Highlights (continued) Core Bond Portfolio
The following per share data and ratios have been derived Class I++++
from information provided in the financial statements.
For the Year Ended September 30,
Increase (Decrease) in Net Asset Value: 2003 2002 2001 2000 1999
Per Share Operating Performance
Net asset value, beginning of year $ 11.52 $ 11.21 $ 10.68 $ 10.88 $ 11.78
----------- ---------- ---------- ---------- -----------
Investment income--net .43++ .53 .66 .72 .70
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net .22 .31 .53 (.20) (.90)
----------- ---------- ---------- ---------- -----------
Total from investment operations .65 .84 1.19 .52 (.20)
----------- ---------- ---------- ---------- -----------
Less dividends from investment
income--net (.44) (.53) (.66) (.72) (.70)
----------- ---------- ---------- ---------- -----------
Net asset value, end of year $ 11.73 $ 11.52 $ 11.21 $ 10.68 $ 10.88
=========== ========== ========== ========== ===========
Total Investment Return*
Based on net asset value per share 5.77% 7.71% 11.44% 5.09% (1.70%)
=========== ========== ========== ========== ===========
Ratios to Average Net Assets
Expenses .60% .59% .61% .57% .57%
=========== ========== ========== ========== ===========
Investment income--net 3.67% 4.68% 6.03% 6.79% 6.22%
=========== ========== ========== ========== ===========
Supplemental Data
Net assets, end of year (in
thousands) $ 823,981 $ 645,820 $ 519,815 $ 489,778 $ 535,188
=========== ========== ========== ========== ===========
Portfolio turnover 287.00% 281.67% 262.47% 94.67% 79.06%
=========== ========== ========== ========== ===========
*Total investment returns exclude the effects of sales charges.
++Based on average shares outstanding.
++++Effective April 14, 2003, Class A Shares were redesignated Class
I Shares.
See Notes to Financial Statements.
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
Financial Highlights (continued) Core Bond Portfolio
Class R
For the Period
The following per share data and ratios have been derived January 3, 2003++
from information provided in the financial statements. to September 30,
Increase (Decrease) in Net Asset Value: 2003
Per Share Operating Performance
Net asset value, beginning of period $ 11.49
-----------
Investment income--net++++ .21
Realized and unrealized gain on investments and foreign currency transactions--net .35
-----------
Total from investment operations .56
-----------
Less dividends from investment income--net (.31)
-----------
Net asset value, end of period $ 11.74
===========
Total Investment Return**
Based on net asset value per share 4.97%+++
===========
Ratios to Average Net Assets
Expenses 1.11%*
===========
Investment income--net 2.37%*
===========
Supplemental Data
Net assets, end of period (in thousands) $ 46
===========
Portfolio turnover 287.00%
===========
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Commencement of operations.
++++Based on average shares outstanding.
+++Aggregate total investment return.
See Notes to Financial Statements.
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
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: 2003 2002 2001 2000 1999
Per Share Operating Performance
Net asset value, beginning of year $ 11.77 $ 11.47 $ 10.93 $ 11.11 $ 11.83
----------- ---------- ---------- ---------- -----------
Investment income--net .41++ .51 .66 .70 .69
Realized and unrealized gain (loss)
on investments--net .25 .30 .54 (.18) (.72)
----------- ---------- ---------- ---------- -----------
Total from investment operations .66 .81 1.20 .52 (.03)
----------- ---------- ---------- ---------- -----------
Less dividends from investment
income--net (.42) (.51) (.66) (.70) (.69)
----------- ---------- ---------- ---------- -----------
Net asset value, end of year $ 12.01 $ 11.77 $ 11.47 $ 10.93 $ 11.11
=========== ========== ========== ========== ===========
Total Investment Return*
Based on net asset value per share 5.69% 7.32% 11.24% 4.92% (.28%)
=========== ========== ========== ========== ===========
Ratios to Average Net Assets
Expenses .77% .76% .94% .88% .83%
=========== ========== ========== ========== ===========
Investment income--net 3.42% 4.47% 5.88% 6.41% 6.01%
=========== ========== ========== ========== ===========
Supplemental Data
Net assets, end of year (in
thousands) $ 157,128 $ 139,659 $ 130,116 $ 128,490 $ 136,467
=========== ========== ========== ========== ===========
Portfolio turnover 299.97% 314.59% 259.80% 143.77% 113.52%
=========== ========== ========== ========== ===========
*Total investment returns exclude the effects of sales charges.
++Based on average shares outstanding.
++++Effective April 14, 2003, Class D Shares were redesignated Class
A Shares.
See Notes to Financial Statements.
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
Financial Highlights (continued) Intermediate Term Portfolio
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: 2003 2002 2001 2000 1999
Per Share Operating Performance
Net asset value, beginning of year $ 11.78 $ 11.47 $ 10.93 $ 11.11 $ 11.83
----------- ---------- ---------- ---------- -----------
Investment income--net .36++ .46 .61 .66 .64
Realized and unrealized gain (loss)
on investments--net .24 .31 .54 (.18) (.72)
----------- ---------- ---------- ---------- -----------
Total from investment operations .60 .77 1.15 .48 (.08)
----------- ---------- ---------- ---------- -----------
Less dividends from investment
income--net (.37) (.46) (.61) (.66) (.64)
----------- ---------- ---------- ---------- -----------
Net asset value, end of year $ 12.01 $ 11.78 $ 11.47 $ 10.93 $ 11.11
=========== ========== ========== ========== ===========
Total Investment Return*
Based on net asset value per share 5.17% 6.97% 10.79% 4.49% (.69%)
=========== ========== ========== ========== ===========
Ratios to Average Net Assets
Expenses 1.18% 1.17% 1.35% 1.30% 1.24%
=========== ========== ========== ========== ===========
Investment income--net 3.02% 4.06% 5.46% 5.98% 5.58%
=========== ========== ========== ========== ===========
Supplemental Data
Net assets, end of year (in thousands) $ 142,522 $ 141,993 $ 129,162 $ 120,250 $ 162,211
=========== ========== ========== ========== ===========
Portfolio turnover 299.97% 314.59% 259.80% 143.77% 113.52%
=========== ========== ========== ========== ===========
*Total investment returns exclude the effects of sales charges.
++Based on average shares outstanding.
See Notes to Financial Statements.
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
Financial Highlights (continued) 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: 2003 2002 2001 2000 1999
Per Share Operating Performance
Net asset value, beginning of year $ 11.78 $ 11.47 $ 10.93 $ 11.11 $ 11.83
----------- ---------- ---------- ---------- -----------
Investment income--net .35++ .46 .61 .65 .64
Realized and unrealized gain (loss)
on investments--net .25 .31 .54 (.18) (.72)
----------- ---------- ---------- ---------- -----------
Total from investment operations .60 .77 1.15 .47 (.08)
----------- ---------- ---------- ---------- -----------
Less dividends from investment
income--net (.37) (.46) (.61) (.65) (.64)
----------- ---------- ---------- ---------- -----------
Net asset value, end of year $ 12.01 $ 11.78 $ 11.47 $ 10.93 $ 11.11
=========== ========== ========== ========== ===========
Total Investment Return*
Based on net asset value per share 5.16% 6.97% 10.78% 4.48% (.70%)
=========== ========== ========== ========== ===========
Ratios to Average Net Assets
Expenses 1.19% 1.16% 1.36% 1.30% 1.24%
=========== ========== ========== ========== ===========
Investment income--net 2.95% 4.02% 5.41% 5.97% 5.57%
=========== ========== ========== ========== ===========
Supplemental Data
Net assets, end of year (in
thousands) $ 27,605 $ 12,535 $ 4,600 $ 2,859 $ 3,904
=========== ========== ========== ========== ===========
Portfolio turnover 299.97% 314.59% 259.80% 143.77% 113.52%
=========== ========== ========== ========== ===========
*Total investment returns exclude the effects of sales charges.
++Based on average shares outstanding.
See Notes to Financial Statements.
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
Financial Highlights (continued) Intermediate Term Portfolio
The following per share data and ratios have been derived Class I++++
from information provided in the financial statements. For the Year Ended September 30,
Increase (Decrease) in Net Asset Value: 2003 2002 2001 2000 1999
Per Share Operating Performance
Net asset value, beginning of year $ 11.77 $ 11.47 $ 10.93 $ 11.11 $ 11.83
----------- ---------- ---------- ---------- -----------
Investment income--net .42++ .52 .67 .71 .70
Realized and unrealized gain (loss)
on investments--net .25 .30 .54 (.18) (.72)
----------- ---------- ---------- ---------- -----------
Total from investment operations .67 .82 1.21 .53 (.02)
----------- ---------- ---------- ---------- -----------
Less dividends from investment
income--net (.43) (.52) (.67) (.71) (.70)
----------- ---------- ---------- ---------- -----------
Net asset value, end of year $ 12.01 $ 11.77 $ 11.47 $ 10.93 $ 11.11
=========== ========== ========== ========== ===========
Total Investment Return*
Based on net asset value per share 5.78% 7.43% 11.35% 5.02% (.18%)
=========== ========== ========== ========== ===========
Ratios to Average Net Assets
Expenses .67% .66% .84% .78% .73%
=========== ========== ========== ========== ===========
Investment income--net 3.52% 4.57% 5.94% 6.51% 6.09%
=========== ========== ========== ========== ===========
Supplemental Data
Net assets, end of year (in thousands) $ 218,281 $ 195,515 $ 176,589 $ 144,352 $ 161,113
=========== ========== ========== ========== ===========
Portfolio turnover 299.97% 314.59% 259.80% 143.77% 113.52%
=========== ========== ========== ========== ===========
*Total investment returns exclude the effects of sales charges.
++Based on average shares outstanding.
++++Effective April 14, 2003, Class A Shares were redesignated Class I Shares.
See Notes to Financial Statements.
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
Financial Highlights (concluded) Intermediate Term Portfolio
Class R
For the Period
The following per share data and ratios have been derived January 3, 2003++
from information provided in the financial statements. to September 30,
Increase (Decrease) in Net Asset Value: 2003
Per Share Operating Performance
Net asset value, beginning of period $ 11.75
------------
Investment income--net++++ .20
Realized and unrealized gain on investments--net .37
------------
Total from investment operations .57
------------
Less dividends from investment income--net (.31)
------------
Net asset value, end of period $ 12.01
============
Total Investment Return**
Based on net asset value per share 4.90%+++
============
Ratios to Average Net Assets
Expenses 1.23%*
============
Investment income--net 2.46%*
============
Supplemental Data
Net assets, end of period (in thousands) $ 121
============
Portfolio turnover 299.97%
============
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Commencement of operations.
++++Based on average shares outstanding.
+++Aggregate total investment return.
See Notes to Financial Statements.
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
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 amended, 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 multiple classes of shares. Effective April 14,
2003, Class A Shares were redesignated Class I Shares and Class D
Shares were redesignated Class A Shares. Shares of Class A and Class
I are sold with a front-end sales charge. Shares of Class B and
Class C may be subject to a contingent deferred sales charge. Class
R Shares are sold only to certain retirement plans. All classes of
shares have identical voting, dividend, liquidation and other rights
and the same terms and conditions, except that Class A, Class B,
Class C and Class R Shares bear certain expenses related to the
account maintenance of such shares, and Class B, Class C and Class R
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 and foreign currency transactions 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--Securities that are held by each
Portfolio that are traded on stock exchanges or the Nasdaq National
Market are valued at the last sale price or official close price on
the exchange on which such securities are traded, as of the close of
business on the day the securities are being valued or, lacking any
sales, at the last available bid price for long positions, and at
the last available ask price for short positions. In cases where
securities are traded on more than one exchange, the securities are
valued on the exchange designated as the primary market by or under
the authority of the Board of the Fund. Long positions in securities
traded in the over-the-counter ("OTC") market, Nasdaq Small Cap or
Bulletin Board are valued at the last available bid price or yield
equivalent obtained from one or more dealers or pricing services
approved by the Board of the Fund. Short positions in
securities traded in the OTC market are valued at the last available
ask price. Portfolio securities that are traded both in the OTC
market and on a stock exchange are valued according to the broadest
and most representative market. When each Portfolio writes an
option, the amount of the premium received is recorded on the books
of the Portfolios as an asset and an equivalent liability. The
amount of the liability is subsequently valued to reflect the
current market value of the option written, based on the last sale
price in the case of exchange-traded options or, in the case of
options traded in the OTC market, the last ask price. Options
purchased by the Portfolios are valued at their last sale price in
the case of exchange-traded options or, in the case of options
traded in the OTC market, the last bid price. The value of swaps,
including interest rate swaps, caps and floors, will be determined
by obtaining dealer quotations. Other investments, including futures
contracts and related options, are stated at market value.
Obligations with remaining maturities of 60 days or less are valued
at amortized cost unless the Investment Adviser believes that this
method no longer produces fair valuations. Repurchase agreements
will be valued at cost plus accrued interest. Each Portfolio employs
certain pricing services to provide securities prices for each
Portfolio. 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 Directors of the Fund,
including valuations furnished by the pricing services retained by
the Fund, which may use a matrix system for valuations. The
procedures of a pricing service and its valuations are reviewed by
the officers of the Fund under the general supervision of the
Directors. Such valuations and procedures will be reviewed
periodically by the Directors.
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
Notes to Financial Statements (continued)
Generally, trading in foreign securities, as well as U.S. government
securities and money market instruments, is substantially completed
each day at various times prior to the close of business on the New
York Stock Exchange ("NYSE"). The values of such securities used in
computing the net asset value of the Portfolios' shares are
determined as of such times. Foreign currency exchange rates also
are generally determined prior to the close of business on the NYSE.
Occasionally, events affecting the values of such securities and
such exchange rates may occur between the times at which they are
determined and the close of business on the NYSE that may not be
reflected in the computation of each Portfolio's net asset value. If
events (for example, a company announcement, market volatility or a
natural disaster) occur during such periods that are expected to
materially affect the value of such securities, those securities may
be valued at their fair value as determined in good faith by the
Board of Directors or by the Investment Adviser using a pricing
service and/or procedures approved by the Board of Directors.
(b) Repurchase agreements--The Portfolios may 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 both to increase the return
of the Portfolio and to hedge, or protect, its exposure to interest
rate movements and movements in the securities markets. 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.
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 may 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.
* Swaps--The Portfolios may enter into swap agreements, which are
over-the-counter contracts in which the Portfolios and a
counterparty agree to make periodic net payments on a specified
notional amount. The net payments can be made for a set period of
time or may be triggered by a pre-determined credit event. The net
periodic payments may be based on a fixed or variable interest rate;
the change in market value of a specified security, basket of
securities, or index; or the return generated by a security.
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
Notes to Financial Statements (continued)
(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. Dividend
income is recorded on the ex-dividend dates. Interest income is
recognized on the accrual basis. The Portfolios amortize all
premiums and discounts on debt securities.
(f) Prepaid registration fees--Prepaid registration fees are charged
to expense as the related shares are issued.
(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) 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. The market value of
the loaned securities is determined at the close of business of the
Portfolios and any additional required collateral is delivered to
the Portfolios on the next business day. 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.
(i) 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.
(j) 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 differences on the Core Bond Portfolio of
$6,237,112 have been reclassified between paid-in capital in excess
of par and accumulated net realized capital losses, $42,735 has been
reclassified between paid-in capital in excess of par and
undistributed net investment income and $5,262,765 has been
reclassified between accumulated net realized capital losses and
undistributed net investment income.
In addition, the current year's permanent book/tax differences on
the Intermediate Term Portfolio of $12,327 have been reclassified
between paid-in capital in excess of par and undistributed net
investment income and $1,791,477 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.
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
Notes to Financial Statements (continued)
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, 2003, the aggregate average daily
net assets of the Fund, including the Fund's High Income Portfolio,
was approximately $4,068,479,000. FAM has entered into a Sub-
Advisory Agreement with Merrill Lynch Asset Management U.K. Limited
("MLAM U.K."), an affiliate of FAM, pursuant to which MLAM U.K.
provides investment advisory services to FAM with respect to the
Fund. There is no increase in the aggregate fees paid by the Fund
for these services.
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:
Account Maintenance Fees
Portfolio Class A Class B Class C Class R
Core Bond .25% .25% .25% .25%
Intermediate Term .10% .25% .25% .25%
Distribution Fees
Portfolio Class B Class C Class R
Core Bond .50% .55% .25%
Intermediate Term .25% .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 A, Class B, Class C and Class R shareholders. The ongoing
distribution fee compensates the Distributor and MLPF&S for
providing shareholder and distribution-related services to Class B,
Class C and Class R shareholders.
For the year ended September 30, 2003, FAMD earned underwriting
discounts and direct commissions and MLPF&S earned dealer
concessions on sales of each Portfolio's Class A and Class I Shares
as follows:
FAMD MLPF&S
Portfolio Class A Class I Class A Class I
Core Bond $8,414 $4,046 $74,599 $22,148
Intermediate Term $ 948 $ 78 $16,052 $ 914
For the year ended September 30, 2003, MLPF&S received contingent
deferred sales charges of $824,188 relating to transactions in Class
B Shares, amounting to $760,598 and $63,590 in the Core Bond
Portfolio and Intermediate Term Portfolio, respectively, and $65,164
relating to transactions in Class C Shares, amounting to $49,066 and
$16,098 in the Core Bond Portfolio and Intermediate Term Portfolio,
respectively. Furthermore, MLPF&S received contingent deferred sales
charges of $247 and $22,500 relating to transactions subject to
front-end sales charge waivers in Class A and Class I Shares,
respectively, in the Core Bond Portfolio.
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
Notes to Financial Statements (continued)
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. As of September 30, 2003, the Fund lent
securities with a value of $1,073,120 to MLPF&S or its affiliates in
the Intermediate Term Portfolio. Pursuant to that order, the Fund
also has retained Merrill Lynch Investment Managers, LLC ("MLIM,
LLC"), an affiliate of FAM, as the securities lending agent for a
fee based on a share of the returns on investment of cash
collateral. MLIM, LLC 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 MLIM, LLC or in
registered money market funds advised by FAM or its affiliates. For
the year ended September 30, 2003, MLIM, LLC received $36,611 in
securities lending agent fees.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
For the year ended September 30, 2003, the Portfolios reimbursed FAM
$51,515 for certain accounting services.
Certain officers and/or directors of the Fund are officers and/or
directors of FAM, PSI, MLAM U.K., FAMD, FDS, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended September 30, 2003 were as follows:
Intermediate
Core Bond Term
Portfolio Portfolio
Purchases $ 5,346,426,742 $1,662,668,519
=============== ==============
Sales $ 5,236,797,802 $1,638,866,554
=============== ==============
Net realized gains (losses) for the year ended September 30, 2003
and net unrealized gains (losses) as of September 30, 2003 were as
follows:
Realized Unrealized
Core Bond Portfolio Gains (Losses) Gains (Losses)
Long-term investments $ 37,180,544 $ 46,036,236
Short-term investments 33 --
Options purchased 327,890 124,858
Options written 317,594 20,495
Swaps 5,929,052 66,931
Financial futures contracts 5,751,022 (3,779,357)
Forward foreign exchange
contracts (666,946) (280,805)
Foreign currency
transactions 75,253 9,729
--------------- --------------
Total $ 48,914,442 $ 42,198,087
=============== ==============
Intermediate Realized Unrealized
Term Portfolio Gains (Losses) Gains (Losses)
Long-term investments $ 11,578,335 $ 12,915,460
Options purchased 113,747 36,768
Options written 79,139 5,736
Swaps 1,797,791 21,805
Financial futures contracts 1,599,071 (1,331,671)
--------------- --------------
Total $ 15,168,083 $ 11,648,098
=============== ==============
As of September 30, 2003, net unrealized appreciation for Federal
income tax purposes was as follows:
Intermediate
Core Bond Term
Portfolio Portfolio
Gross unrealized
appreciation $ 47,943,184 $ 13,480,824
Gross unrealized
depreciation (2,503,863) (663,262)
--------------- --------------
Net unrealized
appreciation $ 45,439,321 $ 12,817,562
=============== ==============
The aggregate cost of investments, including options, at September
30, 2003 for Federal income tax purposes was $2,202,962,858 for the
Core Bond Portfolio and $640,241,546 for the Intermediate Term
Portfolio.
Transactions in options written for the year ended September 30,
2003 were as follows:
Number of Premiums
Core Bond Portfolio Contracts Received
Outstanding call options
written, beginning
of year -- --
Options written 1,283,826 $ 5,934,370
Options closed (1,093,500) (5,756,387)
Options expired (190,000) (138,700)
--------------- --------------
Outstanding call options
written, end of year 326 $ 39,283
=============== ==============
Number of Premiums
Core Bond Portfolio Contracts Received
Outstanding put options
written, beginning
of year -- --
Options written 1,675,826 $ 6,831,637
Options closed (1,093,500) (5,756,387)
Options expired (582,000) (839,350)
--------------- --------------
Outstanding put options
written, end of year 326 $ 235,900
=============== ==============
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
Notes to Financial Statements (continued)
Intermediate Number of Premiums
Term Portfolio Contracts Received
Outstanding call options
written, beginning
of year -- --
Options written 393,096 $ 1,808,343
Options closed (333,000) (1,752,975)
Options expired (60,000) (43,800)
--------------- --------------
Outstanding call options
written, end of year 96 $ 11,568
=============== ==============
Intermediate Number of Premiums
Term Portfolio Contracts Received
Outstanding put options
written, beginning
of year -- --
Options written 568,096 $ 2,073,730
Options closed (333,000) (1,752,975)
Options expired (235,000) (251,587)
--------------- --------------
Outstanding put options
written, end of year 96 $ 69,168
=============== ==============
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions
for the year ended September 30, 2003 was $327,343,356 for the Core
Bond Portfolio and $45,541,811 for the Intermediate Term Portfolio.
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.
Transactions in capital shares for each class were as follows:
Core Bond Portfolio
Class A Shares for the Year Dollar
Ended September 30, 2003++ Shares Amount
Shares sold 14,507,304 $ 168,610,001
Shares issued resulting from
reorganization 7,697,116 89,000,031
Automatic conversion
of shares 2,555,683 29,681,598
Shares issued to share-
holders in reinvestment
of dividends 850,526 9,864,773
--------------- --------------
Total issued 25,610,629 297,156,403
Shares redeemed (9,238,307) (107,380,907)
--------------- --------------
Net increase 16,372,322 $ 189,775,496
=============== ==============
++Effective April 14, 2003, Class D Shares were redesignated
Class A Shares.
Core Bond Portfolio
Class A Shares forthe 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 share-
holders 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
=============== ==============
++Effective April 14, 2003, Class D Shares were redesignated
Class A Shares.
Core Bond Portfolio
Class B Shares for the Year Dollar
Ended September 30, 2003 Shares Amount
Shares sold 11,688,268 $ 135,461,953
Shares issued resulting from
reorganization 2,440,631 28,177,720
Shares issued to share-
holders in reinvestment
of dividends 858,481 9,939,621
--------------- --------------
Total issued 14,987,380 173,579,294
Automatic conversion
of shares (2,557,318) (29,681,598)
Shares redeemed (16,406,130) (190,072,192)
--------------- --------------
Net decrease (3,976,068) $ (46,174,496)
=============== ==============
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 share-
holders 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)
=============== ==============
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
Notes to Financial Statements (continued)
Core Bond Portfolio
Class C Shares for the Year Dollar
Ended September 30, 2003 Shares Amount
Shares sold 3,167,086 $ 36,690,213
Shares issued resulting from
reorganization 1,549,639 17,960,632
Shares issued to share-
holders in reinvestment
of dividends 225,686 2,615,907
--------------- --------------
Total issued 4,942,411 57,266,752
Shares redeemed (3,265,037) (37,826,084)
--------------- --------------
Net increase 1,677,374 $ 19,440,668
=============== ==============
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 share-
holders 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 I Shares for the Year Dollar
Ended September 30, 2003++ Shares Amount
Shares sold 23,853,933 $ 276,543,660
Shares issued resulting from
reorganization 10,374,042 120,212,366
Shares issued to share-
holders in reinvestment
of dividends 970,649 11,253,308
--------------- --------------
Total issued 35,198,624 408,009,334
Shares redeemed (21,003,909) (243,752,879)
--------------- --------------
Net increase 14,194,715 $ 164,256,455
=============== ==============
++Effective April 14, 2003, Class A Shares were redesignated
Class I Shares.
Core Bond Portfolio
Class I Shares for the Year Dollar
Ended September 30, 2002++ Shares Amount
Shares sold 22,329,750 $ 250,091,666
Shares issued to share-
holders 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
=============== ==============
++Effective April 14, 2003, Class A Shares were redesignated
Class I Shares.
Core Bond Portfolio
Class R Shares for the
Period January 3, 2003++ to Dollar
September 30, 2003 Shares Amount
Shares sold 3,938 $ 45,716
Shares issued to share-
holders in reinvestment
of dividends 16 180
--------------- --------------
Total issued 3,954 45,896
Shares redeemed (58) (663)
--------------- --------------
Net increase 3,896 $ 45,233
=============== ==============
++Commencement of operations.
Intermediate Term Portfolio
Class A Shares for the Year Dollar
Ended September 30, 2003++ Shares Amount
Shares sold 6,896,182 $ 81,711,781
Automatic conversion
of shares 838,209 10,000,519
Shares issued to share-
holders in reinvestment
of dividends 122,274 1,448,691
--------------- --------------
Total issued 7,856,665 93,160,991
Shares redeemed (6,633,671) (78,603,345)
--------------- --------------
Net increase 1,222,994 $ 14,557,646
=============== ==============
++Effective April 14, 2003, Class D Shares were redesignated
Class A Shares.
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
Notes to Financial Statements (continued)
Intermediate Term Portfolio
Class A 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 share-
holders 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
=============== ==============
++Effective April 14, 2003, Class D Shares were redesignated
Class A Shares.
Intermediate Term Portfolio
Class B Shares for the Year Dollar
Ended September 30, 2003 Shares Amount
Shares sold 5,617,902 $ 66,571,670
Shares issued to share-
holders in reinvestment
of dividends 301,421 3,573,147
--------------- --------------
Total issued 5,919,323 70,144,817
Automatic conversion
of shares (838,117) (10,000,519)
Shares redeemed (5,272,744) (62,541,037)
--------------- --------------
Net decrease (191,538) $ (2,396,739)
=============== ==============
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 share-
holders 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
=============== ==============
Intermediate Term Portfolio
Class C Shares for the Year Dollar
Ended September 30, 2003 Shares Amount
Shares sold 1,903,339 $ 22,546,145
Shares issued to share-
holders in reinvestment
of dividends 38,767 460,550
--------------- --------------
Total issued 1,942,106 23,006,695
Shares redeemed (708,282) (8,412,561)
--------------- --------------
Net increase 1,233,824 $ 14,594,134
=============== ==============
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 share-
holders in reinvestment
of dividends 12,245 140,123
--------------- --------------
Total issued 890,333 10,287,609
Shares redeemed (226,962) (2,584,460)
--------------- --------------
Net increase 663,371 $ 7,703,149
=============== ==============
Intermediate Term Portfolio
Class I Shares for the Year Dollar
Ended September 30, 2003++ Shares Amount
Shares sold 7,120,178 $ 84,424,244
Shares issued to share-
holders in reinvestment
of dividends 116,959 1,385,531
--------------- --------------
Total issued 7,237,137 85,809,775
Shares redeemed (5,665,608) (67,144,341)
--------------- --------------
Net increase 1,571,529 $ 18,665,434
=============== ==============
++Effective April 14, 2003, Class A Shares were redesignated
Class I Shares.
Intermediate Term Portfolio
Class I Shares for the Year Dollar
Ended September 30, 2002++ Shares Amount
Shares sold 6,989,331 $ 79,900,318
Shares issued to share-
holders 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
=============== ==============
++Effective April 14, 2003, Class A Shares were redesignated
Class I Shares.
Intermediate Term Portfolio
Class R Shares for the
Period January 3, 2003++ to Dollar
September 30, 2003 Shares Amount
Shares sold 10,428 $ 125,506
Shares issued to share-
holders in reinvestment
of dividends 60 708
--------------- --------------
Total issued 10,488 126,214
Shares redeemed (415) (4,878)
--------------- --------------
Net increase 10,073 $ 121,336
=============== ==============
++Commencement of operations.
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
Notes to Financial Statements (continued)
5. Short-Term Borrowings:
The Portfolios, along with certain other funds managed by FAM and
its affiliates, are a party to a $500,000,000 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
29, 2002, the credit agreement was renewed for one year under the
same terms, except that the total commitment was reduced from
$1,000,000,000 to $500,000,000. The Portfolios did not borrow under
the credit agreement during the year ended September 30, 2003.
6. Distributions to Shareholders:
The tax character of distributions paid during the fiscal years
ended September 30, 2003 and September 30, 2002 was as follows:
Core Bond Portfolio 9/30/2003 9/30/2002
Distributions paid from:
Ordinary income $ 60,047,151 $ 60,546,793
--------------- --------------
Total taxable distributions $ 60,047,151 $ 60,546,793
=============== ==============
Intermediate Term Portfolio 9/30/2003 9/30/2002
Distributions paid from:
Ordinary income $ 18,327,571 $ 19,799,886
--------------- --------------
Total taxable distributions $ 18,327,571 $ 19,799,886
=============== ==============
As of September 30, 2003, the components of accumulated earnings
(losses) on a tax basis were as follows:
Intermediate
Core Bond Term
Portfolio Portfolio
Undistributed ordinary
income--net $ 4,136,080 $ 1,278,684
Undistributed long-term
capital gains--net -- --
--------------- --------------
Total undistributed
earnings--net 4,136,080 1,278,684
Capital loss carryforward (48,247,295)* (4,855,241)*
Unrealized gains--net 43,288,548** 12,517,697**
--------------- --------------
Total accumulated
earnings (losses)--net $ (822,667) $ 8,941,140
=============== ==============
*On September 30, 2003, the Fund had a net capital loss carryforward
of $48,247,295 in the Core Bond Portfolio, of which $3,263,336
expires in 2004, $3,475,027 expires in 2006, $3,413,779 expires in
2007, $5,536,984 expires in 2008 and $32,558,169 expires in 2009;
and $4,855,241 in the Intermediate Term Portfolio, all of which
expires in 2009.
**The difference between book-basis and tax-basis net unrealized
gains is attributable primarily to the tax deferral of losses on
wash sales, the tax deferral of losses on straddles, the realization
for tax purposes of unrealized gains (losses) on certain futures
contracts and the difference between book and tax amortization
methods for premiums and discounts on fixed income securities.
7. Acquisition of Managed Investment Companies of FAM Affiliates:
On February 24, 2003, the Core Bond Portfolio acquired all of the
net assets of Merrill Lynch Total Return Bond Fund and Mercury Total
Return Bond Fund pursuant to a plan of reorganization. The
acquisition was accomplished by a tax-free exchange of the following
capital shares:
Shares of Common
Stock Exchanged
Merrill Lynch Total Return Bond Fund 4,358,868
Mercury Total Return Bond Fund 7,992,372
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
Notes to Financial Statements (concluded)
In exchange for these shares, the Core Bond Portfolio issued
13,265,670 shares of Common Stock. As of that date, net assets of
the acquired funds, including unrealized appreciation and
accumulated net realized capital losses, were as follows:
Accumulated
Net Realized
Net Unrealized Capital Gains
Assets Appreciation (Losses)
Merrill Lynch Total
Return Bond
Fund $ 47,209,450 $ 965,536 $ 125,739
Mercury Total
Return Bond
Fund $106,603,371 $3,611,743 $ (1,922,336)
The aggregate net assets of the Core Bond Portfolio immediately
after the acquisition amounted to $1,743,775,494.
In addition, on March 24, 2003, the Core Bond Portfolio acquired all
of the net assets of Merrill Lynch Global Bond Fund for Investment
and Retirement pursuant to a plan of reorganization. The acquisition
was accomplished by a tax-free exchange of 6,095,718 shares of
beneficial interest of Merrill Lynch Global Bond Fund for Investment
and Retirement for 4,249,147 shares of Common Stock of the Core Bond
Portfolio. Merrill Lynch Global Bond Fund for Investment and
Retirement's net assets on that date of $48,801,850, including
$692,698 of distributions in excess of net investment income,
$145,393 of net unrealized appreciation and $15,869,566 of
accumulated net realized capital losses, were combined with those of
the Core Bond Portfolio. The aggregate net assets immediately after
the acquisition amounted to $1,778,049,811.
Finally, on April 4, 2003, the Core Bond Portfolio acquired all of
the net assets of The Corporate Fund Accumulation Program, Inc.
pursuant to a plan of reorganization. The acquisition was
accomplished by a tax-free exchange of 2,457,353 shares of Common
Stock of The Corporate Fund Accumulation Program, Inc. for 4,546,611
shares of common stock of the Core Bond Portfolio. The Corporate
Fund Accumulation Program, Inc.'s net assets on that date of
$52,736,078, including $1,141,466 of net unrealized appreciation and
$1,964 of accumulated net realized capital losses, were combined
with those of the Core Bond Portfolio. The aggregate net assets
immediately after the acquisition amounted to $2,382,305,859.
8. Subsequent Event:
Effective October 1, 2003, the Core Bond Portfolio converted from a
stand-alone investment company to a "feeder" fund that seeks to
achieve its investment objectives and strategies by investing all of
its assets in the Master Core Bond Portfolio ("Master Portfolio") of
the Master Bond Trust, a mutual fund that has the same investment
objective as the Portfolio. All investments will be made at the
Master Portfolio level. This structure is sometimes called a
"master/feeder" structure.
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
Independent Auditors' Report
To the Shareholders and Board of Directors of
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, 2003 and the related statements of operations for
the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the financial
highlights for each of the five years in the period then ended.
These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with 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 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 as of September 30, 2003 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, the financial statements and financial highlights
referred to above 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, 2003, the results
of their operations for the year then ended, the changes in their
net assets for each of the two years in the period then ended, and
its financial highlights for each of the five years in the period
then ended, in conformity with accounting principles generally
accepted in the United States of America.
Deloitte & Touche LLP
Princeton, New Jersey
November 24, 2003
Important Tax Information (unaudited)
Of the ordinary income dividends paid monthly to shareholders of
Core Bond and Intermediate Term Portfolios of Merrill Lynch Bond
Fund, Inc. during the fiscal year ended September 30, 2003, 9.79%
and 8.85%, 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.
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
Officers and Directors (unaudited)
Number of
Portfolios in Other Public
Position(s) Length Fund Complex Directorships
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. P.O. Box 9011 President 1999 to President and Chairman of Merrill Lynch 122 Funds None
Glenn* Princeton, and present Investment Managers, L.P. ("MLIM")/Fund 163 Portfolios
NJ 08543-9011 Director and Asset Management, L.P. ("FAM")--Advised
Age: 63 1985 to Funds since 1999; Chairman (Americas Region)
present of MLIM from 2000 to 2002; Executive Vice
President of MLIM and FAM (which terms as
used herein include their corporate predecessors)
from 1983 to 2002; President of FAM Distributors,
Inc., ("FAMD") from 1986 to 2002 and Director
thereof from 1991 to 2002; Executive Vice
President and Director of Princeton Services,
Inc. ("Princeton Services") from 1993 to 2002;
President of Princeton Administrators, L.P. from
1989 to 2002; 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 MLIM or FAM acts as
investment adviser. Mr. Glenn is an "interested person," as
described in the Investment Company Act, of the Fund based on his
former positions with MLIM, FAM, FAMD, Princeton Services and
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.
Independent Directors*
Ronald W. P.O. Box 9095 Director 1981 to Professor Emeritus of Finance, School of 48 Funds None
Forbes Princeton, present Business, State University of New York at 49 Portfolios
NJ 08543-9095 Albany since 2000 and Professor thereof
Age: 63 from 1989 to 2000; International Consultant
at the Urban Institute from 1995 to 1999.
Cynthia A. P.O. Box 9095 Director 1994 to Professor, Harvard Business School since 1989. 48 Funds Unum
Montgomery Princeton, present 49 Portfolios Provident
NJ 08543-9095 Corpor-
Age: 51 ation;
Newell
Rubber-
maid, Inc.
Charles C. P.O. Box 9095 Director 1990 to Self-employed financial consultant since 1990; 48 Funds None
Reilly Princeton, present Partner of Small Cities Cable Television from 49 Portfolios
NJ 08543-9095 1986 to 1997.
Age: 72
Kevin A. P.O. Box 9095 Director 1992 to Founder and Director Emeritus of The Boston 48 Funds None
Ryan Princeton, present University Center for the Advancement of 49 Portfolios
NJ 08543-9095 Ethics and Character; Professor of Education
Age: 70 at Boston University from 1982 to 1999 and
Professor Emeritus thereof since 1999.
Roscoe S. P.O. Box 9095 Director 2000 to President, Middle East Institute from 1995 to 48 Funds None
Suddarth Princeton, present 2001; Foreign Service Officer, United States 49 Portfolios
NJ 08543-9095 Foreign Service from 1961 to 1995; Career
Age: 68 Minister from 1989 to 1995; Deputy Inspector
General, U.S. Department of State from 1991
to 1994; U.S. Ambassador to the Hashemite
Kingdom of Jordan from 1987 to 1990.
CORE BOND PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
SEPTEMBER 30, 2003
Officers and Directors (unaudited)(concluded)
Number of
Portfolios in Other Public
Position(s) Length Fund Complex Directorships
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. P.O. Box 9095 Director 1980 to Dean Emeritus of New York University, 48 Funds Bowne & Co.,
West Princeton, present Leonard N. Stern School of Business 49 Portfolios Inc.; Vornado
NJ 08543-9095 Administration since 1994. Realty Trust;
Age: 65 Vornado
Operating
Company;
Alexander's,
Inc.
Edward D. P.O. Box 9095 Director 2000 to Executive Vice President of The Prudential 48 Funds None
Zinbarg Princeton, present Insurance Company of America from 1988 to 49 Portfolios
NJ 08543-9095 1994; Former Director of Prudential Reinsurance
Age: 68 Company and former Trustee of The Prudential
Foundation; Self-employed financial consultant
since 1994.
* 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. P.O. Box 9011 Vice 1993 to First Vice President of MLIM and FAM since 1997 and Treasurer thereof since
Burke Princeton, President present 1999; Senior Vice President and Treasurer of Princeton Services since 1999;
NJ 08543-9011 and and Vice President of FAMD since 1999; Director of MLIM Taxation since 1990.
Age: 43 Treasurer 1999 to
present
Patrick P.O. Box 9011 Vice 2002 to Managing Director of MLIM since 2000; Director (Global Fixed Income) of MLIM
Maldari Princeton, President present from 1998 to 2000.
NJ 08543-9011
Age: 41
James J. P.O. Box 9011 Vice 2000 to Vice President of MLIM since 1996.
Pagano Princeton, President present
NJ 08543-9011
Age: 41
Bradley J. P.O. Box 9011 Secretary 2002 to Director of MLIM since 2002; Vice President (Legal Advisory) of MLIM from
Lucido Princeton, present 1999 to 2002 and attorney since 1995.
NJ 08543-9011
Age: 37
* Officers of the Fund serve at the pleasure of the Board of
Directors.
Further information about the Fund's Officers and Directors/Trustees
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
Item 2 - Did registrant adopt a code of ethics, as of the end of the
period covered by this report, that applies to the registrant's
principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar
functions, regardless of whether these individuals are employed by
the registrant or a third party? If not, why not? Briefly describe
any amendments or waivers that occurred during the period. State
here if code of ethics/amendments/waivers are on website and give
website address-. State here if fund will send code of ethics to
shareholders without charge upon request--
The registrant has adopted a code of ethics, as of the end of the
period covered by this report, that applies to the registrant's
principal executive officer, principal financial officer and
principal accounting officer, or persons performing similar
functions. A copy of the code of ethics is available without charge
upon request by calling toll-free 1-800-MER-FUND (1-800-637-3863).
Item 3 - Did the registrant's board of directors determine that the
registrant either: (i) has at least one audit committee financial
expert serving on its audit committee; or (ii) does not have an
audit committee financial expert serving on its audit committee? If
yes, disclose name of financial expert and whether he/she is
"independent," (fund may, but is not required, to disclose name/
independence of more than one financial expert) If no, explain why
not. -
The registrant's board of directors has determined that (i) the
registrant has the following audit committee financial experts
serving on its audit committee and (ii) each audit committee
financial expert is independent: (1) Ronald W. Forbes, (2) Richard
R. West, and (3) Edward D. Zinbarg.
Item 4 - Disclose annually only (not answered until December 15,
2003)
(a) Audit Fees - Disclose aggregate fees billed for each of the last
two fiscal years for professional services rendered by the principal
accountant for the audit of the registrant's annual financial
statements or services that are normally provided by the accountant
in connection with statutory and regulatory filings or engagements
for those fiscal years. N/A.
(b) Audit-Related Fees - Disclose aggregate fees billed in each of
the last two fiscal years for assurance and related services by the
principal accountant that are reasonably related to the performance
of the audit of the registrant's financial statements and are not
reported under paragraph (a) of this Item. Registrants shall
describe the nature of the services comprising the fees disclosed
under this category. N/A.
(c) Tax Fees - Disclose aggregate fees billed in each of the last
two fiscal years for professional services rendered by the principal
accountant for tax compliance, tax advice, and tax planning.
Registrants shall describe the nature of the services comprising the
fees disclosed under this category. N/A.
(d) All Other Fees - Disclose aggregate fees billed in each of the
last two fiscal years for products and services provided by the
principal accountant, other than the services reported in paragraphs
(a) through (c) of this Item. Registrants shall describe the nature
of the services comprising the fees disclosed under this category.
N/A.
(e)(1) Disclose the audit committee's pre-approval policies and
procedures described in paragraph (c)(7) of Rule 2-01 of Regulation
S-X. N/A.
(e)(2) Disclose the percentage of services described in each of
paragraphs (b) through (d) of this Item that were approved by the
audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of
Regulation S-X. N/A.
(f) If greater than 50%, disclose the percentage of hours expended
on the principal accountant's engagement to audit the registrant's
financial statements for the most recent fiscal year that were
attributed to work performed by persons other than the principal
accountant's full-time, permanent employees. N/A.
(g) Disclose the aggregate non-audit fees billed by the registrant's
accountant for services rendered to the registrant, and rendered to
the registrant's investment adviser (not including any sub-adviser
whose role is primarily portfolio management and is subcontracted
with or overseen by another investment adviser), and any entity
controlling, controlled by, or under common control with the adviser
that provides ongoing services to the registrant for each of the
last two fiscal years of the registrant. N/A.
(h) Disclose whether the registrant's audit committee has considered
whether the provision of non-audit services that were rendered to
the registrant's investment adviser (not including any subadviser
whose role is primarily portfolio management and is subcontracted
with or overseen by another investment adviser), and any entity
controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the registrant
that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X is compatible with maintaining the principal
accountant's independence. N/A.
Item 5 - If the registrant is a listed issuer as defined in Rule
10A-3 under the Exchange Act, state whether or not the registrant
has a separately-designated standing audit committee established in
accordance with Section 3(a)(58)(A) of the Exchange Act. If the
registrant has such a committee, however designated, identify each
committee member. If the entire board of directors is acting as the
registrant's audit committee in Section 3(a)(58)(B) of the Exchange
Act, so state.
If applicable, provide the disclosure required by Rule 10A-3(d)
under the Exchange Act regarding an exemption from the listing
standards for audit committees. N/A
(Listed issuers must be in compliance with the new listing rules by
the earlier of their first annual shareholders meeting after January
2004, or October 31, 2004 (annual requirement))
Item 6 - Reserved
Item 7 - For closed-end funds that contain voting securities in
their portfolio, describe the policies and procedures that it uses
to determine how to vote proxies relating to those portfolio
securities. N/A
Item 8--Reserved
Item 9(a) - The registrant's certifying officers have reasonably
designed such disclosure controls and procedures to ensure material
information relating to the registrant is made known to us by others
particularly during the period in which this report is being
prepared. The registrant's certifying officers have determined that
the registrant's disclosure controls and procedures are effective
based on our evaluation of these controls and procedures as of a
date within 90 days prior to the filing date of this report.
Item 9(b)--There were no significant changes in the registrant's
internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Item 10 - Exhibits
10(a) - Attach code of ethics or amendments/waivers, unless code of
ethics or amendments/waivers is on website or offered to
shareholders upon request without charge. N/A.
10(b) - Attach certifications pursuant to Section 302 of the
Sarbanes-Oxley Act. Attached hereto.
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Core Bond Portfolio and Intermediate Term Portfolio of
Merrill Lynch Bond Fund, Inc.
By: _/s/ Terry K. Glenn_______
Terry K. Glenn,
President of
Core Bond Portfolio and Intermediate Term Portfolio of
Merrill Lynch Bond Fund, Inc.
Date: November 21, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By: _/s/ Terry K. Glenn________
Terry K. Glenn,
President of
Core Bond Portfolio and Intermediate Term Portfolio of
Merrill Lynch Bond Fund, Inc.
Date: November 21, 2003
By: _/s/ Donald C. Burke________
Donald C. Burke,
Chief Financial Officer of
Core Bond Portfolio and Intermediate Term Portfolio of
Merrill Lynch Bond Fund, Inc.
Date: November 21, 2003
Attached hereto as a furnished exhibit are the certifications
pursuant to Section 906 of the Sarbanes-Oxley Act.