UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT
COMPANIES
Investment Company Act file number 811-2857
Name of Fund: High Income 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,
High Income 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: 09/30/04
Date of reporting period: 10/01/03 - 03/31/04
Item 1 - Report to Stockholders
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Merrill Lynch Investment Managers
www.mlim.ml.com
High Income Portfolio of
Merrill Lynch Bond Fund, Inc.
Semi-Annual Report
March 31, 2004
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
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To sign up today, go to www.icsdelivery.com/live.
High Income Portfolio of Merrill Lynch Bond Fund, Inc.
Officers and Directors
Terry K. Glenn, President and Director
Ronald W. Forbes, Director
Cynthia A. Montgomery, Director
Kevin A. Ryan, Director
Roscoe S. Suddarth, Director
Richard R. West, Director
Edward D. Zinbarg, Director
B. Daniel Evans, Vice President
Donald C. Burke, Vice President and Treasurer
Phillip S. Gillespie, Secretary
Charles C. Reilly, Director of Merrill Lynch Bond Fund, Inc., has
recently retired. The Fund's Board of Directors wishes Mr. Reilly
well in his retirement.
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
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
MARCH 31, 2004
A Letter From the President
Dear Shareholder
Index returns during the most recent six-month and 12-month
reporting periods indicate that fixed income markets - both taxable
and tax-exempt - continued to reward those investors who were
willing to accept greater risk. The high yield market, as measured
by the Credit Suisse First Boston High Yield Index, provided a
six-month return of +8.65% and a 12-month return of +22.86% as of
March 31, 2004. By comparison, the Lehman Brothers Aggregate Bond
Index returned +2.98% and +5.40% and the Lehman Brothers Municipal
Bond Index returned +3.12% and +5.86% for the six-month and 12-month
periods ended March 31, 2004, respectively.
As of March month-end, the Federal Reserve Board maintained its
accommodative policy stance. As a result, short-term interest rates
remained at historic lows and kept the short end of the yield curve
relatively flat, making it increasingly difficult to find attractive
income opportunities. Market watchers continue to monitor the
economic data and Federal Reserve Board language for indications of
interest rate direction. Having said that, if the economy continues
to grow at its recent pace, many believe it is just a matter of time
before rates move upward.
Equity markets, in the meantime, continued to provide attractive
returns. For the six-month and 12-month periods ended March 31,
2004, the Standard & Poor's 500 Index returned +14.08% and
+35.12%, respectively. Much of the boost came from improving
economic conditions throughout the past year. Significant fiscal
and monetary stimulus, including the low interest rates and tax
cuts, has opened the door to consumer spending, capital spending,
increases in exports and long-awaited job growth. As expected, these
positive developments have led the way to improvements in corporate
earnings - a positive for stock markets.
The events and efforts of the past year leave us with a much
stronger economy today. With all of this in mind, we believe it is
time for investors to consider what can go right in 2004. We
encourage you to revisit your portfolio and your asset allocation
strategy to ensure you are well positioned to take advantage of the
opportunities that lie ahead. Your financial advisor can help you
develop a strategy designed to perform through all types of market
and economic cycles.
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
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
MARCH 31, 2004
A Discussion With Your Portfolio Manager
Following a prolonged rally, the high yield market took a sharp turn
late in the period but continued to offer highly competitive fixed
income returns.
How did the Portfolio perform during the period in light of the
existing market conditions?
For the six-month period ended March 31, 2004, the Portfolio's
Class A, Class B, Class C and Class I Shares had total returns of
+8.44%, +8.16%, +8.13% and +8.57%, respectively. (Results shown do
not reflect sales charges and would be lower if sales charges were
included. Complete performance information can be found on pages
8 - 10 of this report to shareholders.) For the same period, the
unmanaged benchmark Credit Suisse First Boston (CSFB) High Yield
Index returned +8.65% and the Lipper High Current Yield Funds
category posted an average return of +7.56%. (Funds in this Lipper
category aim for high relative current yield from fixed income
securities. There are no quality or maturity restrictions and the
funds tend to invest in lower-grade debt issues.)
The Portfolio outperformed its Lipper category average and paced the
return of the benchmark CSFB High Yield Index. Results in the fourth
quarter of 2003, driven by good security selection, were measurably
stronger than in the first quarter of 2004. The high yield market
was in a robust rally until the third week in January, when it
essentially peaked. Since then, the market has been volatile and has
traded off, on balance.
Contributing positively to Portfolio performance were Nextel
Partners, Calpine Corporation, The AES Corporation and The Williams
Companies, Inc. We took advantage of the large new-issue calendar as
well, with the most favorable results in the first four months of
the period.
Emerging markets also made an important contribution to Portfolio
performance during the period. Although we participated in this area
only modestly, emerging market securities outperformed the high
yield market as a whole, and this benefited Portfolio returns.
Notable areas of strong performance were Brazilian sovereign and
corporate issues.
Describe conditions in the high yield market during the period.
The period opened with the continuation of a high yield market rally
that began in mid-October 2002. The main drivers of the upturn were
investors' improved outlook on the economy, generally favorable
corporate earnings reports, a shrinking number of defaults by high
yield corporate borrowers and falling interest rates. Certain
technical factors also provided solid support to the high yield
market, including strong cash inflows from institutional investors
increasing their allocations to the high yield sector and from
retail investors who were searching for yield in the low-interest-
rate environment. We also saw unprecedented international demand for
high yield. Portfolio turnover was active given the liquidity of the
market and our efforts to dynamically reposition the portfolio to
take advantage of opportunities.
The momentum changed sharply toward the end of January 2004, as
market sentiment reversed in reaction to an overbought condition and
uncertainty regarding Federal Reserve Board comments on interest
rates. The high yield market softness persisted during most of
February with many issues sustaining several point price declines.
Then, in March, 10-year Treasury bond yields declined to a low of
approximately 3.65%; better-quality high yield issues rallied
(yields declined) in sympathy.
What changes were made to the Portfolio during the period?
Turnover was active throughout the period, reflecting our efforts to
reposition the Portfolio in a changing market and reduce overall
risk. We eliminated or trimmed those positions that we believe
realized their potential during the period. In addition to reducing
positions that did well, we also weeded out those holdings that we
felt did not have sufficient recovery potential.
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
MARCH 31, 2004
In anticipation of a market decline, we added to the Portfolio's
cash allocation. After entering 2004 in a fully invested position,
we began selling securities heavily in the second and third weeks of
January. Since that time, we have maintained a sizable cash position
in an effort to ready the Portfolio to reduce overall exposure and
to take advantage of market opportunities as they present
themselves. We were actively trading emerging market securities in
the first quarter of 2004, especially Brazil sovereign and corporate
securities, which have been quite volatile.
We were active participants in the new-issue market during the
period, which provided additional yield opportunities for the
Portfolio. The new-issue calendar generally remained robust
throughout the past six months. As of March 31, 2004, new issuance
totaled $43.5 billion in 174 transactions year-to-date. We believe
the new-issue calendar will continue to be heavy in the first half
of 2004 as issuers move to take advantage of market receptivity to
new financings and the large supply of funds committed to high yield
investing, both domestic and international. Also, many corporations
are accelerating their financings in anticipation of higher short-
term and long-term interest rates ahead.
We will continue to carefully review the new-issue calendar,
although we expect to participate on an increasingly selective
basis. With strong issuance in the first months of 2004, we project
new issuance could reach record levels for the full year.
How would you characterize the Portfolio's position at the close of
the period?
The high yield market outlook for 2004 continues to be favorable for
current yield, despite periodic weakness, which reflects a large
calendar and buyer resistance to low rates. As currently positioned,
we believe the Portfolio should outperform long Treasury issues for
the year. Whereas we expect Treasury issues to have a flat, perhaps
negative, total return for the year, we believe the Portfolio has
the potential to extract a high single-digit total return from the
high yield market. Although we do not expect the asset class to
deliver the soaring total returns that it has in the past year, we
do anticipate that the high yield sector will offer a competitive
total return relative to other fixed income alternatives.
Based on analytical reviews and discussions with managements of
companies in our portfolio, as well as others that are classified as
high yield issuers, the consensus view is that the economy will
continue to strengthen in 2004. This would be supportive of good
results from companies in the high yield sector, and also should be
reflected in a lower default rate going forward. In fact, the
default rate of high yield corporate borrowers has declined sharply
over the past two years, from 8.5% at year end 2002 to under 4% in
early 2004, as reported by Standard & Poor's. We believe the default
rate appears headed toward 2% this year. Lending further support to
the high yield asset class is the fact that demand continues to be
strong. Substantial capital is being committed to the marketplace
given the perceived relative total return opportunity. Most notably,
foreign liquidity is fueling demand for high yield product.
Our strategy is to continue repositioning the portfolio, focusing on
the single-B sector and issues with liquidity. We expect the market
may experience considerable volatility along the way, thereby
providing trading opportunities. We plan to concentrate on the
segment of the market that we believe will be less susceptible to
price/yield pressure from Treasury and high-grade issues, and intend
to look for and invest in those issues and sectors that we believe
offer incremental value.
B. Daniel Evans
Vice President and Portfolio Manager
April 6, 2004
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
MARCH 31, 2004
Portfolio Information
Percent of
As of March 31, 2004 Net Assets
Ten Largest Corporate Bond Holdings
Republic of Brazil* Brazil sovereign credit continues to strengthen, reflecting the improvement in its
balance payments, slowing inflation, steady fiscal policy that is meeting International
Monetary Fund program guidelines, and the steely commitment of the Labor party
government to maintain a fiscally responsible policy as ways to pave conditions for
self-sustained growth. After slow GDP growth in 2003, Brazil's economy has begun to
pick up some steam, propped by steady declines in policy interest rates. However,
inflation vigilance is likely to maintain GDP
growth only at 3%--4% annually in the near term. 2.2%
Qwest Communications Qwest is the incumbent phone operator for most of the Midwest United States. Having
International Inc.* endured a lengthy period of accounting scandals, SEC reviews and financial distress,
the new management team has brought the company back to a growth stage. Qwest lags
its peers in product offering, but has stepped up these efforts of late. The balance
sheet has largely delevered from asset sales and cost cutting. Present debt sits at
4.8 times cash flow while the enterprise valuation is 7.0 times. 2.0
Star Gas Partners, LP* Star Gas heating oil unit sales declined this winter as a result of warmer winter
weather but the impact on cash flow generation was largely offset by Star Gas' active
acquisition program. The major cost cutting initiative that Star Gas implemented this
year has had some benefit but not as much as originally hoped for. 1.8
Calpine Corporation* Calpine, perhaps more than any other merchant energy company, has been negatively
impacted by the existing combination of generation oversupply and high gas prices. This
situation has led to a reduction in average spark spreads, and, consequently, overall
revenues in many of the regions that the company operates in. It appears that Calpine
has adequate short term liquidity to complete its immediate capital expansion plan.
This, along with expected near-neutral cash flows for 2004 and 2005, should enable the
company to weather the current downturn in power prices. 1.7
Orion Refining The Norco refinery, which was Orion's only asset, was sold to Valero Energy. Through
Corporation the bankruptcy process, we are attempting to have our secured loan repaid from the
proceeds of the refinery sale. 1.5
Commonwealth Brands, Inc.* Commonwealth Brands is a low-cost manufacturer of cigarettes, including USA Gold,
Bull Durham, Malibu and Montclair. 1.5
Asia Pulp & Paper (APP)* APP is the largest vertically integrated pulp and paper producer in non-Japan Asia
and one of the top 10 paper producers in the world. The company is headquartered in
Singapore and owned by the Sinar Mas Group. After excessive expansion the 1990s, APP
was largely financed with debt, a deteriorating operating environment and an unfavorable
debt maturity profile. This forced the company in March 2001 to begin restructuring
over $13 billion in debt. A non-binding memorandum of understanding has been signed
among the company and some of the major creditors. Negotiations with bondholders are
ongoing. 1.3
Georgia-Pacific Georgia-Pacific operates five main businesses: Tissue products; containerboard and
Corporation packaging; bleached pulp and paper; building products and the building products
distribution. In tissue, the company is the largest producer in North America and a
leader in Europe. In containerboard, Georgia-Pacific owns 10% of North American
capacity with 70% of production consumed internally. In bleached pulp and paper, the
company is the fifth-largest paper producer in North America, with about 8% share of
capacity. In building products, Georgia-Pacific is the leader in the production of
plywood, oriented strand board, industrial panels, lumber, gypsum products and chemicals. 1.3
Huntsman International Huntsman's earnings have stabilized and seem poised to improve.Demand for Huntsman's
LLC* products has increased significantly as a result of better economic activity. However,
high benzene and other crude oil derivative prices will probably keep profit
improvements from reaching their full potential in 2004. 1.3
Energy Corporation Energy Corporation of America is a privately held energy company engaged in exploration,
of America development and production, and transportation and marketing of petroleum products.
Natural gas accounts for 93% of the company's production, which is concentrated in the
Appalachia Basin states of West Virginia, Pennsylvania, Kentucky, and Ohio. The
company's bonds rebounded strongly after the conclusion of litigation with bondholders
required it to redeem at par $37 million (of $131 million outstanding) over the next
year. The company is also benefiting from strong natural gas prices. 1.3
*Includes combined holdings and/or affiliates.
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
MARCH 31, 2004
Portfolio Information (concluded)
As of March 31, 2004
Percent of
Quality Ratings* by Total Bond
Standard & Poor's/Moody's Investments
BBB/Baa 5.8%
BB/Ba 18.1
B/B 50.3
CCC/Caa or lower 18.6
NR (Not Rated) 7.2
*In cases where bonds are rated differently by Standard & Poor's
Corporation and Moody's Investors Service, Inc., bonds are
categorized to the higher of the two ratings.
Percent of
Five Largest Industries* Net Assets
Chemicals 8.2%
Energy--Other 7.1
Utility 5.5
Gaming 5.3
Food/Tobacco 5.0
*For Portfolio compliance purposes, "Industries" 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.
Percent of
Five Largest Foreign Countries++ Net Assets
Brazil 5.0%
Bermuda 2.2
Cayman Island 1.7
Luxembourg 1.7
Canada 1.7
++All holdings are denominated in U.S. dollars.
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
MARCH 31, 2004
Performance Data
About Fund Performance
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).
* Class B Shares are subject to a maximum contingent deferred sales
charge of 4%, declining to 0% after six years. All Class B Shares
purchased prior to December 1, 2002 will maintain the four-year
schedule. In addition, Class B Shares are subject to a distribution
fee of 0.50% and an account maintenance fee of 0.25%. These classes
of shares automatically convert to Class A Shares after
approximately ten 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%. 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. Class I Shares are available only to eligible investors.
None of the past results shown should be considered a representation
of future performance. Current performance may be lower or higher
than the performance data quoted. Refer to www.mlim.ml.com to obtain
more current performance information. Performance results do not
reflect the deduction of taxes that a shareholder would pay on fund
distributions, if any, or the redemption of fund shares. Figures
shown in each of the following tables assume reinvestment of all
dividends and capital gain distributions, if any, 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.
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
MARCH 31, 2004
Performance Data (continued)
Recent Performance Results
10-Year/
6-Month 12-Month Since Inception Standardized
As of March 31, 2004 Total Return Total Return Total Return 30-day Yield
High Income Portfolio Class A Shares* +8.44% +24.86% +74.25% 6.35%
High Income Portfolio Class B Shares* +8.16 +24.22 +63.88 6.09
High Income Portfolio Class C Shares* +8.13 +24.16 +65.20 6.04
High Income Portfolio Class I Shares* +8.57 +25.14 +76.78 6.59
CSFB High Yield Index** +8.65 +22.86 +109.87/+109.44 --
Merrill Lynch High Yield Master Index** +8.21 +21.67 +109.31/+108.98 --
Ten-Year U.S. Treasury Securities*** +3.19 + 4.81 +101.43/+109.33 --
*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
Fund's 10 year/since inception periods are for 10 years for Class B
& Class I Shares and from 10/21/94 for Class A & Class C Shares.
**These unmanaged market-weighted indexes mirror the high-yield debt
market of securities rated BBB or lower. Ten-year/since inception
total returns for CSFB High Yield Index are for 10 years and from
10/31/94. Ten-year/since inception total returns for Merrill Lynch
High Yield Master Index are for 10 years and from 10/21/94.
***Ten-year/since inception total returns are for 10 years and from
10/21/94.
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
MARCH 31, 2004
Performance Data (concluded)
Average Annual Total Return
Return Without Return With
Sales Charge Sales Charge**
Class A Shares*
One Year Ended 3/31/04 +24.86% +19.87%
Five Years Ended 3/31/04 + 3.79 + 2.95
Inception (10/21/94)
through 3/31/04 + 6.06 + 5.60
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
Return Return
Without CDSC With CDSC**
Class B Shares*
One Year Ended 3/31/04 +24.22% +20.22%
Five Years Ended 3/31/04 + 3.26 + 3.00
Ten Years Ended 3/31/04 + 5.06 + 5.06
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after six years.
**Assuming payment of applicable contingent deferred sales charge.
Return Return
Without CDSC With CDSC**
Class C Shares*
One Year Ended 3/31/04 +24.16% +23.16%
Five Years Ended 3/31/04 + 3.17 + 3.17
Inception (10/21/94)
through 3/31/04 + 5.46 + 5.46
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after one year.
**Assuming payment of applicable contingent deferred sales charge.
Return Without Return With
Sales Charge Sales Charge**
Class I Shares*
One Year Ended 3/31/04 +25.14% +20.14%
Five Years Ended 3/31/04 + 4.05 + 3.20
Ten Years Ended 3/31/04 + 5.86 + 5.43
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
MARCH 31, 2004
Schedule of Investments
S&P Moody's Face Value
Industry** Ratings Ratings Amount Corporate Bonds (in U.S. dollars)
Aerospace & CCC+ Caa2 $ 5,500,000 Hexcel Corporation, 9.75% due 1/15/2009 $ 5,720,000
Defense--1.1% L-3 Communications Corporation:
BB- Ba3 500,000 7.625% due 6/15/2012 550,000
BB- Ba3 4,000,000 6.125% due 7/15/2013 4,130,000
B+ B2 9,700,000 Orbital Sciences Corporation, 9% due 7/15/2011 10,645,750
---------------
21,045,750
Airlines--2.0% BB B1 20,550,000 American Airlines, Inc., 7.80% due 10/01/2006 19,329,326
Continental Airlines, Inc.:
B+ B2 2,147,675 6.541% due 9/15/2008 2,007,828
BBB Ba3 5,875,000 7.875% due 7/02/2018 5,851,147
CCC+ Caa2 14,375,000 Evergreen International Aviation, Inc., 12% due
5/15/2010 (f) 9,146,094
++Piedmont Aviation, Inc.:
NR* NR* 1,500,000 Series H, 10% due 11/08/2012 0
NR* NR* 1,304,000 Series J, 10.05% due 5/13/2005 0
NR* NR* 1,116,000 Series J, 10.10% due 5/13/2007 0
NR* NR* 3,767,000 Series J, 10.10% due 5/13/2009 0
NR* NR* 2,710,000 Series J, 10.15% due 5/13/2011 0
NR* NR* 2,226,000 Series K, 10% due 5/13/2004 0
NR* NR* 2,666,000 Series K, 10.10% due 5/13/2008 0
NR* NR* 2,550,000 Series K, 10.15% due 5/13/2010 0
US Airways, Inc.:
NR* NR* 1,092,000 Series 88F, 10.70% due 1/01/2003 (i) 283,920
NR* NR* 1,092,000 Series 88G, 10.70% due 1/01/2003 (i) 283,920
NR* NR* 1,092,000 Series 88H, 10.70% due 1/01/2003 (i) 283,920
NR* NR* 1,092,000 Series 88I, 10.70% due 1/01/2003 (i) 283,920
NR* NR* 2,582,229 Series 89C, 4.28% due 1/01/2010 671,380
NR* NR* 1,432,000 Series A, 10.70% due 1/15/2007 372,320
NR* NR* 1,815,000 Series C, 10.70% due 1/15/2007 471,900
NR* NR* 1,107,000 Series E, 10.70% due 1/15/2007 287,820
NR* NR* 1,985,000 Series E, 10.30% due 3/28/2007 0
NR* NR* 1,950,000 Series F, 10.35% due 3/28/2011 0
---------------
39,273,495
Automotive--1.7% CCC+ Caa1 6,550,000 Advanced Accessory Holdings Corp., 13.25% due
12/15/2011 (e)(f) 3,471,500
B B3 8,000,000 Asbury Automotive Group Inc., 8% due 3/15/2014 (f) 8,000,000
NR* NR* 1,324,902 ++Federal-Mogul Corporation, 7.375% due 1/15/2006 331,226
B B3 3,500,000 The Goodyear Tire & Rubber Company, 9.15% due
3/01/2011 (a) 3,727,500
B Caa1 18,275,000 Metaldyne Corporation, 11% due 6/15/2012 16,356,125
++Venture Holdings Company LLC:
NR* NR* 20,000,000 11% due 6/01/2007 800,000
NR* NR* 8,000,000 12% due 6/01/2009 800
---------------
32,687,151
Broadcasting-- B- B3 1,875,000 Entravision Communications Corporation, 8.125% due
1.6% 3/15/2009 2,010,938
D Ca 8,000,000 ++Globo Comunicacoes e Participacoes SA, 10.50% due
12/20/2006 (f) 4,640,000
CCC B3 8,550,000 Granite Broadcasting Corporation, 9.75% due
12/01/2010 (f) 8,250,750
B- B3 6,000,000 NextMedia Operating, Inc., 10.75% due 7/01/2011 6,720,000
B- B3 1,950,000 Salem Communications Holding Corporation, 7.75% due
12/15/2010 2,059,688
CCC+ Caa1 8,075,000 Young Broadcasting Inc., 8.75% due 1/15/2014 (f) 8,317,250
---------------
31,998,626
Cable-- NR* Ca 13,000,000 ++Cable Satisfaction International, Inc., 12.75% due
International-- 3/01/2010 3,640,000
2.0% C Caa2 20,375,000 NTL Incorporated, 11.20% due 11/15/2007 20,476,875
D Ca 23,750,000 ++Telewest Communications PLC, 11% due 10/01/2007 15,081,250
---------------
39,198,125
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
MARCH 31, 2004
Schedule of Investments (continued)
S&P Moody's Face Value
Industry** Ratings Ratings Amount Corporate Bonds (in U.S. dollars)
Cable--U.S.-- NR* NR* $23,500,000 ++Adelphia Communications Corporation, 6% due
3.2% 2/15/2006 (Convertible) $ 9,752,500
CSC Holdings, Inc.:
BB- B1 1,500,000 8.125% due 8/15/2009 1,612,500
BB- B1 5,500,000 7.625% due 4/01/2011 5,802,500
Charter Communications Holdings, LLC:
CCC- Ca 2,168,000 8.625% due 4/01/2009 1,788,600
CCC- Ca 1,025,000 10% due 4/01/2009 876,375
CCC- Ca 16,650,000 9.625% due 11/15/2009 14,069,250
CCC- Caa1 3,000,000 Charter Communications Holdings II, LLC, 10.25% due
9/15/2010 (f) 3,090,000
B- Caa2 7,850,000 Insight Communications Company, Inc., 13.48% due
2/15/2011 (e) 6,633,250
B+ B2 8,350,000 Insight Midwest, LP, 9.75% due 10/01/2009 8,704,875
NR* NR* 12,930,000 ++Loral Cyberstar, Inc., 10% due 7/15/2006 9,503,550
B+ B2 950,000 Mediacom Broadband LLC, 11% due 7/15/2013 1,016,500
CCC- Ca 500,000 Pegasus Satellite Communications, Inc., 12.375% (i) 441,250
---------------
63,291,150
Chemicals--8.1% Braskem SA (f):
B+ NR* 10,000,000 12.50% due 11/05/2008 10,475,000
B+ NR* 4,000,000 11.75% due 1/22/2014 4,020,000
B- NR* 12,675,000 Compass Minerals International, Inc., 12% due
6/01/2013 (e) 9,633,000
BB- B3 400,000 Geon Company, 6.875% due 12/15/2005 398,000
CCC+ NR* 27,350,000 HMP Equity Holdings Corporation, 18.587% due
5/15/2008 (e)(f) 14,495,500
Huntsman International LLC:
B- B3 4,200,000 9.875% due 3/01/2009 4,620,000
CCC+ Caa1 3,000,000 10.125% due 7/01/2009 3,052,500
B- B2 78,000 IMC Global Inc., 7.625% due 11/01/2005 81,803
BB- B1 1,625,000 ISP Chemco Inc., 10.25% due 7/01/2011 1,840,313
B+ B2 1,500,000 ISP Holdings, Inc., 10.625% due 12/15/2009 1,665,000
BB- Ba3 16,000,000 MacDermid, Inc., 9.125% due 7/15/2011 18,040,000
BB- B1 18,750,000 Millennium America Inc., 9.25% due 6/15/2008 20,015,625
NR* NR* 9,073,800 Noveon International, Inc., 13% due 8/31/2011++++ 9,618,228
BB- B2 14,250,000 Omnova Solutions Inc., 11.25% due 6/01/2010 15,817,500
BB- B3 19,700,000 PolyOne Corporation, 10.625% due 5/15/2010 20,143,250
Rhodia SA (f):
CCC+ B3 2,000,000 7.625% due 6/01/2010 1,840,000
CCC+ Caa1 7,875,000 8.875% due 6/01/2011 6,575,625
B- B3 8,300,000 Rockwood Specialties Group, Inc., 10.625% due 5/15/2011 9,171,500
B- Caa1 6,250,000 Terra Capital, Inc., 11.50% due 6/01/2010 6,812,500
---------------
158,315,344
Consumer B- B2 2,525,000 Chattem, Inc., 7% due 3/01/2014 (f) 2,525,000
Products--1.3% NR* NR* 25,000,000 ++Galey & Lord, Inc., 9.125% due 3/01/2008 187,500
CCC- Caa2 5,000,000 Home Products International, Inc., 9.625% due 5/15/2008 3,625,000
++Polysindo International Finance Company BV:
NR* NR* 7,500,000 9.375% due 2/12/1999 (c) 675,000
NR* NR* 41,725,000 11.375% due 6/15/2006 3,755,250
NR* NR* 18,850,000 9.375% due 7/30/2007 1,696,500
B- B3 500,000 Rayovac Corporation, 8.50% due 10/01/2013 538,750
CCC+ B2 7,075,000 Remington Arms Company, Inc., 10.50% due 2/01/2011 7,163,438
CCC+ Caa1 1,250,000 Samsonite Corporation, 10.75% due 6/15/2008 1,303,125
B- B3 4,600,000 United Industries Corporation, 9.875% due 4/01/2009 4,827,148
---------------
26,296,711
Diversified B Caa2 4,700,000 Dex Media, Inc., 8% due 11/15/2013 (f) 4,664,750
Media--2.6% B Caa1 7,900,000 Dex Media West LLC, 9.875% due 8/15/2013 (f) 8,769,000
B Caa1 15,550,000 Houghton Mifflin Publishing Corporation, 11.50% due
10/15/2013 (e)(f) 8,397,000
BBB- Baa3 17,900,000 Liberty Media Corporation, 0.75% due
3/30/2023 (Convertible) 20,316,500
B B2 6,825,000 PEI Holdings, Inc., 11% due 3/15/2010 7,882,875
B B3 750,000 PRIMEDIA Inc., 8.875% due 5/15/2011 768,750
B+ B1 750,000 R.H. Donnelley Financial Corporation I, 8.875% due
12/15/2010 (f) 843,750
---------------
51,642,625
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
MARCH 31, 2004
Schedule of Investments (continued)
S&P Moody's Face Value
Industry** Ratings Ratings Amount Corporate Bonds (in U.S. dollars)
Energy, Encore Acquisition Company:
Exploration & B B2 $ 6,675,000 8.375% due 6/15/2012 $ 7,342,500
Production--2.0% B B2 2,600,000 6.25% due 4/15/2014 (f) 2,622,750
NR* NR* 36,000,000 ++Orion Refining Corporation, 13% due 12/15/2003 (c) 28,800,000
---------------
38,765,250
Energy--Other-- B B2 525,000 Dresser, Inc., 9.375% due 4/15/2011 572,250
7.1% CCC+ Caa1 3,600,000 El Paso Corporation, 7% due 5/15/2011 3,087,000
CCC+ Caa1 7,700,000 El Paso Energy Corporation, 6.75% due 5/15/2009 6,795,250
C Caa3 25,157,000 Energy Corporation of America, 9.50% due 5/15/2007 23,773,365
B- B3 3,125,000 Giant Industries, Inc., 9% due 9/01/2007 3,218,750
BBB Baa2 10,700,000 Halliburton Company, 3.125% due 7/15/2023
(Convertible) (f) 12,010,750
CCC B3 22,675,000 Ocean Rig Norway AS, 10.25% due 6/01/2008 21,314,500
B- B2 6,825,000 Parker Drilling Company, 10.125% due 11/15/2009 7,379,531
Pecom Energia SA:
B- NR* 2,500,000 8.125% due 7/15/2010 2,537,500
B- Caa1 2,500,000 8.125% due 7/15/2010 (f) 2,562,500
Petrobras International Finance Company:
NR* Ba2 3,250,000 9.125% due 7/02/2013 3,445,000
NR* Ba2 5,000,000 8.375% due 12/10/2018 5,025,000
B B3 26,100,000 Star Gas Partners, LP, 10.25% due 2/15/2013 29,101,500
NR* NR* 6,113,462 Star Gas Propane, LP, 8.04% due 9/15/2009 (f) 6,296,865
CCC- Caa3 20,392,000 Trico Marine Services, Inc., 8.875% due 5/15/2012 10,603,840
---------------
137,723,601
Financial--2.3% BB Ba3 13,225,000 Crum & Forster Holding Corp., 10.375% due
6/15/2013 (f) 14,944,250
BBB- Ba1 1,625,000 Leucadia National Corporation, 7% due 8/15/2013 (f) 1,681,875
B B3 1,600,000 New ASAT (Finance) Limited, 9.25% due 2/01/2011 (f) 1,716,000
B- Caa1 3,550,000 Sensus Metering Systems Inc., 8.625% due 12/15/2013 (f) 3,514,500
B B2 23,250,000 Ship Finance International Limited, 8.50% due
12/15/2013 (f) 22,785,000
---------------
44,641,625
Food/Tobacco-- B B3 6,475,000 American Seafoods Group LLC, 10.125% due 4/15/2010 7,770,000
5.0% Commonwealth Brands, Inc. (f):
NR* NR* 11,750,000 9.75% due 4/15/2008 12,807,500
B- B3 14,000,000 10.625% due 9/01/2008 15,400,000
NR* NR* 20,000,000 ++DGS International Finance Company BV, 10% due
6/01/2007 (f) 500,000
B B2 750,000 Del Monte Corporation, 8.625% due 12/15/2012 843,750
CCC B2 10,325,000 Doane Pet Care Company, 10.75% due 3/01/2010 10,763,812
Dole Food Company, Inc.:
BB- B2 6,550,000 7.25% due 6/15/2010 (f) 6,746,500
BB- B2 9,925,000 8.875% due 3/15/2011 10,818,250
B- B2 10,225,000 Gold Kist Inc., 10.25% due 3/15/2014 (f) 10,327,250
CCC+ B3 11,600,000 Mrs. Fields Famous Brands, LLC, 11.50% due 3/15/2011 (f) 11,484,000
NR* NR* 500,000 ++New World Pasta Company, 9.25% due 2/15/2009 75,000
B+ B2 2,000,000 North Atlantic Trading Company, Inc., 9.25% due
3/01/2012 (f) 2,000,000
B- Caa1 15,850,000 Tabletop Holdings, Inc., 12.301% due 5/15/2014 (e)(f) 8,559,000
---------------
98,095,062
Gaming--5.3% B- Caa1 2,525,000 Global Cash Access LLC, 8.75% due 3/15/2012 (f) 2,626,000
B B2 7,450,000 Isle of Capri Casinos, Inc., 7% due 3/01/2014 (f) 7,487,250
B+ B2 13,000,000 Kerzner International Limited, 8.875% due 8/15/2011 14,430,000
B B2 9,300,000 The Majestic Star Casino, LLC, 9.50% due 10/15/2010 9,811,500
BB- Ba3 12,000,000 Mandalay Resort Group, 10.25% due 8/01/2007 14,130,000
B B2 650,000 Poster Financial Group Inc., 8.75% due 12/01/2011 (f) 682,500
B- B3 1,000,000 Premier Entertainment Biloxi LLC, 10.75% due
2/01/2012 (f) 1,080,000
B B2 5,350,000 Resorts International Hotel And Casino, Inc., 11.50%
due 3/15/2009 5,911,750
CCC+ Caa1 19,075,000 Trump Casino Holdings, LLC, 11.625% due 3/15/2010 19,075,000
B- B3 17,100,000 Venetian Casino Resort, LLC, 11% due 6/15/2010 19,665,000
CCC+ B3 6,275,000 Wynn Las Vegas, LLC, 12% due 11/01/2010 7,561,375
---------------
102,460,375
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
MARCH 31, 2004
Schedule of Investments (continued)
S&P Moody's Face Value
Industry** Ratings Ratings Amount Corporate Bonds (in U.S. dollars)
Government-- B+ B2 $13,000,000 Federal Republic of Brazil, 8.25% due 1/20/2034 $ 11,050,000
Foreign--3.3% B+ B2 30,785,250 Republic of Brazil, 8% due 4/15/2014 30,015,619
BB Ba2 5,000,000 Republic of Colombia, 8.125% due 5/21/2024 4,737,500
B- Caa1 20,000,000 Republic of Venezuela, 9.375% due 1/13/2034 17,650,000
---------------
63,453,119
Health Care--3.7% B B3 6,050,000 Alpharma Inc., 8.625% due 5/01/2011 (f) 6,352,500
BB- Ba2 18,119,000 Fresenius Medical Care Capital Trust II, 7.875% due
2/01/2008 19,749,710
BBB- Ba1 10,000,000 HCA Inc., 8.36% due 4/15/2024 11,403,930
NR* NR* 7,150,000 HealthSouth Corporation, Term A, due 1/16/2011 7,114,250
B- B3 7,450,000 Team Health, Inc., 9% due 4/01/2012 (f) 7,245,125
B- B3 400,000 Tenet Healthcare Corporation, 5.375% due 11/15/2006 376,000
B B3 14,750,000 Triad Hospitals, Inc., 7% due 11/15/2013 (f) 15,118,750
BB- Ba3 4,000,000 Ventas Realty, LP, 9% due 5/01/2012 4,620,000
---------------
71,980,265
Housing--0.5% Building Materials Corporation of America:
B+ B2 1,300,000 7.75% due 7/15/2005 1,319,500
B+ B2 4,750,000 8.625% due 12/15/2006 4,809,375
B+ B2 3,000,000 8% due 12/01/2008 3,000,000
---------------
9,128,875
Information ADC Telecommunications, Inc. (Convertible):
Technology--0.6% NR* NR* 6,400,000 1% due 6/15/2008 6,744,000
NR* NR* 5,500,000 1.605% due 6/15/2013 (a) 5,933,125
---------------
12,677,125
Leisure--2.6% B+ Ba3 20,000,000 HMH Properties, Inc., 7.875% due 8/01/2008 20,775,000
Intrawest Corporation:
B+ B1 1,300,000 10.50% due 2/01/2010 1,425,125
B+ B1 9,250,000 7.50% due 10/15/2013 9,550,625
B B2 6,800,000 John Q. Hammons Hotels, L.P., 8.875% due 5/15/2012 7,565,000
MeriStar Hospitality Operating Partnership, LP:
CCC+ B2 5,775,000 9% due 1/15/2008 6,006,000
CCC+ B2 5,525,000 10.50% due 6/15/2009 (f) 5,939,375
---------------
51,261,125
Manufacturing-- BB- Ba3 2,975,000 Case New Holland Inc., 9.25% due 8/01/2011 (f) 3,361,750
2.9% B- B3 6,150,000 Columbus McKinnon Corporation, 10% due 8/01/2010 6,642,000
B- B3 11,875,000 EaglePicher Incorporated, 9.75% due 9/01/2013 13,003,125
B- B3 1,900,000 Erico International Corporation, 8.875% due 3/01/2012 (f) 1,990,250
B- B3 4,200,000 FastenTech, Inc., 11.50% due 5/01/2011 (f) 4,704,000
B- B3 8,950,000 Invensys plc, 9.875% due 3/15/2011 (f) 9,173,750
CCC+ B3 2,200,000 Trench Electric SA and Trench Inc., 10.25% due 12/15/2007 2,266,000
Tyco International Group SA (Convertible):
BBB- Ba2 7,391,000 2.75% due 1/15/2018 10,051,760
BBB- Ba2 4,150,000 2.75% due 1/15/2018 5,644,000
---------------
56,836,635
Metal--Other-- ++Kaiser Aluminum & Chemical Corporation (c):
0.6% NR* NR* 1,000,000 9.875% due 2/15/2002 915,000
NR* NR* 30,000,000 12.75% due 2/01/2003 3,600,000
BB Ba3 2,025,000 Massey Energy Company, 6.625% due 11/15/2010 2,060,438
NR* Ba2 5,500,000 Vale Overseas Ltd., 8.25% due 1/17/2034 5,032,500
---------------
11,607,938
Packaging--3.8% Crown Euro Holdings SA:
B+ B1 7,200,000 9.50% due 3/01/2011 8,082,000
B B2 7,975,000 10.875% due 3/01/2013 9,290,875
CCC+ Caa1 5,300,000 Graham Packaging Company, 8.75% due 1/15/2008 5,432,500
CCC+ Caa2 3,850,000 Graham Packaging Holdings Company, 10.75% due 1/15/2009 3,975,125
BB- B2 6,650,000 Owens-Brockway Glass Container, Inc., 8.875% due
2/15/2009 7,182,000
B Caa1 625,000 Owens-Illinois, Inc., 7.35% due 5/15/2008 615,625
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
MARCH 31, 2004
Schedule of Investments (continued)
S&P Moody's Face Value
Industry** Ratings Ratings Amount Corporate Bonds (in U.S. dollars)
Packaging Pliant Corporation:
(concluded) B- B3 $ 8,125,000 11.125% due 9/01/2009 $ 8,490,625
B- Caa2 12,740,000 13% due 6/01/2010 11,020,100
B- B2 18,475,000 Portola Packaging, Inc., 8.25% due 2/01/2012 (f) 16,258,000
B- B3 700,000 Tekni-Plex, Inc., 12.75% due 6/15/2010 733,250
U.S. Can Corporation:
CCC+ B3 2,475,000 10.875% due 7/15/2010 2,611,125
CCC+ Caa1 750,000 12.375% due 10/01/2010 701,250
---------------
74,392,475
Paper/Forest D C 21,000,000 ++APP Financial II Mauritius Limited, 12% (d) 315,000
Products--4.5% D Ca 35,000,000 ++APP International Finance Company B.V., 11.75% due
10/01/2005 15,837,500
D NR* 42,000,000 ++Doman Industries Limited, 8.375% due 3/15/2004 (c) 10,500,000
BB+ Ba2 20,750,000 Georgia-Pacific Corporation, 9.375% due 2/01/2013 24,433,125
B- B3 2,331,000 Graphic Packaging International Inc., 9.50% due
8/15/2013 2,634,030
D Ca 4,500,000 ++Indah Kiat International Finance Company BV, 12.50%
due 6/15/2006 2,295,000
B B3 16,575,000 JSG Funding PLC, 9.625% due 10/01/2012 18,729,750
Jefferson Smurfit Corporation:
B B2 3,150,000 8.25% due 10/01/2012 3,433,500
B B2 2,200,000 7.50% due 6/01/2013 2,321,000
D Ca 21,500,000 ++Tjiwi Kimia Finance Mauritius Limited, 10% due
8/01/2004 7,740,000
---------------
88,238,905
Retail--0.3% B- B3 5,250,000 Petro Stopping Centers, LP, 9% due 2/15/2012 (f) 5,407,500
Service--3.9% B+ B2 5,475,000 Allied Waste North America, Inc., 7.875% due 4/15/2013 5,981,437
Dow Jones TRAC-X North America High Yield, Series 2,
March 2009 (f):
NR* NR* 3,500,000 Trust 1, 7.375% due 3/25/2009 3,539,375
NR* B3 12,000,000 Trust 3, 8% due 3/25/2009 12,045,000
B- B3 8,000,000 Monitronics International, Inc., 11.75% due
9/01/2010 (f) 8,480,000
C Ca 16,675,000 Protection One Alarm Monitoring, Inc., 8.125% due
1/15/2009 10,838,750
BB- Ba2 11,325,000 The Shaw Group Inc., 10.75% due 3/15/2010 11,438,250
NR* Ba3 5,000,000 TRAC-X EM No.1 Limited, Series 1F, 6.50% due
12/20/2008 (f) 5,127,500
B+ B2 14,550,000 United Rentals North America Inc., 7.75% due
11/15/2013 (f) 14,186,250
Williams Scotsman, Inc.:
B- B3 1,250,000 9.875% due 6/01/2007 1,250,000
B B2 2,425,000 10% due 8/15/2008 2,631,125
---------------
75,517,687
Steel--1.5% B+ B1 19,000,000 CSN Islands VIII Corp., 9.75% due 12/16/2013 (f) 18,620,000
B- Caa1 9,575,000 Ispat Inland ULC, 9.75% due 4/01/2014 (f) 9,958,000
---------------
28,578,000
Telecommunications Alaska Communications System Holdings, Inc.:
- --4.6% B- B3 3,500,000 9.375% due 5/15/2009 3,430,000
B- B2 5,625,000 9.875% due 8/15/2011 5,681,250
B- B3 1,500,000 Cincinnati Bell Inc., 8.375% due 1/15/2014 1,470,000
FairPoint Communications, Inc.:
B- Caa1 3,500,000 9.50% due 5/01/2008 3,535,000
B- Caa1 5,500,000 12.50% due 5/01/2010 6,160,000
NR* Caa1 14,900,000 LCI International, Inc., 7.25% due 6/15/2007 13,633,500
Qwest Capital Funding, Inc.:
CCC+ Caa2 6,950,000 6.25% due 7/15/2005 6,984,750
CCC+ Caa2 1,075,000 7.25% due 2/15/2011 924,500
Qwest Communications International Inc. (f):
CCC+ B3 7,500,000 7.25% due 2/15/2011 7,143,750
CCC+ B3 2,650,000 7.50% due 2/15/2014 2,497,625
CCC+ Caa1 6,050,000 Qwest Services Corp., 13.50% due 12/15/2010 (f) 7,033,125
NR* Baa3 25,000,000 Tele Norte Leste Participacoes SA, 8% due 12/18/2013 (f) 23,750,000
CCC+ B3 9,190,000 Time Warner Telecom, Inc., 10.125% due 2/01/2011 8,477,775
---------------
90,721,275
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
MARCH 31, 2004
Schedule of Investments (continued)
S&P Moody's Face Value
Industry** Ratings Ratings Amount Corporate Bonds (in U.S. dollars)
Transportation-- B+ B1 $11,750,000 General Maritime Corporation, 10% due 3/15/2013 $ 13,160,000
2.6% B+ B2 9,125,000 Laidlaw International Inc., 10.75% due 6/15/2011 (f) 10,220,000
B B1 10,000,000 TFM, SA de CV, 11.75% due 6/15/2009 10,050,000
BB- Ba2 14,500,000 Teekay Shipping Corporation, 8.875% due 7/15/2011 16,838,125
---------------
50,268,125
Utility--5.5% B- B3 8,925,000 The AES Corporation, 7.75% due 3/01/2014 8,936,156
BB+ Ba3 6,000,000 AES Gener SA, 7.50% due 3/25/2014 (f) 6,108,000
CCC+ Caa1 7,100,000 Calpine Canada Energy Finance ULC, 8.50% due 5/01/2008 5,254,000
Calpine Corporation (f):
B NR* 13,150,000 9.875% due 12/01/2011 12,656,875
B NR* 10,700,000 8.75% due 7/15/2013 9,790,500
CCC+ NR* 5,600,000 Calpine Generating Company LLC, 10.25% due
4/01/2011 (a)(f) 5,306,000
BBB- Ba2 8,800,000 CenterPoint Energy, Inc., 3.75% due 5/15/2023
(Convertible) 10,109,000
BB Ba1 10,101,000 ESI Tractebel Acquisition Corp., 7.99% due 12/30/2011 10,454,535
CCC+ Caa1 3,650,000 El Paso CGP Company, 7.75% due 6/15/2010 3,157,250
B- B3 1,200,000 El Paso Production Holding Company, 7.75% due 6/01/2013 1,113,000
CCC Caa2 8,925,000 Mission Energy Holding Company, 13.50% due 7/15/2008 9,192,750
Nevada Power Company:
NR* Ba2 10,000,000 10.875% due 10/15/2009 11,650,000
BB Ba2 1,175,000 9% due 8/15/2013 (f) 1,318,938
BB- Ba2 1,000,000 SEMCO Energy, Inc., 7.75% due 5/15/2013 1,065,000
BB Ba2 500,000 Sierra Pacific Power Company, 8% due 6/01/2008 543,750
NR* NR* 12,546,353 Sunflower Electric Power Corporation, 8% due
12/31/2016++++++ 10,978,059
---------------
107,633,813
Wireless--4.0% CCC Caa1 16,600,000 American Tower Corporation, 9.375% due 2/01/2009 17,513,000
CCC B3 3,600,000 American Tower Escrow Corporation, 12.25% due
8/01/2008 (e) 2,529,000
CCC Caa1 6,225,000 Centennial Cellular Operating Co. LLC, 8.125% due
2/01/2014 (f) 5,742,563
CCC Caa1 6,325,000 Centennial Communications Corp., 10.125% due 6/15/2013 6,514,750
CCC B3 900,000 Crown Castle International Corp., 9.375% due 8/01/2011 976,500
NR* B2 13,000,000 Empresa Brasileira de Telecom SA, 11% due 12/15/2008 (f) 14,040,000
B- B3 16,650,000 Millicom International Cellular SA, 10% due
12/01/2013 (f) 17,316,000
CCC+ B3 2,100,000 MobiFon Holdings B.V., 12.50% due 7/31/2010 2,415,000
CCC- Caa2 3,750,000 SBA Communications Corporation, 10.25% due 2/01/2009 3,693,750
CCC- Caa1 2,900,000 SBA Telecommunications, Inc., 9.75% due
12/15/2011 (e)(f) 2,037,250
CCC+ B3 4,000,000 SpectraSite, Inc., 8.25% due 5/15/2010 4,280,000
---------------
77,057,813
Total Corporate Bonds (Cost--$1,963,164,648)--90.2% 1,760,195,565
Preferred Securities
Shares
Held Preferred Stocks
Automotive--0.7% 440,000 General Motors Corporation (Convertible) 13,468,400
Cable--U.S.--0.1% 15,191 CSC Holdings, Inc.++++ 1,585,940
Diversified Media--1.2% 264,550 PRIMEDIA Inc. (Series H) 22,883,575
Telecommunications--0.0% 134 PTV, Inc. 737
Total Preferred Stocks (Cost--$37,093,123)--2.0% 37,938,652
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
MARCH 31, 2004
Schedule of Investments (continued)
Face Value
Industry** Amount Trust Preferred (in U.S. dollars)
Telecommunications--0.6% $12,150,000 Citizens Utilities Trust, 5% due 1/15/2036
(Convertible) $ 12,643,791
Total Trust Preferred (Cost--$12,234,255)--0.6% 12,643,791
Total Preferred Securities (Cost--$49,327,378) 50,582,443
Shares
Held Common Stocks
Consumer Products--0.0% 100,520 ++WKI Holding Company, Inc. 1,005,200
Energy--Other--0.0% 3,599 ++Orion Refining Corporation 0
Health Care--0.0% 12,894 ++MEDIQ Incorporated 51,687
Information Technology--0.1% 232,931 ++Dictaphone Corporation 1,397,586
Manufacturing--0.0% 47,706 Thermadyne Holdings Corporation 574,857
Metal--Other--0.1% 69,924 ++Metals USA, Inc. 904,117
Steel--0.0% 43,000,000 LTC Wheeling-Pittsburgh Corporation 430
832 Wheeling-Pittsburgh Corporation 18,279
---------------
18,709
Telecommunications--0.0% 2 PTV, Inc. 1,001
Total Common Stocks (Cost--$65,533,567)--0.2% 3,953,157
Warrants (b)
Cable--International--0.1% 10,000 Cable Satisfaction International, Inc. 100
117,980 NTL Incorporated 973,335
---------------
973,435
Cable--U.S.--0.0% 15,000 Loral Space & Communications Ltd. 150
143,265 Loral Space & Communications Ltd. 2,149
---------------
2,299
Chemicals--0.1% 14,350 Huntsman Company LLC (f) 2,439,500
Health Care--0.0% 201,408 HealthSouth Corporation 453,169
Information Technology--0.0% 210,284 Dictaphone Corporation 52,571
Manufacturing--0.0% 75,456 Thermadyne Holdings Corporation (Series A 2004) 1
45,652 Thermadyne Holdings Corporation (Series B 2006) 0
---------------
1
Wireless--0.0% 3,600 American Tower Escrow Corporation 511,200
Total Warrants (Cost--$3,847,587)--0.2% 4,432,175
Beneficial
Interest Other Interests (h)
20,500,000 ++Dictaphone Corporation (Litigation Trust Certificates) 205
25,000,000 ++Murrin Murrin Holdings Pty Ltd. (Litigation Trust
Certificates) 271,500
25,044,090 US Airways, Inc.--Certificates of Beneficial Interest 7,262,786
Total Other Interests (Cost--$6,861,136 )--0.4% 7,534,491
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
MARCH 31, 2004
Schedule of Investments (concluded)
Beneficial Value
Interest Short-Term Securities (in U.S. dollars)
$92,880,849 Merrill Lynch Liquidity Series, LLC Cash
Sweep Series I (g) $ 92,880,849
Total Short-Term Securities (Cost--$92,880,849)--4.8% 92,880,849
Total Investments (Cost--$2,181,615,165)--98.4% 1,919,578,680
Variation Margin on Financial Futures Contracts***--0.0% (180,000)
Other Assets Less Liabilities--1.6% 31,836,041
---------------
Net Assets--100.0% $ 1,951,234,721
===============
*Not Rated.
**For Portfolio compliance purposes, "Industries" 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.
***Financial futures contracts sold as of March 31, 2004 were as
follows:
Number of Expiration Face Unrealized
Contracts Issue Date Value Losses
320 10-Year U.S.
Treasury Bond June 2004 $36,299,975 $(630,025)
++Non-income producing security.
++++Represents a pay-in-kind security which may pay
interest/dividends in additional face/shares.
++++++Subject to principal paydowns.
(a)Floating rate note.
(b)Warrants entitle the Fund to purchase a predetermined number of
shares of common stock and are non-income producing. The purchase
price and number of shares are subject to adjustment under certain
conditions until the expiration date.
(c)As a result of bankruptcy proceedings, the company did not repay
the principal amount of the security upon maturity.
(d)The security is a perpetual bond and has no definite maturity
date.
(e)Represents a zero coupon or step bond; the interest rate shown
reflects the effective yield at the time of purchase by the
Portfolio.
(f)The security may be offered and sold to "qualified institutional
buyers" under Rule 144A of the Securities Act of 1933.
(g)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:
Net Interest
Affiliate Activity Income
Merrill Lynch Liquidity Series,
LLC Cash Sweep Series I $(33,316,504) $586,495
(h)Other interests represent beneficial interest in liquidation
trusts and other reorganization entities.
(i)As a result of the company's reorganization, these securities
will be paid off upon the disposition of the underlying collateral.
See Notes to Financial Statements.
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
MARCH 31, 2004
Statement of Assets and Liabilities
As of March 31, 2004
Assets
Investments in unaffiliated securities, at value
(identified cost--$2,088,734,316) $ 1,826,697,831
Investments in affiliated securities, at value
(identified cost--$92,880,849) 92,880,849
Cash 949,838
Cash held as collateral for financial futures contracts 500,000
Receivables:
Interest (including $2,545 from affiliates) $ 39,212,867
Securities sold 21,713,429
Capital shares sold 881,620
Dividends 612,688
Paydowns 207,060 62,627,664
---------------
Prepaid expenses and other assets 2,092,357
---------------
Total assets 1,985,748,539
---------------
Liabilities
Payables:
Securities purchased 26,261,851
Capital shares redeemed 4,476,940
Dividends to shareholders 2,403,914
Distributor 713,239
Other affiliates 411,558
Variation margin 180,000
Investment adviser 66,316
---------------
Total liabilities 34,513,818
---------------
Net Assets
Net assets $ 1,951,234,721
===============
Net Assets Consist of
Class A Shares of Common Stock, $.10 par value, 500,000,000 shares
authorized $ 8,757,995
Class B Shares of Common Stock, $.10 par value, 1,500,000,000 shares
authorized 14,829,692
Class C Shares of Common Stock, $.10 par value, 200,000,000 shares
authorized 3,443,355
Class I Shares of Common Stock, $.10 par value, 500,000,000 shares
authorized 10,859,107
Paid-in capital in excess of par 3,984,701,000
Undistributed investment income--net $ 17,125,545
Accumulated realized capital losses on investments--net (1,825,815,463)
Unrealized depreciation on investments--net (262,666,510)
---------------
Total accumulated losses--net (2,071,356,428)
---------------
Net Assets $ 1,951,234,721
===============
Net Asset Value
Class A--Based on net assets of $451,172,137 and 87,579,950 shares
outstanding $ 5.15
===============
Class B--Based on net assets of $763,629,030 and 148,296,924 shares
outstanding $ 5.15
===============
Class C--Based on net assets of $177,444,710 and 34,433,549 shares
outstanding $ 5.15
===============
Class I--Based on net assets of $558,988,844 and 108,591,069 shares
outstanding $ 5.15
===============
See Notes to Financial Statements.
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
MARCH 31, 2004
Statement of Operations
For the Six Months Ended March 31, 2004
Investment Income
Interest (including $586,495 from affiliates) $ 73,288,684
Dividends 1,614,878
Other 1,727,579
---------------
Total income 76,631,141
---------------
Expenses
Investment advisory fees $ 4,189,416
Account maintenance and distribution fees--Class B 3,109,055
Account maintenance and distribution fees--Class C 722,679
Account maintenance fees--Class A 559,380
Transfer agent fees--Class B 519,206
Professional fees 394,287
Transfer agent fees--Class I 302,592
Accounting services 240,668
Transfer agent fees--Class A 239,656
Transfer agent fees--Class C 113,024
Printing and shareholder reports 55,973
Custodian fees 41,052
Registration fees 37,686
Pricing fees 13,687
Directors' fees and expenses 10,306
Other 28,464
---------------
Total expenses 10,577,131
---------------
Investment income--net 66,054,010
---------------
Realized & Unrealized Gain on Investments--Net
Realized gain on investments--net 6,663,041
Change in unrealized depreciation on investments--net 91,286,384
---------------
Total realized and unrealized gain on investments--net 97,949,425
---------------
Net Increase in Net Assets Resulting from Operations $ 164,003,435
===============
See Notes to Financial Statements.
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
MARCH 31, 2004
Statements of Changes in Net Assets
For the Six For the
Months Ended Year Ended
March 31, September 30,
Increase (Decrease) in Net Assets: 2004 2003
Operations
Investment income--net $ 66,054,010 $ 147,610,159
Realized gain (loss) on investments--net 6,663,041 (548,470,193)
Change in unrealized depreciation on investments--net 91,286,384 895,089,678
--------------- ---------------
Net increase in net assets resulting from operations 164,003,435 494,229,644
--------------- ---------------
Dividends to Shareholders
Investment income--net:
Class A (15,872,845) (28,024,688)
Class B (27,381,073) (69,802,655)
Class C (5,907,503) (12,611,186)
Class I (20,797,247) (36,887,404)
--------------- ---------------
Net decrease in net assets resulting from dividends to shareholders (69,958,668) (147,325,933)
--------------- ---------------
Capital Share Transactions
Net decrease in net assets derived from capital share transactions (55,987,423) (126,667,730)
--------------- ---------------
Net Assets
Total increase in net assets 38,057,344 220,235,981
Beginning of period 1,913,177,377 1,692,941,396
--------------- ---------------
End of period* $ 1,951,234,721 $ 1,913,177,377
=============== ===============
*Undistributed investment income--net $ 17,125,545 $ 21,030,203
=============== ===============
See Notes to Financial Statements.
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
MARCH 31, 2004
Financial Highlights
Class A
The following per share data and ratios have been derived For the Six
from information provided in the financial statements. Months Ended
March 31, For the Year Ended September 30,+++++
Increase (Decrease) in Net Asset Value: 2004 2003 2002 2001 2000
Per Share Operating Performance
Net asset value, beginning of period $ 4.92 $ 4.05 $ 4.74 $ 6.04 $ 6.59
---------- ---------- ---------- ---------- ----------
Investment income--net .17++ .38++ .46 .61 .70
Realized and unrealized gain (loss)
on investments--net .24 .89 (.69) (1.30) (.55)
---------- ---------- ---------- ---------- ----------
Total from investment operations .41 1.27 (.23) (.69) .15
---------- ---------- ---------- ---------- ----------
Less dividends from investment income--net (.18) (.40) (.46) (.61) (.70)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 5.15 $ 4.92 $ 4.05 $ 4.74 $ 6.04
========== ========== ========== ========== ==========
Total Investment Return**
Based on net asset value per share 8.44%+++ 32.13% (5.60%) (12.10%) 2.22%
========== ========== ========== ========== ==========
Ratios to Average Net Assets
Expenses .85%* .86% .86% .86% .77%
========== ========== ========== ========== ==========
Investment income--net 6.69%* 8.39% 9.93% 11.23% 10.83%
========== ========== ========== ========== ==========
Supplemental Data
Net assets, end of period (in thousands) $ 451,172 $ 411,467 $ 274,069 $ 268,633 $ 265,500
========== ========== ========== ========== ==========
Portfolio turnover 58.39% 106.52% 46.18% 23.24% 14.44%
========== ========== ========== ========== ==========
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Based on average shares outstanding.
+++Aggregate total investment return.
+++++Effective April 14, 2003, Class D Shares were redesignated
Class A Shares.
See Notes to Financial Statements.
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
MARCH 31, 2004
Financial Highlights (continued)
Class B
The following per share data and ratios have been derived For the Six
from information provided in the financial statements. Months Ended
March 31, For the Year Ended September 30,
Increase (Decrease) in Net Asset Value: 2004 2003 2002 2001 2000
Per Share Operating Performance
Net asset value, beginning of period $ 4.92 $ 4.05 $ 4.74 $ 6.04 $ 6.59
---------- ---------- ---------- ---------- ----------
Investment income--net .16++ .36++ .43 .58 .66
Realized and unrealized gain (loss)
on investments--net .24 .88 (.69) (1.30) (.55)
---------- ---------- ---------- ---------- ----------
Total from investment operations .40 1.24 (.26) (.72) .11
---------- ---------- ---------- ---------- ----------
Less dividends from investment income--net (.17) (.37) (.43) (.58) (.66)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 5.15 $ 4.92 $ 4.05 $ 4.74 $ 6.04
========== ========== ========== ========== ==========
Total Investment Return**
Based on net asset value per share 8.16%+++ 31.45% (6.09%) (12.56%) 1.70%
========== ========== ========== ========== ==========
Ratios to Average Net Assets
Expenses 1.37%* 1.39% 1.39% 1.37% 1.29%
========== ========== ========== ========== ==========
Investment income--net 6.20%* 8.00% 9.52% 10.78% 10.30%
========== ========== ========== ========== ==========
Supplemental Data
Net assets, end of period (in thousands) $ 763,629 $ 852,371 $ 894,051 $1,387,523 $2,115,413
========== ========== ========== ========== ==========
Portfolio turnover 58.39% 106.52% 46.18% 23.24% 14.44%
========== ========== ========== ========== ==========
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Based on average shares outstanding.
+++Aggregate total investment return.
See Notes to Financial Statements.
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
MARCH 31, 2004
Financial Highlights (continued)
Class C
The following per share data and ratios have been derived For the Six
from information provided in the financial statements. Months Ended
March 31, For the Year Ended September 30,
Increase (Decrease) in Net Asset Value: 2004 2003 2002 2001 2000
Per Share Operating Performance
Net asset value, beginning of period $ 4.92 $ 4.05 $ 4.74 $ 6.04 $ 6.60
---------- ---------- ---------- ---------- ----------
Investment income--net .16++ .35++ .43 .58 .66
Realized and unrealized gain (loss)
on investments--net .24 .89 (.69) (1.30) (.56)
---------- ---------- ---------- ---------- ----------
Total from investment operations .40 1.24 (.26) (.72) .10
---------- ---------- ---------- ---------- ----------
Less dividends from investment income--net (.17) (.37) (.43) (.58) (.66)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 5.15 $ 4.92 $ 4.05 $ 4.74 $ 6.04
========== ========== ========== ========== ==========
Total Investment Return**
Based on net asset value per share 8.13%+++ 31.38% (6.14%) (12.60%) 1.49%
========== ========== ========== ========== ==========
Ratios to Average Net Assets
Expenses 1.42%* 1.44% 1.44% 1.43% 1.34%
========== ========== ========== ========== ==========
Investment income--net 6.13%* 7.88% 9.37% 10.69% 10.25%
========== ========== ========== ========== ==========
Supplemental Data
Net assets, end of period (in thousands) $ 177,445 $ 177,568 $ 147,198 $ 177,236 $ 227,274
========== ========== ========== ========== ==========
Portfolio turnover 58.39% 106.52% 46.18% 23.24% 14.44%
========== ========== ========== ========== ==========
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Based on average shares outstanding.
+++Aggregate total investment return.
See Notes to Financial Statements.
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
MARCH 31, 2004
Financial Highlights (concluded)
Class I
The following per share data and ratios have been derived For the Six
from information provided in the financial statements. Months Ended
March 31, For the Year Ended September 30,+++++
Increase (Decrease) in Net Asset Value: 2004 2003 2002 2001 2000
Per Share Operating Performance
Net asset value, beginning of period $ 4.92 $ 4.05 $ 4.73 $ 6.03 $ 6.59
---------- ---------- ---------- ---------- ----------
Investment income--net .18++ .39++ .47 .62 .71
Realized and unrealized gain (loss)
on investments--net .24 .89 (.68) (1.30) (.56)
---------- ---------- ---------- ---------- ----------
Total from investment operations .42 1.28 (.21) (.68) .15
---------- ---------- ---------- ---------- ----------
Less dividends from investment income--net (.19) (.41) (.47) (.62) (.71)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 5.15 $ 4.92 $ 4.05 $ 4.73 $ 6.03
========== ========== ========== ========== ==========
Total Investment Return**
Based on net asset value per share 8.57%+++ 32.42% (5.16%) (11.92%) 2.31%
========== ========== ========== ========== ==========
Ratios to Average Net Assets
Expenses .60%* .61% .62% .61% .52%
========== ========== ========== ========== ==========
Investment income--net 6.94%* 8.69% 10.21% 11.52% 11.07%
========== ========== ========== ========== ==========
Supplemental Data
Net assets, end of period (in thousands) $ 558,989 $ 471,771 $ 377,623 $ 438,383 $ 545,425
========== ========== ========== ========== ==========
Portfolio turnover 58.39% 106.52% 46.18% 23.24% 14.44%
========== ========== ========== ========== ==========
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Based on average shares outstanding.
+++Aggregate total investment return.
+++++Effective April 14, 2003, Class A Shares were redesignated
Class I Shares.
See Notes to Financial Statements.
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
MARCH 31, 2004
Notes to Financial Statements
1. Significant Accounting Policies:
High Income Portfolio (the "Portfolio") is one of 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 Portfolio's
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. These
unaudited financial statements reflect all adjustments, which are,
in the opinion of management, necessary to a fair statement of the
results for the interim period presented. All such adjustments are
of a normal, recurring nature. The Portfolio offers multiple classes
of 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. All classes of shares have
identical voting, dividend, liquidation and other rights and the
same terms and conditions, except that Class A, Class B and Class C
Shares bear certain expenses related to the account maintenance of
such shares, and Class B and Class C Shares also bear certain
expenses related to the distribution of such shares. Each class has
exclusive voting rights with respect to matters relating to its
account maintenance and distribution expenditures. Income, expenses
(other than expenses attributable to a specific class) and realized
and unrealized gains and losses on investments are allocated daily
to each class based on its relative net assets. The following is a
summary of significant accounting policies followed by the
Portfolio.
(a) Valuation of investments--Equity securities that are held by the
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, 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 equity 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 Directors of the Fund. Long positions 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 Directors of the Fund. Short positions 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.
Options written are valued at 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 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. Swap
agreements are valued daily based upon quotations from market
makers. Financial futures contracts and options thereon, which are
traded on exchanges, are valued at their last sale price as of the
close of such exchanges. 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 are valued at cost plus accrued interest. The
Portfolio employs pricing services to provide certain securities
prices for the 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 Board of
Directors of the Fund, including valuations furnished by the pricing
services retained by the Portfolio, 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 Fund's Board of Directors. Such
valuations and procedures will be reviewed periodically by the Board
of Directors of the Fund.
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 Fund's 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 the 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 Fund's Board
of Directors or by the Investment Adviser using a pricing service
and/or procedures approved by the Fund's Board of Directors.
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
MARCH 31, 2004
Notes to Financial Statements (continued)
(b) Derivative financial instruments--The 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 Portfolio 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, the Portfolio deposits and maintains as
collateral such initial margin as required by the exchange on which
the transaction is effected. Pursuant to the contract, the Porfolio
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 the
Portfolio as unrealized gains or losses. When the contract is
closed, the 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 Portfolio may purchase and write call and put
options. When the Portfolio writes an option, an amount equal to the
premium received by the 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 the Portfolio enters into a closing transaction), the
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.
(c) Income taxes--It is the Portfolio's 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.
(d) 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 Portfolio amortizes all
premiums and discounts on debt securities.
(e) Prepaid registration fees--Prepaid registration fees are charged
to expense as the related shares are issued.
(f) Dividends and distributions--Dividends from net investment
income are declared daily and paid monthly. Distributions of capital
gains are recorded on the exdividend dates.
(g) 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.
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
MARCH 31, 2004
Notes to Financial Statements (continued)
(h) Securities lending--The Porfolio 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
Portfolio and any additional required collateral is delivered to the
Portfolio on the next business day. Where the Portfolio receives
securities as collateral for the loaned securities, it collects a
fee from the borrower. The Portfolio typically receives the income
on the loaned securities but does not receive the income on the
collateral. Where the Portfolio receives 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 Portfolio 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 Portfolio could experience delays and costs in gaining
access to the collateral. The Portfolio 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.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect, wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner. The Fund has also entered into a Distribution
Agreement and Distribution Plans with FAM Distributors, Inc. ("FAMD"
or the "Distributor"), which is a wholly-owned subsidiary of Merrill
Lynch Group, Inc. FAM 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.
FAM is responsible for the management of the Fund's Portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee with respect to the Portfolio
based upon the aggregate average daily value of the Fund's net
assets at the following annual rates: .55% of the Fund's average
daily net assets not exceeding $250 million; .50% of average daily
net assets in excess of $250 million but not exceeding $500 million;
..45% of average daily net assets in excess of $500 million but not
exceeding $750 million; and .40% of average daily net assets in
excess of $750 million. For the six months ended March 31, 2004, the
aggregate average daily net assets of the Fund, including the Fund's
Core Bond Portfolio and Intermediate Term Portfolio, was
approximately $5,381,556,000.
Pursuant to the Distribution Plans adopted by the Fund in accordance
with Rule 12b-1 under the Investment Company Act of 1940, the Fund
pays the Distributor ongoing account maintenance and distribution
fees. The fees are accrued daily and paid monthly at annual rates
based upon the average daily net assets of the shares of the
Portfolio as follows:
Account
Maintenance Distribution
Fee Fee
Class A .25% --
Class B .25% .50%
Class C .25% .55%
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 and Class C shareholders.
The ongoing distribution fee compensates the Distributor and MLPF&S
for providing shareholder and distribution-related services to Class
B and Class C shareholders.
For the six months ended March 31, 2004, FAMD earned underwriting
discounts and direct commissions and MLPF&S earned dealer
concessions on sales of the Portfolio's Class A and Class I Shares
as follows:
FAMD MLPF&S
Class A $10,752 $94,636
Class I $ 1,644 $ 9,171
For the six months ended March 31, 2004, MLPF&S received contingent
deferred sales charges of $408,469 and $59,603 relating to
transactions in Class B and Class C Shares, respectively.
Furthermore, MLPF&S received contingent deferred sales charges of
$612 and $236,650 relating to transactions subject to front-end
sales charge waivers in Class A and Class I Shares, respectively.
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
MARCH 31, 2004
Notes to Financial Statements (continued)
The Portfolio has received an exemptive order from the Securities
and Exchange Commission permitting it to lend portfolio securities
to MLPF&S or its affiliates. Pursuant to that order, the Portfolio
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 Portfolio, invest cash
collateral received by the Portfolio 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.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
For the six months ended March 31, 2004, the Portfolio reimbursed
FAM $19,623 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 six months ended March 31, 2004 were $1,088,694,420 and
$1,144,215,921, respectively.
Net realized gains (losses) for the six months ended March 31, 2004
and net unrealized losses as of March 31, 2004 were as follows:
Realized Unrealized
Gains (Losses) Losses
Long-term investments $ 6,686,929 $ (262,036,485)
Financial futures contracts (23,888) (630,025)
--------------- ---------------
Total $ 6,663,041 $ (262,666,510)
=============== ===============
As of March 31, 2004, net unrealized depreciation for Federal income
tax purposes aggregated $263,908,395, of which $108,590,296 related
to appreciated securities and $372,498,691 related to depreciated
securities. The aggregate cost of investments at March 31, 2004 for
Federal income tax purposes was $2,183,487,075.
4. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions
was $55,987,423 and $126,667,730 for the six months ended March 31,
2004 and the year ended September 30, 2003, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the
Six Months Ended Dollar
March 31, 2004 Shares Amount
Shares sold 5,358,926 $ 27,277,266
Automatic conversion of shares 10,382,875 53,248,694
Shares issued to shareholders
in reinvestment of dividends 1,597,964 8,180,306
--------------- ---------------
Total issued 17,339,765 88,706,266
Shares redeemed (13,377,275) (68,690,718)
--------------- ---------------
Net increase 3,962,490 $ 20,015,548
=============== ===============
Class A Shares for the Year Dollar
Ended September 30, 2003 Shares Amount
Shares sold 14,458,879 $ 66,181,836
Automatic conversion of shares 20,777,650 94,515,774
Shares issued to shareholders
in reinvestment of dividends 3,181,341 14,227,776
--------------- ---------------
Total issued 38,417,870 174,925,386
Shares redeemed (22,459,329) (101,944,404)
--------------- ---------------
Net increase 15,958,541 $ 72,980,982
=============== ===============
Class B Shares for the
Six Months Ended Dollar
March 31, 2004 Shares Amount
Shares sold 4,389,495 $ 22,415,319
Shares issued to shareholders
in reinvestment of dividends 2,337,719 11,953,411
--------------- ---------------
Total issued 6,727,214 34,368,730
Automatic conversion of shares (10,382,875) (53,248,694)
Shares redeemed (21,341,619) (109,375,820)
--------------- ---------------
Net decrease (24,997,280) $ (128,255,784)
=============== ===============
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
MARCH 31, 2004
Notes to Financial Statements (concluded)
Class B Shares for the Year Dollar
Ended September 30, 2003 Shares Amount
Shares sold 16,014,231 $ 71,666,905
Shares issued to shareholders
in reinvestment of dividends 6,761,076 29,934,828
--------------- ---------------
Total issued 22,775,307 101,601,733
Automatic conversion of shares (20,787,529) (94,515,774)
Shares redeemed (49,496,955) (218,043,907)
--------------- ---------------
Net decrease (47,509,177) $ (210,957,948)
=============== ===============
Class C Shares for the
Six Months Ended Dollar
March 31, 2004 Shares Amount
Shares sold 3,035,252 $ 15,555,225
Shares issued to shareholders
in reinvestment of dividends 600,072 3,071,872
--------------- ---------------
Total issued 3,635,324 18,627,097
Shares redeemed (5,275,363) (26,951,911)
--------------- ---------------
Net decrease (1,640,039) $ (8,324,814)
=============== ===============
Class C Shares for the Year Dollar
Ended September 30, 2003 Shares Amount
Shares sold 7,603,556 $ 34,280,783
Shares issued to shareholders
in reinvestment of dividends 1,441,775 6,422,998
--------------- ---------------
Total issued 9,045,331 40,703,781
Shares redeemed (9,297,906) (41,273,109)
--------------- ---------------
Net decrease (252,575) $ (569,328)
=============== ===============
Class I Shares for the
Six Months Ended Dollar
March 31, 2004 Shares Amount
Shares sold 39,421,567 $ 198,943,543
Shares issued to shareholders
in reinvestment of dividends 2,018,717 10,362,433
--------------- ---------------
Total issued 41,440,284 209,305,976
Shares redeemed (28,783,266) (148,728,349)
--------------- ---------------
Net increase 12,657,018 $ 60,577,627
=============== ===============
Class I Shares for the Year Dollar
Ended September 30, 2003 Shares Amount
Shares sold 30,978,932 $ 140,338,367
Shares issued to shareholders
in reinvestment of dividends 3,112,803 13,852,222
--------------- ---------------
Total issued 34,091,735 154,190,589
Shares redeemed (31,437,710) (142,312,025)
--------------- ---------------
Net increase 2,654,025 $ 11,878,564
=============== ===============
5. Short-Term Borrowings:
The Portfolio, along with certain other funds managed by FAM and its
affiliates, is a party to a $500,000,000 credit agreement with Bank
One, N.A. and certain other lenders. The Portfolio may borrow under
the credit agreement to fund shareholder redemptions and for other
lawful purposes other than for leverage. The Portfolio may borrow up
to the maximum amount allowable under the Portfolio's current
prospectus and statement of additional information, subject to
various other legal, regulatory or contractual limits. The Portfolio
pays a commitment fee of .09% per annum based on the Portfolio's 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 28, 2003, the
credit agreement was renewed for one year under the same terms. The
Portfolio did not borrow under the credit agreement during the six
months ended March 31, 2004.
6. Capital Loss Carryforward:
On September 30, 2003, the Portfolio had a net capital loss
carryforward of $1,394,653,200, of which $74,968,568 expires in
2007; $60,400,417 expries in 2008; $387,766,347 expires in 2009;
$187,386,138 expires in 2010; and $684,131,730 expires in 2011. This
amount will be available to offset like amounts of any future
taxable gains.
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
MARCH 31, 2004
Electronic Delivery
The Fund offers electronic delivery of communications to its
shareholders. In order to receive this service, you must
register your account and provide us with e-mail information.
To sign up for this service, simply access this website
http://www.icsdelivery.com/live and follow the instructions.
When you visit this site, you will obtain a personal identification
number (PIN). You will need this PIN should you wish to update your
e-mail address, choose to discontinue this service and/or make any
other changes to the service. This service is not available for
certain retirement accounts at this time.
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
MARCH 31, 2004
Item 2 - Code of Ethics - Not Applicable to this semi-annual report
Item 3 - Audit Committee Financial Expert - Not Applicable to this
semi-annual report
Item 4 - Principal Accountant Fees and Services - Not Applicable to
this semi-annual report
Item 5 - Audit Committee of Listed Registrants - Not Applicable
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for
Closed-End Management Investment Companies - Not Applicable
Item 8 - Purchases of Equity Securities by Closed-End Management
Investment Company and Affiliated Purchasers - Not Applicable
Item 9 - Submission of Matters to a Vote of Security Holders - Not
Applicable
Item 10 - Controls and Procedures
10(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.
10(b) - There were no changes in the registrant's internal control
over financial reporting (as defined in Rule 30a-3(d) under the Act
(17 CFR 270.30a-3(d)) that occurred during the last fiscal half-year
of the period covered by this report that has materially affected,
or is reasonably likely to materially affect, the registrant's
internal control over financial reporting.
Item 11 - Exhibits attached hereto
11(a)(1) - Code of Ethics - Not Applicable to this semi-annual
report
11(a)(2) - Certifications - Attached hereto
11(a)(3) - Not Applicable
11(b) - Certifications - 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.
High Income Portfolio of Merrill Lynch Bond Fund, Inc.
By: _/s/ Terry K. Glenn_______
Terry K. Glenn,
President of
High Income Portfolio of Merrill Lynch Bond Fund, Inc.
Date: May 21, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By: _/s/ Terry K. Glenn________
Terry K. Glenn,
President of
High Income Portfolio of Merrill Lynch Bond Fund, Inc.
Date: May 21, 2004
By: _/s/ Donald C. Burke________
Donald C. Burke,
Chief Financial Officer of
High Income Portfolio of Merrill Lynch Bond Fund, Inc.
Date: May 21, 2004