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: 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 - 09/30/04
Item 1 - Report to Stockholders
(BULL LOGO)
Merrill Lynch Investment Managers
www.mlim.ml.com
High Income Portfolio of
Merrill Lynch Bond Fund, Inc.
Annual Report
September 30, 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) at www.mutualfunds.ml.com;
and (3) on the Securities and Exchange Commission's Web site at
http://www.sec.gov. Information about how the Fund voted proxies
relating to securities held in the Fund's portfolio during the
most recent 12-month period ended June 30 is available (1) at
www.mutualfunds.ml.com and (2) on the Securities and Exchange
Commission's Web site at http://www.sec.gov.
Merrill Lynch Bond Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
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High Income Portfolio of Merrill Lynch Bond Fund, Inc.
Availability of Quarterly Schedule of Investments
The Fund files its complete schedule of portfolio holdings with the
Securities and Exchange Commission ("SEC") for the first and third
quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q are
available on the SEC's Web site at http://www.sec.gov. The Fund's
Forms N-Q may also be reviewed and copied at the SEC's Public
Reference Room in Washington, DC. Information on the operation of
the Public Reference Room may be obtained by calling 1-800-SEC-0330.
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 Web site
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.
SEPTEMBER 30, 2004
A Letter From the President
Dear Shareholder
As we ended the current reporting period, the financial markets were
facing a number of uncertainties. At the top of investors' minds
were questions about economic expansion, corporate earnings,
interest rates and inflation, politics, oil prices and terrorism.
After benefiting from aggressive monetary and fiscal policy
stimulus, some fear the U.S. economy has hit a "soft patch." In
fact, economic expansion has slowed somewhat in recent months, but
we believe it is easing into a pace of growth that is sustainable
and healthy. The favorable economic environment has served to
benefit American corporations. Although the most impressive earnings
results were seen earlier in the year, solid productivity, improved
revenue growth and cost discipline all point to a vital corporate
sector.
In terms of inflation and interest rates, the Federal Reserve Board
(the Fed) has signaled its confidence in the economic recovery by
increasing the Federal Funds target rate three times in the past
several months, from 1% to 1.75%. Inflation, for its part, has
remained in check. Investors and economists are focused on how
quickly Fed policy will move from here.
While any market jitters associated with the presidential election
should subside after November, the effect of oil prices is more
difficult to predict. At around $50 per barrel, the price of oil is
clearly a concern. However, on an inflation-adjusted basis and
considering modern usage levels, the situation is far from the
crisis proportions we saw in the 1980s. Finally, although terrorism
and geopolitical crises are realities we are forced to live with
today, history has shown us that the financial effects of any single
event tend to be short-lived.
Amid the uncertainty, fixed income markets provided modestly
positive results. For the six-month and 12-month periods ended
September 30, 2004, the Lehman Brothers Aggregate Bond Index
returned +.68% and +3.68%, respectively; the Credit Suisse First
Boston High Yield Index returned +4.30% and +13.32%; and the
Citigroup Three-Month Treasury Bill Index returned +.56% and +1.04%.
In terms of yield, the 10-year Treasury note recorded a yield of
4.14% at September 30, 2004, versus 3.96% at September 30, 2003. The
three-month Treasury bill's yield was 1.71% at period-end, compared
to .95% a year earlier.
The key during uncertain times is to remain focused on the big
picture. Investment success comes not from reacting to short-term
volatility, but from maintaining a long-term perspective and
adhering to the disciplines of asset allocation, diversification and
rebalancing. We encourage you to work with your financial advisor to
ensure these time-tested techniques are incorporated into your
investment plan.
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.
SEPTEMBER 30, 2004
A Discussion With Your Portfolio Manager
The Portfolio provided positive returns for the fiscal year,
outperforming its comparable Lipper category of High Current Yield
Funds.
How did the Portfolio perform during the fiscal year in light of the
existing market conditions?
For the 12-month period ended September 30, 2004, the Portfolio's
Class A, Class B, Class C and Class I Shares had total returns of
+12.35%, +11.77%, +11.72% and +12.63%, 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 - 11 of this report to shareholders.) For the same period,
the benchmark Credit Suisse First Boston (CSFB) High Yield Index
returned +13.32% and the Lipper High Current Yield Funds category
posted an average return of +11.27%. (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 provided positive returns for the year, out-performing
its Lipper category average but modestly underperforming the
benchmark CSFB High Yield Index. Performance was highly competitive
for the majority of the fiscal year, but was hampered in the last
three months of the period by a modest short in Treasury futures, a
relatively large cash position and certain security selections.
Prior to the fourth fiscal quarter, we increased our cash position
and added to a short position in U.S. Treasury futures in
anticipation of rising interest rates (and falling bond prices).
The Federal Reserve Board (the Fed) began tightening monetary policy
in June 2004 with a 25 basis point (.25%) increase in the Federal
Funds rate. This was followed by two more interest rate hikes in
August and September, bringing the target rate to 1.75% after
holding at a historic low of 1% since June 2003. When the Fed starts
increasing short-term interest rates, one would expect long-term
yields to move higher. In anticipation of Fed moves, the 10-year
Treasury yield increased in the second quarter of 2004 from 3.86%
at March 31 to a high of 4.89% at June 14. In the third quarter,
however, Treasury securities rallied as their yields fell, and the
10-year Treasury note ended the period with a yield of 4.14%. Under
the circumstances, the Portfolio's cash reserves and short position
in Treasury issues were a detriment in the final three months.
In terms of security selection, we had disappointing results from
airlines and utility holdings. Nevertheless, holdings in the
chemical, paper, wireless and broadcasting sectors contributed
positively to absolute and relative performance. In addition, we
took advantage of the healthy new-issue calendar, which provided
favorable attribution over the past 12 months. Also making a
significant contribution to performance were our investments in
emerging market securities, which outperformed the high yield market
as a whole. Notable areas of strong performance were Brazilian
sovereign and corporate issues.
Describe conditions in the high yield market during the period.
In general, the high yield market remained strong throughout the
fiscal period, providing one of the best one-year returns of any
fixed income asset class as of September 30, 2004. The market
gleaned support from a continued strong economy for much of the
period, a decline in default rates by high yield issuers and robust
demand for the asset class on the part of both domestic and foreign
investors.
The new-issue calendar remained active throughout the year. As of
September 30, year-to-date new issuance totaled some $104.2 billion
in 414 transactions, with the majority of the proceeds used for bank
loan and other debt repayment. The default rate of high yield
corporate borrowers continued to decline throughout the period. As
reported by Moody's, the default rate fell sharply from 8.5% at the
end of 2002 to under 4% at the beginning of 2004, to just 2% as of
September 30. This trend, coupled with a healthy economy and muted
inflation, has encouraged investment demand for the high yield
borrowing sector.
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
SEPTEMBER 30, 2004
What changes were made to the Portfolio during the year?
Turnover was active, at around 100% throughout the 12-month period.
We eliminated or trimmed positions that we believe realized their
potential during the period while also weeding out holdings that did
not, in our view, qualify for continued inclusion.
After entering 2004 in a fully invested position, we began selling
securities heavily in mid January in anticipation of a market
decline. We maintained a fairly healthy cash position from that
point forward in an effort to ready the Portfolio to reduce overall
market exposure and take advantage of opportunities as they
presented themselves. We actively traded emerging market securities
throughout the year, especially Brazilian sovereign and corporate
securities, which have been quite volatile.
Throughout the year, our participation in the new-issue market
provided additional yield opportunities for the Portfolio. We
believe the new-issue calendar will continue to be heavy in the
months ahead as investment bankers and their clients 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- and long-term interest
rates. We will continue to carefully review the new-issue calendar
for compelling opportunities, and intend to participate selectively
as we identify value.
How would you characterize the Portfolio's position at the close of
the period?
We believe the Portfolio is positioned to outperform Treasury issues
in the coming fiscal year, with the potential to extract a high
single-digit return from the high yield market. Although we do not
expect the asset class to deliver the soaring total returns that it
did in the 2002-2003 fiscal year, we do anticipate that the high
yield sector will offer a competitive return relative to other fixed
income alternatives.
On balance, we believe the economy will continue its growth into
2005. In our view, the economic "soft patch" that prompted the
surprisingly low Treasury yields in recent months reflects the
negative psychological impact associated with high oil prices,
election uncertainties, continued upheaval in Iraq and concerns over
terrorism. Based on analytical reviews and discussions with
managements of companies in our portfolios, as well as others that
are classified as high yield issuers, the consensus view is that the
economy should continue to grow at a gradual pace. This would be
supportive of good results from companies in the high yield sector,
which also could be reflected in an even lower default rate going
forward. 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. At the same time, foreign liquidity and
the need for high-yielding assets are fueling demand for high yield
product.
Our strategy is to continue repositioning the Portfolio, focusing on
the single-B sector and issues with greater liquidity. We believe
the high yield sector will produce a highly competitive total return
in 2004 and again in 2005, but 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 corporate issues, and intend to look
for and invest in those issues and sectors that we believe offer
incremental value.
Given the expectation for rising interest rates and market
volatility, we believe it is appropriate to carry a cash position of
5%-15% of net assets, depending on our view of the market, and will
continue to be short in Treasury futures to offset market weakness
associated with anticipated increases in Treasury yields.
B. Daniel Evans
Vice President and Portfolio Manager
October 13, 2004
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
SEPTEMBER 30, 2004
Portfolio Information
Percent of
As of September 30, 2004 Net Assets
Ten Largest Corporate Bond Holdings
Qwest Communications Qwest Communications is the incumbent phone operator (ILEC) for most of the Midwest
International Inc.* United States. Having endured a lengthy period of accounting scandals, SEC reviews
and financial distress, the new management team has brought the company back to
sustainability. 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. Today, debt sits at 4.8 times cash flow, while the enterprise valuation is
6.5 times. 2.1%
Orion Refining Orion Refining has sold its only asset, a Norco, Louisiana oil refinery, to Valero
Corporation Energy for approximately $500 million. While Orion's total debt was over $1 billion,
we expect that the first lien on certain assets of Orion securing our bond will provide
for recovery of most of the principal bond amount. 1.6
Calpine Corporation* Calpine has, perhaps more than any other merchant energy company, 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. 1.6
Companhia Siderurgica CSN is one of Brazil's largest fully integrated steel manufacturers in Latin America
Nacional (CSN)* and is one of the lowest cost steel producers in the world. CSN has 5.8 million tons
of steel production capacity, owns 1.9 billion tons of iron ore reserves and generates
60% of its own electricity. Through affiliates it also controls a 32% stake in a
railroad. In 2003, the company generated $2.5 billion of revenue and $940 million of
EBITDA. Leverage totaled $2.8 billion. 1.5
Republic of Brazil Brazil credit fundamentals have continued to improve in 2004 following the Labor
government's ambitious program of long delayed pro-market reforms whose implementation
began in 2003. This year, Brazil has benefited from lower local inflation and a surge
in investment and pent-up domestic consumption. Growth has boosted the government
support in recent elections, providing further support for the reform and austerity
agenda. Brazil's commodity-intensive exports have benefited from world demand and
rising prices, resulting in a growing current account surplus and foreign reserves,
which has allowed a significant reduction in the government's dollar linked debt. 1.5
Star Gas Partners LP Star Gas is a leading heating oil and propane distributor. Star Gas public equity
and bonds traded lower on the company's announcement that customer losses as a result
of poor service and high heating oil prices will lead to the elimination of cash
distributions to partnership equity investors. Negotiations necessary to the survival
of the company are now underway with working capital lenders so that Star Gas can
borrow to buy heating oil for the winter heating season. 1.5
Commonwealth Brands, Inc.* Commonwealth Brands is a low-cost manufacturer of cigarettes, including the USA Gold,
Bull Durham, Malibu and Montclair brands. 1.5
HMP Equity Holdings Huntsman's earnings have stabilized and are expected to improve. Demand for Huntsman's
Corporation* products has improved significantly with better economic activity, however high benzene
and other crude oil derivative prices will probably keep profit improvements from
reaching their full potential in 2004. The company announced that they expect to pursue
an IPO with proceeds going to repay HMP Equity debt. 1.4
Frontline Ship Finance International Limited is a subsidiary of oil tanker company Frontline that
serves as a captive lessor of vessels. 1.3
PolyOne Corporation* PolyOne is a leading producer of plastic compounds used to manufacture plastic
consumer goods, building materials and a variety of industrial goods. PolyOne has
sold assets, reduced costs and improved earnings and cash flow, resulting in a
significantly improved credit profile. While PolyOne has benefited from improved
manufacturing activity in 2004, a significant portion of the earnings improvement
is attributable to the cost-cutting measures. 1.2
* Includes combined holdings and/or affiliates.
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
SEPTEMBER 30, 2004
Portfolio Information (concluded)
As of September 30, 2004
Quality Ratings* by Percent of
Standard & Poor's/Moody's Total Investments
A/A 0.5%
BBB/Baa 3.0
BB/Ba 19.2
B/B 45.8
CCC/Caa or lower 11.8
NR (Not Rated) 6.1
Other** 13.6
* 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.
** Includes portfolio holdings in common stocks, preferred stocks,
other interests, warrants and short-term securities.
Percent of
Five Largest Industries* Net Assets
Chemicals 7.6%
Energy--Other 6.1
Telecommunications 5.2
Paper 5.1
Food/Tobacco 4.8
* 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
subclassifications for reporting ease.
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
SEPTEMBER 30, 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 (front-end
load) of 4% and an account maintenance fee of 0.25% per year (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% per year and an account maintenance fee of 0.25% per
year. 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% per year
and an account maintenance fee of 0.25% per year. 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
performance data current to the most recent month-end. 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. The Fund is subject to a 2% redemption fee for sales or
exchanges of shares within 30 days of purchase. Performance data
does not reflect this potential fee. 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.
SEPTEMBER 30, 2004
Performance Data (continued)
Recent Performance Results
10-Year/
6-Month 12-Month Since Inception Standardized
As of September 30, 2004 Total Return Total Return Total Return 30-day Yield
High Income Portfolio Class A Shares* +3.61% +12.35% +80.53% 6.23%
High Income Portfolio Class B Shares* +3.34 +11.77 +70.92 5.96
High Income Portfolio Class C Shares* +3.32 +11.72 +70.68 5.91
High Income Portfolio Class I Shares* +3.74 +12.63 +84.42 6.46
CSFB High Yield Index** +4.30 +13.32 +118.60/+118.45 --
Merrill Lynch High Yield Master Index** +3.72 +12.23 +116.68/+116.75 --
Ten-Year U.S. Treasury Securities*** -0.05 + 3.14 +107.45/+109.22 --
* 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.
SEPTEMBER 30, 2004
Performance Data (continued)
TOTAL RETURN BASED ON A $10,000 INVESTMENT
Class A & Class C Shares
A line graph illustrating the growth of a $10,000 investment in
ML Bond Fund, Inc.'s High Income Portfolio++ Class A and Class C
Shares* compared to a similar investment in Credit Suisse First
Boston High Yield Index++++. Values illustrated are as follows:
ML Bond Fund, Inc.'s High Income Portfolio++
Class A Shares*
Date Value
10/21/1994** $ 9,600.00
September 1995 $10,881.00
September 1996 $12,170.00
September 1997 $13,909.00
September 1998 $13,030.00
September 1999 $13,765.00
September 2000 $14,066.00
September 2001 $12,367.00
September 2002 $11,674.00
September 2003 $15,427.00
September 2004 $17,331.00
ML Bond Fund, Inc.'s High Income Portfolio++
Class C Shares*
Date Value
10/21/1994** $10,000.00
September 1995 $11,289.00
September 1996 $12,539.00
September 1997 $14,252.00
September 1998 $13,294.00
September 1999 $13,966.00
September 2000 $14,170.00
September 2001 $12,388.00
September 2002 $11,627.00
September 2003 $15,278.00
September 2004 $17,068.00
Credit Suisse First Boston High Yield Index++++
Date Value
10/21/1994** $10,000.00
September 1995 $11,397.00
September 1996 $12,625.00
September 1997 $14,609.00
September 1998 $14,533.00
September 1999 $15,107.00
September 2000 $15,396.00
September 2001 $14,638.00
September 2002 $15,055.00
September 2003 $19,277.00
September 2004 $21,845.00
* Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
** Commencement of operations.
++ The Portfolio invests principally in fixed income securities
which are rated in the lower rating categories of the
established rating services, or in unrated securities of
comparable quality.
++++ This unmanaged market-weighted Index, which mirrors the
high-yield debt market, is comprised of 423 securities rated
BBB or below. The starting date for the Index in the Class A &
Class C Shares' graph is from 10/31/94.
Past performance is not predictive of future results.
Average Annual Total Return
Return Without Return With
Sales Charge Sales Charge**
Class A Shares*
One Year Ended 9/30/04 +12.35% +7.86%
Five Years Ended 9/30/04 + 4.72 +3.86
Inception (10/21/94)
through 9/30/04 + 6.12 +5.69
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
Return Return
Without CDSC With CDSC**
Class C Shares*
One Year Ended 9/30/04 +11.72% +10.72%
Five Years Ended 9/30/04 + 4.09 + 4.09
Inception (10/21/94)
through 9/30/04 + 5.52 + 5.52
* Maximum contingent deferred sales charge is 1% and is reduced to
0% after one year.
** Assuming payment of applicable contingent deferred sales charge.
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
SEPTEMBER 30, 2004
Performance Data (concluded)
TOTAL RETURN BASED ON A $10,000 INVESTMENT
Class B & Class I Shares
A line graph illustrating the growth of a $10,000 investment in
ML Bond Fund, Inc.'s High Income Portfolio++ Class B and Class I
Shares* compared to a similar investment in Credit Suisse First
Boston High Yield Index++++. Values illustrated are as follows:
ML Bond Fund, Inc.'s High Income Portfolio++
Class B Shares*
Date Value
September 1994 $10,000.00
September 1995 $11,238.00
September 1996 $12,490.00
September 1997 $14,220.00
September 1998 $13,253.00
September 1999 $13,929.00
September 2000 $14,162.00
September 2001 $12,387.00
September 2002 $11,633.00
September 2003 $15,292.00
September 2004 $17,092.00
ML Bond Fund, Inc.'s High Income Portfolio++
Class I Shares*
Date Value
September 1994 $ 9,600.00
September 1995 $10,871.00
September 1996 $12,174.00
September 1997 $13,949.00
September 1998 $13,115.00
September 1999 $13,889.00
September 2000 $14,205.00
September 2001 $12,516.00
September 2002 $11,869.00
September 2003 $15,720.00
September 2004 $17,705.00
Credit Suisse First Boston High Yield Index++++
Date Value
September 1994 $10,000.00
September 1995 $11,405.00
September 1996 $12,634.00
September 1997 $14,620.00
September 1998 $14,544.00
September 1999 $15,118.00
September 2000 $15,407.00
September 2001 $14,649.00
September 2002 $15,066.00
September 2003 $19,291.00
September 2004 $21,860.00
* Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
++ The Portfolio invests principally in fixed income securities
which are rated in the lower rating categories of the
established rating services, or in unrated securities of
comparable quality.
++++ This unmanaged market-weighted Index, which mirrors the
high-yield debt market, is comprised of 423 securities rated
BBB or below.
Past performance is not predictive of future results.
Average Annual Total Return
Return Return
Without CDSC With CDSC**
Class B Shares*
One Year Ended 9/30/04 +11.77% +7.77%
Five Years Ended 9/30/04 + 4.18 +3.91
Ten Years Ended 9/30/04 + 5.51 +5.51
* 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 9/30/04 +12.63% +8.13%
Five Years Ended 9/30/04 + 4.97 +4.12
Ten Years Ended 9/30/04 + 6.31 +5.88
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
SEPTEMBER 30, 2004
Disclosure of Expenses
Shareholders of this Fund may incur the following charges: (a)
expenses related to transactions, including sales charges,
redemption fees and exchange fees; and (b) operating expenses
including advisory fees, distribution fees including 12(b)-1 fees,
and other Fund expenses. The following example (which is based on a
hypothetical investment of $1,000 invested on April 1, 2004 and held
through September 30, 2004) is intended to assist shareholders both
in calculating expenses based on an investment in the Fund and in
comparing these expenses with similar costs of investing in other
mutual funds.
The first table below provides information about actual account
values and actual expenses. In order to estimate the expenses a
shareholder paid during the period covered by this report,
shareholders can divide their account value by $1,000 and then
multiply the result by the number in the first line under the
heading entitled "Expenses Paid During the Period."
The second table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before
expenses. In order to assist shareholders in comparing the ongoing
expenses of investing in this Fund and other funds, compare the 5%
hypothetical example with the 5% hypothetical examples that appear
in other funds' shareholder reports.
The expenses shown in the table are intended to highlight
shareholders ongoing costs only and do not reflect any transactional
expenses, such as sales charges, redemption fees, or exchange fees.
Therefore, the second table is useful in comparing ongoing expenses
only, and will not help shareholders determine the relative total
expenses of owning different funds. If these transactional expenses
were included, shareholder expenses would have been higher.
Expenses Paid
Ending During the Period*
Beginning Account Value April 1, 2004 to
Account Value September 30, September 30,
April 1, 2004 2004 2004
Actual
Class A $1,000 $1,036.10 $4.73
Class B $1,000 $1,033.40 $7.37
Class C $1,000 $1,033.20 $7.62
Class I $1,000 $1,037.40 $3.46
Hypothetical (5% annual return before expenses)**
Class A $1,000 $1,020.35 $4.70
Class B $1,000 $1,017.75 $7.31
Class C $1,000 $1,017.50 $7.57
Class I $1,000 $1,021.60 $3.44
* For each class of the Portfolio, expenses are equal to the annualized expense ratio for the
class (.93% for Class A, 1.45% for Class B, 1.50% for Class C and .68% for Class I), multiplied
by the average account value over the period, multiplied by 183/366 (to reflect the one-half year
period shown).
** Hypothetical 5% annual return before expenses is calculated by pro-rating the number of days in
the most recent fiscal half-year divided by 366.
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
SEPTEMBER 30, 2004
Schedule of Investments
S&P Moody's Face Value
Industry** Ratings+++ Ratings+++ Amount Corporate Bonds (in U.S. dollars)
Aerospace & BB- Ba3 US$ 2,025,000 L-3 Communications Corporation, 6.125% due
Defense--0.2% 7/15/2013 $ 2,050,313
B- Caa1 1,700,000 Standard Aero Holdings, Inc., 8.25% due
9/01/2014 (f) 1,759,500
---------------
3,809,813
Airlines--1.4% BB B1 20,550,000 American Airlines, Inc., 7.80% due 4/01/2008 17,091,453
B+ B2 1,876,682 Continental Airlines, Inc., 6.541% due 9/15/2009++++ 1,618,082
CCC- Ca 9,150,000 Evergreen International Aviation, Inc., 12% due
5/15/2010 5,490,000
++Piedmont Aviation, Inc.:
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
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 (c) 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
NR* NR* 2,582,229 US Airways Group, Inc., 4.28% due 1/01/2010 (k)(l) 593,913
US Airways, Inc. (i):
D Caa3 1,092,000 Series 88F, 10.70% due 1/01/2003 (c) 251,160
D Caa3 1,092,000 Series 88G, 10.70% due 1/01/2003 (c) 251,160
D Caa3 1,092,000 Series 88H, 10.70% due 1/01/2003 (c) 251,160
D Caa3 1,092,000 Series 88I, 10.70% due 1/01/2003 (c) 251,160
NR* NR* 1,432,000 Series A, 10.70% due 1/15/2007 329,360
NR* NR* 1,815,000 Series C, 10.70% due 1/15/2007 417,450
NR* NR* 1,107,000 Series E, 10.70% due 1/15/2007 254,610
---------------
26,799,508
Automotive--1.6% CCC+ Caa1 6,550,000 Advanced Accessory Holdings Corp., 13.25% due
12/15/2011 (e) 2,620,000
B B3 8,000,000 Asbury Automotive Group, Inc., 8% due 3/15/2014 7,880,000
B Caa1 19,075,000 Metaldyne Corporation, 11% due 6/15/2012 15,164,625
CCC+ B3 2,950,000 Remy International, Inc., 9.375% due 4/15/2012 2,891,000
++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 10,000
---------------
29,365,625
Broadcasting--2.8% B- B2 1,325,000 Fisher Communications, Inc., 8.625% due 9/15/2014 (f) 1,378,000
D Ca 8,000,000 ++Globo Comunicacoes e Participacoes SA, 10.50%
due 12/20/2006 (f) 5,760,000
CCC B3 21,600,000 Granite Broadcasting Corporation, 9.75% due
12/01/2010 19,980,000
CCC Caa1 20,761,000 Paxson Communications Corporation, 12.25% due
1/15/2009 (e) 17,802,558
CCC+ Caa1 7,075,000 Young Broadcasting Inc., 8.75% due 1/15/2014 6,792,000
---------------
51,712,558
Cable-- NR* Ca 13,000,000 ++Cable Satisfaction International, Inc., 12.75%
International--1.1% due 3/01/2010 1,885,000
NR* B1 7,000,000 Empresa Brasileira de Telecomunicacoes SA, 11% due
12/15/2008 7,752,500
B B2 9,550,000 Kabel Deutschland GmbH, 10.625% due 7/01/2014 (f) 10,409,500
---------------
20,047,000
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
SEPTEMBER 30, 2004
Schedule of Investments (continued)
S&P Moody's Face Value
Industry** Ratings+++ Ratings+++ Amount Corporate Bonds (in U.S. dollars)
Cable--U.S.--4.8% NR* NR* US$23,500,000 ++Adelphia Communications Corporation, 6% due
2/15/2006 (Convertible) $ 6,345,000
CCC- Caa1 3,000,000 CCH II, LLC, 10.25% due 9/15/2010 3,063,750
CSC Holdings, Inc.:
BB- B1 1,500,000 8.125% due 8/15/2009 1,593,750
BB- B1 4,700,000 7.625% due 4/01/2011 4,952,625
Charter Communications Holdings, LLC:
CCC- Ca 2,168,000 8.625% due 4/01/2009 1,685,620
CCC- Ca 1,025,000 10% due 4/01/2009 830,250
CCC- Ca 16,650,000 9.625% due 11/15/2009 13,111,875
B- Caa2 7,850,000 Insight Communications Company, Inc., 13.48% due
2/15/2011 (e) 7,339,750
B+ B2 6,775,000 Insight Midwest, LP, 9.75% due 10/01/2009 7,079,875
NR* NR* 10,330,000 ++Loral Cyberstar, Inc., 10% due 7/15/2006 8,160,700
B+ B2 14,250,000 PanAmSat Corporation, 9% due 8/15/2014 (f) 14,820,000
CCC+ Caa1 18,100,000 Rainbow National Services LLC, 10.375% due
9/01/2014 (f) 18,959,750
---------------
87,942,945
Chemicals--7.6% B- B3 10,100,000 BCP Caylux Holdings Luxembourg SCA, 9.625% due
6/15/2014 (f) 10,908,000
B+ NR* 5,000,000 Braskem SA, 12.50% due 11/05/2008 (f) 5,587,500
B B1 9,575,000 Crompton Corporation, 9.875% due 8/01/2012 (f) 10,053,750
CCC+ NR* 27,075,000 HMP Equity Holdings Corporation, 18.569% due
5/15/2008 (e) 17,057,250
Huntsman International LLC:
B- B3 4,200,000 9.875% due 3/01/2009 4,630,500
CCC+ Caa1 3,000,000 10.125% due 7/01/2009 3,150,000
B- B3 950,000 Innophos, Inc., 8.875% due 8/15/2014 (f) 1,011,750
BB- Ba3 16,000,000 MacDermid, Inc., 9.125% due 7/15/2011 17,840,000
BB- B1 18,750,000 Millennium America Inc., 9.25% due 6/15/2008 20,671,875
BB- B2 11,850,000 Omnova Solutions Inc., 11.25% due 6/01/2010 13,272,000
PolyOne Corporation:
B+ B3 12,200,000 10.625% due 5/15/2010 13,359,000
B+ B3 7,500,000 8.875% due 5/01/2012 7,650,000
B- B3 8,300,000 Rockwood Specialties Group, Inc., 10.625% due
5/15/2011 9,130,000
B- Caa1 6,250,000 Terra Capital, Inc., 11.50% due 6/01/2010 7,062,500
---------------
141,384,125
Consumer-- ++Polysindo International Finance Company BV:
Non-Durables--1.0% NR* NR* 7,500,000 9.375% due 2/12/1999 (c) 600,000
NR* Caa3 41,725,000 11.375% due 6/15/2006 3,338,000
NR* Caa3 18,850,000 9.375% due 7/30/2007 1,508,000
CCC+ B2 7,075,000 Remington Arms Company, Inc., 10.50% due 2/01/2011 6,721,250
B- B3 700,000 Riddell Bell Holdings, Inc., 8.375% due 10/01/2012 (f) 711,375
B- B3 4,600,000 United Industries Corporation, 9.875% due 4/01/2009 4,807,000
---------------
17,685,625
Diversified B B3 4,700,000 Dex Media, Inc., 8% due 11/15/2013 4,935,000
Media--2.9% B B2 7,717,000 Dex Media West LLC, 9.875% due 8/15/2013 9,067,475
B- Caa1 15,550,000 HM Publishing Corporation, 11.50% due
10/15/2013 (e)(f) 9,407,750
BBB- Baa3 17,900,000 Liberty Media Corporation, 0.75% due
3/30/2023 (Convertible) 19,220,125
B B1 4,748,000 PEI Holdings, Inc., 11% due 3/15/2010 5,513,615
BB B1 750,000 R.H. Donnelley Financial Corporation I, 8.875%
due 12/15/2010 847,500
B- B3 4,475,000 Warner Music Group, 7.375% due 4/15/2014 (f) 4,631,625
---------------
53,623,090
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
SEPTEMBER 30, 2004
Schedule of Investments (continued)
S&P Moody's Face Value
Industry** Ratings+++ Ratings+++ Amount Corporate Bonds (in U.S. dollars)
Energy--Exploration NR* NR* US$36,000,000 ++Orion Refining Corporation, 13% due
& Production--1.6% 12/15/2003 (c) $ 28,800,000
Energy--Other--6.1% NR* Caa3 17,950,000 Energy Corporation of America, 9.50% due 5/15/2007 17,232,000
BBB Baa2 10,700,000 Halliburton Company, 3.125% due 7/15/2023
(Convertible) (f) 12,184,625
CCC B3 18,700,000 Ocean Rig Norway AS, 10.25% due 6/01/2008 19,074,000
B- B2 2,861,000 Parker Drilling Company, 10.125% due 11/15/2009 3,036,236
B- Caa1 2,500,000 Petrobras Energia SA, 8.125% due 7/15/2010 (f) 2,493,750
Petrobras International Finance Company:
NR* Ba1 18,000,000 7.75% due 9/15/2014 17,820,000
NR* Ba1 5,000,000 8.375% due 12/10/2018 4,987,500
B B3 25,075,000 Star Gas Partners, LP, 10.25% due 2/15/2013 27,457,125
D Ca 19,692,000 ++Trico Marine Services, Inc., 8.875% due 5/15/2012 8,664,480
---------------
112,949,716
Financial--1.4% BB Ba3 13,225,000 Crum & Forster Holdings Corp., 10.375% due 6/15/2013 14,117,687
B B3 10,525,000 Refco Finance Holdings LLC, 9% due 8/01/2012 (f) 11,235,438
---------------
25,353,125
Food & Drug--0.5% CCC+ B3 10,500,000 Duane Reade Inc., 9.75% due 8/01/2011 (f) 9,922,500
Food/Tobacco--4.8% B B3 8,075,000 American Seafoods Group LLC, 10.125% due 4/15/2010 8,640,250
B B2 1,625,000 Chiquita Brands International, Inc., 7.50% due
11/01/2014 (f) 1,625,000
Commonwealth Brands, Inc. (f):
B- B2 11,750,000 9.75% due 4/15/2008 12,220,000
B- B3 14,000,000 10.625% due 9/01/2008 14,560,000
NR* Caa1 20,000,000 ++DGS International Finance Company BV, 10% due
6/01/2007 (f) 400,000
CCC B2 9,275,000 Doane Pet Care Company, 10.75% due 3/01/2010 9,901,062
Dole Food Company, Inc.:
B+ B2 6,550,000 7.25% due 6/15/2010 (f) 6,762,875
B+ B2 9,925,000 8.875% due 3/15/2011 10,793,437
CCC+ B3 16,950,000 Mrs. Fields Famous Brands, LLC, 11.50% due 3/15/2011 16,526,250
B- Caa1 15,850,000 Tabletop Holdings, Inc., 12.301% due 5/15/2014 (e)(f) 8,242,000
---------------
89,670,874
Gaming--2.4% B B2 15,475,000 The Majestic Star Casino, LLC, 9.50% due 10/15/2010 15,784,500
BB- Ba3 12,000,000 Mandalay Resort Group, 10.25% due 8/01/2007 13,620,000
BB- Ba3 3,550,000 Mohegan Tribal Gaming Authority, 7.125% due
8/15/2014 (f) 3,718,625
B B2 3,450,000 Resorts International Hotel And Casino, Inc.,
11.50% due 3/15/2009 3,967,500
B- B2 2,250,000 Venetian Casino Resort, LLC, 11% due 6/15/2010 2,604,375
CCC+ B3 4,199,000 Wynn Las Vegas, LLC, 12% due 11/01/2010 5,248,750
---------------
44,943,750
Government-- BB- B1 8,000,000 Federal Republic of Brazil, 10.50% due 7/14/2014 8,908,000
Foreign--2.4% BB- B1 18,764,320 Republic of Brazil, 8% due 4/15/2014 18,554,160
BB- B1 7,500,000 Republic of Turkey, 7.25% due 3/15/2015 7,392,975
B B2 10,000,000 Republic of Venezuela, 9.375% due 1/13/2034 9,880,000
---------------
44,735,135
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
SEPTEMBER 30, 2004
Schedule of Investments (continued)
S&P Moody's Face Value
Industry** Ratings+++ Ratings+++ Amount Corporate Bonds (in U.S. dollars)
Health Care--2.9% B- B3 US$ 6,050,000 Alpharma, Inc., 8.625% due 5/01/2011 (f) $ 6,201,250
A- NR* 7,900,000 Chiron Corporation, 2.75% due 6/30/2034
(Convertible) (f) 8,255,500
NR* NR* 7,150,000 HealthSouth Corporation, Term A, due 1/16/2011 7,489,625
B- B3 7,450,000 Team Health, Inc., 9% due 4/01/2012 (f) 7,412,750
B- B3 4,875,000 Tenet Healthcare Corporation, 9.875% due
7/01/2014 (f) 5,094,375
B- B3 10,275,000 US Oncology, Inc., 10.75% due 8/15/2014 (f) 10,557,563
CCC+ Caa1 4,250,000 Vanguard Health Holding Company II, LLC, 9% due
10/01/2014 (f) 4,260,625
BB Ba3 4,000,000 Ventas Realty, LP, 9% due 5/01/2012 4,560,000
---------------
53,831,688
Housing--1.4% Building Materials Corporation of America:
B+ B2 1,300,000 7.75% due 7/15/2005 1,322,750
B+ B2 3,000,000 8% due 12/01/2008 3,082,500
B+ B2 5,150,000 7.75% due 8/01/2014 (f) 5,098,500
NR* NR* EURO 6,925,000 Grohe Holding GmbH, 8.625% due 10/01/2014 8,772,867
B- B3 US$ 6,575,000 Nortek, Inc., 8.50% due 9/01/2014 (f) 6,887,313
---------------
25,163,930
Hybrid--0.3% NR* Ba3 5,000,000 TRAC-X EM No.1 Limited Series 1F, 6.50% due
12/20/2008 (f) 5,150,000
Information B B1 5,475,000 Amkor Technology, Inc., 7.125% due 3/15/2011 4,489,500
Technology--0.4% B- NR* 4,000,000 Cypress Semiconductor Corporation, 1.25% due
6/15/2008 (Convertible) 3,845,000
---------------
8,334,500
Leisure--1.8% BB- Ba3 6,500,000 Grupo Posadas, SA de CV, 8.75% due 10/04/2011 (f) 6,630,000
B+ Ba3 5,085,000 HMH Properties, Inc., 7.875% due 8/01/2008 5,231,194
B+ B1 9,250,000 Intrawest Corporation, 7.50% due 10/15/2013 9,585,313
MeriStar Hospitality Operating Partnership, LP:
CCC+ B2 5,775,000 9% due 1/15/2008 6,034,875
CCC+ B2 5,525,000 10.50% due 6/15/2009 6,049,875
---------------
33,531,257
Manufacturing--4.3% Case New Holland Inc. (f):
BB- Ba3 12,000,000 6% due 6/01/2009 11,880,000
BB- Ba3 3,750,000 9.25% due 8/01/2011 4,200,000
B- B3 6,150,000 Columbus McKinnon Corporation, 10% due 8/01/2010 6,765,000
B- B3 11,875,000 EaglePicher Incorporated, 9.75% due 9/01/2013 12,112,500
B- B3 4,200,000 FastenTech, Inc., 11.50% due 5/01/2011 (f) 4,725,000
B- B3 12,675,000 Invensys PLC, 9.875% due 3/15/2011 (f) 12,991,875
B- Caa1 7,000,000 Mueller Group, Inc., 10% due 5/01/2012 (f) 7,560,000
B- Caa1 3,550,000 Sensus Metering Systems Inc., 8.625% due 12/15/2013 3,621,000
B B3 16,200,000 Superior Essex Communications LLC, 9% due
4/15/2012 (f) 16,200,000
---------------
80,055,375
Metal--Other--1.3% ++Kaiser Aluminum & Chemical Corporation (c):
NR* NR* 1,000,000 9.875% due 2/15/2002 (i) 965,000
NR* Ca 30,000,000 12.75% due 2/01/2003 6,075,000
NR* Ba1 17,500,000 Vale Overseas Ltd., 8.25% due 1/17/2034 17,018,750
---------------
24,058,750
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
SEPTEMBER 30, 2004
Schedule of Investments (continued)
S&P Moody's Face Value
Industry** Ratings+++ Ratings+++ Amount Corporate Bonds (in U.S. dollars)
Packaging--4.4% CCC B3 US$ 8,250,000 Consolidated Container Company LLC, 10.75% due
6/15/2009 (e)(f) $ 6,641,250
Crown Euro Holdings SA:
B+ B1 7,200,000 9.50% due 3/01/2011 8,028,000
B B2 7,975,000 10.875% due 3/01/2013 9,270,937
CCC+ Caa1 5,300,000 Graham Packaging Company, 8.75% due 1/15/2008 5,465,625
Graham Packaging Company, LP (f):
CCC+ Caa1 1,800,000 8.50% due 10/15/2012 1,836,000
CCC+ Caa2 1,800,000 9.875% due 10/15/2014 1,842,750
CCC+ Caa2 3,850,000 Graham Packaging Holdings Company, 10.75% due 1/15/2009 4,004,000
BB- B2 6,650,000 Owens-Brockway Glass Container, Inc., 8.875% due
2/15/2009 7,231,875
B Caa1 625,000 Owens-Illinois, Inc., 7.35% due 5/15/2008 644,531
Pliant Corporation:
B- B3 2,900,000 11.125% due 9/01/2009 3,016,000
B- Caa2 12,740,000 13% due 6/01/2010 10,956,400
B- B2 17,775,000 Portola Packaging, Inc., 8.25% due 2/01/2012 13,953,375
CCC Caa2 1,700,000 Tekni-Plex, Inc., 12.75% due 6/15/2010 1,419,500
U.S. Can Corporation:
CCC+ Caa1 2,475,000 10.875% due 7/15/2010 2,543,063
CCC+ Caa2 750,000 12.375% due 10/01/2010 690,000
B B2 4,000,000 Wise Metals Group LLC, 10.25% due 5/15/2012 (f) 4,020,000
---------------
81,563,306
Paper--4.4% B- Caa 21,000,000 ++APP Finance II Mauritius Limited, 12% (d) 210,000
B+ B2 4,925,000 Ainsworth Lumber Co. Ltd., 7.25% due 10/01/2012 (f) 4,974,250
BB+ Ba2 11,950,000 Georgia-Pacific Corporation, 9.375% due 2/01/2013 14,071,125
B- B3 2,331,000 Graphic Packaging International Inc., 9.50% due
8/15/2013 2,663,168
D NR* 4,500,000 ++Indah Kiat International Finance Company BV, 12.50%
due 6/15/2006 2,790,000
B B3 16,575,000 JSG Funding PLC, 9.625% due 10/01/2012 18,729,750
BB- Ba2 16,750,000 Sino-Forest Corporation, 9.125% due 8/17/2011 (f) 17,210,625
D NR* 18,500,000 ++Tjiwi Kimia Finance Mauritius Limited, 10% due
8/01/2004 (c) 7,538,750
NR* NR* 11,398,000 Western Forest Products Inc., 15% due 7/28/2009 (j) 12,765,760
---------------
80,953,428
Retail--0.3% B B3 5,500,000 The Jean Coutu Group, Inc., 8.50% due 8/01/2014 (f) 5,458,750
Service--3.3% B+ B2 12,450,000 Allied Waste North America, Inc., 7.375% due
4/15/2014 11,983,125
B B2 6,400,000 Buhrmann US Inc., 8.25% due 7/01/2014 (f) 6,400,000
BB- Ba3 12,325,000 The Shaw Group Inc., 10.75% due 3/15/2010 12,941,250
B+ B2 18,300,000 United Rentals North America, Inc., 7.75% due
11/15/2013 (f) 17,156,250
CCC Ca 3,225,000 Waste Services, Inc., 9.50% due 4/15/2014 (f) 3,063,750
Williams Scotsman, Inc.:
B- B3 6,750,000 9.875% due 6/01/2007 6,463,125
B B2 2,425,000 10% due 8/15/2008 2,600,813
---------------
60,608,313
Steel--1.5% B+ B1 18,200,000 CSN Islands IX Corporation, 10% due 1/15/2015 (f) 18,200,000
BB- B1 10,000,000 CSN Islands VIII Corp., 9.75% due 12/16/2013 (f) 10,025,000
---------------
28,225,000
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
SEPTEMBER 30, 2004
Schedule of Investments (continued)
S&P Moody's Face Value
Industry** Ratings+++ Ratings+++ Amount Corporate Bonds (in U.S. dollars)
Telecommunications-- ADC Telecommunications, Inc. (Convertible):
5.2% NR* NR* US$ 6,400,000 1% due 6/15/2008 $ 5,392,000
NR* NR* 5,500,000 2.235% due 6/15/2013 (a) 4,785,000
Alaska Communications System Holdings, Inc.:
B- B3 3,500,000 9.375% due 5/15/2009 3,307,500
B- B2 5,625,000 9.875% due 8/15/2011 5,428,125
B- B3 12,900,000 Cincinnati Bell Inc., 8.375% due 1/15/2014 11,771,250
B- Caa1 3,500,000 FairPoint Communications, Inc., 9.50% due 5/01/2008 3,500,000
NR* Caa1 14,900,000 LCI International, Inc., 7.25% due 6/15/2007 13,521,750
Qwest Capital Funding, Inc.:
B Caa2 6,950,000 6.25% due 7/15/2005 7,019,500
B Caa2 1,075,000 7.25% due 2/15/2011 959,438
Qwest Communications International Inc. (f):
B B3 7,500,000 7.25% due 2/15/2011 7,106,250
B B3 2,650,000 7.50% due 2/15/2014 2,431,375
B Caa1 6,050,000 Qwest Services Corp., 14% due 12/15/2010 (f) 7,063,375
NR* Baa3 10,000,000 Tele Norte Leste Participacoes SA, 8% due
12/18/2013 (f) 9,700,000
NR* NR* 5,200,000 Terremark Worldwide, Inc., 9% due 6/15/2009
(Convertible) (f) 4,823,000
CCC+ B3 9,190,000 Time Warner Telecom, Inc., 10.125% due 2/01/2011 8,822,400
---------------
95,630,963
Transportation-- B+ B1 11,750,000 General Maritime Corporation, 10% due 3/15/2013 13,350,938
4.0% B+ B2 9,125,000 Laidlaw International, Inc., 10.75% due 6/15/2011 10,413,906
B B1 23,250,000 Ship Finance International Limited, 8.50% due
12/15/2013 23,133,750
B B2 10,000,000 TFM, SA de CV, 11.75% due 6/15/2009 10,100,000
BB- Ba2 14,500,000 Teekay Shipping Corporation, 8.875% due 7/15/2011 16,403,125
---------------
73,401,719
Utility--4.3% B- B2 2,975,000 The AES Corporation, 7.75% due 3/01/2014 3,071,687
BB+ Ba3 6,000,000 AES Gener SA, 7.50% due 3/25/2014 (f) 6,030,000
CCC+ Caa1 3,100,000 Calpine Canada Energy Finance ULC, 8.50% due
5/01/2008 2,139,000
Calpine Corporation:
CCC+ Caa1 4,000,000 8.75% due 7/15/2007 3,170,000
B NR* 13,150,000 9.875% due 12/01/2011 (f) 10,322,750
B NR* 10,700,000 8.75% due 7/15/2013 (f) 8,078,500
CCC+ B3 5,600,000 Calpine Generating Company LLC, 10.25% due
4/01/2011 (a)(f) 5,040,000
BBB- Ba2 13,200,000 CenterPoint Energy, Inc., 3.75% due 5/15/2023
(Convertible) 14,487,000
CCC+ Caa1 3,650,000 El Paso CGP Company, 7.75% due 6/15/2010 3,650,000
CCC+ Caa1 3,600,000 El Paso Corporation, 7% due 5/15/2011 3,474,000
CCC+ Caa1 7,700,000 El Paso Energy Corporation, 6.75% due 5/15/2009 7,661,500
B- B3 1,200,000 El Paso Production Holding Company, 7.75% due
6/01/2013 1,203,000
NR* NR* 12,245,126 Sunflower Electric Power Corporation, 8% due
12/31/2016++++ 10,714,485
---------------
79,041,922
Wireless--2.5% CCC B3 3,600,000 American Tower Escrow Corporation, 12.25% due
8/01/2008 (e) 2,682,000
CCC Caa1 6,225,000 Centennial Cellular Operating Co. LLC, 8.125%
due 2/01/2014 (f) 5,937,094
CCC Caa1 6,325,000 Centennial Communications Corp., 10.125% due 6/15/2013 6,657,062
CCC B3 2,675,000 Horizon PCS, Inc., 11.375% due 7/15/2012 (f) 2,782,000
B- B3 19,650,000 Millicom International Cellular SA, 10% due
12/01/2013 (f) 19,748,250
CCC- Caa2 6,000,000 SBA Communications Corporation, 10.25% due 2/01/2009 6,420,000
CCC- Caa1 2,900,000 SBA Telecommunications, Inc., 9.75% due
12/15/2011 (e) 2,349,000
---------------
46,575,406
Total Investments in Corporate Bonds
(Cost--$1,737,396,627)--84.9% 1,570,329,696
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
SEPTEMBER 30, 2004
Schedule of Investments (continued)
Shares Value
Industry** Held Common Stocks (in U.S. dollars)
Airlines--0.0% 23,902 US Airways Group, Inc. (Class A) (k)(l) $ 17,927
Cable--International--0.6% 2 PTV, Inc. (l) 1,001
1,011,866 Telewest Global, Inc. (l) 11,757,883
---------------
11,758,884
Consumer--Non-Durables--0.0% 8,333 Galey & Lord, Inc. (l) 0
Manufacturing--0.0% 47,706 Thermadyne Holdings Corporation (l) 524,289
Paper--0.7% 1,280,355 Western Forest Products Inc. (l) 9,358,211
330,542 Western Forest Products Inc.
(Restricted Shares) (f)(l) 2,415,956
---------------
11,774,167
Steel--0.0% 832 Wheeling-Pittsburgh Corporation (l) 26,050
Total Investments in Common Stocks
(Cost--$70,052,213)--1.3% 24,101,317
Preferred Securities
S&P Moody's Face
Ratings+++ Ratings+++ Amount Capital Trusts
Healthcare--0.9% B+ Ba3 US$15,619,000 Fresenius Medical Care Capital Trust II, 7.875% due
2/01/2008 17,063,757
Total Investments in Capital Trusts
(Cost--$15,675,092)--0.9% 17,063,757
Shares
Held Preferred Stocks
Airlines--0.0% 11,484 US Airways Group, Inc. (Convertible) (k)(l) 0
Automotive--0.7% 440,000 General Motors Corporation (Convertible) 12,386,000
Broadcasting--0.2% 105,389 Emmis Communications Corporation (Convertible) (l) 4,415,799
Telecommunications--0.0% 134 PTV, Inc. 945
Total Investments in Preferred Stocks
(Cost--$15,409,233)--0.9% 16,802,744
Total Investments in Preferred Securities
(Cost--$31,084,325)--1.8% 33,866,501
Warrants (b)
Airlines--0.0% 11,484 US Airways Group, Inc. (k) 0
Cable--International--0.0% 117,980 NTL Incorporated 620,575
Consumer--Non-Durables--0.0% 43,856 Galey & Lord, Inc., Series A 0
46,149 Galey & Lord, Inc., Series B 0
---------------
0
Health Care--0.0% 201,408 HealthSouth Corporation 453,168
Manufacturing--0.0% 45,652 Thermadyne Holdings Corporation (Series B 2006) 0
Wireless--0.0% 3,600 American Tower Escrow Corporation 676,800
15,000 Loral Space & Communications Ltd. 150
143,265 Loral Space & Communications Ltd. 716
---------------
677,666
Total Investments in Warrants
(Cost--$17,218,512)--0.0% 1,751,409
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
SEPTEMBER 30, 2004
Schedule of Investments (concluded)
Beneficial Value
Interest Other Interests (h) (in U.S. dollars)
US$ 25,000,000 ++Murrin Murrin Holdings Pty Ltd. (Litigation Trust
Certificates) 0
25,044,090 US Airways Group, Inc.--Certificate of Beneficial
Interest (k) $ 7,263,466
43,000,000 ++Wheeling-Pittsburgh Corporation (Litigation Trust
Certificates) 0
Total Investments in Other Interests
(Cost--$6,861,136)--0.4% 7,263,466
Short-Term Securities
201,157,268 Merrill Lynch Liquidity Series, LLC Cash Sweep
Series I (g) 201,157,268
Total Investments in Short-Term Securities
(Cost--$201,157,268)--10.9% 201,157,268
Total Investments (Cost--$2,063,770,081***)--99.3% 1,838,469,657
Other Assets Less Liabilities--0.7% 12,072,088
---------------
Net Assets--100.0% $ 1,850,541,745
===============
* Not Rated.
** 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.
*** The cost and unrealized appreciation/depreciation of investments as
of September 30, 2004, as computed for federal income tax purposes,
were as follows:
Aggregate cost $ 2,064,378,658
================
Gross unrealized appreciation $ 83,068,320
Gross unrealized depreciation (308,977,321)
----------------
Net unrealized depreciation $ (225,909,001)
================
++ Non-income producing security: issuer filed for bankruptcy and/or is
in default of interest payments.
++++ Subject to principal paydowns.
+++ Ratings of issues shown are unaudited.
(a) Floating rate note.
(b) Warrants entitle the Portfolio 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) were as follows:
Net Interest
Affiliate Activity Income
Merrill Lynch Liquidity Series,
LLC Cash Sweep Series I $74,959,915 $1,727,255
(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.
(j) Represents a pay-in-kind security which may pay interest/dividends
in additional face/shares.
(k) Company is in bankruptcy.
(l) Non-income producing security.
Financial futures contracts sold as of September 30, 2004 were
as follows:
Number of Expiration Face Unrealized
Contracts Issue Date Value Depreciation
455 10-Year U.S. December
Treasury Bond 2004 $50,942,951 $(301,424)
Swaps outstanding as of September 30, 2004 were as follows:
Notional Unrealized
Amount Depreciation
Sold credit default protection
on CDX Series 3 Index and
receive 6.25% interest.
Broker, J.P. Morgan Chase Bank
Expires December 2009 $6,000,000 $(67,500)
See Notes to Financial Statements.
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
SEPTEMBER 30, 2004
Statement of Assets and Liabilities
As of September 30, 2004
Assets
Investments in unaffiliated securities, at value (identified cost--$1,862,612,813) $ 1,637,312,389
Investments in affiliated securities, at value (identified cost--$201,157,268) 201,157,268
Cash 2,901,859
Cash held as collateral for financial futures contracts 750,000
Receivables:
Interest (including $310,666 from affiliates) $ 31,838,036
Securities sold 7,789,127
Capital shares sold 1,357,951
Variation margin 71,094
Interest on swaps 9,375 41,065,583
---------------
Prepaid expenses and other assets 671,921
---------------
Total assets 1,883,859,020
---------------
Liabilities
Unrealized depreciation on swaps 67,500
Swap premiums received 170,709
Payables:
Securities purchased 25,350,618
Capital shares redeemed 3,156,128
Dividends to shareholders 3,177,206
Distributor 623,654
Other affiliates 393,751
Investment adviser 84,090 32,785,447
---------------
Accrued expenses and other liabilities 293,619
---------------
Total liabilities 33,317,275
---------------
Net Assets
Net assets $ 1,850,541,745
===============
Net Assets Consist of
Class A Shares of Common Stock, $.10 par value, 500,000,000 shares authorized $ 9,155,092
Class B Shares of Common Stock, $.10 par value, 1,500,000,000 shares authorized 12,582,588
Class C Shares of Common Stock, $.10 par value, 200,000,000 shares authorized 3,710,655
Class I Shares of Common Stock, $.10 par value, 500,000,000 shares authorized 10,484,380
Paid-in capital in excess of par 3,887,881,907
Undistributed investment income--net $ 18,782,484
Accumulated realized capital losses--net (1,866,386,194)
Unrealized depreciation--net (225,669,167)
---------------
Total accumulated losses--net (2,073,272,877)
---------------
Net Assets $ 1,850,541,745
===============
Net Asset Value
Class A--Based on net assets of $471,585,357 and 91,550,915 shares outstanding $ 5.15
===============
Class B--Based on net assets of $648,269,687 and 125,825,882 shares outstanding $ 5.15
===============
Class C--Based on net assets of $191,202,906 and 37,106,546 shares outstanding $ 5.15
===============
Class I--Based on net assets of $539,483,795 and 104,843,797 shares outstanding $ 5.15
===============
See Notes to Financial Statements.
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
SEPTEMBER 30, 2004
Statement of Operations
For the Year Ended September 30, 2004
Investment Income
Interest (including $1,727,255 from affiliates) $ 148,690,879
Dividends 4,068,221
Other 2,690,004
---------------
Total income 155,449,104
---------------
Expenses
Investment advisory fees $ 8,051,603
Account maintenance and distribution fees--Class B 5,692,591
Account maintenance and distribution fees--Class C 1,435,125
Professional fees 1,164,534
Account maintenance fees--Class A 1,128,725
Transfer agent fees--Class B 1,057,015
Transfer agent fees--Class I 675,210
Transfer agent fees--Class A 555,018
Accounting services 499,085
Transfer agent fees--Class C 253,824
Printing and shareholder reports 108,398
Custodian fees 85,996
Registration fees 68,050
Pricing fees 27,170
Directors' fees and expenses 22,728
Other 75,374
---------------
Total expenses 20,900,446
---------------
Investment income--net 134,548,658
---------------
Realized & Unrealized Gain (Loss)--Net
Realized losson:
Investments--net (35,117,706)
Futures contracts and swaps--net (1,004,894)
Foreign currency transactions--net (80,672) (36,203,272)
---------------
Change in unrealized appreciation/depreciation on:
Investments--net 128,652,470
Futures contracts and swaps--net (368,924)
Foreign currency transactions--net 181 128,283,727
--------------- ---------------
Total realized and unrealized gain--net 92,080,455
---------------
Net Increase in Net Assets Resulting from Operations $ 226,629,113
===============
See Notes to Financial Statements.
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
SEPTEMBER 30, 2004
Statements of Changes in Net Assets
For the Year Ended September 30,
Increase (Decrease) in Net Assets: 2004 2003
Operations
Investment income--net $ 134,548,658 $ 147,610,159
Realized loss--net (36,203,272) (548,470,193)
Change in unrealized appreciation/depreciation--net 128,283,727 895,089,678
--------------- ---------------
Net increase in net assets resulting from operations 226,629,113 494,229,644
--------------- ---------------
Dividends to Shareholders
Investment income--net:
Class A (32,091,292) (28,024,688)
Class B (49,998,908) (69,802,655)
Class C (11,747,376) (12,611,186)
Class I (40,663,219) (36,887,404)
--------------- ---------------
Net decrease in net assets resulting from dividends to shareholders (134,500,795) (147,325,933)
--------------- ---------------
Capital Share Transactions
Net decrease in net assets derived from capital share transactions (155,575,271) (126,667,730)
--------------- ---------------
Redemption Fees & Contributions from Affiliate
Contributions from affiliate 809,067 --
Redemption fees 2,254 --
--------------- ---------------
Net increase in net assets resulting from redemption fees and
contributions from affiliate 811,321 --
--------------- ---------------
Net Assets
Total increase (decrease) in net assets (62,635,632) 220,235,981
Beginning of year 1,913,177,377 1,692,941,396
--------------- ---------------
End of year* $ 1,850,541,745 $ 1,913,177,377
=============== ===============
* Undistributed investment income--net $ 18,782,484 $ 21,030,203
=============== ===============
See Notes to Financial Statements.
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
SEPTEMBER 30, 2004
Financial Highlights
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: 2004 2003 2002 2001 2000
Per Share Operating Performance
Net asset value, beginning of year $ 4.92 $ 4.05 $ 4.74 $ 6.04 $ 6.59
---------- ---------- ---------- ---------- ----------
Investment income--net .36++ .38++ .46 .61 .70
Realized and unrealized gain (loss)--net .23 .89 (.69) (1.30) (.55)
---------- ---------- ---------- ---------- ----------
Total from investment operations .59 1.27 (.23) (.69) .15
---------- ---------- ---------- ---------- ----------
Less dividends from investment income--net (.36) (.40) (.46) (.61) (.70)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 5.15 $ 4.92 $ 4.05 $ 4.74 $ 6.04
========== ========== ========== ========== ==========
Total Investment Return*
Based on net asset value per share 12.35%+++ 32.13% (5.60%) (12.10%) 2.22%
========== ========== ========== ========== ==========
Ratios to Average Net Assets
Expenses .89% .86% .86% .86% .77%
========== ========== ========== ========== ==========
Investment income--net 7.09% 8.39% 9.93% 11.23% 10.83%
========== ========== ========== ========== ==========
Supplemental Data
Net assets, end of year (in thousands) $ 471,585 $ 411,467 $ 274,069 $ 268,633 $ 265,500
========== ========== ========== ========== ==========
Portfolio turnover 102.54% 106.52% 46.18% 23.24% 14.44%
========== ========== ========== ========== ==========
* Total investment returns exclude the effects of sales charges.
++ Based on average shares outstanding.
+++ Fund Asset Management, L.P. (an affiliate), reimbursed the Portfolio in connection
with the write-off of an uncollectible interest receivable amount. The reimbursement
had no impact on total return.
See Notes to Financial Statements.
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
SEPTEMBER 30, 2004
Financial Highlights (continued)
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: 2004 2003 2002 2001 2000
Per Share Operating Performance
Net asset value, beginning of year $ 4.92 $ 4.05 $ 4.74 $ 6.04 $ 6.59
---------- ---------- ---------- ---------- ----------
Investment income--net .34++ .36++ .43 .58 .66
Realized and unrealized gain (loss)--net .23 .88 (.69) (1.30) (.55)
---------- ---------- ---------- ---------- ----------
Total from investment operations .57 1.24 (.26) (.72) .11
---------- ---------- ---------- ---------- ----------
Less dividends from investment income--net (.34) (.37) (.43) (.58) (.66)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 5.15 $ 4.92 $ 4.05 $ 4.74 $ 6.04
========== ========== ========== ========== ==========
Total Investment Return*
Based on net asset value per share 11.77%+++ 31.45% (6.09%) (12.56%) 1.70%
========== ========== ========== ========== ==========
Ratios to Average Net Assets
Expenses 1.40% 1.39% 1.39% 1.37% 1.29%
========== ========== ========== ========== ==========
Investment income--net 6.57% 8.00% 9.52% 10.78% 10.30%
========== ========== ========== ========== ==========
Supplemental Data
Net assets, end of year (in thousands) $ 648,270 $ 852,371 $ 894,051 $1,387,523 $2,115,413
========== ========== ========== ========== ==========
Portfolio turnover 102.54% 106.52% 46.18% 23.24% 14.44%
========== ========== ========== ========== ==========
* Total investment returns exclude the effects of sales charges.
++ Based on average shares outstanding.
+++ Fund Asset Management, L.P. (an affiliate), reimbursed the Portfolio in connection
with the write-off of an uncollectible interest receivable amount. The reimbursement
had no impact on total return.
See Notes to Financial Statements.
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
SEPTEMBER 30, 2004
Financial Highlights (continued)
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: 2004 2003 2002 2001 2000
Per Share Operating Performance
Net asset value, beginning of year $ 4.92 $ 4.05 $ 4.74 $ 6.04 $ 6.60
---------- ---------- ---------- ---------- ----------
Investment income--net .33++ .35++ .43 .58 .66
Realized and unrealized gain (loss)--net .23 .89 (.69) (1.30) (.56)
---------- ---------- ---------- ---------- ----------
Total from investment operations .56 1.24 (.26) (.72) .10
---------- ---------- ---------- ---------- ----------
Less dividends from investment income--net (.33) (.37) (.43) (.58) (.66)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 5.15 $ 4.92 $ 4.05 $ 4.74 $ 6.04
========== ========== ========== ========== ==========
Total Investment Return*
Based on net asset value per share 11.72%+++ 31.38% (6.14%) (12.60%) 1.49%
========== ========== ========== ========== ==========
Ratios to Average Net Assets
Expenses 1.46% 1.44% 1.44% 1.43% 1.34%
========== ========== ========== ========== ==========
Investment income--net 6.53% 7.88% 9.37% 10.69% 10.25%
========== ========== ========== ========== ==========
Supplemental Data
Net assets, end of year (in thousands) $ 191,203 $ 177,568 $ 147,198 $ 177,236 $ 227,274
========== ========== ========== ========== ==========
Portfolio turnover 102.54% 106.52% 46.18% 23.24% 14.44%
========== ========== ========== ========== ==========
* Total investment returns exclude the effects of sales charges.
++ Based on average shares outstanding.
+++ Fund Asset Management, L.P. (an affiliate), reimbursed the Portfolio in connection
with the write-off of an uncollectible interest receivable amount. The reimbursement
had no impact on total return.
See Notes to Financial Statements.
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
SEPTEMBER 30, 2004
Financial Highlights (concluded)
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: 2004 2003 2002 2001 2000
Per Share Operating Performance
Net asset value, beginning of year $ 4.92 $ 4.05 $ 4.73 $ 6.03 $ 6.59
---------- ---------- ---------- ---------- ----------
Investment income--net .37++ .39++ .47 .62 .71
Realized and unrealized gain (loss)--net .24 .89 (.68) (1.30) (.56)
---------- ---------- ---------- ---------- ----------
Total from investment operations .61 1.28 (.21) (.68) .15
---------- ---------- ---------- ---------- ----------
Less dividends from investment income--net (.38) (.41) (.47) (.62) (.71)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 5.15 $ 4.92 $ 4.05 $ 4.73 $ 6.03
========== ========== ========== ========== ==========
Total Investment Return*
Based on net asset value per share 12.63%+++ 32.42% (5.16%) (11.92%) 2.31%
========== ========== ========== ========== ==========
Ratios to Average Net Assets
Expenses .64% .61% .62% .61% .52%
========== ========== ========== ========== ==========
Investment income--net 7.33% 8.69% 10.21% 11.52% 11.07%
========== ========== ========== ========== ==========
Supplemental Data
Net assets, end of year (in thousands) $ 539,484 $ 471,771 $ 377,623 $ 438,383 $ 545,425
========== ========== ========== ========== ==========
Portfolio turnover 102.54% 106.52% 46.18% 23.24% 14.44%
========== ========== ========== ========== ==========
* Total investment returns exclude the effects of sales charges.
++ Based on average shares outstanding.
+++ Fund Asset Management, L.P. (an affiliate), reimbursed the Portfolio in connection
with the write-off of an uncollectible interest receivable amount. The reimbursement
had no impact on total return.
See Notes to Financial Statements.
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
SEPTEMBER 30, 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 U.S. generally
accepted accounting principles, which may require the use of
management accruals and estimates. Actual results may differ from
these estimates. 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 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--Debt securities are traded primarily
in the over-the-counter markets and are valued at the last available
bid price in the over-the-counter market or on the basis of values
obtained by a pricing service. Pricing services use valuation
matrixes that incorporate both dealer-supplied valuations and
valuation models. The procedures of the pricing service and its
valuations are reviewed by the officers of the Fund under the
general direction of the Board of Directors. Such valuations and
procedures will be reviewed periodically by the Board of Directors
of the Fund. Financial futures contracts and options thereon, which
are traded on exchanges, are valued at their closing prices as of
the close of such exchanges. Options written or purchased are valued
at the last sales price in the case of exchange-traded options. In
the case of options traded in the over-the-counter ("OTC") market,
valuation is the last asked price (options written) or the last bid
price (options purchased). Swap agreements are valued by quoted fair
valuations received daily by the Portfolio from the counterparty.
Short-term investments with a remaining maturity of 60 days or less
are valued at amortized cost which approximates market value, under
which method the investment is valued at cost and any premium or
discount is amortized on a straight line basis to maturity.
Repurchase agreements are valued at cost plus accrued interest.
Investments in open-end investment companies are valued at their net
asset value each business day. Securities and other 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.
Equity securities that are held by the Portfolio, which 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 OTC market,
Nasdaq Small Cap or Bulletin Board are valued at the last available
bid price 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 asked
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.
Generally, trading in foreign securities 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 Portfolfio'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.
SEPTEMBER 30, 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 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 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.
* Swaps--The Portfolio may enter into swap agreements, which are
over-the-counter contracts in which the Portfolio 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.
(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 ex-dividend 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.
SEPTEMBER 30, 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.
(i) Reclassification--U.S. generally accepted accounting principles
require that certain components of net assets be adjusted to
reflect permanent differences between financial and tax reporting.
Accordingly, during the current year, $2,295,582 has been
reclassified between undistributed net investment income and
accumulated net realized capital losses as a result of permanent
differences attributable to amortization methods for premiums and
discounts on fixed income securities, foreign currency transactions,
accounting methods for swap agreements, the reclassification of
proceeds on sales of securities in default and the reclassification
of non-taxable distributions received. This reclassification has no
effect on net assets or net asset values per share.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect, wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner. The Fund has also entered into a Distribution
Agreement and Distribution Plans with FAM Distributors, Inc. ("FAMD"
or the "Distributor"), which is a wholly-owned subsidiary of Merrill
Lynch Group, Inc. FAM 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 Portfolio's and
the Fund's Intermediate Term Portfolio's and Master Core Bond
Portfolio'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 year ended September
30, 2004, the aggregate average daily net assets of the Portfolio,
including the Fund's Intermediate Term Portfolio and Master Core
Bond Portfolio, was approximately $5,253,487,000.
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 year ended September 30, 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:
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
SEPTEMBER 30, 2004
Notes to Financial Statements (continued)
FAMD MLPF&S
Class A $ 19,975 $ 178,889
Class I $ 2,896 $ 16,891
For the year ended September 30, 2004, MLPF&S received contingent
deferred sales charges of $785,414 and $68,197 relating to
transactions in Class B and Class C Shares of the Portfolio,
respectively. Furthermore, MLPF&S received contingent deferred sales
charges of $1,196 and $236,650 relating to transactions subject to
front-end sales charge waivers in Class A and Class I Shares,
respectively.
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.
FAM reimbursed the Portfolio $809,067 in connection with the write-
off of an uncollectible interest receivable amount.
For the year ended September 30, 2004, the Portfolio reimbursed FAM
$39,785 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, 2004 were $1,810,472,464 and
$2,067,755,520, respectively.
4. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions
was $155,575,271 and $126,667,730 for the years ended September 30,
2004 and September 30, 2003, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Year Dollar
Ended September 30, 2004 Shares Amount
Shares sold 11,724,005 $ 59,781,193
Automatic conversion of shares 17,284,262 88,471,569
Shares issued to shareholders
in reinvestment of dividends 3,262,341 16,685,491
--------------- ---------------
Total issued 32,270,608 164,938,253
Shares redeemed (24,337,153) (124,613,195)
--------------- ---------------
Net increase 7,933,455 $ 40,325,058
=============== ===============
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 Year Dollar
Ended September 30, 2004 Shares Amount
Shares sold 8,156,775 $ 41,636,213
Shares issued to shareholders
in reinvestment of dividends 4,228,097 21,608,900
--------------- ---------------
Total issued 12,384,872 63,245,113
Automatic conversion of shares (17,287,114) (88,471,569)
Shares redeemed (42,566,080) (217,545,473)
--------------- ---------------
Net decrease (47,468,322) $ (242,771,929)
=============== ===============
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)
=============== ===============
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
SEPTEMBER 30, 2004
Notes to Financial Statements (concluded)
Class C Shares for the Year Dollar
Ended September 30, 2004 Shares Amount
Shares sold 9,856,805 $ 50,336,677
Shares issued to shareholders
in reinvestment of dividends 1,194,361 6,110,806
--------------- ---------------
Total issued 11,051,166 56,447,483
Shares redeemed (10,018,208) (51,124,366)
--------------- ---------------
Net increase 1,032,958 $ 5,323,117
=============== ===============
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 Year Dollar
Ended September 30, 2004 Shares Amount
Shares sold 43,617,517 $ 220,352,544
Shares issued to shareholders
in reinvestment of dividends 4,301,782 22,013,114
--------------- ---------------
Total issued 47,919,299 242,365,658
Shares redeemed (39,009,553) (200,817,175)
--------------- ---------------
Net increase 8,909,746 $ 41,548,483
=============== ===============
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
=============== ===============
Effective June 30, 2004, the Portfolio charges a 2% redemption
fee on the proceeds (calculated at market value) of a redemption
(either by sale or exchange) of Portfolio shares made within 30 days
of purchase. The redemption fee is paid to the Portfolio and is
intended to offset the trading costs, market impact and other costs
associated with short-term trading into and out of the Portfolio.
For the year ended September 30, 2004, the Portfolio charged
redemption fees of $2,254.
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 year
ended September 30, 2004.
6. Distributions to Shareholders:
The tax character of distributions paid during the fiscal years
ended September 30, 2004 and September 30, 2003 was as follows:
9/30/2004 9/30/2003
Distributions paid from:
Ordinary income $ 134,500,795 $ 147,325,933
--------------- ---------------
Total taxable distributions $ 134,500,795 $ 147,325,933
=============== ===============
As of September 30, 2004, the components of accumulated losses on a
tax basis were as follows:
Undistributed ordinary income--net $ 24,858,255
Undistributed long-term capital gains--net --
----------------
Total undistributed earnings--net 24,858,255
Capital loss carryforward (1,853,266,707)*
Unrealized losses--net (244,864,425)**
----------------
Total accumulated losses--net $(2,073,272,877)
================
* On September 30, 2004, the Portfolio had a net capital loss
carryforward of $1,853,266,707, of which $74,968,568 expires in
2007; $60,400,417 expires in 2008; $387,766,347 expires in
2009; $187,386,138 expires in 2010; $684,131,730 expires in
2011 and $458,613,507 expires in 2012. This amount will be
available to offset like amounts of any future taxable gains.
** The difference between book-basis and tax-basis net unrealized
losses is attributable primarily to the tax deferral of losses on
wash sales, the realization for tax purposes of unrealized gains
(losses) on certain futures contracts, the difference between
book and tax amortization methods for premiums and discounts on
fixed income securities, book/tax differences in the accrual of
income on securities in default and the deferral of post-October
capital losses for tax purposes.
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
SEPTEMBER 30, 2004
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of
Merrill Lynch Bond Fund, Inc.:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments, of the High
Income Portfolio (one of the portfolios constituting Merrill Lynch
Bond Fund, Inc. (the "Fund")) as of September 30, 2004, and the
related statement 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 the standards of the
Public Company Accounting Oversight Board (United States). 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, 2004, by
correspondence with the custodian and brokers; where replies were
not received from brokers, 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 the High Income Portfolio of Merrill Lynch
Bond Fund, Inc. as of September 30, 2004, the results of its
operations for the year then ended, the changes in its 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 U.S. generally accepted accounting
principles.
Deloitte & Touche LLP
Princeton, New Jersey
November 18, 2004
Important Tax Information (unaudited)
The following information is provided with respect to the ordinary
income distributions paid monthly by High Income Portfolio of
Merrill Lynch Bond Fund, Inc. during the fiscal year ended
September 30, 2004:
October 2003 to January 2004 to
November 2003 December 2003 September 2004
Qualified Dividend Income for Individuals 3.76% 3.30% 1.51%
Dividends Qualifying for the Dividends Received
Deduction for Corporations 4.76% 1.52% 1.52%
Please retain this information for your records.
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
SEPTEMBER 30, 2004
Officers and Directors (unaudited)
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name, Address & Age Fund Served Principal Occupation(s) During Past 5 Years Director Director
Interested Director
Terry K. Glenn* President 1999 to President of the Merrill Lynch Investment 124 Funds None
P.O. Box 9011 and present Managers, L.P. ("MLIM")/Fund Asset 157 Portfolios
Princeton, Director Management, L.P. ("FAM")-advised funds
NJ 08543-9011 since 1999; Chairman (Americas Region) of
Age: 64 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
present and 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.
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name, Address & Age Fund Served Principal Occupation(s) During Past 5 Years Director Director
Independent Directors*
Ronald W. Forbes Director 1981 to Professor Emeritus of Finance, School of 48 Funds None
P.O. Box 9095 present Business, State University of New York at 48 Portfolios
Princeton, Albany since 2000 and Professor thereof
NJ 08543-9095 from 1989 to 2000; International Consultant,
Age: 64 Urban Institute, Washington, D.C. from
1995 to 1999.
Cynthia A. Montgomery Director 2004 to Professor, Harvard Business School since 48 Funds Newell
P.O. Box 9095 present 1989; Associate Professor, J.L. Kellogg 48 Portfolios Rubbermaid,
Princeton, Graduate School of Management, Northwestern Inc.
NJ 08543-9095 University from 1985 to 1989; Associate
Age: 51 Professor, Graduate School of Business
Administration, University of Michigan
from 1979 to 1985.
Jean Margo Reid Director 1990 to Self-employed consultant since 2001; 48 Funds None
P.O. Box 9095 present Counsel of Alliance Capital Management 48 Portfolios
Princeton, (investment adviser) in 2000; General
NJ 08543-9095 Counsel, Director and Secretary of
Age: 59 Sanford C. Bernstein & Co., Inc. (investment
adviser/broker-dealer) from 1997 to 2000;
Secretary, Sanford C. Bernstein Fund, Inc.
from 1994 to 2000; Director and Secretary
of SCB, Inc. since 1998; Director and
Secretary of SCB Partners, Inc. since 2000;
Director of Covenant House from 2001 to 2004.
Kevin A. Ryan Director 1992 to Founder and currently Director Emeritus of 48 Funds None
P.O. Box 9095 present Boston University Center for the Advancement 48 Portfolios
Princeton, of Ethics and Character and Director thereof
NJ 08543-9095 from 1989 to 1999; Professor from 1982 to
Age: 71 1999 and currently Professor Emeritus of
Education of Boston University; formerly
taught on the faculties of The University
of Chicago, Stanford University and Ohio
State University.
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
SEPTEMBER 30, 2004
Officers and Directors (unaudited)(concluded)
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name, Address & Age Fund Served Principal Occupation(s) During Past 5 Years Director Director
Independent Directors* (concluded)
Roscoe S. Suddarth Director 2000 to President, Middle East Institute from 48 Funds None
P.O. Box 9095 present 1995 to 2001; Foreign Service Officer, 48 Portfolios
Princeton, United States Foreign Service from 1961
NJ 08543-9095 to 1995; Career Minister from 1989 to 1995;
Age: 69 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.
Richard R. West Director 1980 to Professor of Finance since 1984, Dean from 48 Funds Bowne & Co.,
P.O. Box 9095 present 1984 to 1993 and currently Dean Emeritus 48 Portfolios Inc.; Vornado
Princeton, of New York University Leonard N. Stern Realty Trust;
NJ 08543-9095 School of Business Administration, New York Vornado
Age: 64 University from 1994 to present; Professor Operating
of Finance thereof from 1982 to 1994. Company;
Alexander's, Inc.
Edward D. Zinbarg Director 2000 to Self-employed financial consultant since 48 Funds None
P.O. Box 9095 present 1994; Executive Vice President of The 48 Portfolios
Princeton, Prudential Insurance Company of America
NJ 08543-9095 from 1988 to 1994; former Director of
Age: 69 Prudential Reinsurance Company and former
Trustee of the Prudential Foundation.
* 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 of
Held with Time
Name, Address & Age Fund Served Principal Occupation(s) During Past 5 Years
Fund Officers*
Donald C. Burke Vice 1993 to First Vice President of MLIM and FAM since 1997 and Treasurer thereof
P.O. Box 9011 President present since 1999; Senior Vice President and Treasurer of Princeton Services
Princeton, and and since 1999 and Director since 2004; Vice President of FAMD since 1999;
NJ 08543-9011 Treasurer 1999 to Director of MLIM Taxation since 1990.
Age: 44 present
B. Daniel Evans Vice 2002 to Managing Director of MLIM since 2004, Director (Global Fixed Income)
P.O. Box 9011 President present thereof from 2000 to 2004 and Vice President from 1995 to 2000.
Princeton,
NJ 08543-9011
Age: 60
Jeffrey Hiller Chief 2004 to Chief Compliance Officer of the MLIM/FAM-advised funds and First Vice
P.O. Box 9011 Compliance present President and Chief Compliance Officer of MLIM since 2004; Global Director
Princeton, Officer of Compliance at Morgan Stanley Investment Management from 2002 to 2004;
NJ 08543-9011 Managing Director and Global Director of Compliance at Citigroup Asset
Age: 53 Management from 2000 to 2002; Chief Compliance Officer at Soros Fund
Management in 2000; Chief Compliance Officer at Prudential Financial from
1995 to 2000.
Alice A. Pellegrino Secretary 2004 to Director (Legal Advisory) of MLIM since 2002; Vice President of MLIM from
P.O. Box 9011 present 1999 to 2002; Attorney associated with MLIM since 1997.
Princeton,
NJ 08543-9011
Age: 44
* Officers of the Fund serve at the pleasure of the Board of Directors.
Further information about the Fund's Officers and Directors is
available in the Fund's Statement of Additional Information, which
can be obtained without charge by calling 1-800-MER-FUND.
Custodian
State Street Bank and Trust Company
P.O. Box 351
Boston, MA 02101
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
800-637-3863
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
SEPTEMBER 30, 2004
Item 2 - Code of Ethics - 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 - Audit Committee Financial Expert - 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 - Principal Accountant Fees and Services
(a) Audit Fees - Fiscal Year Ending September 30, 2004 - $36,000
Fiscal Year Ending September 30, 2003 - $35,138
(b) Audit-Related Fees -
Fiscal Year Ending September 30, 2004 - $0
Fiscal Year Ending September 30, 2003 - $0
(c) Tax Fees - Fiscal Year Ending September 30, 2004 - $5,800
Fiscal Year Ending September 30, 2003 - $5,400
The nature of the services include tax compliance, tax advice and
tax planning.
(d) All Other Fees -
Fiscal Year Ending September 30, 2004 - $0
Fiscal Year Ending September 30, 2003 - $0
(e)(1) The registrant's audit committee (the "Committee") has
adopted policies and procedures with regard to the pre-approval of
services. Audit, audit-related and tax compliance services provided
to the registrant on an annual basis require specific pre-approval
by the Committee. The Committee also must approve other non-audit
services provided to the registrant and those non-audit services
provided to the registrant's affiliated service providers that
relate directly to the operations and the financial reporting of the
registrant. Certain of these non-audit services that the Committee
believes are a) consistent with the SEC's auditor independence rules
and b) routine and recurring services that will not impair the
independence of the independent accountants may be approved by the
Committee without consideration on a specific case-by-case basis
("general pre-approval"). However, such services will only be
deemed pre-approved provided that any individual project does not
exceed $5,000 attributable to the registrant or $50,000 for all of
the registrants the Committee oversees. Any proposed services
exceeding the pre-approved cost levels will require specific pre-
approval by the Committee, as will any other services not subject to
general pre-approval (e.g., unanticipated but permissible services).
The Committee is informed of each service approved subject to
general pre-approval at the next regularly scheduled in-person board
meeting.
(e)(2) 0%
(f) Not Applicable
(g) Fiscal Year Ending September 30, 2004 - $14,091,966
Fiscal Year Ending September 30, 2003 - $18,527,998
(h) The registrant's audit committee has considered and determined
that the provision of non-audit services that were rendered to the
registrant's 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.
Regulation S-X Rule 2-01(c)(7)(ii) - $945,000, 0%
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 second 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 - See Item 2
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: November 19, 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: November 19, 2004
By: _/s/ Donald C. Burke________
Donald C. Burke,
Chief Financial Officer of
High Income Portfolio of Merrill Lynch Bond Fund, Inc.
Date: November 19, 2004