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: Intermediate Term Portfolio of Merrill Lynch Bond
Fund, Inc.
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Terry K. Glenn, President,
Intermediate Term Portfolio of Merrill Lynch Bond Fund, Inc.,
800 Scudders Mill Road, Plainsboro, NJ, 08536. Mailing
address: P.O. Box 9011, Princeton, NJ, 08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 09/30/04
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
Intermediate Term 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
(GO PAPERLESS LOGO)
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Intermediate Term Portfolio of Merrill Lynch Bond Fund, Inc.
Portfolio Information
Asset Mix Percent of
As of September 30, 2004 Total Investments
Corporate Bonds 37.9%
Asset-Backed Securities 20.8
Government Agency Mortgage-Backed
Securities 13.0
Non-Government Agency Mortgage-Backed
Securities 7.7
Government & Agency Obligations 6.9
Preferred Securities 1.1
Other* 12.6
* Includes portfolio holdings in municipal bonds, short-term
investments and options.
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.
INTERMEDIATE TERM 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
INTERMEDIATE TERM PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
SEPTEMBER 30, 2004
A Discussion With Your Fund's Portfolio Managers
Portfolio performance benefited during the fiscal year from a focus
on spread sectors and higher-beta credits, and was modestly hampered
by a duration profile shorter than that of its benchmark.
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, Intermediate Term
Portfolio's Class A, Class B, Class C, Class I and Class R Shares
had total returns of +3.54%, +3.12%, +3.11%, +3.65% and +3.25%,
respectively. For the same period, the benchmark Lehman Brothers
Aggregate Bond Index posted a return of +3.68%. (Portfolio results
shown do not reflect sales charges and would be lower if sales
charges were included. Complete performance information can be found
on pages 6 - 10 of this report to shareholders.)
Portfolio returns were generally competitive with the benchmark.
Benefiting performance was our overweight position in spread sectors
and higher-beta credits, which continued to perform well throughout
the year. By maintaining our focus on those areas of the market
with a low correlation to Treasury issues, we were able to avoid a
great deal of interest rate volatility while also achieving more
attractive total returns. Although 10-year Treasury note yields
did not change dramatically over the year, we saw a considerable
amount of volatility throughout the past 12 months. For example, the
10-year Treasury yield started the fiscal year at 3.90% on September
30, 2003, hit a low of 3.70% in March and then a high of 4.87% in
June before retracing to 4.12% by September 30, 2004.
Modestly offsetting the positive contribution from our focus on
spread sectors was the Portfolio's duration profile. We had
maintained a neutral duration until February 2004, after which we
shortened duration relative to the benchmark in anticipation of
rising interest rates. Given the likely prospects for economic
acceleration (and the higher interest rates that usually accompany
economic growth), our goal was to moderate the Portfolio's
sensitivity to interest rate movements, thereby providing a level of
protection to its underlying net asset value. Given the volatile
yield environment, this strategy proved at times constructive and at
other times detrimental, but had a slightly negative effect for the
year as a whole. Still, we maintained our short duration profile
based on our confidence in the economic recovery and our expectation
for rising rates. In fact, the Federal Reserve Board (the Fed)
recently embarked on its "measured" tightening action, bringing the
Federal Funds target rate from 1% to 1.75% in three separate moves
in June, August and September.
In general, investors continued to be rewarded for taking on risk.
This is illustrated in the fact that high yield bonds outperformed
all of the investment grade asset classes for the year. The Credit
Suisse First Boston High Yield Index provided a 12-month return of
+13.32% as of September 30, 2004, nearly 10% more than the Lehman
Brothers Aggregate Bond Index. During the 12-month period, spreads
to U.S. Treasury issues tightened across most non-Treasury asset
classes. Spreads on high yield securities, for example, tightened by
100 basis points (1.00%), while spreads on lower-quality investment
grade corporate bonds, such as BBB-rated issues, tightened by 25
basis points. We maintained a 15% overweight to spread sectors
throughout the year. This included above-average exposure to both
investment grade and high yield corporate bonds as well as
commercial mortgage-backed securities (CMBS).
What changes were made to the Portfolio during the year?
Our strategy was essentially unchanged during the fiscal year. We
maintained an aggressive overweight to the BBB corporate sector and
consistently maintained an overweight of about 5% to investment
grade corporates. Within the investment grade universe, we favored
names in the life insurance, auto and media sectors. We added bonds
of Prudential Holdings LLC and Security Benefit Life Insurance
Company in life insurance, General Motors Acceptance Corporation and
Ford Motor Credit Company in auto, and Clear Channel Communications,
Inc. and NewsAmerica Incorporated in media.
INTERMEDIATE TERM PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
SEPTEMBER 30, 2004
In the high yield arena, we increased our overweight from 3% to 4%.
During the period, we moved from a broad market exposure to the
asset class (via total return swaps and credit default swaps meant
to replicate the exposure of the broad high yield credit market)
to individual security selection. In our view, the "easy money"
had been extracted from the high yield market and it appeared that
individual bond selection would become important. Specific names
on which we focused included MGM Mirage Inc., American Greetings
Corporation and Abitibi-Consolidated Inc. We also identified
crossover credits as another area of the credit market that
represented value. As their name implies, these credits have a
split rating - half investment grade and half non-investment grade.
In this area, we added securities from issuers such as Tyco
International Group and Continental Airlines, Inc. to the Portfolio.
As mentioned earlier, we also shifted the Portfolio's duration
profile from neutral to a small short in mid February. Upon making
that shift, we consistently remained approximately 5% (1/4 of a
year) shorter than our benchmark, although at times we were as much
as 10% (1/2 of a year) short. Our decision to shorten duration was
based on our belief that several important factors would fuel
economic growth in the first half of 2004. These included tax
refunds, stimulus from mortgage refinancings, increased capital
expenditures, relatively low interest rates, a weaker dollar and
accelerating commodity prices. With the economy on an upward growth
path, we anticipated that interest rates would move higher.
A final change also had to do with our view on interest rates.
Essentially, we believe the futures market is pricing in too many
interest rate increases over the next three to five years. As such,
we do not believe short-term interest rates will be significantly
higher in the next investment cycle. With that view in mind, we
aggressively sold interest rate caps on three-month LIBOR (the
London InterBank Offer Rate). The caps, which allow us to set a
ceiling on future interest rates, would be unnecessary if interest
rates do not increase materially. For selling them, we received a
floating rate LIBOR payment, which had a positive effect on the
Portfolio's total return. At period-end, this type of derivative
transaction accounted for 6% of the Portfolio's net assets.
How would you characterize the Portfolio's position at the close of
the period?
In the last week of the fiscal period, we sold about 3% of our
exposure to CMBS. Spreads had tightened significantly in this
sector, and CMBS were beginning to appear expensive on a relative
basis. Simultaneously, we increased exposure to investment grade
corporate bonds by 4%. As we approach year-end, we expect there will
be a grab for yield on the part of investors, which would serve to
benefit the investment grade corporate market. These changes did not
impact our overall allocation to spread sectors, which remained at
an overweight of 15% by period-end, comprised as follows: 9% in
corporates, 2% in CMBS and 4% in high yield, with the high yield
allocation consisting primarily of BB-rated positions.
In our view, soft economic data in recent months can be attributed
to high oil prices and higher interest rates, which appear to be
holding back consumption. However, we continue to believe the
economy is on solid footing, and this should continue to support the
high yield and investment grade corporate bond sectors. We believe
the overall economic environment is still conducive to corporate
profitability, corporate deleveraging and improving free cash flows,
all of which should continue to benefit corporate bonds.
Broadly speaking, we would look to reduce exposure to higher-beta
sectors and to spread sectors in general as spreads (versus 10-year
Treasury issues) continue to contract. Nevertheless, we believe
there is still opportunity to extract value out of those sectors
that we find to be inexpensive relative to their underlying
fundamentals. As far as duration is concerned, we will start to
become interested in adding interest rate exposure as yields
approach the 4.5% area. In fact, we expect gradually higher interest
rates by the end of 2004, and would expect the 10-year Treasury
yield to be closer to 5% than 4%. As for the Fed, we believe it will
move one more time this year before pausing, bringing the Federal
Funds target rate to 2% at year-end 2004, en route to a more
"neutral" rate of approximately 2.5% by the end of 2005.
Patrick Maldari
Vice President and Portfolio Manager
James J. Pagano
Vice President and Portfolio Manager
October 11, 2004
INTERMEDIATE TERM 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 1% and an account maintenance fee of 0.10% per year (but no
distribution fee).
* Class B Shares are subject to a maximum contingent deferred sales
charge of 1%, declining to 0% after three 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 0.25% per year and an account maintenance fee of 0.25% per
year. These shares automatically convert to Class A Shares after
approximately 10 years. (There is no initial sales charge for
automatic share conversions.)
* Class C Shares are subject to a distribution fee of 0.25% 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 1% and bears no ongoing distribution or account maintenance
fees. Class I Shares are available only to eligible investors.
* Class R Shares do not incur a maximum sales charge (front-end
load) or deferred sales charge. These shares are subject to a
distribution fee of 0.25% per year and an account maintenance fee of
0.25% per year. Class R Shares are available only to certain
retirement plans.
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 or the redemption of fund shares.
Figures shown in each of the following tables assume reinvestment of
all dividends and capital gain distributions, if any, at net asset
value on the payable date. Investment return and principal value of
shares will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost. Dividends paid to each class
of shares will vary because of the different levels of account
maintenance, distribution and transfer agency fees applicable to
each class, which are deducted from the income available to be paid
to shareholders.
INTERMEDIATE TERM 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
Intermediate Term Portfolio Class A Shares* +0.60% +3.54% +92.75% 2.44%
Intermediate Term Portfolio Class B Shares* +0.39 +3.12 +84.20 2.05
Intermediate Term Portfolio Class C Shares* +0.31 +3.11 +84.87 2.05
Intermediate Term Portfolio Class I Shares* +0.65 +3.65 +93.91 2.53
Intermediate Term Portfolio Class R Shares* +0.40 +3.25 + 8.31 2.06
Lehman Brothers Aggregate Bond Index** +0.68 +3.68 +109.18/+109.89/+8.32 --
* 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 10 years for Class I & Class B Shares, from 10/21/94
for Class A & Class C Shares and from 1/03/03 for Class R Shares.
** This unmanaged market-weighted Index is comprised of investment-grade corporate bonds (rated BBB or better),
mortgages and U.S. Treasury and government agency issues with at least one year to maturity. Ten-year/since
inception total returns are for 10 years, from 10/21/94 and from 1/03/03.
INTERMEDIATE TERM 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 Intermediate Term Portfolio++ Class A and Class
C Shares* compared to a similar investment in Lehman Brothers
Aggregate Bond Index++++. Values illustrated are as follows:
ML Bond Fund, Inc.'s Intermediate Term Portfolio++
Class A Shares*
Date Value
10/21/1994** $ 9,900.00
September 1995 $11,249.00
September 1996 $11,752.00
September 1997 $12,761.00
September 1998 $13,959.00
September 1999 $13,920.00
September 2000 $14,603.00
September 2001 $16,247.00
September 2002 $17,437.00
September 2003 $18,429.00
September 2004 $19,082.00
ML Bond Fund, Inc.'s Intermediate Term Portfolio++
Class C Shares*
Date Value
10/21/1994** $10,000.00
September 1995 $11,323.00
September 1996 $11,777.00
September 1997 $12,717.00
September 1998 $13,865.00
September 1999 $13,769.00
September 2000 $14,384.00
September 2001 $15,937.00
September 2002 $17,048.00
September 2003 $17,929.00
September 2004 $18,487.00
Lehman Brothers Aggregate Bond Index++++
Date Value
10/21/1994** $10,000.00
September 1995 $11,445.00
September 1996 $12,006.00
September 1997 $13,172.00
September 1998 $14,688.00
September 1999 $14,634.00
September 2000 $15,657.00
September 2001 $17,685.00
September 2002 $19,205.00
September 2003 $20,244.00
September 2004 $20,989.00
* Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
** Commencement of operations.
++ The Portfolio invests primarily in bonds rated in the four
highest rating categories (Baa or higher by Moody's Investors
Service, Inc. or BBB or higher by Standard & Poor's Corp.),
with an average remaining maturity of three-to-ten years,
depending on market conditions.
++++ This unmanaged market-weighted Index is comprised of
investment-grade corporate bonds (rated BBB or better),
mortgages and U.S. Treasury and government agency issues with
at least one year to maturity.
Past performance is not predictive of future results.
Average Annual Total Return
Return Without Return With
Sales Charge Sales Charge**
Class A Shares*
One Year Ended 9/30/04 +3.54% +2.51%
Five Years Ended 9/30/04 +6.51 +6.30
Inception (10/21/94)
through 9/30/04 +6.82 +6.71
* Maximum sales charge is 1%.
** Assuming maximum sales charge.
Return Return
Without CDSC With CDSC**
Class C Shares*
One Year Ended 9/30/04 +3.11% +2.11%
Five Years Ended 9/30/04 +6.07 +6.07
Inception (10/21/94)
through 9/30/04 +6.38 +6.38
* Maximum contingent deferred sales charge is 1% and is reduced to
0% after one year.
** Assuming payment of applicable contingent deferred sales charge.
INTERMEDIATE TERM PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
SEPTEMBER 30, 2004
Performance Data (continued)
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 Intermediate Term Portfolio++ Class B and Class
I Shares* compared to a similar investment in Lehman Brothers
Aggregate Bond Index++++. Values illustrated are as follows:
ML Bond Fund, Inc.'s Intermediate Term Portfolio++
Class B Shares*
Date Value
September 1994 $10,000.00
September 1995 $11,271.00
September 1996 $11,726.00
September 1997 $12,679.00
September 1998 $13,813.00
September 1999 $13,717.00
September 2000 $14,330.00
September 2001 $15,878.00
September 2002 $16,985.00
September 2003 $17,863.00
September 2004 $18,420.00
ML Bond Fund, Inc.'s Intermediate Term Portfolio++
Class I Shares*
Date Value
September 1994 $ 9,900.00
September 1995 $11,217.00
September 1996 $11,731.00
September 1997 $12,739.00
September 1998 $13,961.00
September 1999 $13,936.00
September 2000 $14,634.00
September 2001 $16,298.00
September 2002 $17,509.00
September 2003 $18,522.00
September 2004 $19,198.00
Lehman Brothers Aggregate Bond Index++++
Date Value
September 1994 $10,000.00
September 1995 $11,406.00
September 1996 $11,965.00
September 1997 $13,127.00
September 1998 $14,638.00
September 1999 $14,585.00
September 2000 $15,604.00
September 2001 $17,625.00
September 2002 $19,141.00
September 2003 $20,176.00
September 2004 $20,918.00
* Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
++ The Portfolio invests primarily in bonds rated in the four
highest rating categories (Baa or higher by Moody's Investors
Service, Inc. or BBB or higher by Standard & Poor's Corp.),
with an average remaining maturity of three-to-ten years,
depending on market conditions.
++++ This unmanaged market-weighted Index is comprised of
investment-grade corporate bonds (rated BBB or better),
mortgages and U.S. Treasury and government agency issues with
at least one year to maturity.
Past performance is not predictive of future results.
Average Annual Total Return
Return Return
Without CDSC With CDSC**
Class B Shares*
One Year Ended 9/30/04 +3.12% +2.12%
Five Years Ended 9/30/04 +6.07 +6.07
Ten Years Ended 9/30/04 +6.30 +6.30
* Maximum contingent deferred sales charge is 1% and is reduced to
0% after three years.
** Assuming payment of applicable contingent deferred sales charge.
Return Without Return With
Sales Charge Sales Charge**
Class I Shares*
One Year Ended 9/30/04 +3.65% +2.61%
Five Years Ended 9/30/04 +6.62 +6.40
Ten Years Ended 9/30/04 +6.85 +6.74
* Maximum sales charge is 1%.
** Assuming maximum sales charge.
INTERMEDIATE TERM PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
SEPTEMBER 30, 2004
Performance Data (concluded)
TOTAL RETURN BASED ON A $10,000 INVESTMENT
Class R Shares
A line graph illustrating the growth of a $10,000 investment in
ML Bond Fund, Inc.'s Intermediate Term Portfolio++ Class R compared
to a similar investment in Lehman Brothers Aggregate Bond Index++++.
Values illustrated are as follows:
ML Bond Fund, Inc.'s Intermediate Term Portfolio++
Class R Shares*
Date Value
1/3/2003** $10,000.00
September 2003 $10,490.00
September 2004 $10,831.00
Lehman Brothers Aggregate Bond Index++++
Date Value
1/3/2003** $10,000.00
September 2003 $10,448.00
September 2004 $10,832.00
* Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
** Commencement of operations.
++ The Portfolio invests primarily in bonds rated in the four
highest rating categories (Baa or higher by Moody's Investors
Service, Inc. or BBB or higher by Standard & Poor's Corp.),
with an average remaining maturity of three-to-ten years,
depending on market conditions.
++++ This unmanaged market-weighted Index is comprised of
investment-grade corporate bonds (rated BBB or better),
mortgages and U.S. Treasury and government agency issues with
at least one year to maturity.
Past performance is not predictive of future results.
Average Annual Total Return
Class R Shares Return
One Year Ended 9/30/04 +3.25%
Inception (1/03/03) through 9/30/04 +4.69
INTERMEDIATE TERM 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 $1,006.00 $4.11
Class B $1,000 $1,003.90 $6.16
Class C $1,000 $1,003.10 $6.21
Class I $1,000 $1,006.50 $3.61
Class R $1,000 $1,004.00 $6.06
Hypothetical (5% annual return before expenses)**
Class A $1,000 $1,020.90 $4.14
Class B $1,000 $1,018.85 $6.21
Class C $1,000 $1,018.80 $6.26
Class I $1,000 $1,021.40 $3.64
Class R $1,000 $1,018.95 $6.11
* For each class of the Fund, expenses are equal to the annualized expense ratio for the class
(0.82% for Class A, 1.23% for Class B, 1.24% for Class C, .72% for Class I and 1.21% for Class R),
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.
INTERMEDIATE TERM PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
SEPTEMBER 30, 2004
Schedule of Investments
S&P Moody's Face Value
Ratings++++ Ratings++++ Amount Asset-Backed Securities++ (in U.S. dollars)
AAA Aaa US$2,913,593 Ace Securities Corp., Series 2003-OP1, Class A2, 2.20%
due 12/25/2033 (b) $ 2,918,337
AAA Aaa 1,099,134 Advanta Mortgage Loan Trust, Series 1999-3, Class A4,
7.75% due 10/25/2026 1,141,844
AAA Aaa 3,913,682 Aegis Asset Backed Securities Trust, Series 2004-1,
Class A, 2.19% due 4/25/2034 (b) 3,912,092
AA Aa2 1,250,000 Ameriquest Mortgage Securities Inc., Series 2004-R1,
Class M2, 2.42% due 2/25/2034 (b) 1,249,998
AAA Aaa 3,150,000 Argent Securities, Inc., Series 2004-WII, Class A3,
2.20% due 11/25/2034 3,150,000
AAA Aaa 3,700,000 Banc of America Large Loan, Series 2003-BBA2, Class A3,
2.08% due 11/15/2015 (b) 3,700,581
AAA Aaa 4,000,000 CIT Equipment Collateral, Series 2003-VT1, Class A3A,
1.73% due 4/20/2007 (b) 4,003,920
AAA Aaa 3,075,290 CIT Group Home Equity Loan Trust, Series 2003-1,
Class A2, 2.35% due 4/20/2027 3,070,481
California Infrastructure, Series 1997-1:
AAA Aaa 1,010,048 PG&E-1, Class A7, 6.42% due 9/25/2008 1,049,751
AAA Aaa 733,354 SCE-1, Class A6, 6.38% due 9/25/2008 763,132
A+ Aa3 929,815 Capital Auto Receivables Asset Trust, Series 2003-2,
Class B, 2.04% due 1/15/2009 (b) 931,707
NR* NR* 4,500,000 Capital One Master Trust, Series 2000-4, Class C, 2.56%
due 8/15/2008 (a)(b) 4,507,031
AAA Aaa 2,217,255 Centex Home Equity, Series 2003-B, Class AV, 2.12%
due 6/25/2033 (b) 2,219,412
Chase Credit Card Master Trust, Class C (b):
BBB Baa2 2,850,000 Series 2000-3, 2.46% due 1/15/2008 2,863,350
BBB Baa2 5,200,000 Series 2003-1, 2.86% due 4/15/2008 5,246,326
CountryWide Asset-Backed Certificates (b):
AA+ Aa2 1,600,000 Series 2003-2, Class M1, 2.54% due 6/26/2033 1,609,604
AAA NR* 3,533,831 Series 2003-BC3, Class A2, 2.15% due 9/25/2033 3,537,779
AA+ Aa3 1,200,000 Series 2004-5, Class M2, 2.51% due 7/25/2034 1,199,998
AAA Aaa 2,370,753 First Franklin Mortgage Loan Asset Trust, Series 2003-FF5,
Class A2, 2.82% due 3/25/2034 (b) 2,373,858
AAA NR* 3,301,935 GMAC Mortgage Corporation Loan Trust, Series 2003-J7,
Class A10, 5.50% due 11/25/2033 3,339,467
AAA Aaa 1,741,666 Household Automotive Trust, Series 2002-3, Class A3A,
2.75% due 6/18/2007 1,745,777
AAA Aaa 787,760 Household Home Equity Loan Trust, Series 2002-2, Class A,
2.111% due 4/20/2032 (b) 788,874
AA+ NR* 1,650,000 Impac Secured Assets CMN Owner Trust, Series 2004-3,
Class M1, 2.44% due 12/25/2034 (b) 1,654,223
Long Beach Mortgage Loan Trust (b):
AAA Aaa 1,541,308 Series 2002-4, Class 2A, 2.04% due 11/26/2032 1,547,428
AAA Aaa 4,405,270 Series 2004-1, Class A3, 2.14% due 2/25/2034 4,406,311
AAA Aaa 2,668,218 MASTR Asset Securitization Trust, Series 2003-10,
Class 3A1, 5.50% due 11/25/2033 2,687,263
Morgan Stanley ABS Capital I (b):
A A2 1,000,000 Series 2003-NC5, Class M2, 3.84% due 4/25/2033 1,020,580
AAA Aaa 3,571,126 Series 2004-NC1, Class A2, 2.21% due 12/27/2033 3,580,829
AAA Aaa 3,450,826 Series 2004-NC2, Class A2, 2.14% due 12/25/2033 3,450,823
AAA Aaa 3,630,006 Series 2004-WMC1, Class A3, 2.09% due 6/25/2034 3,629,502
New Century Home Equity Loan Trust, Class A3 (b):
AAA Aaa 4,748,293 Series 2004-2, 2.09% due 4/25/2034 4,748,290
AAA Aaa 5,100,000 Series 2004-3, 2.223% due 11/25/2034 5,100,000
Option One Mortgage Loan Trust (b):
AAA Aaa 478,813 Series 2002-4, Class A, 2.10% due 7/25/2032 479,146
AAA Aaa 3,056,797 Series 2003-4, Class A2, 2.16% due 7/25/2033 3,061,576
Residential Asset Mortgage Products, Inc. (b):
AAA Aaa 3,914,393 Series 2003-KS5, Class AIIB, 2.13% due 7/25/2033 3,915,586
AAA Aaa 664,307 Series 2003-RS7, Class AI1, 1.97% due 6/25/2018 664,369
AAA Aaa 2,367,522 Saxon Asset Securities Trust, Series 2002-3, Class AV,
2.24% due 12/25/2032 (b) 2,372,024
AAA Aaa 4,900,000 Wells Fargo Home Equity Trust, Series 2004-2, Class A32,
2.18% due 2/25/2032 (b) 4,900,000
Total Asset-Backed Securities (Cost--$102,363,116)--22.5% 102,541,269
INTERMEDIATE TERM PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
SEPTEMBER 30, 2004
Schedule of Investments (continued)
S&P Moody's Face Value
Ratings++++ Ratings++++ Amount Government & Agency Obligations (in U.S. dollars)
AAA Aaa US$3,900,000 Federal National Mortgage Association, 7.125%
due 1/15/2030 $ 4,804,703
U.S. Treasury Bonds & Notes:
AAA Aaa 10,380,000 7% due 7/15/2006 (f)(g) 11,187,689
AAA Aaa 1,150,000 6.50% due 2/15/2010 1,319,535
AAA Aaa 1,870,000 7.50% due 11/15/2016 2,403,169
AAA Aaa 1,140,000 8.125% due 8/15/2019 (f) 1,560,686
AAA Aaa 3,980,000 7.25% due 8/15/2022 5,124,560
AAA Aaa 820,000 6.25% due 8/15/2023 957,542
AAA Aaa 820,000 6.625% due 2/15/2027 1,005,653
U.S. Treasury Inflation Indexed Notes:
AAA Aaa 2,624,024 3.875% due 1/15/2009 2,953,974
AAA Aaa 2,289,741 3.50% due 1/15/2011 2,591,611
Total Government & Agency Obligations
(Cost--$33,072,158)--7.5% 33,909,122
Government Agency Mortgage-Backed Securities++
Federal Home Loan Mortgage Corporation:
AAA Aaa 9,598 4.50% due 8/01/2018 - 9/01/2018 16,612
AAA Aaa 2,340,765 5% due 4/01/2019 - 10/15/2019 2,381,910
AAA Aaa 7,855,567 5% due 6/01/2034 - 10/15/2034 7,783,780
AAA Aaa 3,680,478 5.50% due 7/01/2016 - 10/01/2018 3,808,899
AAA Aaa 11,600,000 5.50% due 10/15/2034 11,755,881
AAA Aaa 1,105,489 6% due 5/01/2016 - 12/01/2017 1,165,663
AAA Aaa 9,995,764 6% due 5/01/2034 - 10/15/2034 10,322,503
AAA Aaa 1,279,944 6.50% due 5/01/2016 - 6/01/2016 1,354,867
AAA Aaa 2,830,574 6.50% due 10/01/2033 - 1/01/2034 2,972,319
AAA Aaa 1,829,148 7% due 9/01/2031 - 4/01/2032 1,943,448
Federal National Mortgage Association:
AAA Aaa 1,861,002 2.01% due 11/25/2033 1,855,573
AAA Aaa 4,563,955 5% due 10/15/2019 4,635,267
AAA Aaa 11,747 6% due 5/01/2016 - 6/01/2016 13,102
AAA Aaa 1,050,681 6.50 due 6/01/2032 - 11/15/2034 1,107,087
AAA Aaa 2,954,643 7% due 2/01/2031 - 4/01/2032 3,135,421
AAA Aaa 3,770,375 7.50 due 11/01/2027 - 5/01/2033 4,041,028
AAA Aaa 121,370 8% due 9/01/2030 132,044
Government National Mortgage Association:
AAA Aaa 3,750,000 4.66% due 7/16/2033 3,765,457
AAA Aaa 1,965,992 6.50% due 4/15/2032 2,076,365
Total Government Agency Mortgage-Backed Securities
(Cost--$63,983,022)--14.1% 64,267,226
INTERMEDIATE TERM PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
SEPTEMBER 30, 2004
Schedule of Investments (continued)
S&P Moody's Face Value
Ratings++++ Ratings++++ Amount Non-Government Agency Mortgage-Backed Securities++ (in U.S. dollars)
Collateralized AAA Aaa US$2,683,000 Bear Stearns Adjustable Rate Mortgage Trust,
Mortgage Series 2004-4, Class A4, 3.516% due 6/25/2034 (b) $ 2,629,280
Obligations--3.0% AAA Aaa 2,449,298 Countrywide Home Loans, Inc., Series 2003-R4,
Class 1A1A, 2.216% due 7/25/2019 2,443,975
AAA NR* 318,287 Deutsche Mortgage Securities, Inc., Series 2003-1,
Class 1A1, 4.50% due 4/25/2033 318,442
AAA Aaa 5,600,000 RMAC, Series 2003-NS2A, Class A2C, 2.27% due 9/12/2035 (b) 5,615,750
AAA Aaa 1,397,006 Structured Asset Securities Corporation, Series 2002-9,
Class A2, 2.14% due 10/25/2027 (b) 1,396,845
AAA Aaa 1,106,745 Washington Mutual, Inc., Series 2002-AR4, Class A7,
5.494% due 4/26/2032 (b) 1,110,230
-------------
13,514,522
Commercial Commercial Mortgage Pass-Thru Certificates (b):
Mortgage-Backed AAA Aaa 3,250,000 Series 2003-FL8, Class A2, 1.96% due 7/15/2015 (a) 3,250,887
Securities--5.4% AAA Aaa 5,300,000 Series 2003-FL9, Class A3, 2.08% due 11/15/2015 5,302,286
Greenwich Capital Commercial Funding Corporation:
AAA Aaa 4,173,127 Series 2003-FL1, Class A, 2.16% due 7/05/2018 (b) 4,173,855
AAA Aaa 3,400,000 Series 2004-GG1, Class A4, 4.755% due 6/10/2036 3,494,797
AAA NR* 2,270,675 Nationslink Funding Corporation, Series 1999-2, Class A3,
7.181% due 6/20/2031 2,400,599
AAA Aaa 6,000,000 Wachovia Bank Commercial Mortgage Trust, Series 2003-WHL2,
Class A3, 2.08% due 6/15/2013 (b) 6,001,244
-------------
24,623,668
Total Non-Government Agency Mortgage-Backed Securities
(Cost--$37,900,218)--8.4% 38,138,190
Industry+++ Corporate Bonds
Aerospace & BBB- Baa3 1,335,000 Goodrich Corporation, 6.60% due 5/15/2009 1,458,035
Defense--0.3%
Building BB+ Ba1 1,100,000 D.R. Horton, Inc., 5% due 1/15/2009 1,119,250
Products--0.4% BBB+ Baa1 600,000 Hanson PLC, 7.875% due 9/27/2010 702,870
-------------
1,822,120
Cable--U.S.--0.5% BBB Baa3 960,000 AT&T Broadband, 8.375% due 3/15/2013 1,162,550
BB- Ba3 1,140,000 EchoStar DBS Corporation, 5.75% due 10/01/2008 1,145,700
-------------
2,308,250
Canadian BB Ba2 150,000 Abitibi-Consolidated Inc., 8.55% due 8/01/2010 (3) 160,875
Corporates**--
0.0%
Chemicals--0.4% B+ B1 1,310,000 IMC Global Inc., 10.875% due 8/01/2013 1,653,875
Commercial BBB Baa3 505,000 Waste Management, Inc., 7.375% due 8/01/2010 582,919
Services &
Supplies--0.1%
Containers--0.2% Sealed Air Corporation:
BBB Baa3 415,000 5.375% due 4/15/2008 433,312
BBB Baa3 450,000 6.95% due 5/15/2009 (a) 498,381
-------------
931,693
Diversified--0.3% A- Baa3 570,000 Brascan Corporation, 5.75% due 3/01/2010 603,265
A- A3 490,000 Hutchison Whampoa International Ltd., 7% due 2/16/2011 (a) 540,041
-------------
1,143,306
INTERMEDIATE TERM PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
SEPTEMBER 30, 2004
Schedule of Investments (continued)
S&P Moody's Face Value
Industry+++ Ratings++++ Ratings++++ Amount Corporate Bonds (in U.S. dollars)
Finance--1.7% Household Finance Corporation:
A A1 US$ 680,000 6.50% due 11/15/2008 $ 748,243
A A1 515,000 5.875% due 2/01/2009 555,159
AAA Aaa 3,400,000 Sigma Finance Corporation, 4.281% due 8/15/2011 (b) 3,400,000
AAA Aaa 1,700,000 Sigma Finance Incorporated, 3.245% due 3/31/2014 (b) 1,705,935
AA Aa3 310,000 Texaco Capital Inc., 8.625% due 6/30/2010 381,313
A- A3 770,000 Textron Financial Corporation, 2.75% due 6/01/2006 766,321
-------------
7,556,971
Finance-- A A1 460,000 Banc One Corporation, 8% due 4/29/2027 576,922
Banks--2.7% A+ Aa2 1,525,000 Bank of America Corporation, 4.875% due 9/15/2012 1,555,488
BBB Baa2 765,000 Capital One Bank, 4.875% due 5/15/2008 792,337
Citigroup Inc.:
A+ Aa2 1,440,000 5.625% due 8/27/2012 1,539,137
A+ Aa2 460,000 6.625% due 6/15/2032 503,840
A- Aa3 1,500,000 DBS Bank Ltd., 5% due 11/15/2019 (a)(b) 1,465,869
BB+ Baa3 560,000 FirstBank Puerto Rico, 7.625% due 12/20/2005 580,525
FleetBoston Financial Corporation:
A+ Aa2 120,000 3.85% due 2/15/2008 121,392
A Aa3 285,000 6.375% due 5/15/2008 311,254
BB+ NR* 335,000 Hudson United Bancorp, 8.20% due 9/15/2006 363,488
BBB+ A3 595,000 PNC Funding Corporation, 6.125% due 2/15/2009 644,363
BBB+ A3 405,000 Popular North America, Inc., 3.875% due 10/01/2008 404,772
BBB- Baa3 1,160,000 Sovereign Bank, 5.125% due 3/15/2013 1,156,506
A+ Aa3 325,000 U.S. Bancorp, 2.03% due 9/16/2005 (b) 325,327
A- A3 800,000 Washington Mutual, Inc., 7.50% due 8/15/2006 863,486
Wells Fargo & Company:
AA- Aa1 370,000 5.125% due 2/15/2007 386,115
A+ Aa2 720,000 5% due 11/15/2014 730,891
-------------
12,321,712
Finance-- A+ A1 785,000 American Honda Finance Corporation, 2.29% due
Other--8.1% 10/03/2005 (a)(b) 787,383
The Bear Stearns Companies Inc.:
A A1 980,000 1.98% due 1/30/2009 (b) 982,065
A A1 155,000 5.70% due 11/15/2014 163,065
BBB Baa2 770,000 Certegy Inc., 4.75% due 9/15/2008 793,040
A A3 1,025,000 Countrywide Home Loans, Inc., 5.625% due 7/15/2009 1,091,135
A+ Aa3 1,090,000 Credit Suisse First Boston (USA) Inc., 4.70% due 6/01/2009 1,121,881
Deutsche Telekom International Finance BV:
BBB+ Baa2 553,000 5.25% due 7/22/2013 565,902
BBB+ Baa2 505,000 8.75% due 6/15/2030 652,752
BBB+ Baa1 1,500,000 ERAC USA Finance Company, 6.70% due 6/01/2034 (a) 1,585,517
Ford Motor Credit Company:
BBB- A3 3,850,000 2.79% due 9/28/2007 (b) 3,845,399
BBB- A3 1,315,000 7.375% due 2/01/2011 1,430,078
BBB- A3 3,005,000 7% due 10/01/2013 (g) 3,177,150
General Motors Acceptance Corporation:
BBB A3 6,000,000 3.08% due 9/23/2008 (b) 5,997,054
BBB A3 1,354,000 8% due 11/01/2031 1,401,378
The Goldman Sachs Group, Inc.:
A+ Aa3 1,920,000 5.70% due 9/01/2012 2,028,822
A+ Aa3 1,030,000 5.25% due 10/15/2013 1,037,075
AA- A1 570,000 International Lease Finance Corporation, 2.95% due
5/23/2006 568,546
J.P. Morgan Chase & Co.:
A+ Aa3 1,425,000 3.50% due 3/15/2009 1,405,874
A A1 960,000 5.75% due 1/02/2013 1,022,183
A A1 1,080,000 5.125% due 9/15/2014 1,085,790
A A1 1,190,000 Lehman Brothers Holdings, Inc., 3.50% due 8/07/2008 1,180,530
INTERMEDIATE TERM 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)
Finance--Other MBNA Corporation:
(concluded) BBB Baa2 US$ 945,000 6.25% due 1/17/2007 $ 1,000,877
BBB Baa2 200,000 5.625% due 11/30/2007 211,065
BBB Baa2 455,000 4.625% due 9/15/2008 465,388
A A2 110,000 Mellon Funding Corporation, 6.40% due 5/14/2011 122,655
A- A3 235,000 Prudential Financial, Inc., 4.104% due 11/15/2006 238,909
A A3 2,165,000 Prudential Holdings LLC, 8.695% due 12/18/2023 (a) 2,760,656
A+ A2 215,000 Verizon Global Funding Corporation, 7.375% due 9/01/2012 251,067
-------------
36,973,236
Foreign AAA Aaa YEN 510,100,000 International Bank for Reconstruction & Development,
Obligations**--1.0% 4.75% due 12/20/2004 (1) 4,672,949
Gaming--0.3% BB+ Ba1 US$ 1,360,000 MGM Mirage Inc., 6% due 10/01/2009 1,378,700
Industrial-- BBB- Ba1 1,300,000 American Greetings Corporation, 6.10% due 8/01/2028 1,387,750
Consumer BBB Baa2 945,000 Cadbury Schweppes US Finance LLC, 3.875% due 10/01/2008 (a) 946,902
Goods--0.8% BBB- Baa3 880,000 Yum! Brands, Inc., 8.875% due 4/15/2011 1,094,156
-------------
3,428,808
Industrial-- Anadarko Finance Company:
Energy--1.3% BBB+ Baa1 285,000 6.75% due 5/01/2011 322,772
BBB+ Baa1 170,000 7.50% due 5/01/2031 207,843
BBB Baa2 1,330,000 Halliburton Company, 5.50% due 10/15/2010 1,393,287
A- A3 844,988 Kern River Funding Corporation, 4.893% due 4/30/2018 (a) 851,942
BBB+ Baa1 510,000 Kinder Morgan Energy Partners, LP, 5.35% due 8/15/2007 534,960
BBB- Baa3 195,000 MidAmerican Energy Holdings Company, 5.875% due 10/01/2012 205,874
A+ A2 400,000 Motiva Enterprises LLC, 5.20% due 9/15/2012 (a) 413,282
BBB Baa3 660,000 Panhandle Eastern Pipe Line Company, LLC, 2.75% due
3/15/2007 647,781
BBB- Baa3 1,010,000 XTO Energy, Inc., 7.50% due 4/15/2012 1,186,536
-------------
5,764,277
Industrial-- A- A2 775,000 Alcoa Inc., 2.10% due 12/06/2004 (b) 775,140
Manufacturing-- BBB- Ba1 465,000 Amerada Hess Corporation, 7.125% due 3/15/2033 499,267
3.9% B+ Ba3 2,050,000 Celestica Inc., 3.691% due 8/01/2020 (Convertible) (e) 1,119,813
BBB- Baa3 1,175,000 Cia Brasileira de Bebida, 8.75% due 9/15/2013 1,327,750
DaimlerChrysler NA Holding Corporation:
BBB A3 5,000,000 2.34% due 5/24/2006 (b) 5,018,510
BBB A3 555,000 4.75% due 1/15/2008 571,584
BBB A3 455,000 7.75% due 1/18/2011 529,083
BBB- NR* 1,015,000 Gazprom International SA, 7.201% due 2/01/2020 (a) 1,027,688
BBB Baa1 340,000 General Motors Corporation, 7.125% due 7/15/2013 354,922
BB+ Ba1 550,000 Hyundai Motor Manufacturing Alabama, LLC, 5.30% due
12/19/2008 (a) 564,530
BB+ Baa3 615,000 Jabil Circuit, Inc., 5.875% due 7/15/2010 643,374
BBB- Baa3 935,000 Lear Corporation, 8.11% due 5/15/2009 1,079,546
BBB- Baa3 1,130,000 Raytheon Company, 8.30% due 3/01/2010 1,350,861
BBB Baa3 1,360,000 Tyco International Group SA, 6.75% due 2/15/2011 1,530,122
A Baa1 1,380,000 Wyeth, 5.50% due 3/15/2013 1,407,957
-------------
17,800,147
Industrial-- BBB+ Baa1 2,238,000 AOL Time Warner Inc., 6.875% due 5/01/2012 2,496,885
Services--4.9% BBB- Baa3 690,000 ARAMARK Services, Inc., 6.375% due 2/15/2008 745,012
Cendant Corporation:
BBB Baa1 675,000 6.875% due 8/15/2006 719,449
BBB Baa1 700,000 6.25% due 1/15/2008 754,564
Clear Channel Communications, Inc.:
BBB- Baa3 965,000 5.75% due 1/15/2013 991,169
BBB- Baa3 1,215,000 5.50% due 9/15/2014 1,208,619
INTERMEDIATE TERM 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)
Industrial-- HCA Inc.:
Services BBB- Ba1 US$ 300,000 8.75% due 9/01/2010 $ 351,656
(concluded) BBB- Ba1 345,000 6.95% due 5/01/2012 372,518
BBB- Ba1 940,000 6.30% due 10/01/2012 974,563
BBB Ba1 1,250,000 Lenfest Communications, Inc., 10.50% due 6/15/2006 1,390,328
Liberty Media Corporation:
BBB- Baa3 6,050,000 3.38% due 9/17/2006 (b) 6,114,796
BBB- Baa3 485,000 5.70% due 5/15/2013 479,486
BBB Baa3 683,000 Manor Care, Inc., 7.50% due 6/15/2006 731,460
BB+ Baa3 420,000 Media General, Inc., 6.95% due 9/01/2006 437,600
News America Incorporated:
BBB- Baa3 600,000 7.30% due 4/30/2028 677,594
BBB- Baa3 435,000 6.75% due 1/09/2038 484,410
BBB+ Baa1 555,000 PHH Corporation, 6% due 3/01/2008 595,287
BBB Baa3 185,000 SUPERVALU Inc., 7.50% due 5/15/2012 214,998
BBB Baa3 735,000 Tele-Communications Inc., 9.80% due 2/01/2012 937,157
BBB+ Baa1 1,355,000 Time Warner Companies, Inc., 9.125% due 1/15/2013 1,696,513
-------------
22,374,064
Industrial-- AAA Aaa 543,115 American Airlines, Inc., 3.857% due 1/09/2012 535,648
Transportation-- AAA Aaa 475,000 Continental Airlines, Inc., 6.563% due 8/15/2013 509,850
0.7% BBB Baa1 415,000 Norfolk Southern Corporation, 7.25% due 2/15/2031 483,600
Southwest Airlines Co.:
A Baa1 110,000 8% due 3/01/2005 112,162
A Baa1 630,000 7.875% due 9/01/2007 702,563
Union Pacific Corporation:
BBB Baa2 400,000 7.25% due 11/01/2008 447,316
BBB Baa2 350,000 5.375% due 5/01/2014 352,982
-------------
3,144,121
Insurance--1.1% A- Baa2 930,000 Aon Corporation, 6.70% due 1/15/2007 994,425
BBB Baa3 630,000 Infinity Property and Casualty Corporation, 5.50%
due 2/18/2014 624,505
BBB- NR* 525,000 Kingsway America, Inc., 7.50% due 2/01/2014 544,423
A+ A2 280,000 Marsh & McLennan Companies, Inc., 3.625% due 2/15/2008 280,804
BBB+ Baa3 1,090,000 NLV Financial Corporation, 7.50% due 8/15/2033 (a) 1,157,385
A- Baa1 1,570,000 Security Benefit Life Insurance Company, 7.45% due
10/01/2033 (a) 1,629,027
-------------
5,230,569
Oil Refineries-- BBB Baa3 1,665,000 Ultramar Diamond Shamrock Corporation, 6.75% due
0.4% 10/15/2037 1,922,639
Paper--1.5% BB+ Ba2 1,855,000 Boise Cascade Corporation, 7.66% due 5/27/2005 1,912,117
BBB+ Baa2 1,040,000 Celulosa Arauco y Constitucion SA, 8.625% due 8/15/2010 1,251,642
BBB Baa2 1,740,000 Champion International Corporation, 6.65% due 12/15/2037 1,948,904
A- Baa2 545,000 Inversiones CMPC SA, 4.875% due 6/18/2013 (a) 537,594
BBB- Baa3 550,000 Rock-Tenn Company, 5.625% due 3/15/2013 557,539
BBB Baa3 485,000 Sappi Papier Holding AG, 6.75% due 6/15/2012 (a) 532,157
-------------
6,739,953
Real Estate BBB- Baa3 290,000 Colonial Realty LP, 4.80% due 4/01/2011 286,663
Investment BBB Baa3 410,000 Developers Diversified Realty Corporation, 6.625% due
Trust--1.0% 1/15/2008 441,154
BBB Baa2 750,000 HRPT Properties Trust, 5.75% due 2/15/2014 757,679
BBB+ Baa2 465,000 Health Care Property Investors, Inc., 6.50% due 2/15/2006 481,533
BBB- Baa3 505,000 Health Care REIT, Inc., 6% due 11/15/2013 518,320
BBB- Baa3 1,530,000 iStar Financial Inc., 5.125% due 4/01/2011 1,526,651
BBB- Baa3 550,000 Nationwide Health Properties, Inc., 6.59% due 7/07/2038 572,987
-------------
4,584,987
INTERMEDIATE TERM 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)
Retail--Stores-- BBB Baa2 US$ 195,000 Limited Brands, Inc., 6.125% due 12/01/2012 $ 210,614
0.1%
Supranational-- A A2 690,000 Corporacion Andina de Fomento, 6.875% due 3/15/2012 776,002
0.2%
Utilities-- BBB Baa2 427,000 AT&T Wireless Services, Inc., 8.75% due 3/01/2031 560,664
Communication-- A+ A3 1,010,000 GTE Corporation, 6.84% due 4/15/2018 1,115,621
1.8% BBB Baa2 850,000 Harris Corporation, 6.35% due 2/01/2028 909,673
BBB- Baa3 830,000 Sprint Capital Corporation, 8.75% due 3/15/2032 1,053,429
BBB Baa3 865,000 TELUS Corporation, 7.50% due 6/01/2007 948,522
BBB+ Baa2 3,460,000 Telecom Italia Capital SA, 4% due 1/15/2010 (a) 3,433,832
-------------
8,021,741
Utilities-- NR* Baa2 840,000 AEP Texas Central Company, 6.65% due 2/15/2033 908,940
Electric BBB Baa1 785,000 Cincinnati Gas & Electric Company, 5.70% due 9/15/2012 830,177
& Gas--4.0% Dominion Resources, Inc.:
BBB+ Baa1 740,000 7.625% due 7/15/2005 768,357
BBB+ Baa1 615,000 2.011% due 5/15/2006 (b) 616,164
A- Baa1 1,090,000 Exelon Generation Company, LLC, 5.35% due 1/15/2014 1,113,167
A- A2 1,285,000 FPL Group Capital Inc., 2.275% due 3/30/2005 (b) 1,286,737
BBB- Baa3 2,550,000 PPL Capital Funding, Inc., 2.77% due 5/18/2006 (b) 2,551,132
BBB Baa1 620,000 PSE&G Power LLC, 6.95% due 6/01/2012 (b) 694,434
Pacific Gas & Electric Company:
BBB Baa2 1,512,000 2.72% due 4/03/2006 (b) 1,513,390
BBB Baa2 1,295,000 6.05% due 3/01/2034 1,318,054
BBB Baa2 525,000 Pepco Holdings, Inc., 4% due 5/15/2010 511,125
BBB Baa2 705,000 Public Service Company of New Mexico, 4.40% due 9/15/2008 714,955
BBB+ Baa1 490,000 Sempra Energy, 4.75% due 5/15/2009 505,941
Southern California Edison Company:
NR* A3 170,000 1.89% due 1/13/2006 (b) 170,660
BB A3 950,000 8% due 2/15/2007 1,051,546
BBB+ Baa1 740,000 Southern Power Company, 6.25% due 7/15/2012 805,445
A- A3 640,000 TXU Australia Holdings Partnership LP, 6.15% due
11/15/2013 (a) 696,274
A- Baa1 850,000 Vectren Utility Holdings, Inc., 5.25% due 8/01/2013 863,941
NR* Ba1 465,000 Westar Energy, Inc., 6% due 7/01/2014 499,760
BB- Ba2 850,000 Westin Resources, Inc., 9.75% due 5/01/2007 968,317
-------------
18,388,516
Yankee Corporacion Nacional del Cobre de Chile (Codelco) (3)(a):
Corporates**-- A A2 850,000 6.375% due 11/30/2012 938,234
1.9% A A2 550,000 5.50% due 10/15/2013 572,653
France Telecom (4):
BBB+ Baa2 1,415,000 8.50% due 3/01/2011 1,693,868
BBB+ Baa2 300,000 9.25% due 3/01/2031 397,756
A- Baa1 620,000 Koninklijke (KPN) NV, 8% due 10/01/2010 (3) 737,287
Pemex Project Funding Master Trust (1):
BBB- Baa1 780,000 3.54% due 1/07/2005 (a)(b) 785,850
BBB- Baa1 2,500,000 3.18% due 6/15/2010 (a)(b) 2,526,250
BBB- Baa1 835,000 9.125% due 10/13/2010 993,650
-------------
8,645,548
Yankee AAA Aaa Euro 2,249,000 Bundesobligation, 3.50% due 10/10/2008 (2) 2,833,210
Sovereigns**-- A Baa1 US$ 530,000 Republic of Chile, 5.50% due 1/15/2013 (2) 552,260
1.5% BBB Baa2 885,000 Republic of South Africa, 6.50% due 6/02/2014 (2) 944,738
United Mexican States (2):
BBB- Baa2 1,330,000 9.875% due 2/01/2010 1,639,890
BBB- Baa2 495,000 6.375% due 1/16/2013 521,235
BBB- Baa2 395,000 5.875% due 1/15/2014 400,925
-------------
6,892,258
Total Corporate Bonds (Cost--$181,578,568)--41.1% 186,888,885
INTERMEDIATE TERM PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
SEPTEMBER 30, 2004
Schedule of Investments (continued)
S&P Moody's Face Value
State Ratings++++ Ratings++++ Amount Municipal Bonds (in U.S. dollars)
Texas--0.1% A A2 US$ 365,000 Harris County, Texas, Industrial Development Corporation,
Solid Waste Disposal Revenue Bonds (Deer Park Refining LP),
5.683% due 3/01/2023 (b) $ 371,077
Total Municipal Bonds (Cost--$365,000)--0.1% 371,077
Preferred Securities
Industry+++ Capital Trusts
Finance-- BBB- Baa1 990,000 Pemex Project Funding Master Trust, 7.375% due 12/15/2014 1,079,100
Other--0.2%
Utilities-- BBB+ A3 420,000 Alabama Power Capital Trust V, 5.50% due 10/01/2042 (b) 441,642
Electric
& Gas--0.1%
Total Capital Trusts (Cost--$1,462,848)--0.3% 1,520,742
Shares
Held Preferred Stocks
Finance-- 125 DG Funding Trust (a) 1,343,750
Other--0.3%
Total Preferred Stocks (Cost--$1,375,450)--0.3% 1,343,750
Face
Amount Trust Preferred
Aerospace & NR* NR* US$2,660,000 RC Trust I, 7% due 5/15/2006 (Convertible) 2,784,690
Defense--0.6%
Total Trust Preferred (Cost--$2,796,610)--0.6% 2,784,690
Total Preferred Securities (Cost--$5,634,908)--1.2% 5,649,182
Short-Term Investments
Commercial Paper*** 14,000,000 Jupiter Securitization Corportation, 1.78% due 10/14/2004 13,991,001
11,000,000 Park Granada LLC, 1.79% due 10/04/2004 10,998,359
22,400,000 UBS Finance (Delaware) Inc., 1.88% due 10/01/2004 22,400,000
-------------
47,389,360
Shares
Held
14,540,000 Merrill Lynch Premier Institutional Fund (c)(d) 14,540,000
Total Short-Term Investments (Cost--$61,929,360)--13.6% 61,929,360
INTERMEDIATE TERM PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
SEPTEMBER 30, 2004
Schedule of Investments (continued)
Number of Value
Contracts Options Purchased (in U.S. dollars)
Call Options Purchased 35 London InterBank Offered Rate (LIBOR) Linked Floor,
expiring April 2005 at 1.50%, Broker J.P. Morgan
Chase Bank $ 350
Total Options Purchased (Premiums Paid--$21,000)--0.0% 350
Total Investments (Cost--$486,847,350++++++)--108.5% 493,694,661
Liabilities in Excess of Other Assets--(8.5%) (38,557,178)
-------------
Net Assets--100.0% $ 455,137,483
=============
* Not Rated.
** Corresponding industry groups for foreign securities:
(1) Financial Institution.
(2) Government Entity.
(3) Industrial.
(4) Telecommunications.
*** Commercial Paper is traded on a discount basis; the interest
rates shown reflect the discount rates paid at the time of
purchase by the Portfolio.
++ Asset-Backed and Mortgage-Backed Obligations are subject to
principal paydowns as a result of the prepayments or refinancings
of the underlying mortgage instruments. As a result, the average
life may be substantially less than the original maturity.
++++ Ratings of issues shown are unaudited.
++++++ 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 (includes options purchased) $ 487,048,541
===============
Gross unrealized appreciation $ 7,457,845
Gross unrealized depreciation (811,725)
---------------
Net unrealized appreciation $ 6,646,120
===============
+++ For Portfolio compliance purposes, "Industry" means any one or
more of the industry sub-classifications used by one or more
widely recognized market indexes or ratings group indexes, and/or
as defined by Portfolio management. This definition may not apply
for purposes of this report, which may combine such industry
sub-classifications for reporting ease. These industry classifications
are unaudited.
(a) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
(b) Floating rate note.
(c) 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:
Interest/
Net Dividend
Affiliate Activity Income
Merrill Lynch Liquidity Series, LLC
Money Market Series -- $ 572
Merrill Lynch Premier Institutional Fund (8,722,500) $ 28,012
(d) Security was purchased with the cash proceeds from securities loans.
(e) Represents a zero coupon bond; the interest rate shown reflects the
effective yield at the time of purchase by the Portfolio.
(f) All or a portion of security held as collateral in connection with
open financial futures contracts.
(g) Security, or a portion of security, is on loan.
Forward foreign exchange contracts as of September 30, 2004 were
as follows:
Foreign Settlement Unrealized
Currency Sold Date Appreciation
YEN 533,964,081 October 2004 $ 42,739
----------
Total Unrealized Appreciation on Forward
Foreign Exchange Contracts
(US$ Commitment--$4,894,263) $ 42,739
==========
Financial futures contracts sold as of September 30, 2004 were
as follows:
Number of Expiration Face Unrealized
Contracts Issue Date Value Appreciation
20 2-Year
U.S Treasury December
Note 2004 $4,221,931 $ 256
58 5-Year
U.S Treasury December
Note 2004 $6,415,506 7,994
53 10-Year
U.S Treasury December
Note 2004 $5,960,992 8,133
----------
Total Unrealized Appreciation--Net $ 16,383
==========
INTERMEDIATE TERM PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
SEPTEMBER 30, 2004
Schedule of Investments (continued)
Swaps outstanding as of September 30, 2004 were as follows:
Unrealized
Notional Appreciation
Amount (Depreciation)
Sold credit default protection on
Sprint Corporation and receive
1.50% interest
Broker, Morgan Stanley
Capital Services Inc.
Expires September 2008 $ 1,625,000 $ 61,693
Sold credit default protection on
Comcast Cable Communications
and receive 1.15% interest
Broker, Morgan Stanley
Capital Services Inc.
Expires September 2008 $ 1,625,000 35,342
Bought credit default protection
on Tyson Foods Inc. and pay
1.36% interest
Broker, Morgan Stanley
Capital Services Inc.
Expires September 2008 $ 1,625,000 (45,526)
Bought credit default protection
on Weyerhaeuser Co. and pay
..73% interest
Broker, Morgan Stanley
Capital Services Inc.
Expires September 2008 $ 1,625,000 (24,149)
Pay 3.875% on TIPS adjusted
principal and receive a fixed
rate of 3.401% interest
Broker, J.P. Morgan Chase Bank
Expires January 2009 $ 2,937,000 (23,271)
Receive a variable return
based on 3-month USD LIBOR
and pay a fixed rate of
2.8025% interest
Broker, J.P. Morgan Chase Bank
Expires January 2007 $ 1,025,000 5,306
Bought credit default protection on
AON Corp. and pay .37% interest
Broker, Morgan Stanley
Capital Services, Inc.
Expires January 2007 $ 1,025,000 (3,049)
Bought credit default protection
on Boeing Capital Corp. and
pay .48% interest
Broker, J.P. Morgan Chase Bank
Expires March 2009 $ 550,000 (5,792)
Sold credit default protection
on Raytheon Company and
pay .73% interest
Broker, J.P. Morgan Chase Bank
Expires March 2009 $ 550,000 (7,173)
Unrealized
Notional Appreciation
Amount (Depreciation)
Receive (pay) a variable return
equal to the change in the
Lehman Brothers U.S. Treasury
Index Total Return and pay
floating rate based on 1-month
USD LIBOR, minus .20%
Broker, Lehman Brothers
Special Finance
Expires March 2005 $19,200,000 --
Receive (pay) a variable return
equal to the change in the Lehman
Brothers MBS Fixed Rate Index
Total Return and pay a floating
rate based on 1-month USD LIBOR,
minus .105%
Broker, UBS Warburg
Expires February 2005 $11,050,000 --
Receive a floating rate based on
3-month USD LIBOR, plus .40%,
which is capped at a fixed coupon
of 7% and callable quarterly
beginning February 2005 and pay
floating rate based on 3-month
USD LIBOR
Broker, J.P. Morgan Chase Bank
Expires August 2010 $10,400,000 $ (7,457)
Receive (pay) a variable return equal
to the change in the Lehman Brothers
MBS Fixed Rate Index Total Return
and pay a floating rate based on
1-month USD LIBOR, minus .125%
Broker, Lehman Brothers Special
Finance
Expires April 2005 $ 4,200,000 --
Receive (pay) a variable return equal
to the change in the Lehman Brothers
MBS Fixed Rate Index Total Return
and pay a floating rate based on
1-month USD LIBOR, minus .125%
Broker, Lehman Brothers Special
Finance
Expires March 2005 $21,300,000 --
Receive (pay) a variable return equal
to the change in the Lehman Brothers
MBS Fixed Rate Index Total Return
and pay a floating rate based on
1-month USD LIBOR, minus .125%
Broker, Lehman Brothers Special
Finance
Expires April 2005 $20,700,000 --
INTERMEDIATE TERM PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
SEPTEMBER 30, 2004
Schedule of Investments (continued)
Swaps outstanding as of September 30, 2004 were as follows
(continued):
Unrealized
Notional Appreciation
Amount (Depreciation)
Receive (pay) a variable return equal
to the change in the Lehman Brothers
U.S. Treasury Index Total Return
and pay a floating rate based on
1-month USD LIBOR, minus .20%
Broker, Lehman Brothers Special
Finance
Expires December 2004 $25,400,000 --
Sold credit default protection on
Nextel Communications Inc. and
receive 1.72% interest
Broker, J.P. Morgan Chase Bank
Expires September 2009 $ 1,035,000 $ 5,931
Sold credit default protection on
JC Penney Co., Inc. and receive
1.27% interest
Broker, J.P. Morgan Chase Bank
Expires September 2009 $ 1,035,000 5,886
Receive (pay) a variable return equal
to the change in the Lehman Brothers
CBMS Investment Grade Index Total
Return and pay a floating rate based
on 1-month USD LIBOR, minus .55%
Broker, Deutsche Bank AG, London
Expires January 2005 $ 5,900,000 --
Receive (pay) a variable return equal
to the change in the Lehman Brothers
MBS Fixed Rate Index Total Return
and pay a floating rate based on
1-month USD LIBOR, minus .105%
Broker, UBS Warburg
Expires March 2005 $ 9,400,000 --
Receive (pay) a variable return equal
to the change in the Lehman Brothers
MBS Fixed Rate Index Total Return
and pay a floating rate based on
1-month USD LIBOR, minus .105%
Broker, UBS Warburg
Expires January 2005 $11,750,000 --
Sold credit default protection on
Dana Corporation and receive
1.55% interest
Broker, UBS Warburg
Expires September 2011 $ 515,000 2,303
Sold credit default protection on
Dana Corporation and receive
1.56% interest
Broker, UBS Warburg
Expires September 2011 $ 1,035,000 5,224
Unrealized
Notional Appreciation
Amount (Depreciation)
Pay 3.50% on TIPS adjusted principal
and receive a fixed rate of 4.17%
interest
Broker, Morgan Stanley Capital
Services, Inc.
Expires January 2011 $ 2,525,000 $ (25,939)
Sold credit default protection on
Computer Associates International,
Inc. and receive .83% interest
Broker, Lehman Brothers Special
Finance
Expires December 2009 $ 1,050,000 (1,471)
Bought credit default protection
on Hewlett-Packard Co. and pay
..31% interest
Broker, Lehman Brothers Special
Finance
Expires December 2009 $ 1,050,000 501
Receive (pay) a variable return equal
to the change in the Lehman Brothers
U.S. High Yield Index Total Return and
pay a floating rate based on 1-month
USD LIBOR, minus .75%
Broker, Lehman Brothers Special
Finance
Expires January 2005 $ 5,200,000 --
Bought credit default protection on
The May Department Stores Co.
and pay .68% interest
Broker, J.P. Morgan Chase Bank
Expires September 2009 $ 1,035,000 (3,960)
Receive (pay) a variable return equal
to the change in the Lehman Brothers
MBS Fixed Rate Index Total Return
and pay a floating rate based on
1-month USD LIBOR, minus .17%
Broker, UBS Warburg
Expires November 2004 $ 3,925,000 --
Sold credit default protection on
Dow Jones CDX.NA.IG.HVOL.2
Index and receive 1.15% interest
Broker, J.P. Morgan Chase Bank
Expires September 2009 $ 2,050,000 1,502
Sold credit default protection on
Dow Jones CDX.NA.IG.2 Index and
receive .60% interest
Broker, J.P. Morgan Chase Bank
Expires September 2009 $ 2,050,000 5,288
INTERMEDIATE TERM PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
SEPTEMBER 30, 2004
Schedule of Investments (concluded)
Swaps outstanding as of September 30, 2004 were as follows
(concluded):
Unrealized
Notional Appreciation
Amount (Depreciation)
Sold credit default protection on
Dow Jones CDX.HVOL.0909 Index
and receive 1.15% Interest
Broker, Morgan Stanley Capital
Services, Inc.
Expires September 2009 $ 4,095,000 $ (5,135)
Sold credit default protection on
Dow Jones CDX.IG.0909 Index
and receive .60% interest
Broker, Morgan Stanley Capital
Services, Inc.
Expires September 2009 $ 4,095,000 (3,909)
Receive a floating rate return
based on 3-month USD LIBOR,
plus .56%, which is capped at
a fixed coupon of 8% and
callable quarterly beginning
December 2004 and pay a
floating rate based on 3-month
USD LIBOR
Broker, J.P. Morgan Chase Bank
Expires June 2010 $10,250,000 12,724
-----------
Total $ (15,131)
===========
See Notes to Financial Statements.
INTERMEDIATE TERM 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 (including securities
loaned of $13,949,940) (identified cost--$472,286,350) $ 479,154,311
Investments in affiliated securities, at value (identified cost--$14,540,000) 14,540,000
Options purchased, at value (premiums paid--$21,000) 350
Unrealized appreciation on swaps 7,527
Unrealized appreciation on forward foreign exchange contracts 42,739
Cash 110,613
Foreign cash (cost--$225,793) 219,841
Receivables:
Securities sold $ 50,865,752
Interest 3,212,935
Capital shares sold 366,768
Swaps 158,784
Variation margin 19,171
Dividends 8,783
Principal paydowns 3,476
Securities lending--net 2,394 54,638,063
---------------
Prepaid expenses and other assets 277,792
---------------
Total assets 548,991,236
---------------
Liabilities
Collateral on securities loaned, at value 14,540,000
Unrealized depreciation on swaps 22,658
Swap premiums received 7,894
Payables:
Securities purchased 77,327,149
Capital shares redeemed 1,103,630
Dividends to shareholders 381,099
Other affiliates 196,525
Distributor 69,262
Investment adviser 18,252 79,095,917
---------------
Accrued expenses and other liabilities 187,284
---------------
Total liabilities 93,853,753
---------------
Net Assets
Net assets $ 455,137,483
===============
INTERMEDIATE TERM PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
SEPTEMBER 30, 2004
Statement of Assets and Liabilities (concluded)
As of September 30, 2004
Net Assets Consist of
Class A Shares of Common Stock, $.10 par value, 50,000,000 shares authorized $ 1,355,654
Class B Shares of Common Stock, $.10 par value, 50,000,000 shares authorized 900,325
Class C Shares of Common Stock, $.10 par value, 50,000,000 shares authorized 196,810
Class I Shares of Common Stock, $.10 par value, 100,000,000 shares authorized 1,305,742
Class R Shares of Common Stock, $.10 par value, 100,000,000 shares authorized 21,698
Paid-in capital in excess of par 441,865,112
Undistributed investment income--net $ 2,362,147
Undistributed realized capital gains--net 243,580
Unrealized appreciation--net 6,886,415
---------------
Total accumulated earnings--net 9,492,142
---------------
Net Assets $ 455,137,483
===============
Net Asset Value
Class A--Based on net assets of $163,220,709 and 13,556,538 shares outstanding $ 12.04
===============
Class B--Based on net assets of $108,403,715 and 9,003,254 shares outstanding $ 12.04
===============
Class C--Based on net assets of $23,700,964 and 1,968,099 shares outstanding $ 12.04
===============
Class I--Based on net assets of $157,200,687 and 13,057,419 shares outstanding $ 12.04
===============
Class R--Based on net assets of $2,611,408 and 216,976 shares outstanding $ 12.04
===============
See Notes to Financial Statements.
INTERMEDIATE TERM PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
SEPTEMBER 30, 2004
Statement of Operations
For the Year Ended September 30, 2004
Investment Income
Interest $ 17,686,899
Dividends 37,284
Securities lending--net 28,584
---------------
Total income 17,752,767
---------------
Expenses
Investment advisory fees $ 1,771,273
Account maintenance and distribution fees--Class B 616,220
Transfer agent fees--Class I 446,489
Transfer agent fees--Class A 396,637
Transfer agent fees--Class B 325,196
Accounting services 176,711
Account maintenance fees--Class A 157,561
Account maintenance and distribution fees--Class C 127,720
Transfer agent fees--Class C 68,621
Registration fees 68,432
Custodian fees 49,197
Printing and shareholder reports 48,345
Pricing fees 35,835
Professional fees 27,828
Account maintenance and distribution fees--Class R 7,472
Directors' fees and expenses 6,526
Transfer agent fees--Class R 4,439
Other 51,643
---------------
Total expenses 4,386,145
---------------
Investment income--net 13,366,622
---------------
Realized & Unrealized Gain (Loss)--Net
Realized gain (loss) on:
Investments--net (includes options purchased) 6,968,724
Futures contracts and swaps--net 64,208
Options written--net 376,330
Foreign currency transactions--net (1,633) 7,407,629
---------------
Change in unrealized appreciation/depreciation on:
Investments--net (includes options purchased) (6,104,917)
Futures contracts and swaps--net 1,311,118
Options written--net (5,736)
Foreign currency transactions--net 37,852 (4,761,683)
--------------- ---------------
Total realized and unrealized gain--net 2,645,946
---------------
Net Increase in Net Assets Resulting from Operations $ 16,012,568
===============
See Notes to Financial Statements.
INTERMEDIATE TERM 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 $ 13,366,622 $ 17,827,277
Realized gain--net 7,407,629 15,168,083
Change in unrealized appreciation/depreciation--net (4,761,683) (4,254,042)
--------------- ---------------
Net increase in net assets resulting from operations 16,012,568 28,741,318
--------------- ---------------
Dividends to Shareholders
Investment income--net:
Class A (5,096,602) (5,287,413)
Class B (3,528,478) (4,642,386)
Class C (728,784) (695,153)
Class I (6,064,171) (7,701,842)
Class R (46,399) (777)
--------------- ---------------
Net decrease in net assets resulting from dividends to shareholders (15,464,434) (18,327,571)
--------------- ---------------
Capital Share Transactions
Net increase (decrease) in net assets derived from capital share transactions (91,067,891) 45,541,811
--------------- ---------------
Net Assets
Total increase (decrease) in net assets (90,519,757) 55,955,558
Beginning of year 545,657,240 489,701,682
--------------- ---------------
End of year* $ 455,137,483 $ 545,657,240
=============== ===============
* Undistributed investment income--net $ 2,362,147 $ 1,276,931
=============== ===============
See Notes to Financial Statements.
INTERMEDIATE TERM PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
SEPTEMBER 30, 2004
Financial Highlights
The following per share data and ratios have been derived
from information provided in the financial statements. Class A
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 $ 12.01 $ 11.77 $ 11.47 $ 10.93 $ 11.11
---------- ---------- ---------- ---------- ----------
Investment income--net .34++ .41++ .51 .66 .70
Realized and unrealized gain (loss)--net .08 .25 .30 .54 (.18)
---------- ---------- ---------- ---------- ----------
Total from investment operations .42 .66 .81 1.20 .52
---------- ---------- ---------- ---------- ----------
Less dividends from investment income--net (.39) (.42) (.51) (.66) (.70)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 12.04 $ 12.01 $ 11.77 $ 11.47 $ 10.93
========== ========== ========== ========== ==========
Total Investment Return*
Based on net asset value per share 3.54% 5.69% 7.32% 11.24% 4.92%
========== ========== ========== ========== ==========
Ratios to Average Net Assets
Expenses .81% .77% .76% .94% .88%
========== ========== ========== ========== ==========
Investment income--net 2.83% 3.42% 4.47% 5.88% 6.41%
========== ========== ========== ========== ==========
Supplemental Data
Net assets, end of year (in thousands) $ 163,221 $ 157,128 $ 139,659 $ 130,116 $ 128,490
========== ========== ========== ========== ==========
Portfolio turnover 239.14% 299.97% 314.59% 259.80% 143.77%
========== ========== ========== ========== ==========
* Total investment returns exclude the effects of sales charges.
++ Based on average shares outstanding.
See Notes to Financial Statements.
INTERMEDIATE TERM PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
SEPTEMBER 30, 2004
Financial Highlights (continued)
The following per share data and ratios have been derived
from information provided in the financial statements. Class B
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 $ 12.01 $ 11.78 $ 11.47 $ 10.93 $ 11.11
---------- ---------- ---------- ---------- ----------
Investment income--net .29++ .36++ .46 .61 .66
Realized and unrealized gain (loss)--net .08 .24 .31 .54 (.18)
---------- ---------- ---------- ---------- ----------
Total from investment operations .37 .60 .77 1.15 .48
---------- ---------- ---------- ---------- ----------
Less dividends from investment income--net (.34) (.37) (.46) (.61) (.66)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 12.04 $ 12.01 $ 11.78 $ 11.47 $ 10.93
========== ========== ========== ========== ==========
Total Investment Return*
Based on net asset value per share 3.12% 5.17% 6.97% 10.79% 4.49%
========== ========== ========== ========== ==========
Ratios to Average Net Assets
Expenses 1.22% 1.18% 1.17% 1.35% 1.30%
========== ========== ========== ========== ==========
Investment income--net 2.42% 3.02% 4.06% 5.46% 5.98%
========== ========== ========== ========== ==========
Supplemental Data
Net assets, end of year (in thousands) $ 108,404 $ 142,522 $ 141,993 $ 129,162 $ 120,250
========== ========== ========== ========== ==========
Portfolio turnover 239.14% 299.97% 314.59% 259.80% 143.77%
========== ========== ========== ========== ==========
* Total investment returns exclude the effects of sales charges.
++ Based on average shares outstanding.
See Notes to Financial Statements.
INTERMEDIATE TERM PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
SEPTEMBER 30, 2004
Financial Highlights (continued)
The following per share data and ratios have been derived
from information provided in the financial statements. Class C
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 $ 12.01 $ 11.78 $ 11.47 $ 10.93 $ 11.11
---------- ---------- ---------- ---------- ----------
Investment income--net .29++ .35++ .46 .61 .65
Realized and unrealized gain (loss)--net .08 .25 .31 .54 (.18)
---------- ---------- ---------- ---------- ----------
Total from investment operations .37 .60 .77 1.15 .47
---------- ---------- ---------- ---------- ----------
Less dividends from investment income--net (.34) (.37) (.46) (.61) (.65)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 12.04 $ 12.01 $ 11.78 $ 11.47 $ 10.93
========== ========== ========== ========== ==========
Total Investment Return*
Based on net asset value per share 3.11% 5.16% 6.97% 10.78% 4.48%
========== ========== ========== ========== ==========
Ratios to Average Net Assets
Expenses 1.23% 1.19% 1.16% 1.36% 1.30%
========== ========== ========== ========== ==========
Investment income--net 2.41% 2.95% 4.02% 5.41% 5.97%
========== ========== ========== ========== ==========
Supplemental Data
Net assets, end of year (in thousands) $ 23,701 $ 27,605 $ 12,535 $ 4,600 $ 2,859
========== ========== ========== ========== ==========
Portfolio turnover 239.14% 299.97% 314.59% 259.80% 143.77%
========== ========== ========== ========== ==========
* Total investment returns exclude the effects of sales charges.
++ Based on average shares outstanding.
See Notes to Financial Statements.
INTERMEDIATE TERM PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
SEPTEMBER 30, 2004
Financial Highlights (continued)
The following per share data and ratios have been derived
from information provided in the financial statements. Class I
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 $ 12.01 $ 11.77 $ 11.47 $ 10.93 $ 11.11
---------- ---------- ---------- ---------- ----------
Investment income--net .35++ .42++ .52 .67 .71
Realized and unrealized gain (loss)--net .07 .25 .30 .54 (.18)
---------- ---------- ---------- ---------- ----------
Total from investment operations .42 .67 .82 1.21 .53
---------- ---------- ---------- ---------- ----------
Less dividends from investment income--net (.39) (.43) (.52) (.67) (.71)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 12.04 $ 12.01 $ 11.77 $ 11.47 $ 10.93
========== ========== ========== ========== ==========
Total Investment Return*
Based on net asset value per share 3.65% 5.78% 7.43% 11.35% 5.02%
========== ========== ========== ========== ==========
Ratios to Average Net Assets
Expenses .71% .67% .66% .84% .78%
========== ========== ========== ========== ==========
Investment income--net 2.93% 3.52% 4.57% 5.94% 6.51%
========== ========== ========== ========== ==========
Supplemental Data
Net assets, end of year (in thousands) $ 157,201 $ 218,281 $ 195,515 $ 176,589 $ 144,352
========== ========== ========== ========== ==========
Portfolio turnover 239.14% 299.97% 314.59% 259.80% 143.77%
========== ========== ========== ========== ==========
* Total investment returns exclude the effects of sales charges.
++ Based on average shares outstanding.
See Notes to Financial Statements.
INTERMEDIATE TERM PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
SEPTEMBER 30, 2004
Financial Highlights (concluded)
Class R
The following per share data and ratios have been derived For the For the Period
from information provided in the financial statements. Year Ended January 3, 2003++
September 30, to September 30,
Increase (Decrease) in Net Asset Value: 2004 2003
Per Share Operating Performance
Net asset value, beginning of period $ 12.01 $ 11.75
------------ ------------
Investment income--net*** .31 .20
Realized and unrealized gain--net .09 .37
------------ ------------
Total from investment operations .40 .57
------------ ------------
Less dividends from investment income--net (.37) (.31)
------------ ------------
Net asset value, end of period $ 12.04 $ 12.01
============ ============
Total Investment Return**
Based on net asset value per share 3.25% 4.90%+++
============ ============
Ratios to Average Net Assets
Expenses 1.14% 1.23%*
============ ============
Investment income--net 2.49% 2.46%*
============ ============
Supplemental Data
Net assets, end of period (in thousands) $ 2,611 $ 121
============ ============
Portfolio turnover 239.14% 299.97%
============ ============
* Annualized.
** Total investment returns exclude the effects of sales charges.
*** Based on average shares outstanding.
++ Commencement of operations.
+++ Aggregate total investment return.
See Notes to Financial Statements.
INTERMEDIATE TERM PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
SEPTEMBER 30, 2004
Notes to Financial Statements
1. Significant Accounting Policies:
Intermediate Term 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. Class R Shares are sold only to
certain retirement plans. All classes of shares have identical
voting, dividend, liquidation and other rights and the same terms
and conditions, except that Class A, Class B, Class C and Class R
Shares bear certain expenses related to the account maintenance of
such shares, and Class B, Class C and Class R Shares also bear
certain expenses related to the distribution of such shares. Each
class has exclusive voting rights with respect to matters relating
to its account maintenance and distribution expenditures. Income,
expenses (other than expenses attributable to a specific class) and
realized and unrealized gains and losses 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 Fund 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 Portfolio'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.
INTERMEDIATE TERM 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.
* Forward foreign exchange contracts--The Portfolio may enter into
forward foreign exchange contracts as a hedge against either
specific transactions or portfolio positions. The contract is marked
to market daily and the change in market value is recorded by the
Portfolio as an unrealized gain or loss. When the contract is
closed, the Portfolio records a realized gain or loss equal to the
difference between the value at the time it was opened and the value
at the time it was closed.
* 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 trans-actions 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.
INTERMEDIATE TERM PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
SEPTEMBER 30, 2004
Notes to Financial Statements (continued)
(g) Securities lending--The Portfolio 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.
(h) Expenses--Certain expenses have been allocated to the individual
portfolios in the Fund on a pro rata basis based upon the respective
aggregate net asset value of each portfolio included in the Fund.
(i) Reclassifications--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, $3,180,160 has been
reclassified between accumulated realized capital gains on
investments and undistributed net investment income and $2,868 has
been reclassified between paid-in capital in excess of par and
undistributed net investment income. These reclassifications are the
result of permanent differences attributable to accounting treatment
for swap contracts, amortization methods on fixed income securities,
foreign currency transactions gains/losses and non-deductible
expenses. These reclassifications have no effect on net assets or
net asset values per share.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect, wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner. The Fund has also entered into a Distribution
Agreement and Distribution Plans with FAM Distributors, Inc. ("FAMD"
or the "Distributor"), which is a wholly-owned subsidiary of Merrill
Lynch Group, Inc. FAM 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 High Income Portfolio's and Master Core Bond Portfolio's
net assets at the following annual rates: .50% of the Fund's average
daily net assets not exceeding $250 million; .45% of average daily
net assets in excess of $250 million but not exceeding $500 million;
..40% of average daily net assets in excess of $500 million but not
exceeding $750 million; and .35% of average daily net assets in
excess of $750 million. For the year ended September 30, 2004, the
aggregate average daily net assets of the Portfolio, including the
Fund's High Income 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 .10% --
Class B .25% .25%
Class C .25% .25%
Class R .25% .25%
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("MLPF&S"), a subsidiary of
ML & Co., also provides account maintenance and distribution
services to the Fund. The ongoing account maintenance fee
compensates the Distributor and MLPF&S for providing account
maintenance services to Class A, Class B, Class C and Class R
shareholders. The ongoing distribution fee compensates the
Distributor and MLPF&S for providing shareholder and distribution-
related services to Class B, Class C and Class R shareholders.
INTERMEDIATE TERM PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
SEPTEMBER 30, 2004
Notes to Financial Statements (continued)
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:
FAMD MLPF&S
Class A $ 599 $ 6,139
Class I $ 21 $ 324
For the year ended September 30, 2004, MLPF&S received contingent
deferred sales charges of $41,250 and $11,607 relating to
transactions in Class B and Class C 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. For
the year ended September 30, 2004, MLIM, LLC received $12,191 in
securities lending agent fees.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
For the year ended September 30, 2004, the Portfolio reimbursed FAM
$9,929 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 $1,224,426,944 and
$1,311,472,352, respectively.
Transactions in options written for the year ended September 30,
2004 were as follows:
Number of Premiums
Contracts Received
Outstanding call options written,
beginning of year 96 $ 11,568
Options written 8,422 422,101
Options closed (9) (179,244)
Options expired (8,509) (254,425)
--------------- ---------------
Outstanding call options
written, end of year -- $ --
=============== ===============
Number of Premiums
Contracts Received
Outstanding put options written,
beginning of year 96 $ 69,168
Options written 372 158,433
Options closed (96) (69,168)
Options expired (372) (158,433)
--------------- ---------------
Outstanding put options
written, end of year -- $ --
=============== ===============
4. Capital Share Transactions:
Net increase (decrease) in net assets derived from capital share
transactions was $(91,067,891) and $45,541,811 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 4,224,134 $ 50,408,391
Automatic conversion of shares 1,059,393 12,641,537
Shares issued to shareholders
in reinvestment of dividends 128,598 1,535,928
--------------- ---------------
Total issued 5,412,125 64,585,856
Shares redeemed (4,939,629) (58,915,195)
--------------- ---------------
Net increase 472,496 $ 5,670,661
=============== ===============
INTERMEDIATE TERM PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
SEPTEMBER 30, 2004
Notes to Financial Statements (continued)
Class A Shares for the Year Dollar
Ended September 30, 2003 Shares Amount
Shares sold 6,896,182 $ 81,711,781
Automatic conversion of shares 838,209 10,000,519
Shares issued to shareholders
in reinvestment of dividends 122,274 1,448,691
--------------- ---------------
Total issued 7,856,665 93,160,991
Shares redeemed (6,633,671) (78,603,345)
--------------- ---------------
Net increase 1,222,994 $ 14,557,646
=============== ===============
Class B Shares for the Year Dollar
Ended September 30, 2004 Shares Amount
Shares sold 2,688,246 $ 32,106,394
Shares issued to shareholders
in reinvestment of dividends 234,716 2,804,395
--------------- ---------------
Total issued 2,922,962 34,910,789
Automatic conversion of shares (1,059,315) (12,641,537)
Shares redeemed (4,727,588) (56,418,719)
--------------- ---------------
Net decrease (2,863,941) $ (34,149,467)
=============== ===============
Class B Shares for the Year Dollar
Ended September 30, 2003 Shares Amount
Shares sold 5,617,902 $ 66,571,670
Shares issued to shareholders
in reinvestment of dividends 301,421 3,573,147
--------------- ---------------
Total issued 5,919,323 70,144,817
Automatic conversion of shares (838,117) (10,000,519)
Shares redeemed (5,272,744) (62,541,037)
--------------- ---------------
Net decrease (191,538) $ (2,396,739)
=============== ===============
Class C Shares for the Year Dollar
Ended September 30, 2004 Shares Amount
Shares sold 622,489 $ 7,445,109
Shares issued to shareholders
in reinvestment of dividends 42,717 510,392
--------------- ---------------
Total issued 665,206 7,955,501
Shares redeemed (995,352) (11,893,350)
--------------- ---------------
Net decrease (330,146) $ (3,937,849)
=============== ===============
Class C Shares for the Year Dollar
Ended September 30, 2003 Shares Amount
Shares sold 1,903,339 $ 22,546,145
Shares issued to shareholders
in reinvestment of dividends 38,767 460,550
--------------- ---------------
Total issued 1,942,106 23,006,695
Shares redeemed (708,282) (8,412,561)
--------------- ---------------
Net increase 1,233,824 $ 14,594,134
=============== ===============
Class I Shares for the Year Dollar
Ended September 30, 2004 Shares Amount
Shares sold 3,315,475 $ 39,552,949
Shares issued to shareholders
in reinvestment of dividends 87,284 1,042,970
--------------- ---------------
Total issued 3,402,759 40,595,919
Shares redeemed (8,522,216) (101,724,165)
--------------- ---------------
Net decrease (5,119,457) $ (61,128,246)
=============== ===============
Class I Shares for the Year Dollar
Ended September 30, 2003 Shares Amount
Shares sold 7,120,178 $ 84,424,244
Shares issued to shareholders
in reinvestment of dividends 116,959 1,385,531
--------------- ---------------
Total issued 7,237,137 85,809,775
Shares redeemed (5,665,608) (67,144,341)
--------------- ---------------
Net increase 1,571,529 $ 18,665,434
=============== ===============
Class R Shares for the Year Dollar
Ended September 30, 2004 Shares Amount
Shares sold 264,503 $ 3,162,255
Shares issued to shareholders
in reinvestment of dividends 3,719 44,349
--------------- ---------------
Total issued 268,222 3,206,604
Shares redeemed (61,319) (729,594)
--------------- ---------------
Net increase 206,903 $ 2,477,010
=============== ===============
Class R Shares for the
Period January 3, 2003++ Dollar
to September 30, 2003 Shares Amount
Shares sold 10,428 $ 125,506
Shares issued to shareholders
in reinvestment of dividends 60 708
--------------- ---------------
Total issued 10,488 126,214
Shares redeemed (415) (4,878)
--------------- ---------------
Net increase 10,073 $ 121,336
=============== ===============
++ Commencement of operations.
INTERMEDIATE TERM PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
SEPTEMBER 30, 2004
Notes to Financial Statements (concluded)
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 $ 15,464,434 $ 18,327,571
--------------- ---------------
Total taxable distributions $ 15,464,434 $ 18,327,571
=============== ===============
As of September 30, 2004, the components of accumulated earnings on
a tax basis were as follows:
Undistributed ordinary income--net $ 2,564,154
Undistributed long-term capital gains--net 398,662
---------------
Total undistributed earnings--net 2,962,816
Capital loss carryforward --
Unrealized gains--net 6,529,326*
---------------
Total accumulated earnings--net $ 9,492,142
===============
* The difference between book-basis and tax-basis net unrealized
gains is attributable primarily to the tax deferral of losses on
wash sales, the tax deferral of losses on straddles, the
realization for tax purposes of unrealized gains (losses) on
certain futures and forward foreign currency contracts, the
difference between book and tax amortization methods for premiums
and discounts on fixed income securities and other book/tax
temporary differences.
INTERMEDIATE TERM 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 Intermediate
Term 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, 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 Intermediate Term Portfolio 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)
Of the ordinary income dividends paid monthly by Intermediate Term
Portfolio of Merrill Lynch Bond Fund, Inc. during the taxable year
ended September 30, 2004, 5.30% was attributable to federal
obligations.
The law varies in each state as to whether and what percentage of
dividend income attributable to federal obligations is exempt from
state income tax. We recommend that you consult your tax adviser to
determine if any portion of the dividends you received is exempt
from state income tax.
Please retain this information for your records.
INTERMEDIATE TERM 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)
Age: 64 of MLIM from 2000 to 2002; Executive Vice
President of MLIM and FAM (which terms
as used herein include their corporate
predecessors) from 1983 to 2002; President
of FAM Distributors, Inc. ("FAMD") from
1986 to 2002 and Director thereof from
1991 to 2002; Executive Vice President
and Director of Princeton Services, Inc.
("Princeton Services") from 1993 to 2002;
President of Princeton Administrators, L.P.
from 1989 to 2002; Director of Financial
Data Services, Inc. since 1985.
* Mr. Glenn is a director, trustee or member of an advisory board of
certain other investment companies for which MLIM or FAM acts as
investment adviser. Mr. Glenn is an "interested person," as
described in the Investment Company Act, of the Fund based on his
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.
INTERMEDIATE TERM PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
SEPTEMBER 30, 2004
Officers and Directors (unaudited)(continued)
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 1994 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: 52 Professor, Graduate School of Business
Administration, University of Michigan
from 1979 to 1985.
Jean Margo Reid Director 2004 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 currrently Director Emeritus 48 Funds None
P.O. Box 9095 present of Boston University Center for the 48 Portfolios
Princeton, Advancement of Ethics and Character and
NJ 08543-9095 Director thereof from 1989 to 1999;
Age: 71 Professor from 1982 to 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.
Roscoe S. Suddarth Director 2000 to President, Middle East Institute from 1995 48 Funds None
P.O. Box 9095 present to 2001; Foreign Service Officer, United 48 Portfolios
Princeton, States Foreign Service from 1961 to 1995;
NJ 08543-9095 Career Minister from 1989 to 1995; Deputy
Age: 69 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: 66 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.
INTERMEDIATE TERM PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
SEPTEMBER 30, 2004
Officers and Directors (unaudited)(concluded)
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 since
P.O. Box 9011 President present 1999; Senior Vice President and Treasurer of Princeton Services since 1999
Princeton, and and and Director since 2004; Vice President of FAMD since 1999; Director of MLIM
NJ 08543-9011 Treasurer 1999 to Taxation since 1990.
Age: 44 present
Patrick Maldari Vice 2002 to Managing Director of MLIM since 2000; Director (Global Fixed Income) of MLIM
P.O. Box 9011 President present from 1998 to 2000.
Princeton,
NJ 08543-9011
Age: 42
James Pagano Vice 2000 to Vice President of MLIM since 1996.
P.O. Box 9011 President present
Princeton,
NJ 08543-9011
Age: 42
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
INTERMEDIATE TERM PORTFOLIO OF MERRILL LYNCH BOND FUND, INC.
SEPTEMBER 30, 2004
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.
INTERMEDIATE TERM 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 - $32,000
Fiscal Year Ending September 30, 2003 - $10,034
(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 - $10,050
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.
Intermediate Term Portfolio of Merrill Lynch Bond Fund, Inc.
By: _/s/ Terry K. Glenn_______
Terry K. Glenn,
President of
Intermediate Term 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
Intermediate Term Portfolio of Merrill Lynch Bond Fund, Inc.
Date: November 19, 2004
By: _/s/ Donald C. Burke________
Donald C. Burke,
Chief Financial Officer of
Intermediate Term Portfolio of Merrill Lynch Bond Fund, Inc.
Date: November 19, 2004