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 811-02857
Name of Fund: High Income Portfolio of Merrill Lynch Bond Fund, Inc.
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Robert C. Doll, Jr., Chief Executive
Officer, High Income Portfolio of Merrill Lynch Bond Fund, Inc., 800
Scudders Mill Road, Plainsboro, NJ, 08536. Mailing address: P.O. Box
9011, Princeton, NJ, 08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 09/30/05
Date of reporting period: 10/01/04 - 09/30/05
Item 1 - Report to Stockholders
High Income Portfolio of
Merrill Lynch Bond Fund, Inc.
Annual Report
September 30, 2005
(BULL LOGO) Merrill Lynch Investment Managers
www.mlim.ml.com
Mercury Advisors
A Division of Merrill Lynch Investment Managers
www.mercury.ml.com
This report is not authorized for use as an offer of sale or a solicitation
of an offer to buy shares of the Fund unless accompanied or preceded by the
Fund's current prospectus. Past performance results shown in this report
should not be considered a representation of future performance. Investment
return and principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost. Statements and
other information herein are as dated and are subject to change.
A description of the policies and procedures that the Fund uses to determine
how to vote proxies relating to portfolio securities is available (1) without
charge, upon request, by calling toll-free 1-800-MER-FUND (1-800-637-3863);
(2) at www.mutualfunds.ml.com; and (3) on the Securities and Exchange
Commission's Web site at http://www.sec.gov. Information about how the
Fund voted proxies relating to securities held in the Fund's portfolio
during the most recent 12-month period ended June 30 is available (1) at
www.mutualfunds.ml.com and (2) on the Securities and Exchange Commission's
Web site at http://www.sec.gov.
Merrill Lynch Bond Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
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High Income Portfolio of Merrill Lynch Bond Fund, Inc.
Availability of Quarterly Schedule of Investments
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The Fund's Forms N-Q are available on the SEC's Web site at
http://www.sec.gov. The Fund's Forms N-Q may also be reviewed and copied at the
SEC's Public Reference Room in Washington, DC. Information on the operation of
the Public Reference Room may be obtained by calling 1-800-SEC-0330.
Electronic Delivery
The Fund offers electronic delivery of communications to its shareholders. In
order to receive this service, you must register your account and provide us
with e-mail information. To sign up for this service, simply access this Web
site at http://www.icsdelivery.com/live and follow the instructions. When you
visit this site, you will obtain a personal identification number (PIN). You
will need this PIN should you wish to update your e-mail address, choose to
discontinue this service and/or make any other changes to the service. This
service is not available for certain retirement accounts at this time.
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC. SEPTEMBER 30, 2005
A Letter From the President
Dear Shareholder
Amid what we've coined a "muddle through" year for the financial markets, the
major benchmark indexes managed to post positive results for the current
reporting period:
Total Returns as of September 30, 2005 6-month 12-month
U.S. equities (Standard & Poor's (S&P) 500 Index) +5.02% +12.25%
Small-cap U.S. equities (Russell 2000 Index) +9.21% +17.95%
International equities (MSCI Europe Australasia Far East Index) +9.26% +25.79%
Fixed income (Lehman Brothers Aggregate Bond Index) +2.31% + 2.80%
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index) +2.80% + 4.05%
High yield bonds (Credit Suisse First Boston High Yield Index) +2.82% + 6.31%
Since June 2004, the Federal Reserve Board (the Fed) has tirelessly advanced
its interest rate hiking program, raising the federal funds rate 11 times to
3.75% by period-end. The Fed admittedly remains more concerned about inflation
than slowing economic growth, causing some to worry that the central bank may
overreact to inflation and increase interest rates more than is necessary to
maintain a healthy economic balance. Recent disruptions to production and
spending from Hurricanes Katrina and Rita are likely to distort the economic
data in the short term, muddying the underlying trends. However, any hurricane-
induced slowdown is likely to be short lived, and the fiscal stimulus
associated with reconstruction efforts in the Gulf could add to gross domestic
product growth in 2006.
U.S. equities exhibited resilience over the past several months as investors
generally tended to proceed with caution. After a strong finish to 2004, the
S&P 500 Index remained largely range-bound in 2005, with the last three months
representing the best quarter of the year. Up to this point, strong corporate
earnings reports and low long-term bond yields have worked in favor of
equities. Looking ahead, high energy prices, continued interest rate hikes, a
potential consumer slowdown and/or disappointing earnings pose the greatest
risks to U.S. stocks. Internationally, many markets have benefited from strong
economic statistics, trade surpluses and solid finances.
In the bond market, the yield curve continued to flatten as short-term
interest rates moved in concert with the Fed rate hikes and longer-term
interest rates remained more constant or declined. The difference between
two-year and 10-year Treasury yields collapsed from 151 basis points (1.51%)
on September 30, 2004 to 70 basis points on March 31, 2005, to just 16 basis
points at period-end.
Financial markets are likely to face continued crosscurrents in the months
ahead. Nevertheless, opportunities do exist and we encourage you to work with
your financial advisor to diversify your portfolio among a variety of asset
types. This can help to diffuse risk while also tapping into the potential
benefits of a broader range of investment alternatives. As always, 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,
(Robert C. Doll, Jr.)
Robert C. Doll, Jr.
President and Director
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC. SEPTEMBER 30, 2005
A Discussion With Your Fund's Portfolio Manager
After hitting its low for the fiscal year in mid-May, the high yield market
rebounded and, we believe, has the capacity to outperform bellwether 10-year
Treasury issues in 2005.
How did the Portfolio perform during the fiscal year in light of the existing
market conditions?
For the 12-month period ended September 30, 2005, the Portfolio's Class A,
Class B, Class C and Class I Shares had total returns of +5.99%, +5.44%,
+5.38% and +6.05%, respectively. (Results shown do not reflect sales charges
and would be lower if sales charges were included. Complete performance
information can be found on pages 8 and 9 of this report to shareholders.) For
the same period, the benchmark Credit Suisse First Boston (CSFB) High Yield
Index returned +6.31% and the Lipper High Current Yield Funds category posted
an average return of +6.06%. (Funds in this Lipper category aim for high
relative current yield from fixed income securities. There are no quality or
maturity restrictions and the funds tend to invest in lower-grade debt
issues.)
The Portfolio's performance for the year was generally consistent with the
Lipper category average and slightly below the benchmark index. Higher-beta
issues, on which the Portfolio was focused in the first half of the year,
performed strongly in November and December of 2004. Unfortunately, that
outperformance didn't continue into the early months of 2005 as the market was
burdened by weak Treasury and equity returns, heavy outflows from high yield
mutual funds, and rising oil prices. April and May were particularly difficult
months as the market digested the downgrades of General Motors Corporation's
and Ford Motor Company's debt to non-investment grade status. High-beta
securities, particularly auto-related issues and those impacted by higher
petroleum prices (such as chemicals and plastic packaging), suffered most
during that period. Accordingly, the Portfolio's concentration on higher-beta
issues hampered performance during this time. After hitting bottom in mid-May,
the market rallied through July, and we took the opportunity to reduce our
exposure to high-beta issues. As such, when the market declined once more in
late August and September on the heels of Hurricanes Katrina and Rita, the
Portfolio was less susceptible to the weakness.
As the Federal Reserve Board (the Fed) continued to advance its monetary
tightening campaign, we remained positioned for rising interest rates.
Specifically, we maintained a short position in Treasury futures in order to
cushion the Portfolio from the negative price impact associated with rising
interest rates. This strategy benefited performance as 10-year Treasury issues
significantly underperformed high yield bonds for the year. In all, the Fed
raised interest rates eight times during the past 12 months, bringing the
target short-term interest rate to 3.75% by period end. While yields on the
short end of the Treasury yield curve moved in concert with the Fed interest
rate hikes, yields on the long end of the curve moved up at a more moderate
pace, reflecting market technicals and resulting in a flattening of the yield
curve. The rising long-term yields disproportionately affected the higher-
quality sectors of the high yield market because of their higher correlation
with Treasury issues.
In terms of sector attribution, we had disappointing results from our holdings
in food & tobacco, paper, packaging and manufacturing. Nevertheless, holdings
in the energy, U.S. cable, international cable, airlines, broadcasting and
information technology sectors contributed positively to Portfolio performance.
Our selective participation in the new-issue calendar also benefited results
throughout the year, as did our exposure to emerging market issues.
Describe conditions in the high yield market during the year.
Following two years of strong performance, the high yield market faced two
significant hurdles during the period. The first was the negative ripple
effect that resulted from the General Motors and Ford downgrades, and second
was the double devastation wrought by Hurricanes Katrina and Rita. Leading up
to the Ford and General Motors downgrades, high-grade portfolios began to
transition out of those names, leaving the high yield market to absorb a
great deal of supply. At the same time, we saw a significant decline in the
fundamentals of auto and auto-related issues. Nevertheless, when the downgrades
finally occurred in early May, it was somewhat anticlimactic. The market,
having already adjusted to accommodate those issues, recovered quickly to
enjoy a strong June and July.
The main impact of Katrina and Rita came in the form of increasing energy
prices, which hurt packaging companies the most. The high price of natural gas
increases the cost of feedstock that the packaging companies use to make
plastic packaging. Because of their limited ability to pass the higher cost of
feedstock on to their customers, these companies' margins are expected to be
squeezed accordingly.
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC. SEPTEMBER 30, 2005
Nevertheless, the market did benefit from a couple of tailwinds, including
healthy corporate earnings and a fairly vibrant economy. In February 2005, the
market recorded the lowest end-of-month spread versus 10-year Treasuries since
the CSFB High Yield Index was initiated in January 1986 at 307 basis points
(3.07%). In March, the spread between high yield and 10-year Treasury issues
widened to 373 basis points. At period end, despite the dramatic volatility
during the interim, the spread was little changed at 377 basis points.
New issuance, which had been robust for some time, declined sharply in August
2005. For the month, the market saw 27 new issues totaling $6.6 billion.
September brought a dramatic rebound, with new issuance of $11.2 billion in 42
transactions. For the calendar year-to-date, new issuance was $78.1 billion,
substantially lower than the $103.7 billion at the same time last year. It
appears the market is becoming increasingly discerning as to which
transactions it will accommodate. We believe this means better value in the
new issues that are coming to market.
The default rate by high yield corporate borrowers has remained fairly steady
at around 2%. The most recent quarter brought a modest upward blip due to the
default of a major issuer. However, we expect the default rate to remain
moderate, in the 2% area, for the next several months. Notably, the U.S.
bankruptcy laws were changed in early October 2005. We did not see many
corporations taking advantage, which would seem to indicate that companies
that were going to pursue Chapter 11 in the near term have already done so.
What changes were made to the Portfolio during the year?
As the market rebounded in June and July, we took the opportunity to reduce
our exposure to lower-tier credits. The Portfolio's position in CCC-rated
credits began the year at 22% of net assets, rose as high as 34%, and ended
the period at 21%. At the same time, we added to our holdings in B-rated
issues and increased the Portfolio's cash position. The goal is to have the
cash available to take advantage of market opportunities as they present
themselves. We also reduced our exposure to emerging markets during the fiscal
year as an improving dollar began to hurt the performance of non-dollar-
related issues. We sold several positions at good profits, and those retained
in the Portfolio continue to perform well.
Portfolio turnover was lower than during the prior fiscal year, partially
reflecting the lower level of activity in the marketplace. Nevertheless, we
actively removed or trimmed positions that we believed had realized their
potential, and also eliminated those holdings that appeared to have limited
upside potential. In terms of sector exposure, we increased our positions in
autos, information technology, health care, manufacturing and paper. We
reduced exposure to chemicals, gaming, telecommunications, transportation,
utilities and emerging market sovereigns.
We maintained our Treasury short, about 3%. Finally, our participation in the
new-issue calendar has become increasingly selective as we seek to add value
by looking at new transactions with a more discerning eye.
How would you characterize the Portfolio's position at the close of the
period?
On balance, we believe the economy will continue its growth into 2006, which
would be supportive of the credit-worthiness of high yield issues. We expect
robust merger-and-acquisition and leveraged buyout activity to increase
leverage in selected sectors and result in significant new high yield issuance
as equity sponsors finance this activity.
Amid these conditions, our strategy is to continue repositioning the
portfolio, focusing on the single-B sector and issues with liquidity, and to
reduce our overall exposure to lower-rated issues. We expect the high yield
market to outperform 10-year Treasury issues for calendar year 2005. Thus, we
plan to concentrate on sectors of the market that we believe to be less
susceptible to price/yield pressure from Treasury securities and high-grade
corporate bonds, which are closely correlated to Treasury issues.
Given the expectation for rising interest rates and market volatility, we
believe it is appropriate to carry a cash position of 5% - 10% of net assets,
depending on our view of the market. We expect to continue to be short
Treasury futures to help offset the price weakness associated with the
anticipated rise in Treasury yields. We also expect to continue to use
emerging market issues in those instances where we discern value.
B. Daniel Evans
Vice President and Portfolio Manager
October 17, 2005
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC. SEPTEMBER 30, 2005
Portfolio Information
Percent of
As of September 30, 2005 Net Assets
Ten Largest Corporate Bond Holdings
Commonwealth Brands, Inc.* Commonwealth Brands is a low-cost manufacturer of cigarettes, including the USA Gold,
Montclair, Malibu, Rivera and Sonoma brands. Its products are sold at a 25% - 30%
discount to the premium brands such as Marlboro of Philip Morris and Camels of Reynolds
American. Commonwealth Brands sells into various channels including supermarket chains,
c-stores, gas stations and others. It is also a subsequent participant to the Master
Settlement Agreement with 46 states signed in 1998. 1.9%
Intelsat Bermuda Ltd.* Intelsat is the second largest fixed satellite service firm in the world with a fleet of
28 satellites and revenues of $1.1 billion. Intelsat was acquired by a consortium of
private equity firms in late 2004 and has just announced a merger with rival PanAmSat.
The combined entity will be the largest satellite provider of voice, video and data
transmissions. 1.8
Alpharma, Inc.* Alpharma, a specialty pharmaceuticals manufacturer, has been negatively impacted by
weakness in its generic pharmaceutical business and issues related to two of its
manufacturing facilities. Despite these challenges, the company has been able to generate
solid free cash flow and reduce bank debt. Alpharma has made steady progress lowering its
cost structure and improving its product pipeline. The company has also announced the
resignation of the CEO and is looking for a strong replacement. 1.8
Charter Communications Charter Communications is the fourth largest cable television operator in the United
Holdings LLC* States, controlled by Paul Allen. Charter Communications is also one of the more levered
cable operators as a result of large acquisitions and softer performance. Most recently,
Charter Communications has been able to issue convertible debt and complete a significant
debt exchange. Both of these transactions have improved liquidity, extended maturities and
eliminated debt. 1.6
Time Warner Telecom* Time Warner Telecom is a competitive telecommunications provider to business and municipal
customers, with a smaller amount of wholesale revenues to national telecommunication firms.
The company provides managed network services that range from simple telephony to fully
integrated voice, video and data transmissions. 1.6
Calpine Corp.* Calpine continues to be strongly levered to a power markets recovery. This is particularly
so in states such as Texas and California, where natural gas generation is on the margin
most of the time. Management has taken some positive steps recently, including the sale of
certain non-core generation assets as well as the remainder of the company's gas reserves,
to address Calpine's liquidity needs. 1.6
Advanced Micro Devices, Inc. Advanced Micro Devices (AMD) is a $5 billion microprocessor chip developer for PCs and
servers. AMD not only remains the most vibrant competitor to Intel, it has been leading
Intel on some new design chips in terms of acceptance, price and performance. 1.4
Liberty Media Corp. Time Warner's common stock strengthened during the period leading to an increase in the
price of our holdings in the Liberty Media .75% exchangeable convertibles. One catalyst
was Time Warner and Comcast teaming up to make a $17.5 billion joint bid for Adelphia
Communications. Also, the company has been in discussions with both Yahoo! and Microsoft,
among others to monetize some or all of AOL. Lastly, Carl Ichan has accumulated a large
stake in an effort to force the company to increase shareholder value through a larger
stock repurchase, a higher dividend, selling or spinning out AOL and the complete separation
of the company's cable operations. We continue to be very constructive on the outlook for
the common stock of Time Warner and therefore the exchangeable convertibles. 1.3
Petrobras International Petrobras is Brazil's main oil and natural gas company. Petrobras explores, markets and
Finance Co. supplies petroleum and its derivatives. The company also operates in other countries in
Latin America. High oil prices, and increased oil and gas production raised second quarter
operating earnings. The company is expected to continue on a positive credit trend, which
goes in hand with the trend in rating upgrades expected for the sovereign credit. 1.3
Omnova Solutions, Inc. High petroleum-based raw material costs have pressured earnings over the past year, however,
Omnova was successful at increasing prices sufficiently to more than offset higher costs.
This trend is expected to continue in the near term. Omnova is a leading U.S. producer of
SB Latex, which is used to coat paper and adhere carpet fiber to its backing. Omnova also
produces decorative products for the office, hotel and institutional refurbishment markets. 1.3
* Includes combined holdings and/or affiliates.
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC. SEPTEMBER 30, 2005
Portfolio Information (concluded)
As of September 30, 2005
Quality Ratings by Percent of
S&P/Moody's Total Investments
BBB/Baa 1.1%
BB/Ba 10.3
B/B 53.0
CCC/Caa 14.4
CC/Ca 0.5
D 0.3
NR (Not Rated) 10.0
Other* 10.4
* Includes portfolio holdings in common stocks, preferred stocks,
other interests, warrants and short-term investments.
Percent of
Five Largest Industries Net Assets
Manufacturing 7.9%
Paper 7.1
Cable--U.S. 6.0
Energy--Other 5.6
Information Technology 5.6
For Portfolio compliance purposes, the Portfolio's industry
classifications refer to 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 industry sub-classifications for
reporting ease.
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC. SEPTEMBER 30, 2005
Performance Data
About Fund Performance
Investors are able to purchase shares of the Portfolio through multiple
pricing alternatives:
* Class A Shares incur a maximum initial sales charge (front-end load) of 4%
and an account maintenance fee of 0.25% per year (but no distribution fee).
* Class B Shares are subject to a maximum contingent deferred sales charge of
4%, declining to 0% after six years. All Class B Shares purchased prior to
December 1, 2002 will maintain the four-year schedule. In addition, Class B
Shares are subject to a distribution fee of 0.50% per year and an account
maintenance fee of 0.25% per year. These classes of shares automatically
convert to Class A Shares after approximately 10 years. (There is no initial
sales charge for automatic share conversions.)
* Class C Shares are subject to a distribution fee of 0.55% per year and an
account maintenance fee of 0.25% per year. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed within one year
of purchase.
* Class I Shares incur a maximum initial sales charge (front-end load) of 4%
and bear no ongoing distribution or account maintenance fees. Class I Shares
are available only to eligible investors.
None of the past results shown should be considered a representation of future
performance. Current performance may be lower or higher than the performance
data quoted. Refer to www.mlim.ml.com to obtain performance data current to
the most recent month-end. Performance results do not reflect the deduction of
taxes that a shareholder would pay on fund distributions, if any, or the
redemption of fund shares. The Portfolio may charge a 2% redemption fee for
sales or exchanges of shares within 30 days of purchase. Performance data does
not reflect this potential fee. Figures shown in each of the following tables
assume reinvestment of all dividends and capital gain distributions, if any,
at net asset value on the payable date. Investment return and principal value
of shares will fluctuate so that shares, when redeemed, may be worth more or
less than their original cost. Dividends paid to each class of shares will
vary because of the different levels of account maintenance, distribution and
transfer agency fees applicable to each class, which are deducted from the
income available to be paid to shareholders.
Recent Performance Results
6-Month 12-Month 10-Year Standardized
As of September 30, 2005 Total Return Total Return Total Return 30-day Yield
High Income Portfolio Class A Shares* +2.66% +5.99% + 68.83% 7.16%
High Income Portfolio Class B Shares* +2.39 +5.44 + 60.37 6.92
High Income Portfolio Class C Shares* +2.36 +5.38 + 59.33 6.86
High Income Portfolio Class I Shares* +2.59 +6.05 + 72.71 7.41
Credit Suisse First Boston High Yield Index** +2.82 +6.31 +103.77 --
Merrill Lynch High Yield Master Index** +3.62 +6.69 + 98.20 --
Ten-Year U.S. Treasury Securities +3.01 +1.98 + 80.47 --
* Investment results shown do not reflect sales charges; results shown would be lower if a sales charge
was included. Cumulative 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.
** These unmanaged market-weighted indexes mirror the high-yield debt market of securities rated BBB or lower.
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC. SEPTEMBER 30, 2005
Performance Data (concluded)
TOTAL RETURN BASED ON A $10,000 INVESTMENT
A line graph illustrating the growth of a $10,000 investment in ML Bond Fund,
Inc.'s High Income Portfolio++ Class A, Class B, Class C and Class I Shares*
compared to a similar investment in Credit Suisse First Boston High Yield
Index++++. Values illustrated are as follows:
ML Bond Fund, Inc.'s High Income Portfolio++
Class A Shares*
Date Value
September 1995 $ 9,600.00
September 1996 $10,737.00
September 1997 $12,272.00
September 1998 $11,496.00
September 1999 $12,145.00
September 2000 $12,410.00
September 2001 $10,912.00
September 2002 $10,300.00
September 2003 $13,611.00
September 2004 $15,292.00
September 2005 $16,207.00
ML Bond Fund, Inc.'s High Income Portfolio++
Class B Shares*
Date Value
September 1995 $10,000.00
September 1996 $11,114.00
September 1997 $12,654.00
September 1998 $11,793.00
September 1999 $12,395.00
September 2000 $12,602.00
September 2001 $11,023.00
September 2002 $10,351.00
September 2003 $13,608.00
September 2004 $15,209.00
September 2005 $16,037.00
ML Bond Fund, Inc.'s High Income Portfolio++
Class C Shares*
Date Value
September 1995 $10,000.00
September 1996 $11,108.00
September 1997 $12,625.00
September 1998 $11,776.00
September 1999 $12,372.00
September 2000 $12,553.00
September 2001 $10,974.00
September 2002 $10,300.00
September 2003 $13,534.00
September 2004 $15,120.00
September 2005 $15,933.00
ML Bond Fund, Inc.'s High Income Portfolio++
Class I Shares*
Date Value
September 1995 $ 9,600.00
September 1996 $10,750.00
September 1997 $12,318.00
September 1998 $11,582.00
September 1999 $12,265.00
September 2000 $12,544.00
September 2001 $11,052.00
September 2002 $10,482.00
September 2003 $13,882.00
September 2004 $15,634.00
September 2005 $16,580.00
Credit Suisse First Boston High Yield Index++++
Date Value
September 1995 $10,000.00
September 1996 $11,077.00
September 1997 $12,818.00
September 1998 $12,752.00
September 1999 $13,255.00
September 2000 $13,509.00
September 2001 $12,844.00
September 2002 $13,209.00
September 2003 $16,914.00
September 2004 $19,167.00
September 2005 $20,377.00
* Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
++ The Portfolio invests principally in fixed income securities which are
rated in the lower rating categories of the established rating services,
or in unrated securities of comparable quality.
++++ This unmanaged market-weighted Index, which mirrors the high-yield debt
market, is comprised of 423 securities rated BBB or below.
Past performance is not predictive of future results.
Average Annual Total Return
Return Without Return With
Sales Charge Sales Charge**
Class A Shares*
One Year Ended 9/30/05 +5.99% +1.75%
Five Years Ended 9/30/05 +5.48 +4.62
Ten Years Ended 9/30/05 +5.38 +4.95
Return Return
Without CDSC With CDSC++++++
Class B Shares++
One Year Ended 9/30/05 +5.44% +1.52%
Five Years Ended 9/30/05 +4.94 +4.66
Ten Years Ended 9/30/05 +4.84 +4.84
Return Return
Without CDSC With CDSC++++++
Class C Shares++++
One Year Ended 9/30/05 +5.38% +4.40%
Five Years Ended 9/30/05 +4.88 +4.88
Ten Years Ended 9/30/05 +4.77 +4.77
Return Without Return With
Sales Charge Sales Charge**
Class I Shares*
One Year Ended 9/30/05 +6.05% +1.81%
Five Years Ended 9/30/05 +5.74 +4.88
Ten Years Ended 9/30/05 +5.62 +5.19
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
++ Maximum contingent deferred sales charge is 4% and is reduced
to 0% after six years.
++++ Maximum contingent deferred sales charge is 1% and is reduced
to 0% after one year.
++++++ Assuming payment of applicable contingent deferred sales
charge.
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC. SEPTEMBER 30, 2005
Disclosure of Expenses
Shareholders of this Portfolio 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 Portfolio expenses. The following example
(which is based on a hypothetical investment of $1,000 invested on April 1,
2005 and held through September 30, 2005) is intended to assist shareholders
both in calculating expenses based on an investment in the Portfolio 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 Portfolio'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 Portfolio
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
Beginning Ending During the Period*
Account Value Account Value April 1, 2005 to
April 1, September 30, September 30,
2005 2005 2005
Actual
Class A $1,000 $1,026.60 $4.37
Class B $1,000 $1,023.90 $6.98
Class C $1,000 $1,023.60 $7.28
Class I $1,000 $1,025.90 $3.08
Hypothetical (5% annual return before expenses)**
Class A $1,000 $1,021.03 $4.35
Class B $1,000 $1,018.45 $6.96
Class C $1,000 $1,018.15 $7.26
Class I $1,000 $1,022.30 $3.08
* For each class of the Portfolio, expenses are equal to the annualized expense ratio for the class
(.85% for Class A, 1.36% for Class B, 1.42% for Class C and .60% for Class I), multiplied by the
average account value over the period, multiplied by 185/365 (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 365.
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC. SEPTEMBER 30, 2005
Schedule of Investments (in U.S. dollars)
Face
Amount Corporate Bonds Value
Aerospace & Defense--1.5%
EUR11,306,127 Aero Invest 1 SA,10.677% due 3/01/2015 (f)(h) $ 13,470,424
USD 6,825,000 DynCorp International LLC, 9.50%
due 2/15/2013 (f) 7,132,125
1,700,000 Standard Aero Holdings, Inc., 8.25%
due 9/01/2014 1,644,750
--------------
22,247,299
Airlines--0.7%
10,700,000 American Airlines, Inc. Class C, 7.80%
due 4/01/2008 10,244,148
636,391 Continental Airlines, Inc. Series 1998-1-C,
6.541% due 9/15/2009 (m) 599,640
--------------
10,843,788
Automotive--5.2%
6,550,000 Advanced Accessory Holdings Corp., 13.25%
due 12/15/2011 (e) 2,685,500
American Tire Distributors, Inc. (f):
15,325,000 10.304% due 4/01/2012 (a) 14,712,000
11,575,000 10.75% due 4/01/2013 10,533,250
8,000,000 Asbury Automotive Group, Inc., 8%
due 3/15/2014 7,600,000
12,850,000 Cooper-Standard Automotive, Inc., 8.375%
due 12/15/2014 10,794,000
10,550,000 Exide Technologies, 10.50% due 3/15/2013 (f) 8,387,250
23,891,000 Metaldyne Corp., 11% due 6/15/2012 16,245,880
5,500,000 Tenneco Automotive, Inc., 8.625%
due 11/15/2014 5,541,250
--------------
76,499,130
Broadcasting--3.0%
7,250,000 Emmis Communications Corp. 9.745%
due 6/15/2012 (a) 7,304,375
17,800,000 Granite Broadcasting Corp., 9.75%
due 12/01/2010 16,287,000
1,700,000 LIN Television Corp., 6.50% due 5/15/2013 (f) 1,610,750
13,261,000 Paxson Communications Corp., 12.261%
due 1/15/2009 (e) 12,863,170
7,075,000 Young Broadcasting, Inc., 8.75% due 1/15/2014 6,279,063
--------------
44,344,358
Cable--U.S.--6.0%
25,500,000 Adelphia Communications Corp., 6%
due 2/15/2006 (c)(j) 1,115,625
Charter Communications Holdings LLC:
1,025,000 10% due 4/01/2009 884,063
16,650,000 9.625% due 11/15/2009 14,152,500
3,000,000 Charter Communications Holdings II LLC,
10.25% due 9/15/2010 3,075,000
9,000,000 Charter Communications, Inc., 5.875%
due 11/16/2009 (c)(f) 7,425,000
Intelsat Bermuda Ltd. (f):
9,000,000 8.695% due 1/15/2012 (a) 9,157,500
7,050,000 8.25% due 1/15/2013 7,094,062
10,100,000 8.625% due 1/15/2015 10,302,000
11,205,000 Loral Cyberstar, Inc.,10% due 7/15/2006 (j) 9,972,450
New Skies Satellites NV:
2,950,000 8.539% due 11/01/2011 (a) 3,038,500
2,275,000 9.125% due 11/01/2012 2,354,625
9,262,000 PanAmSat Corp., 9% due 8/15/2014 9,771,410
Face
Amount Corporate Bonds Value
Cable (concluded)
USD 3,175,000 Rainbow National Services LLC, 10.375%
due 9/01/2014 (f) $ 3,587,750
1,762,000 Skynet Senior Secured Note, 14%
due 12/01/2015 2,061,540
8,250,000 Zeus Special Subsidiary Ltd., 9.25%
due 2/01/2015 (e)(f) 5,445,000
--------------
89,437,025
Chemicals--4.3%
Huntsman International, LLC:
4,200,000 9.875% due 3/01/2009 4,436,250
1,829,000 10.125% due 7/01/2009 1,881,584
7,950,000 MacDermid, Inc., 9.125% due 7/15/2011 8,506,500
6,750,000 Millennium America, Inc., 9.25% due 6/15/2008 7,256,250
17,525,000 Omnova Solutions, Inc., 11.25% due 6/01/2010 18,751,750
PolyOne Corp.:
8,450,000 10.625% due 5/15/2010 8,703,500
10,500,000 8.875% due 5/01/2012 9,961,875
EUR 1,000,000 Rockwood Specialties Group, Inc., 7.625%
due 11/15/2014 1,241,817
USD 3,113,000 Terra Capital, Inc., 11.50% due 6/01/2010 3,564,385
--------------
64,303,911
Consumer--Durables--0.5%
14,925,000 Simmons Co., 10% due 12/15/2014 (e)(f) 7,910,250
Consumer--Non-Durables--2.2%
8,000,000 Ames True Temper, Inc., 10% due 7/15/2012 6,240,000
15,025,000 Levi Strauss & Co., 8.804% due 4/01/2012 (a) 14,987,437
Polysindo International Finance Co. BV (j):
7,500,000 9.375% due 2/12/1999 (l) 525,000
41,725,000 11.375% due 6/15/2006 2,920,750
18,850,000 9.375% due 7/30/2007 1,319,500
7,075,000 Remington Arms Co., Inc., 10.50%
due 2/01/2011 6,721,250
--------------
32,713,937
Diversified Media--2.5%
3,100,000 CanWest Media, Inc., 8% due 9/15/2012 3,289,875
4,700,000 Dex Media, Inc., 8% due 11/15/2013 4,829,250
4,150,000 Dex Media West LLC, 9.875% due 8/15/2013 4,580,562
17,900,000 Liberty Media Corp., 0.75% due 3/30/2023 (c) 19,869,000
Universal City Florida Holding Co.:
800,000 8.375% due 5/01/2010 830,000
3,100,000 8.443% due 5/01/2010 (a) 3,216,250
--------------
36,614,937
Energy--Other--4.5%
4,425,000 Aventine Renewable Energy Holdings, Inc.,
9.87% due 12/15/2011 (a)(f) 4,602,000
655,000 Parker Drilling Co. Series B, 10.125%
due 11/15/2009 681,200
Petrobras International Finance Co.:
18,000,000 7.75% due 9/15/2014 19,485,000
5,000,000 8.375% due 12/10/2018 5,587,500
10,000,000 Petroleum Export Ltd. Class A3, 5.265%
due 6/15/2011 (f) 10,086,000
12,325,000 Star Gas Partners LP,10.25% due 2/15/2013 10,044,875
17,325,000 Suburban Propane Partners, LP, 6.875%
due 12/15/2013 15,765,750
--------------
66,252,325
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC. SEPTEMBER 30, 2005
Schedule of Investments (continued) (in U.S. dollars)
Face
Amount Corporate Bonds Value
Financial--1.8%
USD16,625,000 Fairfax Financial Holdings Ltd., 7.75%
due 4/26/2012 $ 15,960,000
6,841,000 Refco Finance Holdings LLC, 9%
due 8/01/2012 7,439,588
2,500,000 Triad Acquisition Corp., 11.125%
due 5/01/2013 (f) 2,581,250
--------------
25,980,838
Food & Drug--1.1%
21,451,000 Duane Reade, Inc., 9.75% due 8/01/2011 16,088,250
Food & Tobacco--5.4%
8,075,000 American Seafoods Group LLC, 10.125%
due 4/15/2010 8,640,250
3,200,000 AmeriQual Group LLC, 9% due 4/01/2012 (f) 3,328,000
Commonwealth Brands, Inc. (f):
11,750,000 9.75% due 4/15/2008 12,337,500
14,000,000 10.625% due 9/01/2008 14,700,000
20,000,000 DGS International Finance Co., 10%
due 6/01/2007 (f)(j) 200,000
2,050,000 Del Monte Corp., 6.75% due 2/15/2015 (f) 2,060,250
Dole Food Co., Inc.:
6,550,000 7.25% due 6/15/2010 6,517,250
3,534,000 8.875% due 3/15/2011 3,666,525
12,000,000 Landry's Restaurants, Inc. Series B, 7.50%
due 12/15/2014 11,400,000
15,125,000 Mrs. Fields Famous Brands, LLC, 11.50%
due 3/15/2011 14,217,500
18,650,000 Tabletop Holdings Inc., 13.39%
due 5/15/2014 (e)(f) 2,797,500
--------------
79,864,775
Gaming--1.2%
2,875,000 CCM Merger, Inc., 8% due 8/01/2013 (f) 2,900,156
14,600,000 Majestic Star Casino LLC, 9.50%
due 10/15/2010 14,454,000
--------------
17,354,156
Health Care--3.8%
Alpharma, Inc.:
15,500,000 3% due 6/01/2006 (c) 19,917,500
6,050,000 8.625% due 5/01/2011 6,231,500
6,150,000 Select Medical Corp., 7.625% due 2/01/2015 5,888,625
7,450,000 Team Health, Inc., 9% due 4/01/2012 7,897,000
10,275,000 U.S. Oncology, Inc., 10.75% due 8/15/2014 11,508,000
4,000,000 Ventas Realty, LP, 9% due 5/01/2012 4,540,000
--------------
55,982,625
Housing--3.1%
19,950,000 Ashton Woods USA LLC, 9.50%
due 10/01/2015 (f) 19,251,750
Building Materials Corp. of America:
3,000,000 8% due 12/01/2008 3,045,000
5,150,000 7.75% due 8/01/2014 4,995,500
3,975,000 Goodman Global Holding Co., Inc., 7.875%
due 12/15/2012 (f) 3,597,375
EUR 6,925,000 Grohe Holding GmbH, 8.625% due 10/01/2014 7,409,833
USD 6,575,000 Nortek, Inc., 8.50% due 9/01/2014 6,049,000
1,875,000 Texas Industries, Inc., 7.25% due 7/15/2013 (f) 1,950,000
--------------
46,298,458
Face
Amount Corporate Bonds Value
Information Technology--5.6%
USD19,225,000 Advanced Micro Devices, Inc., 7.75%
due 11/01/2012 $ 19,705,625
Amkor Technology, Inc.:
7,325,000 10.50% due 5/01/2009 6,226,250
11,475,000 7.125% due 3/15/2011 9,897,187
15,000,000 Cypress Semiconductor Corp., 1.25%
due 6/15/2008 (c) 17,531,250
8,830,000 Quantum Corp., 4.375% due 8/01/2010 (c) 8,531,988
8,975,000 Solar Capital Corp., 9.125% due 8/15/2013 (f) 9,300,344
6,000,000 Sungard Data Systems, Inc., 8.525%
due 8/15/2013 (a)(f) 6,210,000
5,400,000 Telcordia Technologies Inc., 10%
due 3/15/2013 (f) 5,103,000
--------------
82,505,644
Leisure--0.1%
1,400,000 Intrawest Corp., 7.50% due 10/15/2013 1,433,250
Manufacturing--7.9%
3,175,000 Altra Industrial Motion, Inc., 9%
due 12/01/2011 (f) 3,111,500
12,000,000 Case New Holland, Inc., 6% due 6/01/2009 11,520,000
6,550,000 Caue Finance Ltd., 8.875% due 8/01/2015 (f) 6,844,750
2,950,000 Chart Industries, Inc., 9.125% due 10/15/2015 (f) 2,950,000
6,150,000 Columbus McKinnon Corp., 10% due 8/01/2010 6,718,875
23,750,000 EaglePicher Inc., 9.75% due 9/01/2013 (j) 17,575,000
4,200,000 FastenTech, Inc., 11.50% due 5/01/2011 4,352,250
12,550,000 Invensys Plc, 9.875% due 3/15/2011 (f) 12,471,562
13,700,000 Medis Technologies Ltd., 6%
due 7/15/2010 (c)(f) 14,659,000
7,000,000 Mueller Group, Inc., 10% due 5/01/2012 7,420,000
11,775,000 Propex Fabrics, Inc., 10% due 12/01/2012 10,862,438
2,725,000 Sensus Metering Systems, Inc., 8.625%
due 12/15/2013 2,507,000
16,200,000 Superior Essex Communications LLC, 9%
due 4/15/2012 16,362,000
--------------
117,354,375
Metal--Other--1.3%
9,800,000 Asia Aluminum Holdings Ltd., 8%
due 12/23/2011 (f) 9,861,250
15,025,000 Kaiser Aluminum & Chemical, 12.75%
due 2/01/2003 (i)(l) 1,051,750
7,475,000 Novelis, Inc., 7.25% due 2/15/2015 (f) 7,063,875
960,000 Southern Peru Copper Corp., 6.375%
due 7/27/2015 (f) 967,892
--------------
18,944,767
Packaging--4.2%
Anchor Glass Container Corp. (o):
5,875,000 11.077% due 9/30/2006 5,992,500
7,725,000 11% due 2/15/2013 (i) 4,944,000
Crown European Holdings SA:
7,200,000 9.50% due 3/01/2011 7,884,000
7,975,000 10.875% due 3/01/2013 9,251,000
625,000 Owens-Illinois, Inc., 7.35% due 5/15/2008 637,500
Pliant Corp.:
6,100,000 11.125% due 9/01/2009 5,246,000
12,740,000 13% due 6/01/2010 6,051,500
13,150,000 Portola Packaging, Inc., 8.25% due 2/01/2012 9,205,000
11,325,000 Tekni-Plex, Inc., 12.75% due 6/15/2010 6,285,375
U.S. Can Corp.:
2,475,000 10.875% due 7/15/2010 2,598,750
750,000 12.375% due 10/01/2010 714,375
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC. SEPTEMBER 30, 2005
Schedule of Investments (continued) (in U.S. dollars)
Face
Amount Corporate Bonds Value
Packaging (concluded)
USD 4,000,000 Wise Metals Group LLC, 10.25%
due 5/15/2012 $ 3,160,000
--------------
61,970,000
Paper--6.8%
21,000,000 APP Finance II Mauritius Ltd, 12% (d)(j) 630,000
Ainsworth Lumber Co. Ltd.:
5,450,000 7.77% due 10/01/2010 (a) 5,436,375
4,925,000 7.25% due 10/01/2012 4,629,500
6,275,000 Domtar, Inc., 7.125% due 8/15/2015 5,753,372
6,325,000 Georgia-Pacific Corp., 9.375% due 2/01/2013 7,052,375
2,331,000 Graphic Packaging International Corp., 9.50%
due 8/15/2013 2,191,140
4,500,000 Indah Kiat International Finance Series C,
12.50% due 6/15/2006 (j) 3,150,000
14,975,000 JSG Funding Plc, 9.625% due 10/01/2012 (h) 15,049,875
EUR 7,951,991 Jefferson Smurfit Group Plc, 11.50%
due 10/01/2015 (f) 8,484,757
USD14,000,000 Mandra Forestry, 12% due 5/15/2013 (f) 14,140,000
NewPage Corp.:
6,475,000 9.943% due 5/01/2012 (a) 6,118,875
8,100,000 12% due 5/01/2013 7,047,000
PT Pabrik Kertas Tjiwa Kimia (f):
2,739,605 Tranche A, 4.19% due 4/28/2015 2,328,664
7,051,383 Tranche B, 4.19% due 4/28/2018 4,583,399
9,113,607 Tranche C, 0% due 4/28/2027 2,278,402
11,398,000 Western Forest Products, Inc., 15%
due 7/28/2009 (f)(h) 10,956,534
--------------
99,830,268
Retail--2.7%
10,450,000 General Nutrition Centers, Inc., 8.625%
due 1/15/2011 10,032,000
5,500,000 Jean Coutu Group, Inc., 8.50% due 8/01/2014 5,472,500
Neiman-Marcus Group, Inc. (f):
7,100,000 9% due 10/15/2015 7,117,750
6,750,000 10.375% due 10/15/2015 6,716,250
9,500,000 Southern States Cooperative, Inc., 10.50%
due 11/01/2010 (f) 9,975,000
--------------
39,313,500
Service--3.1%
1,375,000 Ahern Rentals, Inc., 9.25% due 8/15/2013 (f) 1,405,937
6,925,000 Allied Waste North America, Inc. Series B,
7.375% due 4/15/2014 6,509,500
4,000,000 Ashtead Holdings Plc, 8.625% due 8/01/2015 (f) 4,205,000
1,900,000 Buhrmann US, Inc., 8.25% due 7/01/2014 1,942,750
4,450,000 Knowledge Learning Corp., Inc., 7.75%
due 2/01/2015 (f) 4,361,000
1,975,000 Mac-Gray Corp., 7.625% due 8/15/2015 (f) 2,014,500
7,450,000 NationsRent Cos., Inc., 9.50% due 5/01/2015 7,748,000
8,875,000 United Rentals North America, Inc., 7.75%
due 11/15/2013 8,564,375
GBP 4,975,000 WRG Acquisitions Plc, 8.099%
due 12/15/2011 (a)(f) 9,010,289
--------------
45,761,351
Steel--0.7%
USD 9,000,000 CSN Islands VIII Corp., 9.75% due 12/16/2013 (f) 9,990,000
Telecommunications--3.1%
ADC Telecommunications, Inc. (c):
6,400,000 1% due 6/15/2008 6,496,000
5,500,000 3.996% due 6/15/2013 (a) 5,788,750
Face
Amount Corporate Bonds Value
Telecommunications (concluded)
USD 831,000 Alaska Communications Systems Holdings, Inc.,
9.875% due 8/15/2011 $ 907,867
3,600,000 LCI International, Inc., 7.25% due 6/15/2007 3,510,000
Terremark Worldwide Inc (c):
800,000 9% due 6/15/2009 640,000
7,150,000 9% due 6/15/2009 (f) 5,720,000
12,000,000 Time Warner Telecom Holdings, Inc., 9.25%
due 2/15/2014 12,150,000
10,590,000 Time Warner Telecom, Inc., 10.125%
due 2/01/2011 10,907,700
--------------
46,120,317
Transportation--1.4%
7,225,000 General Maritime Corp.,10% due 3/15/2013 7,947,500
13,575,000 Titan Petrochemicals Group Ltd., 8.50%
due 3/18/2012 (f) 13,065,938
--------------
21,013,438
Utility--2.6%
Calpine Corp. (f):
13,025,000 9.875% due 12/01/2011 9,508,250
10,700,000 8.75% due 7/15/2013 7,570,250
5,600,000 Calpine Generating Co. LLC, 13.216%
due 4/01/2011 (a) 5,320,000
3,699,000 Centerpoint Energy, Inc. Series B, 3.75%
due 5/15/2023 (c) 4,896,551
6,850,000 Reliant Energy, Inc., 6.75% due 12/15/2014 6,730,125
4,750,000 Tenaska Alabama Partners LP, 7%
due 6/30/2021 (f) 4,809,437
--------------
38,834,613
Wireless Communications--0.4%
700,000 Digicel Ltd., 9.25% due 9/01/2012 (f) 724,500
4,850,000 SBA Communications Corp., 8.50%
due 12/01/2012 5,274,375
--------------
5,998,875
Total Corporate Bonds
(Cost--$1,448,877,588)--86.7% 1,281,806,460
Floating Rate Loan Interests (n)
Health Care--0.5%
7,150,000 HealthSouth Corp. Term Loan A, 10.375%
due 1/16/2011 7,078,500
Total Floating Rate Loan Interests
(Cost--$7,150,000)--0.5% 7,078,500
Shares
Held Common Stocks
Energy--Other--1.1%
603,781 Trico Marine Services, Inc. (i) 16,090,764
Paper--0.2%
1,280,355 Western Forest Products, Inc. (i) 2,757,959
330,542 Western Forest Products, Inc. Restricted
Shares (i) 712,007
--------------
3,469,966
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC. SEPTEMBER 30, 2005
Schedule of Investments (continued) (in U.S. dollars)
Shares
Held Common Stocks Value
Telecommunications--0.0%
2 PTV, Inc. (i) $ 1,001
Total Common Stocks
(Cost--$52,118,808)--1.3% 19,561,731
Preferred Stocks
Broadcasting--0.3%
105,389 Emmis Communications Corp. Class A,
6.25% (c) 4,558,074
Telecommunications--0.0%
130 PTV, Inc. Series A, 10% 221
Total Preferred Stocks
(Cost--$4,408,773)--0.3% 4,558,295
Face
Amount Trust Preferred
Health Care--0.9%
USD13,019,000 Fresenius Medical Care Capital Trust II, 7.875%
due 2/01/2008 13,539,760
Total Trust Preferred
(Cost--$13,059,418)--0.9% 13,539,760
Shares
Held Warrants (b)
Cable--International--0.0%
117,980 NTL, Inc. (expires 1/13/2011) 70,788
Cable--U.S.--0.0%
143,265 Loral Space & Communications
(expires 12/26/2006) 716
15,000 Loral Space & Communications
(expires 1/15/2007) 450
--------------
1,166
Shares
Held Warrants (b) Value
Health Care--0.0%
201,408 HealthSouth Corp. (expires 1/16/2014) $ 503,520
Wireless Communications--0.1%
3,600 American Tower Corp. (expires 8/01/2008) 1,266,040
Total Warrants
(Cost--$834,901)--0.1% 1,841,514
Beneficial
Interest Other Interests (g)
Airlines--0.8%
US Airways, Inc.--Equipment Trust
Certificates:
USD 1,092,000 Series 1988-F 218,400
1,092,000 Series 1988-G 218,400
1,092,000 Series 1988-H 218,400
1,092,000 Series 1988-I 218,400
1,432,000 Series A 286,400
1,815,000 Series C 363,000
1,107,000 Series E 221,400
25,044,090 US Airways Group, Inc.--Certificate of
Beneficial Interest 10,518,518
Total Other Interests
(Cost--$15,396,189)--0.8% 12,262,918
Short-Term Securities
USD115,038,594 Merrill Lynch Liquidity Series, LLC
Cash Sweep Series I (k) 115,038,594
Total Short-Term Securities
(Cost--$115,038,594)--7.8% 115,038,594
Total Investments
(Cost--$1,656,884,271*)--98.4% 1,455,687,772
Other Assets Less Liabilities--1.6% 22,694,921
--------------
Net Assets--100.0% $1,478,382,693
==============
* The cost and unrealized appreciation (depreciation) of investments as
of September 30, 2005, as computed for federal income tax purposes,
were as follows:
Aggregate cost $ 1,659,863,033
==================
Gross unrealized appreciation $ 39,217,807
Gross unrealized depreciation (243,393,068)
------------------
Net unrealized depreciation $ (204,175,261)
==================
(a) Floating rate note.
(b) Warrants entitle the Portfolio to purchase a predetermined number
of shares of common stock and are non-income producing. The purchase
price and number of shares are subject to adjustment under certain
conditions until the expiration date.
(c) Convertible security.
(d) Security is a perpetual bond and has no definite maturity date.
(e) Represents a zero coupon or step bond; the interest rate shown reflects
the effective yield at the time of purchase.
(f) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
(g) Other interests represent beneficial interest in liquidation trusts and
other reorganization entities.
(h) Represents a pay-in-kind security, which may pay interest in additional
face/shares.
(i) Non-income producing security.
(j) Non-income producing security; issuer filed for bankruptcy or is in
default of interest payments.
(k) Investments in companies considered to be an affiliate of the Porfolio,
for purposes of Section 2(a)(3) of the Investment Company Act of 1940,
were as follows:
Net Interest
Affiliate Activity Income
Merrill Lynch Liquidity Series, LLC
Cash Sweep Series I $(86,118,674) $3,712,583
(l) As a result of bankruptcy proceedings, the company did not repay the
principal amount of the security upon maturity.
(m) Subject to principal paydowns.
(n) Floating rate loan interests in which the Portfolio invests generally
pay interest at rates that are periodically redetermined by reference
to a base lending rate plus a premium. These base lending rates are
generally (i) the lending rate offered by one or more European banks,
such as LIBOR (London InterBank Offered Rate), (ii) the prime rate
offered by one or more major U.S. banks, or (iii) the certificate of
deposit rate.
(o) Issuer filed for bankruptcy.
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC. SEPTEMBER 30, 2005
Schedule of Investments (concluded) (in U.S. dollars)
For Portfolio compliance purposes, the Portfolio's industry classifications
refer to 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 industry sub-classifications
for reporting ease. Industries are shown as a percent of net assets.
These industry classifications are unaudited.
Swaps outstanding as of September 30, 2005 were as follows:
Unrealized
Notional Appreciation
Amount (Depreciation)
Bought credit default protection
on Dow Jones CDX North America
High Yield BB Index Series 4 and
pay 2.10%
Broker, Deutsche Bank AG London
Expires June 2010 $ 2,425,000 $ 2,505
Bought credit default protection
on Dow Jones CDX North America
High Yield BB Index Series 4 and
pay 2.10%
Broker, Deutsche Bank AG London
Expires June 2010 $ 1,600,000 (22)
Sold credit default protection on
Dow Jones CDX North America
High Yield B Index Series 4 and
receive 3.40%
Broker, Deutsche Bank AG London
Expires June 2010 $ 4,000,000 (12,300)
Sold credit default protection on
Dow Jones CDX North America
High Yield B Index Series 4 and
receive 3.40%
Broker, Lehman Brothers
Special Finance
Expires June 2010 $ 5,975,000 (48,248)
Swaps outstanding as of September 30, 2005 were as follows (concluded):
Unrealized
Notional Appreciation
Amount (Depreciation)
Sold credit default protection on
Dow Jones CDX North America
High Yield B Index Series 4 and
receive 3.40%
Broker, JPMorgan Chase
Expires June 2010 $ 7,500,000 $ (23,102)
Sold credit default protection on
Dow Jones CDX North America
High Yield B Index Series 4 and
receive 3.40%
Broker, UBS Warburg
Expires June 2010 $ 20,000,000 (136,500)
Bought credit default protection on
Chemtura Corp. and pay 1.26%
Broker, Credit Suisse First Boston
Expires December 2010 $ 3,575,000 (1,738)
Bought credit default protection on
Chemtura Corp. and pay 1.42%
Broker, Morgan Stanley
Capital Services
Expires December 2010 $ 3,575,000 (27,656)
------------
Total $ (247,061)
============
Financial futures contracts sold as of September 30, 2005 were as follows:
Number of Expiration Face Unrealized
Contracts Issue Date Value Appreciation
455 10-Year U.S. December
Treasury Note 2005 $50,629,767 $615,314
Currency Abbreviations
EUR Euro
GBP British Pound
USD U.S. Dollar
See Notes to Financial Statements.
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC. SEPTEMBER 30, 2005
Statement of Assets and Liabilities
As of September 30, 2005
Assets
Investments in unaffiliated securities, at value (identified cost--$1,541,845,677) $ 1,340,649,178
Investments in affiliated securities, at value (identified cost--$115,038,594) 115,038,594
Cash 15,077,376
Cash held as collateral for financial futures contracts 350,000
Swap premium paid 519,440
Receivables:
Interest (including $373,531 from affiliates) $ 29,926,825
Capital shares sold 1,849,044
Variation margin 149,297
Dividends 82,335
Swaps 40,564
Other 943,487 32,991,552
---------------
Prepaid expenses 50,127
---------------
Total assets 1,504,676,267
---------------
Liabilities
Unrealized depreciation on swaps 247,061
Payables:
Securities purchased 17,534,429
Capital shares redeemed 4,742,644
Dividends to shareholders 2,211,595
Distributor 551,448
Investment adviser 459,697
Other affiliates 406,283 25,906,096
---------------
Accrued expenses and other liabilities 140,417
---------------
Total liabilities 26,293,574
---------------
Net Assets
Net assets $ 1,478,382,693
===============
Net Assets Consist of
Class A Shares of Common Stock, $.10 par value, 500,000,000 shares authorized $ 9,665,003
Class B Shares of Common Stock, $.10 par value, 1,500,000,000 shares authorized 8,491,163
Class C Shares of Common Stock, $.10 par value, 200,000,000 shares authorized 4,364,529
Class I Shares of Common Stock, $.10 par value, 500,000,000 shares authorized 6,762,146
Paid-in capital in excess of par 3,555,149,451
Undistributed investment income--net $ 18,497,240
Accumulated realized capital losses--net (1,923,683,111)
Unrealized depreciation--net (200,863,728)
---------------
Total accumulated losses--net (2,106,049,599)
---------------
Net Assets $ 1,478,382,693
===============
Net Asset Value
Class A--Based on net assets of $488,005,802 and 96,650,025 shares outstanding $ 5.05
===============
Class B--Based on net assets of $428,811,741 and 84,911,627 shares outstanding $ 5.05
===============
Class C--Based on net assets of $220,443,169 and 43,645,290 shares outstanding $ 5.05
===============
Class I--Based on net assets of $341,121,981 and 67,621,460 shares outstanding $ 5.04
===============
See Notes to Financial Statements.
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC. SEPTEMBER 30, 2005
Statement of Operations
For the Year Ended September 30, 2005
Investment Income
Interest (including $3,712,583 from affiliates and net of $89 foreign withholding tax) $ 140,789,866
Dividends 622,661
Other 3,150,828
---------------
Total income 144,563,355
---------------
Expenses
Investment advisory fees $ 7,157,090
Account maintenance and distribution fees--Class B 4,133,860
Account maintenance and distribution fees--Class C 1,672,120
Account maintenance fees--Class A 1,218,108
Transfer agent fees--Class B 833,586
Transfer agent fees--Class A 638,192
Transfer agent fees--Class I 620,233
Accounting services 460,730
Transfer agent fees--Class C 336,001
Printing and shareholder reports 115,915
Custodian fees 87,244
Registration fees 82,813
Professional fees 55,856
Pricing fees 22,863
Directors' fees and expenses 21,301
Other 69,592
---------------
Total expenses 17,525,504
---------------
Investment income--net 127,037,851
---------------
Realized & Unrealized Gain (Loss)--Net
Realized loss on:
Investments--net (52,033,779)
Futures contracts and swaps--net (1,398,887)
Foreign currency transactions--net (636,189) (54,068,855)
---------------
Change in unrealized appreciation/depreciation on:
Investments--net 24,103,925
Futures contracts and swaps--net 737,177
Foreign currency transactions--net (35,663) 24,805,439
--------------- ---------------
Total realized and unrealized loss--net (29,263,416)
---------------
Net Increase in Net Assets Resulting from Operations $ 97,774,435
===============
See Notes to Financial Statements.
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC. SEPTEMBER 30, 2005
Statements of Changes in Net Assets
For the Year Ended
September 30,
Increase (Decrease) in Net Assets: 2005 2004
Operations
Investment income--net $ 127,037,851 $ 134,548,658
Realized loss--net (54,068,855) (36,203,272)
Change in unrealized appreciation/depreciation--net 24,805,439 128,283,727
--------------- ---------------
Net increase in net assets resulting from operations 97,774,435 226,629,113
--------------- ---------------
Dividends to Shareholders
Investment income--net:
Class A (37,949,072) (32,091,292)
Class B (39,606,978) (49,998,908)
Class C (15,083,283) (11,747,376)
Class I (37,911,824) (40,663,219)
--------------- ---------------
Net decrease in net assets resulting from dividends to shareholders (130,551,157) (134,500,795)
--------------- ---------------
Capital Share Transactions
Net decrease in net assets derived from capital share transactions (339,395,472) (155,575,271)
--------------- ---------------
Contributions from Affiliates & Redemption Fees
Contributions from affiliates -- 809,067
Redemption fees 13,142 2,254
--------------- ---------------
Net increase in net assets resulting from contributions from affiliates and
redemption fees 13,142 811,321
--------------- ---------------
Net Assets
Total decrease in net assets (372,159,052) (62,635,632)
Beginning of year 1,850,541,745 1,913,177,377
--------------- ---------------
End of year* $ 1,478,382,693 $ 1,850,541,745
=============== ===============
* Undistributed investment income--net $ 18,497,240 $ 18,782,484
=============== ===============
See Notes to Financial Statements.
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC. SEPTEMBER 30, 2005
Financial Highlights
Class A
The following per share data and ratios have been derived For the Year Ended September 30,
from information provided in the financial statements. 2005 2004 2003 2002 2001
Per Share Operating Performance
Net asset value, beginning of year $ 5.15 $ 4.92 $ 4.05 $ 4.74 $ 6.04
---------- ---------- ---------- ---------- ----------
Investment income--net .39++ .36++ .38++ .46 .61
Realized and unrealized gain (loss)--net (.09)** .23** .89 (.69) (1.30)
---------- ---------- ---------- ---------- ----------
Total from investment operations .30 .59 1.27 (.23) (.69)
---------- ---------- ---------- ---------- ----------
Less dividends from investment income--net (.40) (.36) (.40) (.46) (.61)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 5.05 $ 5.15 $ 4.92 $ 4.05 $ 4.74
========== ========== ========== ========== ==========
Total Investment Return*
Based on net asset value per share 5.99% 12.35%+++ 32.13% (5.60%) (12.10%)
========== ========== ========== ========== ==========
Ratios to Average Net Assets
Expenses .85% .89% .86% .86% .86%
========== ========== ========== ========== ==========
Investment income--net 7.58% 7.09% 8.39% 9.93% 11.23%
========== ========== ========== ========== ==========
Supplemental Data
Net assets, end of year (in thousands) $ 488,006 $ 471,585 $ 411,467 $ 274,069 $ 268,633
========== ========== ========== ========== ==========
Portfolio turnover 67.06% 102.54% 106.52% 46.18% 23.24%
========== ========== ========== ========== ==========
* Total investment returns exclude the effects of sales charges.
** Includes redemption fees, which are less than $.01 per share.
++ Based on average shares outstanding.
+++ Fund Asset Management, L.P. (an affiliate), reimbursed the Portfolio in connection
with the write-off of an uncollectible interest receivable amount. Reimbursement had
no impact on total investment return.
See Notes to Financial Statements.
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC. SEPTEMBER 30, 2005
Financial Highlights (continued)
Class B
The following per share data and ratios have been derived For the Year Ended September 30,
from information provided in the financial statements. 2005 2004 2003 2002 2001
Per Share Operating Performance
Net asset value, beginning of year $ 5.15 $ 4.92 $ 4.05 $ 4.74 $ 6.04
---------- ---------- ---------- ---------- ----------
Investment income--net .36++ .34++ .36++ .43 .58
Realized and unrealized gain (loss)--net (.08)** .23** .88 (.69) (1.30)
---------- ---------- ---------- ---------- ----------
Total from investment operations .28 .57 1.24 (.26) (.72)
---------- ---------- ---------- ---------- ----------
Less dividends from investment income--net (.38) (.34) (.37) (.43) (.58)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 5.05 $ 5.15 $ 4.92 $ 4.05 $ 4.74
========== ========== ========== ========== ==========
Total Investment Return*
Based on net asset value per share 5.44% 11.77%+++ 31.45% (6.09%) (12.56%)
========== ========== ========== ========== ==========
Ratios to Average Net Assets
Expenses 1.37% 1.40% 1.39% 1.39% 1.37%
========== ========== ========== ========== ==========
Investment income--net 6.99% 6.57% 8.00% 9.52% 10.78%
========== ========== ========== ========== ==========
Supplemental Data
Net assets, end of year (in thousands) $ 428,812 $ 648,270 $ 852,371 $ 894,051 $1,387,523
========== ========== ========== ========== ==========
Portfolio turnover 67.06% 102.54% 106.52% 46.18% 23.24%
========== ========== ========== ========== ==========
* Total investment returns exclude the effects of sales charges.
** Includes redemption fees, which are less than $.01 per share.
++ Based on average shares outstanding.
+++ Fund Asset Management, L.P. (an affiliate), reimbursed the Portfolio in connection
with the write-off of an uncollectible interest receivable amount. Reimbursement had
no impact on total investment return.
See Notes to Financial Statements.
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC. SEPTEMBER 30, 2005
Financial Highlights (continued)
Class C
The following per share data and ratios have been derived For the Year Ended September 30,
from information provided in the financial statements. 2005 2004 2003 2002 2001
Per Share Operating Performance
Net asset value, beginning of year $ 5.15 $ 4.92 $ 4.05 $ 4.74 $ 6.04
---------- ---------- ---------- ---------- ----------
Investment income--net .36++ .33++ .35++ .43 .58
Realized and unrealized gain (loss)--net (.09)** .23** .89 (.69) (1.30)
---------- ---------- ---------- ---------- ----------
Total from investment operations .27 .56 1.24 (.26) (.72)
---------- ---------- ---------- ---------- ----------
Less dividends from investment income--net (.37) (.33) (.37) (.43) (.58)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 5.05 $ 5.15 $ 4.92 $ 4.05 $ 4.74
========== ========== ========== ========== ==========
Total Investment Return*
Based on net asset value per share 5.38% 11.72%+++ 31.38% (6.14%) (12.60%)
========== ========== ========== ========== ==========
Ratios to Average Net Assets
Expenses 1.43% 1.46% 1.44% 1.44% 1.43%
========== ========== ========== ========== ==========
Investment income--net 7.00% 6.53% 7.88% 9.37% 10.69%
========== ========== ========== ========== ==========
Supplemental Data
Net assets, end of year (in thousands) $ 220,443 $ 191,203 $ 177,568 $ 147,198 $ 177,236
========== ========== ========== ========== ==========
Portfolio turnover 67.06% 102.54% 106.52% 46.18% 23.24%
========== ========== ========== ========== ==========
* Total investment returns exclude the effects of sales charges.
** Includes redemption fees, which are less than $.01 per share.
++ Based on average shares outstanding.
+++ Fund Asset Management, L.P. (an affiliate), reimbursed the Portfolio in connection
with the write-off of an uncollectible interest receivable amount. Reimbursement had
no impact on total investment return.
See Notes to Financial Statements.
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC. SEPTEMBER 30, 2005
Financial Highlights (concluded)
Class I
The following per share data and ratios have been derived For the Year Ended September 30,
from information provided in the financial statements. 2005 2004 2003 2002 2001
Per Share Operating Performance
Net asset value, beginning of year $ 5.15 $ 4.92 $ 4.05 $ 4.73 $ 6.03
---------- ---------- ---------- ---------- ----------
Investment income--net .40++ .37++ .39++ .47 .62
Realized and unrealized gain (loss)--net (.09)** .24** .89 (.68) (1.30)
---------- ---------- ---------- ---------- ----------
Total from investment operations .31 .61 1.28 (.21) (.68)
---------- ---------- ---------- ---------- ----------
Less dividends from investment income--net (.42) (.38) (.41) (.47) (.62)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 5.04 $ 5.15 $ 4.92 $ 4.05 $ 4.73
========== ========== ========== ========== ==========
Total Investment Return*
Based on net asset value per share 6.05% 12.63%+++ 32.42% (5.16%) (11.92%)
========== ========== ========== ========== ==========
Ratios to Average Net Assets
Expenses .60% .64% .61% .62% .61%
========== ========== ========== ========== ==========
Investment income--net 7.75% 7.33% 8.69% 10.21% 11.52%
========== ========== ========== ========== ==========
Supplemental Data
Net assets, end of year (in thousands) $ 341,122 $ 539,484 $ 471,771 $ 377,623 $ 438,383
========== ========== ========== ========== ==========
Portfolio turnover 67.06% 102.54% 106.52% 46.18% 23.24%
========== ========== ========== ========== ==========
* Total investment returns exclude the effects of sales charges.
** Includes redemption fees, which are less than $.01 per share.
++ Based on average shares outstanding.
+++ Fund Asset Management, L.P. (an affiliate), reimbursed the Portfolio in connection
with the write-off of an uncollectible interest receivable amount. Reimbursement had
no impact on total investment return.
See Notes to Financial Statements.
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC. SEPTEMBER 30, 2005
Notes to Financial Statements
1. Significant Accounting Policies:
High Income Portfolio (the "Portfolio") is one of three portfolios in Merrill
Lynch Bond Fund, Inc. (the "Fund") which is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company. The Portfolio's financial statements are prepared in
conformity with U.S. generally accepted accounting principles, which may
require the use of management accruals and estimates. Actual results may
differ from these estimates. The Portfolio offers multiple classes of shares.
Shares of Class A and Class I are sold with a front-end sales charge. Shares
of Class B and Class C may be subject to a contingent deferred sales charge.
All classes of shares have identical voting, dividend, liquidation and other
rights and the same terms and conditions, except that Class A, Class B and
Class C Shares bear certain expenses related to the account maintenance of
such shares, and Class B and Class C Shares also bear certain expenses related
to the distribution of such shares. Each class has exclusive voting rights
with respect to matters relating to its account maintenance and distribution
expenditures (except that Class B shareholders may vote on certain changes to
the Class A distribution plan). 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 ("OTC") markets and are valued at the last available bid price in
the OTC 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 sale price in the case of exchange-traded options. In the
case of options traded in the OTC market, valuation is the last asked price
(options written) or the last bid price (options purchased). Swap agreements
are based upon quoted fair valuations received daily by the Portfolio from a
pricing service or 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 asked 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.
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC. SEPTEMBER 30, 2005
Notes to Financial Statements (continued)
(b) Derivative financial instruments--The Portfolio may engage in various
portfolio investment strategies both to increase the return of the Portfolio
and to hedge, or protect, its exposure to interest rate movements and
movements in the securities markets. Losses may arise due to changes in the
value of the contract or if the counterparty does not perform under the
contract.
* Financial futures contracts--The Portfolio may purchase or sell financial
futures contracts and options on such futures contracts. Futures contracts are
contracts for delayed delivery of securities at a specific future date and at
a specific price or yield. Upon entering into a contract, the Portfolio
deposits and maintains as collateral such initial margin as required by the
exchange on which the transaction is effected. Pursuant to the contract, the
Portfolio agrees to receive from or pay to the broker an amount of cash equal
to the daily fluctuation in value of the contract. Such receipts or payments
are known as variation margin and are recorded by the Portfolio as unrealized
gains or losses. When the contract is closed, the Portfolio records a realized
gain or loss equal to the difference between the value of the contract at the
time it was opened and the value at the time it was closed.
* Options--The Portfolio may purchase and write call and put options. When the
Portfolio writes an option, an amount equal to the premium received by the
Portfolio is reflected as an asset and an equivalent liability. The amount of
the liability is subsequently marked-to-market to reflect the current market
value of the option written. When a security is purchased or sold through an
exercise of an option, the related premium paid (or received) is added to (or
deducted from) the basis of the security acquired or deducted from (or added
to) the proceeds of the security sold. When an option expires (or the
Portfolio enters into a closing transaction), the Portfolio realizes a gain or
loss on the option to the extent of the premiums received or paid (or loss or
gain to the extent the cost of the closing transaction exceeds the premium
paid or received).
Written and purchased options are non-income producing investments.
* Swaps--The Portfolio may enter into swap agreements, which are over-the-
counter contracts in which the Portfolio and a counterparty agree to make
periodic net payments on a specified notional amount. The net payments can be
made for a set period of time or may be triggered by a predetermined 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. These periodic payments
received or made by the Portfolio are recorded in the accompanying Statement
of Operations as realized gains or losses, respectively. Gains or losses are
realized upon termination of the swap agreements. Swaps are marked-to-market
daily and changes in value are recorded as unrealized appreciation
(depreciation). Risks may exceed amounts recognized in the financial
statements. Risks include changes in the returns of the underlying instruments,
failure of the counterparties to perform under the contracts' terms and the
possible lack of liquidity with respect to the swap agreements.
(c) Income taxes--It is the Portfolio's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and
to distribute substantially all of its taxable income to its shareholders.
Therefore, no federal income tax provision is required.
(d) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Realized gains and losses on security transactions are determined on the
identified cost basis. Dividend income is recorded on the ex-dividend dates.
Interest income is recognized on the accrual basis. The Portfolio amortizes
all premiums and discounts on debt securities.
(e) Prepaid registration fees--Prepaid registration fees are charged to
expense as the related shares are issued.
(f) Dividends and distributions--Dividends from net investment income are
declared daily and paid monthly. Distributions of capital gains are recorded
on the ex-dividend dates.
(g) Expenses--Certain expenses have been allocated to the individual
portfolios in the Fund on a pro rata basis based upon the respective aggregate
net asset value of each portfolio included in the Fund.
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC. SEPTEMBER 30, 2005
Notes to Financial Statements (continued)
(h) 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.
(i) Reclassification--U.S. generally accepted accounting principles require
that certain components of net assets be adjusted to reflect permanent
differences between financial and tax reporting. Accordingly, during the
current year, $3,228,062 has been reclassified between accumulated net
realized capital losses and undistributed net investment income. This
reclassification is the result of permanent differences attributable to swap
agreements, foreign currency transactions, amortization methods on fixed
income securities and securities in default. This reclassification has no
effect on net assets or net asset values per share.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services,
Inc. ("PSI"), an indirect, wholly-owned subsidiary of Merrill Lynch & Co.,
Inc. ("ML & Co."), which is the limited partner. The Fund has also entered
into a Distribution Agreement and Distribution Plans with FAM Distributors,
Inc. ("FAMD" or the "Distributor"), which is a wholly-owned subsidiary of
Merrill Lynch Group, Inc. FAM has entered into a Sub-Advisory Agreement with
Merrill Lynch Asset Management U.K. Limited ("MLAM U.K."), an affiliate of
FAM, pursuant to which MLAM U.K. provides investment advisory services to FAM
with respect to the Fund. There is no increase in the aggregate fees paid by
the Fund for these services.
FAM is responsible for the management of the Fund's Portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Fund. For such services, the Fund pays a monthly fee
with respect to the Portfolio based upon the aggregate average daily value
of the Portfolio's net assets and the Fund's Intermediate Term Portfolio and
Master Core Bond Portfolio of Master Bond Trust net assets at the following
annual rates: .55% of the Fund's average daily net assets not exceeding
$250 million; .50% of average daily net assets in excess of $250 million but
not exceeding $500 million; .45% of average daily net assets in excess of
$500 million but not exceeding $750 million; and .40% of average daily net
assets in excess of $750 million. For the year ended September 30, 2005, the
aggregate average daily net assets of the Portfolio, including the Fund's
Intermediate Term Portfolio and Master Core Bond Portfolio, was approximately
$4,985,377,000.
Pursuant to the Distribution Plans adopted by the Fund in accordance with Rule
12(b)-1 under the Investment Company Act of 1940, the Fund pays the Distributor
ongoing account maintenance and distribution fees. The fees are accrued daily
and paid monthly at annual rates based upon the average daily net assets of
the shares of the Portfolio as follows:
Account
Maintenance Distribution
Fee Fee
Class A .25% --
Class B .25% .50%
Class C .25% .55%
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("MLPF&S"), an affiliate of FAM, also provides
account maintenance and distribution services to the Fund. The ongoing account
maintenance fee compensates the Distributor and MLPF&S for providing account
maintenance services to Class A, Class B and Class C shareholders. The ongoing
distribution fee compensates the Distributor and MLPF&S for providing
shareholder and distribution-related services to Class B and Class C
shareholders.
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC. SEPTEMBER 30, 2005
Notes to Financial Statements (continued)
For the year ended September 30, 2005, 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 $ 33,218 $ 311,529
Class I $ 3,138 $ 23,991
For the year ended September 30, 2005, MLPF&S received contingent deferred
sales charges of $423,436 and $34,912 relating to transactions in Class B and
Class C Shares of the Portfolio, 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.
In addition, MLPF&S received $3,625 in commissions on the execution of
portfolio security transactions for the Portfolio for the year ended September
30, 2005.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of ML & Co.,
is the Fund's transfer agent.
For the year ended September 30, 2005, the Portfolio reimbursed FAM $39,319
for certain accounting services.
Certain officers and/or directors of the Fund are officers and/or directors of
FAM, PSI, MLAM U.K., FAMD, ML & Co., and/or MLIM, LLC.
3. Investments:
Purchases and sales of investments (including paydowns), excluding short-term
securities, for the year ended September 30, 2005 were $1,041,157,958 and
$1,318,841,671, respectively.
4. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions was
$339,395,472 and $155,575,271 for the years ended September 30, 2005 and
September 30, 2004, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Year Dollar
Ended September 30, 2005 Shares Amount
Shares sold 16,573,666 $ 85,777,658
Automatic conversion of shares 12,963,188 66,744,231
Shares issued to shareholders in
reinvestment of dividends 4,041,045 20,818,359
--------------- ---------------
Total issued 33,577,899 173,340,248
Shares redeemed (28,478,789) (146,606,214)
--------------- ---------------
Net increase 5,099,110 $ 26,734,034
=============== ===============
Class A Shares for the Year Dollar
Ended September 30, 2004 Shares Amount
Shares sold 11,724,005 $ 59,781,193
Automatic conversion of shares 17,284,262 88,471,569
Shares issued to shareholders in
reinvestment of dividends 3,262,341 16,685,491
--------------- ---------------
Total issued 32,270,608 164,938,253
Shares redeemed (24,337,153) (124,613,195)
--------------- ---------------
Net increase 7,933,455 $ 40,325,058
=============== ===============
Class B Shares for the Year Dollar
Ended September 30, 2005 Shares Amount
Shares sold 5,635,202 $ 29,242,286
Shares issued to shareholders in
reinvestment of dividends 3,437,367 17,748,293
--------------- ---------------
Total issued 9,072,569 46,990,579
--------------- ---------------
Automatic conversion of shares (12,963,166) (66,744,231)
Shares redeemed (37,023,658) (191,426,047)
--------------- ---------------
Total redeemed (49,986,824) (258,170,278)
--------------- ---------------
Net decrease (40,914,255) $ (211,179,699)
=============== ===============
Class B Shares for the Year Dollar
Ended September 30, 2004 Shares Amount
Shares sold 8,156,775 $ 41,636,213
Shares issued to shareholders in
reinvestment of dividends 4,228,097 21,608,900
--------------- ---------------
Total issued 12,384,872 63,245,113
--------------- ---------------
Automatic conversion of shares (17,287,114) (88,471,569)
Shares redeemed (42,566,080) (217,545,473)
--------------- ---------------
Total redeemed (59,853,194) (306,017,042)
--------------- ---------------
Net decrease (47,468,322) $ (242,771,929)
=============== ===============
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC. SEPTEMBER 30, 2005
Notes to Financial Statements (concluded)
Class C Shares for the Year Dollar
Ended September 30, 2005 Shares Amount
Shares sold 16,285,467 $ 84,255,178
Shares issued to shareholders in
reinvestment of dividends 1,791,300 9,220,763
--------------- ---------------
Total issued 18,076,767 93,475,941
Shares redeemed (11,538,023) (59,562,637)
--------------- ---------------
Net increase 6,538,744 $ 33,913,304
=============== ===============
Class C Shares for the Year Dollar
Ended September 30, 2004 Shares Amount
Shares sold 9,856,805 $ 50,336,677
Shares issued to shareholders in
reinvestment of dividends 1,194,361 6,110,806
--------------- ---------------
Total issued 11,051,166 56,447,483
Shares redeemed (10,018,208) (51,124,366)
--------------- ---------------
Net increase 1,032,958 $ 5,323,117
=============== ===============
Class I Shares for the Year Dollar
Ended September 30, 2005 Shares Amount
Shares sold 8,749,442 $ 45,297,625
Shares issued to shareholders in
reinvestment of dividends 4,245,074 21,919,381
--------------- ---------------
Total issued 12,994,516 67,217,006
Shares redeemed (50,216,853) (256,080,117)
--------------- ---------------
Net decrease (37,222,337) $ (188,863,111)
=============== ===============
Class I Shares for the Year Dollar
Ended September 30, 2004 Shares Amount
Shares sold 43,617,517 $ 220,352,544
Shares issued to shareholders in
reinvestment of dividends 4,301,782 22,013,114
--------------- ---------------
Total issued 47,919,299 242,365,658
Shares redeemed (39,009,553) (200,817,175)
--------------- ---------------
Net increase 8,909,746 $ 41,548,483
=============== ===============
The Portfolio charges a 2% redemption fee on the proceeds (calculated at
market value) of a redemption (either by sale or exchange) of Portfolio shares
made within 30 days of purchase. The redemption fee is paid to the Portfolio
and is intended to offset the trading costs, market impact and other costs
associated with short-term trading into and out of the Portfolio.
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 a group of
lenders, which expires November 2005. 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 .07% 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 defined in the
credit agreement. The Portfolio did not borrow under the credit agreement
during the year ended September 30, 2005.
6. Distributions to Shareholders:
The tax character of distributions paid during the fiscal years ended
September 30, 2005 and September 30, 2004 was as follows:
9/30/2005 9/30/2004
Distributions paid from:
Ordinary income $ 130,551,157 $ 134,500,795
--------------- ---------------
Total taxable distributions $ 130,551,157 $ 134,500,795
=============== ===============
As of September 30, 2005, the components of accumulated losses on a tax basis
were as follows:
Undistributed ordinary income--net $ 21,256,000
Undistributed long-term capital gains--net --
-----------------
Total undistributed earnings--net 21,256,000
Capital loss carryforward (1,861,898,611)*
Unrealized losses--net (265,406,988)**
-----------------
Total accumulated losses--net $ (2,106,049,599)
=================
* On September 30, 2005, the Portfolio had a net capital loss carry-
forward of $1,861,898,611, of which $74,968,568 expires in 2007,
$60,400,417 expires in 2008, $387,766,347 expires in 2009,
$187,386,138 expires in 2010, $684,131,730 expires in 2011,
$458,613,508 expires in 2012 and $8,631,903 expires in 2013.
This amount will be available to offset like amounts of any future
taxable gains.
** The difference between book-basis and tax-basis net unrealized
losses is attributable primarily to the tax deferral of losses on wash
sales, the difference between book and tax amortization methods
for premiums and discounts on fixed income securities, the book/
tax differences in the accrual of income on securities in default, the
realization for tax purposes of unrealized gains/(losses) on certain
futures contracts, the deferral of post-October capital losses for tax
purposes and other book/tax temporary differences.
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC. SEPTEMBER 30, 2005
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 High Income Portfolio (one of the
portfolios constituting Merrill Lynch Bond Fund, Inc. (the "Fund")) as of
September 30, 2005, 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. The Fund is not required to have, nor were we engaged to perform,
an audit of its internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Fund's
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. Our procedures
included confirmation of securities owned as of September 30, 2005, by
correspondence with the custodian and brokers; where replies were not received
from brokers, we performed other auditing procedures. 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 High
Income Portfolio of Merrill Lynch Bond Fund, Inc. as of September 30, 2005,
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 23, 2005
Important Tax Information (unaudited)
The following information is provided with respect to the ordinary income
distributions paid monthly by High Income Portfolio of Merrill Lynch Bond
Fund, Inc. during the fiscal year ended September 30, 2005:
October to
November December
2004 2004
Qualified Dividend Income
for Individuals 1.51% 1.24%
Dividends Qualifying for the
Dividends Received Deduction
for Corporations .44% .44%
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC. SEPTEMBER 30, 2005
Officers and Directors
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name, Address & Age Fund Served Principal Occupation(s) During Past 5 Years Director Director
Interested Director
Robert C. Doll, Jr.* President 2005 to President of the MLIM/FAM-advised funds since 130 Funds None
P.O. Box 9011 and present 2005; President of MLIM and FAM since 2001; 175 Portfolios
Princeton, Director Co-Head (Americas Region) thereof from 2000
NJ 08543-9011 to 2001 and Senior Vice President from 1999 to
Age: 51 2001; President and Director of Princeton Services,
Inc. ("Princeton Services") since 2001; President
of Princeton Administrators, L.P. ("Princeton
Administrators") since 2001; Chief Investment
Officer of OppenheimerFunds, Inc. in 1999 and
Executive Vice President thereof from 1991
to 1999.
* Mr. Doll 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. Doll
is an "interested person," as described in the Investment Company Act, of the Fund
based on his current positions with MLIM, FAM, Princeton Services and Princeton
Administrators. Directors serve until their resignation, removal or death, or
until December 31 of the year in which they turn 72. As Fund President, Mr. Doll
serves at the pleasure of the Board of Directors.
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC. SEPTEMBER 30, 2005
Officers and Directors (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 49 Funds None
P.O. Box 9095 present Business, State University of New York at 49 Portfolios
Princeton, Albany since 2000 and Professor thereof from
NJ 08543-9095 1989 to 2000; International Consultant, Urban
Age: 65 Institute, Washington D.C. from 1995 to 1999.
Cynthia A. Montgomery Director 1994 to Professor, Harvard Business School since 1989; 49 Funds Newell
P.O. Box 9095 present Associate Professor, J.L. Kellogg Graduate 49 Portfolios Rubbermaid, Inc.
Princeton, School of Management, Northwestern University (manufacturing)
NJ 08543-9095 from 1985 to 1989; Associate Professor, Graduate
Age: 53 School of Business Administration, University of
Michigan from 1979 to 1985; Director, Harvard
Business School of Publishing since 2005.
Jean Margo Reid Director 2004 to Self-employed consultant since 2001; Counsel 49 Funds None
P.O. Box 9095 present of Alliance Capital Management (investment 49 Portfolios
Princeton, adviser) in 2000; General Counsel, Director and
NJ 08543-9095 Secretary of Sanford C. Bernstein & Co., Inc.
Age: 60 (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; and Director of
Covenant House from 2001 to 2004.
Roscoe S. Suddarth Director 2000 to President, Middle East Institute, from 1995 49 Funds None
P.O. Box 9095 present to 2001; Foreign Service Officer, United States 49 Portfolios
Princeton, Foreign Service, from 1961 to 1995; Career
NJ 08543-9095 Minister from 1989 to 1995; Deputy Inspector
Age: 70 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 from 1984 to 1995, Dean 49 Funds Bowne & Co.,
P.O. Box 9095 present from 1984 to 1993 and since 1995 Dean 49 Portfolios Inc. (financial
Princeton, Emeritus of New York University's Leonard N. printers);
NJ 08543-9095 Stern School of Business Administration. Vornado Realty
Age: 67 Trust (real estate
company);
Alexander's, Inc.
(real estate
company)
Edward D. Zinbarg Director 2000 to Self-employed financial consultant since 1994; 49 Funds None
P.O. Box 9095 present Executive Vice President of the Prudential 49 Portfolios
Princeton, Insurance Company of America from 1988 to
NJ 08543-9095 1994; Former Director of Prudential Reinsurance
Age: 70 Company and former Trustee of the Prudential
Foundation.
* Directors serve until their resignation, removal or death, or until December 31 of
the year in which they turn 72.
** Chairman of the Board and the Audit Committee.
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC. SEPTEMBER 30, 2005
Officers and Directors (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 1999;
P.O. Box 9011 President present Senior Vice President and Treasurer of Princeton Services since 1999 and Director
Princeton, and and since 2004; Vice President of FAM Distributors, Inc. ("FAMD") since 1999; Vice
NJ 08543-9011 Treasurer 1999 to President of MLIM and FAM from 1990 to 1997; Director of Taxation of MLIM from
Age: 45 present 1990 to 2001; Vice President, Treasurer and Secretary of the IQ Funds since 2004.
B. Daniel Evans Vice 2002 to Managing Director of MLIM since 2004; Director (Global Fixed Income) of MLIM
P.O. Box 9011 President present from 2000 to 2004; Vice President of MLIM from 1995 to 2000.
Princeton,
NJ 08543-9011
Age: 61
Jeffrey Hiller Chief 2004 to Chief Compliance Officer of the MLIM/FAM-advised funds and First Vice President
P.O. Box 9011 Compliance present and Chief Compliance Officer of MLIM (Americas Region) since 2004; Chief
Princeton, Officer Compliance Officer of the IQ Funds since 2004; Global Director of Compliance at
NJ 08543-9011 Morgan Stanley Investment Management from 2002 to 2004; Managing Director and
Age: 54 Global Director of Compliance at Citigroup Asset Management from 2000 to 2002;
Chief Compliance Officer at Soros Fund Management in 2000; Chief Compliance
Officer at Prudential Financial from 1995 to 2000; Senior Counsel in the
Commission's Division of Enforcement in Washington, D.C. from 1990 to 1995.
Alice A. Pellegrino Secretary 2004 to Director (Legal Advisory) of MLIM since 2002; Vice President of MLIM from 1999 to
P.O. Box 9011 present 2002; Attorney associated with MLIM since 1997; Secretary of MLIM, FAM, FAMD
Princeton, and Princeton Services since 2004.
NJ 08543-9011
Age: 45
* Officers of the Fund serve at the pleasure of the Board of Directors.
Further information about the Fund's Officers and Directors is available in
the Fund's Statement of Additional Information, which can be obtained without
charge by calling 1-800-MER-FUND.
Custodian
State Street Bank and Trust Company
P.O. Box 351
Boston, MA 02101
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
800-637-3863
HIGH INCOME PORTFOLIO OF MERRILL LYNCH BOND FUND, INC. SEPTEMBER 30, 2005
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, 2005 - $39,000
Fiscal Year Ending September 30, 2004 - $36,000
(b) Audit-Related Fees -
Fiscal Year Ending September 30, 2005 - $0
Fiscal Year Ending September 30, 2004 - $0
(c) Tax Fees - Fiscal Year Ending September 30, 2005 - $5,700
Fiscal Year Ending September 30, 2004 - $5,800
The nature of the services include tax compliance, tax advice and
tax planning.
(d) All Other Fees -
Fiscal Year Ending September 30, 2005 - $0
Fiscal Year Ending September 30, 2004 - $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, 2005 - $6,827,388
Fiscal Year Ending September 30, 2004 - $14,091,966
(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) - $1,227,000, 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 - Portfolio Managers of Closed-End Management Investment Companies -
Not Applicable
Item 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 10 - Submission of Matters to a Vote of Security Holders - Not Applicable
Item 11 - Controls and Procedures
11(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.
11(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 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - See Item 2
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(b) - Certifications - Attached hereto
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
High Income Portfolio of Merrill Lynch Bond Fund, Inc.
By: /s/ Robert C. Doll, Jr.
------------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
High Income Portfolio of Merrill Lynch Bond Fund, Inc.
Date: November 17, 2005
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/ Robert C. Doll, Jr.
------------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
High Income Portfolio of Merrill Lynch Bond Fund, Inc.
Date: November 17, 2005
By: /s/ Donald C. Burke
------------------------------
Donald C. Burke,
Chief Financial Officer of
High Income Portfolio of Merrill Lynch Bond Fund, Inc.
Date: November 17, 2005