HIGH INCOME
PORTFOLIO
Merrill Lynch
Corporate Bond Fund, Inc.
FUND LOGO
Annual Report
September 30, 1998
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.
Merrill Lynch
Corporate Bond Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
HIGH INCOME PORTFOLIO
TO OUR SHAREHOLDERS
The High-Yield Market
A global revaluation of asset values occurred during the three
months ended September 30, 1998, and the high-yield market did not
escape the downdraft. Specifically, the unmanaged CS First Boston
High Yield Index registered a total return of -6.15% for the
September quarter. August was a particularly brutal month. As a
result, the Index had a total return of -6.79%, the worst
performance since the recession month of September 1990, when the
Index had a total return of -7.63%. A flight to quality by investors
has driven Government bond yields to low levels not seen in more
than a generation. This movement in Treasury yields, combined with
the August/September high-yield selloff, resulted in a dramatic
widening of spreads in the high-yield market. Yield spreads widened
from 395 basis points (3.95%) at June 30, 1998 to 691 basis points
as of September 30, 1998.
This flight to quality was also evident within the high-yield market
as BB-rated securities had a total return of -1.05% as compared to
- -6.13% for B-rated securities. The pressure was severe in the zero
coupon sector, where returns were -10.69% as compared to -5.24% for
cash pay bonds. Every single sector in the Index reported negative
returns for the quarter, with the worst performers being paper,
metals and energy. The emerging markets sector, which accounts for
5.9% of the Index, went into a free fall, recording a total return
of -21.47% for the September quarter (-16.6% for the month of
August). The unmanaged JP Morgan Emerging Markets Bond Index (a
broader measure) had a total return of -11.57% for the same period (-
19.25% in the month of August).
The upheaval in the high-yield market, which was stunning in its
swiftness and magnitude, appears to have been triggered by the
meltdown in Russia and the sharp selloff in the domestic equity
markets. The disclosure in September of huge losses at a prominent
hedge fund continued the turmoil and heightened investors' aversion
to risky asset classes. Mutual funds flows turned negative in August
as investors pulled approximately $1.5 billion out of high-yield
funds. This was the largest funds outflow since March 1994, when
nearly $1.8 billion exited the market. September was also a
disappointing month, as approximately $608 million left the high-
yield sector. The combination of these factors resulted in poor
liquidity, particularly during the latter part of August, as dealers
were reluctant to hold inventory. The new-issue market has dried up
almost completely, as only $2.4 billion of new debt came to market
in September.
One consequence of the lack of liquidity and negative investor
sentiment is that any piece of disappointing news--such as a
company's quarterly earnings coming in below expectations or a
downgrade in credit quality rating by one of the rating agencies--
can result in prices for that issuer's bonds declining rapidly.
Downward moves of five points or more have not been uncommon,
particularly for lower-rated credits. Amidst continuing signs of
diminished liquidity in the banking system and heightened aversion
to risk, we expect default rates to increase from the currently low
level of 2.62%.
Portfolio Strategy
During the quarter ended September 30,1998, the Fund underperformed
the unmanaged CS First Boston High Yield Index. Total returns for
the Fund's Class A, Class B, Class C and Class D Shares were -9.50%,
- -9.79%, -9.67% and -9.67%, respectively, compared to the total
return of -6.15% for the Index. Fund performance in the September
quarter was hindered by our investments in emerging market bonds
(13.4% as compared to 5.9% for the Index), which were pummeled by
political and economic turmoil in Russia, Asia and, to a lesser
extent, Latin America. Relative to the unmanaged CS First Boston
High Yield Index, the Fund's overweighted position in energy bonds
did hinder our performance. (Results shown do not reflect sales
charges and would be lower if sales charges were included. Complete
performance can be found on pages 5--7 of this report to
shareholders.)
Merrill Lynch Corporate Bond Fund, Inc., High Income Portfolio
September 30, 1998
With the focus on maintaining liquidity in the portfolio, Fund sales
during the September quarter concentrated on bonds that had reached
our price targets. For example, we eliminated Tele-Communications
preferred stock, First Nationwide Holdings Inc., Niagara Mohawk
Power Corp., Seagull Energy Corp. and Westpoint Stevens Inc. We also
trimmed our positions in Lenfest Communications, Inc., Sinclair
Broadcasting Group Inc. and Riverwood International Corp. Taking
advantage of many excellent values created by the illiquidity in the
high-yield market, we added to some of the established holdings in
the portfolio. Examples include Ocean Energy Inc. and Parker
Drilling Co. in the energy sector; PSINET Inc. and Level 3
Communications, Inc. in the communications sector; and Galey & Lord
Inc. in the textile group.
Investment Outlook
There has been some deterioration in the overall environment as it
relates to credit quality during the September quarter. The US
economy is clearly decelerating, and a recession in 1999 is
possible. Certain industries, such as steel and paper, have
experienced product price erosion as the result of imported product
competition. While this is a negative, we believe that our holdings
in these areas are strong enough to absorb the pricing pressures for
a prolonged period. Our holdings in emerging markets are in strong
financial positions, and therefore we believe default risk on these
securities is low.
Given historically wide spread levels, the high-yield market appears
to be discounting both a dramatic slowdown in the US economy and an
increase in default statistics. At current levels, we believe the
market offers an exceptional value.
Fiscal Year in Review
For the 12 months ended September 30,1998, High Income Portfolio
underperformed the unmanaged CS First Boston High Yield Index. Total
returns for the Fund's Class A, Class B, Class C and Class D Shares
were -5.98%, -6.80%, -6.72% and -6.32%, respectively, compared to
the -0.52% total return for the Index.
Specific sectors that negatively impacted Fund's performance during
the fiscal year were the emerging markets and energy bonds. The
Fund's 12-month investment performance benefited most from the
Portfolio's cable holdings and specific merger-related holdings such
as Coleman Holdings, Teleport Communications Group Inc. and Showboat
Inc.
In Conclusion
We appreciate your ongoing investment in High Income Portfolio of
Merrill Lynch Corporate Bond Fund, Inc., and we look forward to
assisting you with your financial needs in the months and years
ahead.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent T. Lathbury III)
Vincent T. Lathbury III
Senior Vice President and Portfolio Manager
November 13, 1998
Merrill Lynch Corporate Bond Fund, Inc., High Income Portfolio
September 30, 1998
PORTFOLIO INFORMATION
As of September 30, 1998
Quality Profile* Percent of
S&P Rating/Moody's Rating Long-Term Investments
BBB/Baa 5.1%
BB/Ba 30.4
B/B 56.1
CCC/Caa 4.2
Not Rated 4.2
[FN]
*In cases when bonds are rated differently by Standard & Poor's
Corporation and Moody's Investors Service, Inc., bonds are
categorized according to the higher of the two ratings.
Percent of
Five Largest Industries Net Assets
Energy 9.3%
Health Services 7.4
Cable--Domestic 6.5
Wireless Communications--Domestic
Paging & Cellular 5.7
Cable--International 5.0
Geographic Profile Percent of
Top Five Countries* Net Assets
Brazil 3.8%
United Kingdom 3.8
Argentina 3.6
Mexico 2.4
Canada 2.4
[FN]
*All holdings are denominated in US dollars.
OFFICERS AND DIRECTORS
Arthur Zeikel, President and Director
Ronald W. Forbes, Director
Cynthia A. Montgomery, Director
Charles C. Reilly, Director
Kevin A. Ryan, Director
Richard R. West, Director
Terry K. Glenn, Executive Vice President
Christopher G. Ayoub, Senior Vice President
Jay C. Harbeck, Senior Vice President
Vincent T. Lathbury III, Senior Vice President
Joseph T. Monagle Jr., Senior Vice President
Donald C. Burke, Vice President
Gerald M. Richard, Treasurer
Philip M. Mandel, Secretary
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
Merrill Lynch Corporate Bond Fund, Inc., High Income Portfolio
September 30, 1998
PORTFOLIO INFORMATION (concluded)
<TABLE>
<CAPTION>
Percent of
Ten Largest Corporate Holdings Net Assets
<S> <S> <C>
TransAmerican Energy TransAmerican is a privately held holding company whose principal subsidiaries 2.8%
Corp. are wholly-owned TransAmerican Refining Corp. (TARC) and 69%-owned
TransTexas Gas Corp., a publicly held company which explores for and
produces oil and natural gas primarily in south Texas. TARC is in the
midst of a two-phase construction and expansion program which, when finished,
will give it one of the largest and most complex refineries in the United
States. Our bonds are secured by some 33 million shares of TransTexas common,
and two intercompany loans secured by mortgages on substantially all of
the assets of TARC and TransTexas.
Nextel Communications Nextel offers digital and analog wireless communication services throughout the 2.7
Inc. United States. The company's digital service currently covers approximately
50% of the total US population and, once completed, will enable Nextel to
offer nationwide digital wireless service.
NTL Inc. Through various subsidiaries, NTL Inc. owns and operates television and radio 1.8
broadcasting, cable television and telecommunications systems in the United
Kingdom. The company also owns Comcast and Diamond cable and telephony operations.
Century Communications Century owns and operates 70 cable systems in 25 states and Puerto Rico. In 1.5
Corporation addition, the company has a 31.8% common equity interest in Centennial
Cellular, a provider of wireless telephone service in four geographic areas
in the United States and Puerto Rico.
Fresenius Medical Fresenius Medical Care is the world's largest integrated provider of dialysis 1.4
Care AG products and services. Its 910 dialysis centers treat 68,000 patients
worldwide, including approximately 23% of the US dialysis patients. The
company also is the world's second-largest manufacturer and distributor of
dialysis equipment and related supplies, selling products in more than
110 companies.
USAir Inc. USAir is the sixth-largest US airline, with major hubs in Pittsburgh, Charlotte, 1.3
Philadelphia and Baltimore and routes covering most of the Eastern half of the
country. Our investment includes a sizable amount of equipment trust certificates
secured by modern, saleable aircraft.
RSL Communications PLC RSL Communincations is a global facilities-based telecommunications company 1.2
that provides international services, including long distance, calling card,
private line, value-added and Internet-based services for busineses, consumers
and other carriers. The company operates on four continents in 19 countries.
Trump Atlantic City Trump Atlantic City owns and operates the Trump Taj Mahal, the Trump Plaza 1.1
Associates/Funding Inc. and the Trump World's Fair hotel-casinos, all located on the boardwalk
in Atlantic City, New Jersey. These bonds are secured by mortgages on the
properties.
Sinclair Broadcasting This is a diversified broadcasting company that owns or provides programming 1.1
Group Inc. to television and radio stations across the United States.
Paging Network, Inc. The company is the largest provider of paging services in the United States 1.0
with operations in all 50 states, Puerto Rico and Canada. A recently launched
service called "Voice Now" provides recorded voice messages plus CNN News,
sports and stock quotes.
</TABLE>
Merrill Lynch Corporate Bond Fund, Inc., High Income Portfolio
September 30, 1998
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the
Merrill Lynch Select Pricing SM System, which offers four pricing
alternatives:
* Class A Shares incur a maximum initial sales charge (front-end
load) of 4% and bear no ongoing distribution or account maintenance
fees. Class A Shares are available only to eligible investors.
* Class B Shares are subject to a maximum contingent deferred sales
charge of 4% if redeemed during the first year, decreasing 1% each
year thereafter to 0% after the fourth year. In addition, Class B
Shares are subject to a distribution fee of 0.50% and an account
maintenance fee of 0.25%. These classes of shares automatically
convert to Class D Shares after approximately 10 years. (There is no
initial sales charge for automatic share conversions.)
* Class C Shares are subject to a distribution fee of 0.55% and an
account maintenance fee of 0.25%. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed within
one year of purchase.
* Class D Shares incur a maximum initial sales charge of 4% and an
account maintenance fee of 0.25% (but no distribution fee).
None of the past results shown should be considered a representation
of future performance. Figures shown in the "Recent Performance
Results" and "Average Annual Total Return" tables assume
reinvestment of all dividends and capital gains distributions at net
asset value on the payable date. Investment return and principal
value of shares will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost. Dividends paid to each
class of shares will vary because of the different levels of account
maintenance, distribution and transfer agency fees applicable to
each class, which are deducted from the income available to be paid
to shareholders.
<TABLE>
Recent Performance Results
<CAPTION>
Ten Year/ Standardized
12 Month 3 Month Since Inception 30-day Yield
Total Return Total Return Total Return As of 9/30/98
<S> <C> <C> <C> <C>
High Income Portfolio Class A Shares* - 5.98% -9.50% +170.14% 10.72%
High Income Portfolio Class B Shares* - 6.80 -9.79 +148.64 10.39
High Income Portfolio Class C Shares* - 6.72 -9.67 + 32.94 10.33
High Income Portfolio Class D Shares* - 6.32 -9.67 + 35.72 10.48
Merrill Lynch High Yield Master Index** + 3.37 -3.58 +184.61/+181.66/+52.23
CS First Boston High Yield Index** - 0.52 -6.15 +176.09/+172.35/+45.34
Ten-Year US Treasury Securities*** +18.43 +9.20 +156.79/+151.51/+59.35
<FN>
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included. Total
investment returns are based on changes in net asset values for the
periods shown, and assume reinvestment of all dividends and capital
gains distributions at net asset value on the payable date. The
Fund's ten-year/inception periods are: Class A Shares, for the ten
years ended 9/30/98; Class B Shares, from 10/21/88 to 9/30/98; and
Class C & Class D Shares, from 10/21/94 to 9/30/98.
**Unmanaged. These market-weighted Indexes mirror the high-yield
debt market of securities rated BBB or lower. Ten year/since
inception total returns for Merrill Lynch High Yield Master Index
are: for the ten years ended 9/30/98; from 10/21/88 to 9/30/98; and
from 10/21/94 to 9/30/98, respectively. Ten year/since inception
total returns for CS First Boston High Yield Index are: for the ten
years ended 9/30/98; from 10/31/88 to 9/30/98; and from 10/31/94 to
9/30/98, respectively.
***Ten year/since inception total returns are: for the ten years
ended 9/30/98; from 10/31/88 to 9/30/98; and from 10/31/94 to
9/30/98, respectively.
</TABLE>
Merrill Lynch Corporate Bond Fund, Inc., High Income Portfolio
September 30, 1998
PERFORMANCE DATA (continued)
Total Return Based on a $10,000 Investment
A line graph depicting the growth of an investment in the Fund's
Class A Shares compared to growth of an investment in the CS First
Boston High Yield Index. Beginning and ending values are:
9/88 9/98
ML Corporate Bond Fund, Inc.'s
High Income Portfolio++--
Class A Shares* $ 9,600 $25,932
CS First Boston High Yield
Index++++ $10,000 $27,609
A line graph depicting the growth of an investment in the Fund's
Class B Shares compared to growth of an investment in the CS First
Boston High Yield Index. Beginning and ending values are:
10/21/88** 9/98
ML Corporate Bond Fund, Inc.'s
High Income Portfolio++--
Class B Shares* $10,000 $24,864
CS First Boston High Yield
Index++++ $10,000 $27,235
A line graph depicting the growth of an investment in the Fund's
Class C Shares and Class D Shares compared to growth of an
investment in the CS First Boston High Yield Index. Beginning and
ending values are:
10/21/94** 9/98
ML Corporate Bond Fund, Inc.'s
High Income Portfolio++--
Class C Shares* $10,000 $13,294
ML Corporate Bond Fund, Inc.'s
High Income Portfolio++--
Class D Shares* $ 9,600 $13,030
CS First Boston High Yield
Index++++ $10,000 $14,534
[FN]
*Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
**Commencement of operations.
++The Portfolio invests principally in fixed-income securities which
are rated in the lower rating categories of the established rating
services, or in unrated securities of comparable quality.
++++This unmanaged market-weighted Index, which mirrors the high-
yield debt market, is comprised of 423 securities rated BBB or
below. The starting date for the Index in the Class B Shares graph
is 10/31/88 and in the Class C & Class D Shares graph is 10/31/94.
Past performance is not predictive of future performance.
Merrill Lynch Corporate Bond Fund, Inc., High Income Portfolio
September 30, 1998
PERFORMANCE DATA (concluded)
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 9/30/98 - 5.98% - 9.74%
Five Years Ended 9/30/98 + 7.16 + 6.29
Ten Years Ended 9/30/98 +10.45 +10.00
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 9/30/98 -6.80% -10.16%
Five Years Ended 9/30/98 +6.35 +6.35
Inception (10/21/88)
through 9/30/98 +9.59 +9.59
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 9/30/98 -6.72% -7.56%
Inception (10/21/94)
through 9/30/98 +7.49 +7.49
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 9/30/98 -6.32% -10.07%
Inception (10/21/94)
through 9/30/98 +8.06 +6.94
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
Merrill Lynch Corporate Bond Fund, Inc., High Income Portfolio
September 30, 1998
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Issue Cost (Note 1a)
Bonds
<S> <S> <S> <C> <S> <C> <C>
Aerospace--0.4% B+ B1 $25,000,000 Kitty Hawk, Inc., 9.95% due 11/15/2004 $ 25,033,750 $ 25,375,000
Airlines--1.3% Piedmont Aviation, Inc.:
B+ Ba2 1,304,000 Series 88J, 10.05% due 5/13/2005 1,181,685 1,482,068
BB Ba2 1,116,000 Series 88J, 10.10% due 5/13/2007 999,021 1,307,355
BB Ba2 3,767,000 Series 88J, 10.10% due 5/13/2009 3,327,542 4,648,836
BB Ba2 2,710,000 Series 88J, 10.15% due 5/13/2011 2,366,806 3,444,207
B+ Ba2 2,226,000 Series 88K, 10% due 5/13/2004 2,026,506 2,491,818
B+ Ba2 2,666,000 Series 88K, 10.10% due 5/13/2008 2,374,020 3,248,587
B+ Ba2 2,550,000 Series 88K, 10.15% due 5/13/2010 2,251,293 3,194,092
B+ Ba2 1,985,000 Series E, 10.30% due 3/28/2007 1,855,291 2,346,717
B+ Ba2 1,950,000 Series F, 10.35% due 3/28/2011 1,999,719 2,450,848
BB Ba2 1,500,000 Series H, 10% due 11/08/2012 1,493,250 1,803,090
USAir Inc.:
B+ B1 16,500,000 9.625% due 2/01/2001 13,309,906 17,118,750
BB Ba2 21,000,000 10.375% due 3/01/2013 20,768,125 23,123,520
B+ B1 4,634,836 Series 89A1, 9.33% due 1/01/2006++ 4,384,418 5,174,678
BB B1 1,432,000 Series A, 10.70% due 1/15/2007 1,525,137 1,674,817
BB B1 1,815,000 Series C, 10.70% due 1/15/2007 1,933,048 2,122,760
BB B1 1,107,000 Series E, 10.70% due 1/15/2007 1,159,472 1,294,708
B+ B1 1,092,000 Series F, 10.70% due 1/01/2003 984,165 1,224,137
B+ B1 1,092,000 Series G, 10.70% due 1/01/2003 984,165 1,224,137
B+ B1 1,092,000 Series H, 10.70% due 1/01/2003 984,165 1,224,137
B+ B1 1,092,000 Series I, 10.70% due 1/01/2003 984,165 1,224,137
-------------- --------------
66,891,899 81,823,399
Automotive-- B B2 10,000,000 Collins & Aikman Corp., 11.50% due 4/15/2006 10,000,000 10,550,000
0.8% B+ B2 40,000,000 Venture Holdings Trust, 9.50% due 7/01/2005 38,705,329 39,000,000
-------------- --------------
48,705,329 49,550,000
Broadcasting-- CCC NR* 4,686,000 ACME Intermediate Holdings/Finance, 0/12%
Radio & due 9/30/2005 (a) 2,905,053 2,788,170
Television-- B- B3 3,000,000 ACME Television/Finance, 10.976% due
2.9% 9/30/2004 (a)(h) 2,415,407 2,355,000
NR* NR* 4,000,000 Big City Radio Inc., 11.129% due 3/15/2005 (a) 3,079,930 2,780,000
B Ba3 2,000,000 Chancellor Media Corporation, 9% due
10/01/2008 (h) 2,000,000 2,025,000
B- Ba2 17,500,000 EZ Communications, Inc., 9.75% due 12/01/2005 17,361,575 18,637,500
B- B3 23,000,000 LIN Holdings Corp., 10% due 3/01/2008 (a)(h) 14,942,596 15,122,500
B- B3 30,000,000 LIN Television Corp., 8.375% due 3/01/2008 (h) 29,929,800 29,100,000
B- B3 23,022,000 SFX Broadcasting Inc., 10.75% due 5/15/2006 22,940,750 25,151,535
B- B3 17,000,000 Salem Communications Corp., 9.50% due
10/01/2007 17,160,625 17,170,000
Sinclair Broadcasting Group Inc.:
B B2 45,000,000 10% due 9/30/2005 45,343,269 47,250,000
B B2 9,700,000 9% due 7/15/2007 9,632,442 9,700,000
B B2 15,000,000 8.75% due 12/15/2007 14,941,200 14,775,000
-------------- --------------
182,652,647 186,854,705
Building Nortek Inc.:
Materials-- B- B3 14,550,000 9.875% due 3/01/2004 14,409,525 14,259,000
0.3% B+ B1 9,000,000 9.25% due 3/15/2007 8,947,980 9,090,000
-------------- --------------
23,357,505 23,349,000
</TABLE>
Merrill Lynch Corporate Bond Fund, Inc., High Income Portfolio
September 30, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Issue Cost (Note 1a)
Bonds (continued)
<S> <S> <S> <C> <S> <C> <C>
Cable-- American Telecasting, Inc. (a):
Domestic--6.1% CCC Ca $32,225,000 21.117% due 6/15/2004 $ 22,469,059 $ 8,056,250
CCC Ca 6,440,000 26.322% due 8/15/2005 2,838,530 1,521,450
CSC Holdings Inc.:
BB- B1 13,750,000 9.875% due 5/15/2006 13,718,750 14,918,750
BB- B1 5,000,000 10.50% due 5/15/2016 4,900,000 5,675,000
Century Communications Corporation:
BB- Ba3 40,000,000 9.75% due 2/15/2002 40,474,688 42,900,000
BB- Ba3 45,000,000 9.50% due 3/01/2005 44,542,812 48,993,750
BB- Ba3 4,050,000 8.375% due 12/15/2007 3,976,249 4,161,375
B- B2 70,000,000 Echostar Communications Corp., 11.712% due
6/01/2004 (a) 64,676,450 67,550,000
CCC+ B3 25,000,000 Echostar Satellite Broadcasting, 11.25% due
3/15/2004 (a) 22,061,904 22,250,000
B B2 31,000,000 Intermedia Capital Partners L.P., 11.25%
due 8/01/2006 31,002,500 34,720,000
Lenfest Communications, Inc.:
BB- B2 40,000,000 10.50% due 6/15/2006 40,444,200 45,000,000
BB- B2 10,000,000 8.25% due 2/15/2008 9,972,600 10,200,000
B B1 50,000,000 Olympus Communications L.P., 10.625% due
11/15/2006 50,282,500 55,625,000
B B3 40,000,000 TCI Satellite Entertainment, Inc., 12.15% due
2/15/2007 (a) 26,896,728 22,600,000
CCC+ Ca 50,338,000 Wireless One Inc., 13.50% due 8/01/2006 (a) 33,834,455 4,782,110
-------------- --------------
412,091,425 388,953,685
Cable-- Australis Media Ltd.:
International-- NR* NR* 8,699,997 14.391% due 11/01/2002 (a)(j) 6,557,997 5,002,498
4.6% NR* NR* 79,117,000 1.75%/15.75% due 5/15/2003 (d)(g)(i)++++ 56,318,088 2,966,887
D C 1,353,490 1.75%/15.75% due 5/15/2003 (g)(i)++++ 751,091 50,756
B- B2 55,000,000 Comcast UK Cable Partners Ltd., 11.23% due
11/15/2007 (a) 43,551,919 44,687,500
Diamond Cable Communications PLC (a):
B- Caa1 15,000,000 11.366% due 12/15/2005 11,856,531 12,075,000
B- Caa1 25,000,000 10.87% due 2/15/2007 17,426,316 17,375,000
NTL Inc.:
B- B3 20,000,000 10% due 2/15/2007 20,012,500 20,300,000
B- B3 80,000,000 Series B, 11.701% due 2/01/2006 (a) 60,860,921 63,600,000
B B3 25,000,000 Supercanal Holdings S.A., 11.50% due
5/15/2005 (h) 25,000,000 15,125,000
B+ B1 70,000,000 TeleWest Communications PLC, 11.017% due
10/01/2007 (a) 56,411,071 58,100,000
B- B2 5,000,000 Tevecap S.A., 12.625% due 11/26/2004 5,087,500 2,112,500
B B3 107,500,000 United International Holdings, Inc., 10.75%
due 2/15/2008 (a) 67,987,573 53,212,500
-------------- --------------
371,821,507 294,607,641
Capital Goods-- International Wire Group, Inc.:
1.0% B- B3 25,000,000 11.75% due 6/01/2005 24,986,250 25,750,000
B- B3 15,000,000 Series B, 11.75% due 6/01/2005 16,312,500 15,450,000
B- B3 25,250,000 Trench Electric & Trench Inc., 10.25% due
12/15/2007 25,315,625 24,555,625
-------------- --------------
66,614,375 65,755,625
</TABLE>
Merrill Lynch Corporate Bond Fund, Inc., High Income Portfolio
September 30, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Issue Cost (Note 1a)
Bonds (continued)
<S> <S> <S> <C> <S> <C> <C>
Chemicals-- BB- Ba3 $10,000,000 Agriculture Minerals & Chemicals
0.7% Company, L.P., 10.75% due 9/30/2003 $ 10,060,000 $ 10,350,000
ISP Holdings Inc.:
BB- Ba3 19,502,000 9.75% due 2/15/2002 19,502,000 20,672,120
BB- Ba3 10,000,000 9% due 10/15/2003 9,972,100 10,500,000
-------------- --------------
39,534,100 41,522,120
Child Care-- B- B3 20,000,000 KinderCare Learning Centers, Inc., 9.50%
0.3% due 2/15/2009 19,924,375 19,300,000
Computer B Ba3 60,500,000 Advanced Micro Devices, Inc., 11% due 8/01/2003 62,830,000 61,407,500
Services-- CCC Caa1 40,500,000 Dictaphone Corp., 11.75% due 8/01/2005 40,114,375 37,867,500
Electronics-- B+ B3 15,000,000 Jordan Telecom Products, Series B, 9.875% due
2.6% 8/01/2007 14,882,460 14,100,000
B- B3 25,000,000 PSINet Inc., Senior Notes, 10% due 2/15/2005 25,135,000 25,187,500
CCC NR* 7,000,000 Splitrock Services Inc., 11.75% due
7/15/2008 (c) 7,000,000 6,405,000
B- B3 4,000,000 Verio Inc., 10.375% due 4/01/2005 4,000,000 3,980,000
B- B2 30,000,000 Zilog, Inc., 9.50% due 3/01/2005 28,266,250 19,050,000
-------------- --------------
182,228,085 167,997,500
Conglomerates BB Ba3 15,000,000 Dine, S.A. de C.V., 8.75% due 10/15/2007 (h) 14,887,200 10,200,000
- --1.7% B- B3 25,000,000 Eagle-Picher Industries, 9.375% due 3/01/2008 25,109,540 23,000,000
B+ B1 26,000,000 Sequa Corp., 9.375% due 12/15/2003 25,146,562 26,130,000
BB- NR* 60,000,000 Voto-Votorantim S.A., 8.50% due 6/27/2005 (h) 58,884,775 46,050,000
-------------- --------------
124,028,077 105,380,000
Consumer B- B3 5,000,000 Albecca Inc., 10.75% due 8/15/2008 (h) 5,000,000 4,825,000
Products-- B- B3 3,000,000 Bell Sports Corp., 11% due 8/15/2008 (h) 3,000,000 2,955,000
0.4% B B3 13,000,000 Corning Consumer Products Co., 9.625% due
5/01/2008 (h) 12,432,431 10,660,000
B- B1 45,880,000 International Semi-Tech Microelectronics,
Inc., 12.51% due 8/15/2003 (a) 35,422,451 8,258,400
-------------- --------------
55,854,882 26,698,400
Consumer B- NR* 8,000,000 AP Holdings Inc., 11.164% due 3/15/2008 (a) 4,944,186 3,920,000
Services-- B- NR* 15,000,000 Apcoa Inc., 9.25% due 3/15/2008 15,012,500 13,425,000
0.5% B+ B2 13,650,000 Coinmach Corp., 11.75% due 11/15/2005 15,004,875 14,400,750
-------------- --------------
34,961,561 31,745,750
Convertible NR* B3 6,195,000 Builders Transport, Inc., 8% due
Bonds**--0.1% 8/15/2005 (i)(2) 3,614,250 1,548,750
BB+ Ba3 6,375,000 Quantum Health Resources Inc., 4.75% due
10/01/2000 (1) 5,956,562 6,040,312
-------------- --------------
9,570,812 7,589,062
Energy--9.1% B+ B2 20,000,000 Benton Oil & Gas Co., 9.375% due 11/01/2007 20,097,687 16,500,000
Chesapeake Energy Corporation:
B B1 25,000,000 9.625% due 5/01/2005 25,056,250 22,125,000
B B1 4,400,000 9.125% due 4/15/2006 4,388,100 3,762,000
B B1 1,000,000 Series B, 7.875% due 3/15/2004 983,750 850,000
B+ B2 15,000,000 Clark R & M Holdings, Inc., 8.875% due
11/15/2007 14,892,150 12,975,000
B+ B3 25,000,000 Clark USA Inc., Series B, 10.875% due
12/01/2005 26,515,000 24,125,000
BBB- Ba3 40,000,000 Compania Naviera Perez Companc
S.A.C.F.I.M.F.A., 9% due 1/30/2004 (h) 41,372,500 36,600,000
</TABLE>
Merrill Lynch Corporate Bond Fund, Inc., High Income Portfolio
September 30, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Issue Cost (Note 1a)
Bonds (continued)
<S> <S> <S> <C> <S> <C> <C>
Energy B B2 $ 10,000,000 Cross Timbers Oil Company, 8.75% due
(concluded) 11/01/2009 $ 10,000,000 $ 9,050,000
B B2 15,000,000 Energy Corp. of America, 9.50% due 5/15/2007 15,000,000 13,950,000
B- B2 20,000,000 Forcenergy, Inc., 8.50% due 2/15/2007 19,740,050 14,100,000
KCS Energy Inc.:
B B1 22,000,000 11% due 1/15/2003 22,723,750 22,110,000
B- B3 20,000,000 8.875% due 1/15/2008 19,900,000 16,500,000
BB- B1 30,000,000 Ocean Energy Inc., 8.375% due 7/01/2008 (h) 29,800,850 29,175,000
B- B3 27,000,000 Ocean Rig Norway AS, 10.25% due 6/01/2008 (h) 26,990,000 20,115,000
BBB- Baa3 27,187,500 Oleoducto Centrale S.A., 9.35% due
9/01/2005 (h)++ 27,178,437 21,410,156
Parker Drilling Co.:
B+ B1 25,500,000 Series B, 9.75% due 11/15/2006 25,510,725 23,715,000
B+ B1 14,000,000 Series D, 9.75% due 11/15/2006 14,373,310 13,020,000
Petroleo Brasileiro S.A.-Petrobras:
B+ B1 15,000,000 10% due 10/17/2006 15,097,500 11,625,000
BB- B1 15,000,000 10% due 10/17/2006 (h) 14,869,812 11,362,500
B B3 17,000,000 Southwest Royalties Inc., 10.50% due
10/15/2004 16,137,500 9,095,000
BB- B1 30,000,000 Tesoro Petroleum Corporation, 9% due 7/01/2008 29,828,700 29,100,000
B+ Caa2 289,840,000 TransAmerican Energy Corp., Series B,
13.176% due 6/15/2002 (a)(h) 263,343,664 143,470,800
NR* NR* 36,000,000 TransAmerican Refining Corporation, 13% due
12/15/2002 (j) 35,640,000 36,000,000
Trico Marine Services, Inc.:
BB- Ba3 5,000,000 8.50% due 8/01/2005 5,012,500 4,250,000
BB- Ba3 10,000,000 Series C, 8.50% due 8/01/2005 10,100,000 8,500,000
B+ B1 15,000,000 Triton Energy Corp., 9.25% due 4/15/2005 14,936,550 15,005,849
B- B2 14,500,000 United Refining Co., 10.75% due 6/15/2007 14,355,000 11,672,500
-------------- --------------
763,843,785 580,163,805
Entertainment-- B B2 27,495,000 AMF Group Inc., Series B, 12.581% due
2.1% 3/15/2006 (a) 20,136,318 17,184,375
B B1 15,000,000 Fox/Liberty Networks LLC, 8.875% due
8/15/2007 14,930,000 14,662,500
B+ B1 1,500,000 Intrawest Corporation, 9.75% due 8/15/2008 1,476,615 1,500,000
B- B3 16,250,000 Premier Parks Inc., 10% due 4/01/2008 (a) 10,472,053 10,156,250
B B2 25,000,000 Regal Cinemas, Inc., 9.50% due
6/01/2008 (h) 24,957,750 25,125,000
Six Flags Theme Parks Inc.:
B- B3 20,000,000 8.611% due 6/15/2005 (a) 22,163,007 21,900,000
B- B3 28,000,000 12.25% due 6/15/2005 (a) 28,000,000 30,660,000
B- B3 15,000,000 8.875% due 4/01/2006 15,000,000 14,925,000
-------------- --------------
137,135,743 136,113,125
Financial B B2 20,000,000 Amresco, Inc., 9.875% due 3/15/2005 20,087,500 16,200,000
Services--1.9% BB+ Ba1 40,000,000 Fuji JGB Investments LLC (Preferred),
9.87% (f)(h) 39,980,000 18,386,840
NR* Baa2 30,000,000 IBJ Capital Co. LLC (Preferred), 8.79% (f)(h) 29,655,000 21,937,980
B- B2 9,000,000 Penncorp Financial Group Inc., 9.25% due
12/15/2003 9,090,000 5,580,000
BBB- Baa1 30,000,000 SB Treasury Company LLC, 9.40% (f)(h) 30,000,000 25,244,760
BB+ Ba3 10,000,000 SIG Capital Trust I, 9.50% due 8/15/2027 (h) 10,000,000 9,912,500
BB- NR* 17,000,000 Veritas Capital Trust, 10% due 1/01/2028 17,290,000 16,532,500
BB NR* 8,449,000 Veritas Holdings GMBH, 9.625% due 12/15/2003 8,449,000 8,322,265
-------------- --------------
164,551,500 122,116,845
</TABLE>
Merrill Lynch Corporate Bond Fund, Inc., High Income Portfolio
September 30, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Issue Cost (Note 1a)
Bonds (continued)
<S> <S> <S> <C> <S> <C> <C>
Food & Chiquita Brands International Inc.:
Beverage--1.6% B+ B1 $30,000,000 9.125% due 3/01/2004 $ 29,585,625 $ 30,225,000
B+ B1 20,000,000 10.25% due 11/01/2006 19,881,400 20,700,000
CCC B2 20,000,000 DGS International Finance Co., 10% due
6/01/2007 (h) 20,068,200 11,850,000
B- B2 24,000,000 International Home Foods, Inc., 10.375% due
11/01/2006 24,000,000 25,560,000
B B2 12,000,000 Southern Foods SFG, 9.875% due 9/01/2007 12,000,000 12,300,000
-------------- --------------
105,535,225 100,635,000
Foreign Republic of Argentina:
Government BB Ba3 20,000,000 11% due 10/09/2006 20,196,230 18,600,000
Obligations-- BB Ba3 20,750,000 Global Bonds, 11.375% due 1/30/2017 21,750,620 19,090,000
0.7% BB- B2 12,500,000 Republic of Brazil, Global Bonds, 10.125%
due 5/15/2027 10,406,250 7,875,000
-------------- --------------
52,353,100 45,565,000
Gaming--3.9% BB- B1 15,000,000 Boyd Gaming Corporation, 9.50% due 7/15/2007 14,848,500 14,925,000
B+ B2 37,000,000 GB Property Funding Corp., 10.875% due
1/15/2004 (i) 35,072,500 30,340,000
Grand Casinos Inc.:
BB Ba3 20,000,000 10.125% due 12/01/2003 19,837,500 21,250,000
B+ B2 5,000,000 9% due 10/15/2004 5,000,000 5,075,000
D Caa 60,115,000 Harrah's Jazz Co., 14.25% due 11/15/2001 (i) 49,536,050 12,023,000
B+ B2 20,000,000 Hollywood Casino Corp., 12.75% due 11/01/2003 19,318,101 20,800,000
B+ Ba3 15,000,000 Sun International Hotels Ltd., 8.625% due
+ 12/15/2007 15,000,000 15,075,000
Trump Atlantic City Associates/Funding Inc.:
BB- B1 32,900,000 11.25% due 5/01/2006 32,280,282 27,307,000
BB- B1 59,100,000 11.25% due 5/01/2006 57,838,437 49,496,250
Venetian Casino Resort LLC:
CCC+ Caa1 17,500,000 10% due 11/15/1999 16,664,126 15,137,500
B- B3 38,500,000 12.25% due 11/15/2004 38,275,000 34,842,500
-------------- --------------
303,670,496 246,271,250
Health B- B3 16,800,000 ALARIS Medical Systems, Inc., 9.75% due
Services-- 12/01/2006 (h) 16,994,312 16,212,000
7.4% B+ Ba3 47,725,000 Beverly Enterprises, Inc., 9% due 2/15/2006 46,845,487 47,963,625
Columbia/HCA Healthcare Corp.:
BBB Ba2 1,000,000 6.91% due 6/15/2005 940,800 984,995
BBB Ba2 8,460,000 8.85% due 1/01/2007 8,980,882 9,213,532
BBB Ba2 10,000,000 7.25% due 5/20/2008 9,393,300 9,785,599
BBB Ba2 14,150,000 8.70% due 2/10/2010 14,502,652 14,971,336
BBB Ba2 17,640,000 9% due 12/15/2014 18,400,090 18,712,336
BBB Ba2 2,500,000 7.50% due 12/15/2023 2,258,750 2,179,475
BBB Ba2 15,000,000 8.36% due 4/15/2024 14,614,910 14,779,800
B- B2 37,250,000 Extendicare Health Services, 9.35% due
12/15/2007 37,180,000 35,015,000
B+ Ba3 53,400,000 Fresenius Medical Capital Trust I, 7.875%
due 2/01/2008 53,567,750 49,395,000
B+ Ba3 41,091,000 Fresenius Medical Care AG, 9% due
12/01/2006 41,993,597 41,091,000
B- B3 25,000,000 Kinetic Concepts, Inc., 9.625% due 11/01/2007 25,153,750 25,000,000
B- B3 50,000,000 Magellan Health Services Inc., 9% due
2/15/2008 (h) 49,996,875 42,750,000
</TABLE>
Merrill Lynch Corporate Bond Fund, Inc., High Income Portfolio
September 30, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Issue Cost (Note 1a)
Bonds (continued)
<S> <S> <S> <C> <S> <C> <C>
Health Services Mariner Post-Acute Network Inc.:
(concluded) B- B3 $49,000,000 9.50% due 11/01/2007 $ 48,781,460 $ 45,325,000
B- B3 9,000,000 12.85% due 11/01/2007 (a) 4,959,958 4,950,000
B B2 5,000,000 Pharmerica Inc., 8.375% due 4/01/2008 5,000,000 4,575,000
B- B2 20,000,000 Sun Health Care Group, Inc., 9.50% due
7/01/2007 19,766,721 18,300,000
Tenet Healthcare Corp.:
BB- Ba3 30,000,000 8.625% due 1/15/2007 29,968,200 31,200,000
BB- Ba3 36,000,000 8.125% due 12/01/2008 (h) 35,860,320 36,630,000
-------------- --------------
485,159,814 469,033,698
Home Builders-- BB+ Ba1 15,000,000 Greystone Homes Inc., 10.75% due 3/01/2004 14,115,000 15,750,000
0.7% BB- B1 32,000,000 U.S. Home Corp., 8.88% due 8/15/2007 32,017,500 31,920,000
-------------- --------------
46,132,500 47,670,000
Hotels--0.9% HMH Properties Inc.:
BB Ba2 3,000,000 7.875% due 8/01/2005 2,999,160 3,015,000
BB Ba2 40,000,000 7.875% due 8/01/2008 39,740,800 39,600,000
Signature Resorts, Inc.:
BB- B2 10,000,000 9.25% due 5/15/2006 10,000,000 8,050,000
B B3 5,000,000 9.75% due 10/01/2007 5,000,000 3,625,000
-------------- --------------
57,739,960 54,290,000
Hotels & B+ B2 1,000,000 Station Casinos, Inc., 9.625% due 6/01/2003 1,008,750 980,000
Casinos--0.0%
Independent AES Corporation (The):
Power B+ Ba1 30,000,000 10.25% due 7/15/2006 30,000,000 31,200,000
Producers--3.0% B+ Ba1 21,000,000 8.375% due 8/15/2007 20,901,300 20,160,000
BB+ Ba2 30,000,000 CE Casecnan Water & Energy Co., 11.45% due
11/15/2005 30,000,000 20,475,000
BB+ Ba2 20,000,000 California Energy Company, Inc., 9.875% due
6/30/2003 20,122,500 22,105,500
BB- Ba2 46,000,000 Calpine Corporation, 8.75% due 7/15/2007 46,206,325 47,150,000
BB Ba1 10,000,000 ESI Tractebal Acquisition Corp., 7.99% due
12/30/2011 (h) 10,000,000 9,876,700
Midland Cogeneration Venture Limited
Partnership:
B B2 11,250,000 11.75% due 7/23/2005 11,310,000 13,971,094
B B2 5,500,000 13.25% due 7/23/2006 6,002,565 7,132,042
BB Ba2 25,000,000 Monterrey Power, S.A. de C.V., 9.625% due
11/15/2009 (h) 24,977,680 16,062,500
-------------- --------------
199,520,370 188,132,836
Industrial CCC+ Caa1 9,500,000 Thermadyne Holdings Corp., 12.426% due
Services--0.2% 6/01/2008 (a) 5,427,614 4,512,500
CCC+ B3 12,000,000 Thermadyne Manufacturing LLC/Capital,
9.875% due 6/01/2008 11,905,680 11,040,000
-------------- --------------
17,333,294 15,552,500
Media & Comtel Brasileira Ltd. (h):
Communications-- NR* NR* 3,000,000 10.75% due 9/26/2004 2,867,500 2,070,000
International-- BB- B1 42,500,000 10.75% due 9/26/2004 41,815,050 29,112,500
3.1% Globo Comunicacoes e Participacoes, Ltd. (h):
BB- B2 40,000,000 10.50% due 12/20/2006 40,144,450 22,000,000
BB- B2 10,000,000 10.625% due 12/05/2008 9,992,000 5,275,000
</TABLE>
Merrill Lynch Corporate Bond Fund, Inc., High Income Portfolio
September 30, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Issue Cost (Note 1a)
Bonds (continued)
<S> <S> <S> <C> <S> <C> <C>
Media & Grupo Televisa, S.A. de C.V.:
Communications-- BB Ba2 $ 2,500,000 11.375% due 5/15/2003 $ 2,637,500 $ 2,281,250
International BB Ba3 40,000,000 11.875% due 5/15/2006 43,002,187 36,500,000
(concluded) BB Ba2 14,000,000 11.369% due 5/15/2008 (a) 11,030,897 9,380,000
B+ B2 27,000,000 Impsat Corp., 12.375% due 6/15/2008 (h) 27,000,000 19,845,000
B+ B2 15,000,000 Orion Network Systems, Inc., 11.25% due
1/15/2007 14,825,550 14,325,000
Philippine Long Distance Telephone Company:
BB+ Ba2 9,600,000 10.625% due 6/02/2004 9,988,000 8,720,342
BB Ba2 8,500,000 9.875% due 8/01/2005 8,512,500 7,264,533
BBB- Ba3 40,000,000 Telefonica de Argentina S.A., 11.875% due
11/01/2004 38,763,075 39,400,000
-------------- --------------
250,578,709 196,173,625
Metals & BB Ba2 15,000,000 Great Central Mines Ltd., 8.875% due
Mining--2.4% 4/01/2008 15,000,000 13,875,000
CCC+ B2 50,000,000 Kaiser Aluminum & Chemical Corp., 12.75%
due 2/01/2003 51,088,125 48,750,000
B B2 20,000,000 Metals USA Inc., 8.625% due 2/15/2008 19,900,000 17,700,000
NR* NR* 25,000,000 Murrin Murrin Holdings, Inc., 9.375% due
8/31/2007 (h) 24,845,000 21,375,000
B B3 20,000,000 Ormet Corporation, 11% due 8/15/2008 (h) 19,996,250 18,600,000
B B2 30,000,000 P & L Coal Holdings Corp., 9.625% due
5/15/2008 (h) 29,914,200 30,150,000
-------------- --------------
160,743,575 150,450,000
Packaging--0.4% B B3 10,000,000 AEP Industries Inc., 9.875% due 11/15/2007 9,922,400 9,700,000
B B1 12,000,000 Silgan Corp., 9% due 6/01/2009 (h) 12,000,000 11,610,000
B+ Ba3 10,000,000 Vicap S.A., 11.375% due 5/15/2007 (h) 9,947,000 6,750,000
-------------- --------------
31,869,400 28,060,000
Paper & Forest B- Caa 21,000,000 APP Finance II Mauritius Ltd., 12% (a)(f) 18,425,000 10,544,341
Products--3.4% CCC+ Caa1 40,000,000 APP International Finance Co., 11.75% due
10/01/2005 39,716,250 23,690,570
B B3 60,000,000 Ainsworth Lumber Company, 12.50% due
7/15/2007++++ 58,571,739 56,100,000
Container Corporation of America:
B+ B1 15,420,000 9.75% due 4/01/2003 15,433,400 15,342,900
B+ B1 13,000,000 11.25% due 5/01/2004 13,000,000 13,455,000
Doman Industries Ltd.:
B+ B1 60,000,000 8.75% due 3/15/2004 57,006,250 44,100,000
BB- B1 5,000,000 9.25% due 11/15/2007 5,000,000 3,625,000
CCC+ Caa 14,500,000 P.T. Indah Kiat International Finance,
12.50% due 6/15/2006 14,572,500 7,250,000
CCC+ Caa1 10,000,000 Pindo Deli Finance Mauritius, 10.75% due
10/01/2007 (h) 9,969,637 4,250,000
Riverwood International Corp.:
B- B3 15,000,000 10.25% due 4/01/2006 14,396,250 13,800,000
CCC+ Caa 15,000,000 10.875% due 4/01/2008 14,155,000 12,525,000
BB Caa1 32,500,000 Tjiwi Kimia Finance Mauritius, 10% due
8/01/2004 30,977,000 13,731,250
-------------- --------------
291,223,026 218,414,061
</TABLE>
Merrill Lynch Corporate Bond Fund, Inc., High Income Portfolio
September 30, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Issue Cost (Note 1a)
Bonds (continued)
<S> <S> <S> <C> <S> <C> <C>
Product AmeriServ Food Company:
Distribution-- B+ B1 $14,000,000 8.875% due 10/15/2006 $ 14,000,000 $ 12,460,000
1.3% B- B3 42,000,000 10.125% due 7/15/2007 42,000,000 36,960,000
B+ B3 12,000,000 Fleming Companies Inc., 10.50% due 12/01/2004 11,930,280 11,700,000
B- B3 25,000,000 US Office Products Co., 9.75% due 6/15/2008 (h) 24,920,100 21,625,000
-------------- --------------
92,850,380 82,745,000
Publishing & B B1 10,000,000 American Lawyer Media Inc., 9.75% due
Printing--0.7% 12/15/2007 10,052,500 10,125,000
Hollinger International, Inc.:
BB+ Ba3 5,000,000 8.625% due 3/15/2005 4,975,000 5,162,500
BB- B1 20,000,000 9.25% due 2/01/2006 19,455,312 20,650,000
BB- Ba3 7,250,000 Primedia Inc., 7.625% due 4/01/2008 7,208,312 7,068,750
-------------- --------------
41,691,124 43,006,250
Real Estate-- BB- Ba3 30,000,000 Forest City Enterprises Inc., 8.50% due
0.5% 3/15/2008 30,213,750 29,550,000
Restaurants-- BB- Ba3 27,000,000 Foodmaker, Inc., 9.75% due 11/01/2003 26,216,200 27,472,500
0.6% CCC+ B3 15,000,000 Planet Hollywood International, Inc., 12% due
4/01/2005 15,000,000 8,475,000
-------------- --------------
41,216,200 35,947,500
Specialty NR* NR* 24,702,000 Cumberland Farms, Inc. DE, 10.50% due
Retailing--0.4% 10/01/2003 23,545,832 24,331,470
Steel--4.0% BB- Ba2 25,000,000 A.K. Steel Holding Corp., 9.125% due 12/15/2006 25,056,250 25,187,500
NR* B2 95,000,000 CSN Iron S.A., 9.125% due 6/01/2007 (h) 89,758,750 54,862,500
BB Ba3 20,000,000 Hysla, S.A. de C.V., 9.25% due 9/15/2007 (h) 19,872,930 14,300,000
B- NR* 20,000,000 Renco Steel Holdings, Inc., 10.875% due
2/01/2005 20,045,700 17,100,000
B B3 25,000,000 Republic Engineered Steel Inc., 9.875% due
12/15/2001 24,117,500 24,750,000
B+ B2 25,000,000 WCI Steel Inc., 10% due 12/01/2004 25,000,000 23,875,000
B B3 25,000,000 WHX Corporation, 10.50% due 4/15/2005 25,000,000 23,125,000
Weirton Steel Inc.:
B B2 3,000,000 11.375% due 7/01/2004 3,247,500 2,730,000
B B2 23,000,000 10.75% due 6/01/2005 22,413,750 20,240,000
BB- Aaa 55,000,000 Wheeling-Pittsburgh Steel Corp., 9.25% due
11/15/2007 54,776,725 51,425,000
-------------- --------------
309,289,105 257,595,000
Supermarkets-- Pueblo Xtra International Inc.:
0.3% B- B3 21,075,000 9.50% due 8/01/2003 19,460,250 19,494,375
B- B3 3,000,000 9.50% due 8/01/2003 2,756,945 2,715,000
-------------- --------------
22,217,195 22,209,375
Telephone-- B- Caa1 4,500,000 Esprit Telecom Group PLC, 10.875% due
Competitive 6/15/2008 (h) 4,500,000 4,072,500
Local Exchange B B2 15,500,000 Intermedia Communications Inc., 8.60% due
Carriers--2.6% 6/01/2008 15,500,000 15,461,250
B B3 29,000,000 Level 3 Communications, Inc., 9.125% due
5/01/2008 28,693,300 27,405,000
B B3 43,000,000 Nextlink Communications Inc., 9% due 3/15/2008 42,913,140 40,850,000
</TABLE>
Merrill Lynch Corporate Bond Fund, Inc., High Income Portfolio
September 30, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Issue Cost (Note 1a)
Bonds (continued)
<S> <S> <S> <C> <S> <C> <C>
Telephone-- RSL Communications PLC:
Competitive B- B3 $46,000,000 9.125% due 3/01/2008 $ 46,000,000 $ 39,560,000
Local Exchange B- B3 72,000,000 10.125% due 3/01/2008 (a) 46,507,900 37,080,000
Carriers CCC Caa 3,000,000 Teligent, Inc., 12.122% due 3/01/2008 (a) 1,745,287 1,185,000
(concluded) -------------- --------------
185,859,627 165,613,750
Textiles--0.8% B B3 25,000,000 Galey & Lord Inc., 9.125% due 3/01/2008 24,718,750 22,000,000
B B2 18,750,000 Polymer Group Inc., 8.75% due 3/01/2008 18,750,000 17,812,500
Polysindo International Finance Co. (i):
NR* NR* 7,500,000 8.648% due 2/12/1999 4,200,000 562,500
D Caa 45,600,000 11.375% due 6/15/2006 (h) 44,674,000 8,094,000
D Caa2 14,250,000 9.375% due 7/30/2007 9,930,000 2,529,375
-------------- --------------
102,272,750 50,998,375
Transportation BB- NR* 45,000,000 Autopistas del Sol S.A., 10.25% due
- --4.1% 8/01/2009 (h) 44,935,000 26,887,500
BB- Ba3 20,000,000 Cathay International Ltd., 13% due
4/15/2008 (h) 20,000,000 11,700,000
BB- Ba2 25,000,000 Eletson Holdings, Inc., 9.25% due 11/15/2003 24,472,500 24,625,000
GS Superhighway Holdings:
BB Ba2 43,000,000 9.875% due 8/15/2004 37,956,250 17,737,500
BB Ba3 49,000,000 10.25% due 8/15/2007 47,933,550 18,252,500
BB Ba2 20,000,000 Gearbulk Holdings, Ltd., 11.25% due 12/01/2004 20,518,750 20,900,000
BB- B1 40,000,000 Hvide Marine Inc., 8.375% due 2/15/2008 39,872,500 32,200,000
B+ B2 25,000,000 TFM, S.A. de C.V., 11.786% due 6/15/2009 (a) 16,330,553 12,312,500
Transportacion Maritima Mexicana, S.A. de C.V.:
BB- Ba3 20,000,000 9.25% due 5/15/2003 17,092,750 16,000,000
BB- Ba3 31,800,000 10% due 11/15/2006 31,387,250 24,724,500
B- B3 60,606,000 Transtar Holdings L.P., Series B, 11.892%
due 12/15/2003 (a) 53,493,248 53,030,250
-------------- --------------
353,992,351 258,369,750
Utilities--3.6% NR* NR* 20,000,000 Companhia de Saneamento Basico do Estado
de Sao-Paulo, 10% due 7/28/2005 (h) 20,000,000 10,400,000
BB+ Baa3 10,000,000 Empresa Electricidad del Norte, 10.50%
due 6/15/2005 (h) 10,000,000 6,850,000
NR* B2 70,000,000 Espirito Santo-Escelsa, 10% due 7/15/2007 (h) 69,476,250 39,725,000
BB+ NR* 37,000,000 Inversora de Electrica, 9% due 9/16/2004 (h) 36,895,000 28,675,000
BBB- Ba3 40,000,000 Metrogas S.A., 12% due 8/15/2000 40,031,875 38,100,000
NR* NR* 15,179,562 Sunflower Electric Power Corp., 8% due
12/31/2016 (j)++ 9,957,363 10,094,409
BBB- Baa3 41,428,800 Trans Gas de Occidente, 9.79% due
11/01/2010 (h)++ 41,502,780 29,846,675
Tucson Electric & Power Co. (j)++:
NR* NR* 34,947,781 10.21% due 1/01/2009 33,168,609 39,664,684
NR* NR* 21,526,207 10.732% due 1/01/2013 20,326,836 25,745,129
-------------- --------------
281,358,713 229,100,897
Waste B+ B2 18,000,000 Allied Waste North America, 10.25% due
Management-- 12/01/2006 18,000,000 19,710,000
0.8% B+ B2 29,000,000 Laidlaw Environmental Systems (LES) Inc.,
9.25% due 6/01/2008 (h) 29,000,000 29,290,000
D Ca 23,700,000 Mid-American Waste Systems, Inc., 12.25%
due 2/15/2003 (i) 9,630,095 207,375
-------------- --------------
56,630,095 49,207,375
</TABLE>
Merrill Lynch Corporate Bond Fund, Inc., High Income Portfolio
September 30, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Issue Cost (Note 1a)
Bonds (concluded)
<S> <S> <S> <C> <S> <C> <C>
Wireless CCC+ B2 $13,000,000 Cencall Communications Corporation, 9.037%
Communications due 1/15/2004 (a) $ 12,831,899 $ 12,870,000
- --Domestic BB+ Ba3 48,050,000 Comcast Cellular Communications, Inc.,
Paging & 9.50% due 5/01/2007 48,846,375 49,491,500
Cellular--5.0% CCC B3 10,000,000 Metrocall, Inc., 9.75% due 11/01/2007 10,000,000 9,250,000
D C 50,500,000 Mobilemedia Communication, Inc., 11.58% due
12/01/2003 (a)(i) 20,630,116 7,322,500
Nextel Communications Inc. (a):
CCC+ B2 81,500,000 11.969% due 8/15/2004 70,489,824 78,443,750
CCC+ B2 30,000,000 10.147% due 10/31/2007 19,735,856 18,150,000
CCC+ B2 25,000,000 9.987% due 2/15/2008 (h) 16,304,468 14,812,500
NR* Caa2 29,000,000 Page Mart Inc., 11.25% due 2/01/2008 (a)(j) 18,044,744 16,385,000
B B2 73,000,000 Paging Network, Inc., 10% due 10/15/2008 72,756,250 72,270,000
NR* NR* 3,250,000 Pinnacle Holdings Inc., 10% due 3/15/2008 (a) 2,103,504 1,738,750
B+ B1 25,000,000 Vanguard Cellular Systems, Inc., 9.375%
due 4/15/2006 24,975,250 25,375,000
B- B3 15,000,000 Western Wireless Corp., 10.50% due 2/01/2007 15,062,500 15,375,000
-------------- --------------
331,780,786 321,484,000
Wireless B B3 11,000,000 CTI Holdings S.A., 11.50% due 4/15/2008 (a)(h) 6,620,174 4,290,000
Communications B+ B3 56,472,000 Comunicacion Celular S.A., 12.68% due
- --International 11/15/2003 (a)(e) 43,560,983 38,400,960
Paging & CCC+ Caa1 26,000,000 McCaw International Ltd., 12.265% due
Cellular--2.1% 4/15/2007 (a) 17,341,400 12,870,000
B- B3 90,000,000 Millicom International Cellular S.A., 13.39%
due 6/01/2006 (a) 63,746,436 58,050,000
CCC+ Caa1 33,000,000 Nextel International, Inc., 12.125% due
4/15/2008 (a) 19,339,162 14,025,000
CCC+ NR* 13,000,000 Telesystems International Wireless Inc.,
11.382% due 6/30/2007 (a)(j) 9,077,668 6,955,000
-------------- --------------
159,685,823 134,590,960
Total Investments in Bonds--91.3% 6,764,273,307 5,820,873,334
Shares Held
Preferred Stocks
Broadcasting--Radio & 5,000 Cumulus Media Inc. 5,000,000 4,975,000
Television--0.1%
Cable--Domestic--0.3% 197,834 CSC Holdings Inc.++++ 14,634,820 21,761,740
Cable--International--0.4% 23,648 NTL Inc.++++ 24,093,933 23,470,640
Conglomerates--0.3% 3,100 Eagle-Picher Holdings 17,686,590 16,817,500
Financial Services--0.5% 1,230,000 California Federal Bank (Series A) 30,815,000 31,441,875
Product Distribution--0.3% 258,575 Nebco Evans Holding Co. ++++ 25,772,501 16,872,019
Publishing & 292,500 Primedia Inc. 29,109,500 26,690,625
Printing--0.6% 125,000 Primedia Inc. (Series D) 12,500,000 12,781,250
-------------- --------------
41,609,500 39,471,875
Telephone--Competitive 12,311 Intermedia Communications Inc.
Local Exchange Carriers--0.2% (Series B)(Convertible)(j) 12,643,109 13,819,097
Utilities--0.0% 2 El Paso Electric Company++++ 219 217
</TABLE>
Merrill Lynch Corporate Bond Fund, Inc., High Income Portfolio
September 30, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Value
Industries Held Issue Cost (Note 1a)
Preferred Stocks (continued)
<S> <C> <S> <C> <C>
Wireless Communications-- 21,152 Nextel Communications Inc.++++ $ 21,216,890 $ 19,089,680
Domestic Paging & 22,679 Nextel Communications Inc. (Series D)++++ 23,033,000 23,245,975
Cellular--0.7% 5,142 Rural Cellular Corp.++++ 5,144,485 4,666,365
-------------- --------------
49,394,375 47,002,020
Total Investments in Preferred Stocks--3.4% 221,650,047 215,631,983
Common Stocks
Cable--Domestic--0.1% 2,887 CS Wireless Systems Inc. (i) 20,336 15
195,096 Echostar Communications Corp. (Series A)(i) 1,385,894 4,645,723
-------------- --------------
1,406,230 4,645,738
Energy--0.2% 914,710 Chi Energy Inc. (Series B) (i) 14,284,292 12,348,585
8,176 Pioneer Natural Resources Co. 199,648 114,975
-------------- --------------
14,483,940 12,463,560
Entertainment--0.2% 1,184,150 On Command Corporation (i) 51,280,002 9,843,247
Wireless 170,421 Nextel Communications Inc. (i) 2,749,981 3,445,700
Communications--
Domestic Paging
& Cellular--0.0%
Total Investments in Common Stocks--0.5% 69,920,153 30,398,245
Trusts and Warrents
Cable--Domestic--0.0% 177,500 American Telecasting Inc. (Warrants)(b) 413,723 2,219
25,000 People's Choice T.V. Corp. (Warrants)(b) 140,353 12,625
50,338 Wireless One Inc. (Warrants)(b) 1,063,139 503
-------------- --------------
1,617,215 15,347
Cable-- 45,000 UIH Australia/Pacific (Warrants)(b) 540,000 225,000
International--0.0% 50,000 United International Holdings, Inc.
(Warrants)(b) 1,418,645 250,000
-------------- --------------
1,958,645 475,000
Energy--0.0% 74,562 Chi Energy Inc. (Series B)(Warrants)(b) 74,562 111,843
48,400 Chi Energy Inc. (Series C)(Warrants)(b) 48,400 72,600
-------------- --------------
122,962 184,443
Entertainment--0.0% 385,661 On Command Corporation (Warrants)(b) 3,033,504 1,084,672
Gaming--0.0% 7,550 Goldriver Hotel & Casino Corp., Liquidating
Trust (i)(j) 192,320 0
113,386 Trump Castle Funding, Inc. (Warrants)(b) 0 0
-------------- --------------
192,320 0
Media & Communications-- 15,000 Orion Network Systems, Inc. (Warrants)(b) 174,450 157,500
International--0.0%
Wireless Communications-- 57,040 Page Mart Inc. (Warrants)(b) 236,127 249,550
Domestic Paging & Cellular--0.0%
Wireless Communications-- 53,472 Comunicacion Celular S.A. (Warrants)(b)(h) 109,680 13,368
International
Paging & Cellular--0.0%
Total Investments in Trusts & Warrants--0.0% 7,444,903 2,179,880
</TABLE>
Merrill Lynch Corporate Bond Fund, Inc., High Income Portfolio
September 30, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Face Value
Industries Amount Issue Cost (Note 1a)
Short-Term Securities
<S> <C> <S> <C> <C>
Commercial $20,000,000 Concord Minutemen Capital Co. LLC, 5.55%
Paper***--2.2% due 10/08/1998 $ 19,978,417 $ 19,978,417
15,000,000 Finova Capital Corp., 5.53% due 10/16/1998 14,965,438 14,965,438
15,342,000 General Motors Acceptance Corp., 5.88% due
10/01/1998 15,342,000 15,342,000
17,500,000 International Securitization Corporation,
5.55% due 10/08/1998 17,481,115 17,481,115
20,025,000 Monte Rosa Capital Corp., 5.52% due
10/27/1998 19,945,167 19,945,167
20,000,000 Morgan Stanley Dean Witter & Company, 5.53%
due 10/14/1998 19,960,061 19,960,061
10,132,000 Park Avenue Receivables Corp., 5.55% due
10/15/1998 10,110,132 10,110,132
25,000,000 Variable Funding Capital, 5.55% due 10/02/1998 24,996,146 24,996,146
-------------- --------------
142,778,476 142,778,476
US Government Agency 15,000,000 Federal Home Loan Mortgage Corp., 5.42% due
Obligations***--0.6% 10/09/1998 14,981,933 14,981,933
20,000,000 Federal National Mortgage Association, 5.42%
due 10/05/1998 19,987,956 19,987,956
-------------- --------------
34,969,889 34,969,889
Total Investments in Short-Term
Securities--2.8% 177,748,365 177,748,365
Total Investments--98.0% $7,241,036,775 6,246,831,807
==============
Other Assets Less Liabilities--2.0% 126,086,504
--------------
Net Assets--100.0% $6,372,918,311
==============
<FN>
++Subject to principal paydowns.
++++Represents a pay-in-kind security which may pay
interest/dividends in additional face/shares.
*Not Rated.
**Industry classifications for convertible bonds are: (1) Health
Services; (2) Transportation Services.
***Commercial Paper and certain US Government Agency Obligations are
traded on a discount basis; the interest rates shown reflect the
discount rates paid at the time of purchase by the Portfolio.
(a)Represents a zero coupon or step bond; the interest rate shown is
the effective yield at the time of purchase by the Portfolio.
(b)Warrants entitle the Portfolio to purchase a predetermined number
of shares of common stock/face amount of bonds and are non-income
producing. The purchase price and number of shares/face amount are
subject to adjustment under certain conditions until the expiration
date.
(c)Each $1,000 face amount contains one warrant of Splitrock
Services Inc.
(d)Each $1,000 face amount contains one warrant of Australis Media
Ltd.
(e)Each $1,000 face amount contains one warrant of Comunicacion
Celular S.A.
(f)The security is a perpetual bond and has no definite maturity
date.
(g)Represents a step bond. Coupon payments are paid-in-kind, in
which the Portfolio receives additional face amount at an annual
rate of 1.75% until May 15, 2000. Subsequently, the Portfolio will
receive cash coupon payments at an annual rate of 15.75% until
maturity.
(h)The security may be sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
(i)Non-income producing security.
(j)Restricted securities as to resale. The value of the Portfolio's
investments in restricted securities was approximately $153,666,000,
representing 2.4% of net assets.
<CAPTION>
Acquisition Value
Issue Date(s) Cost (Note 1a)
<S> <C> <C> <C>
Australis Media Ltd.,
14.391% due 11/01/2002 12/30/1997--2/10/1998 $ 6,557,997 $ 5,002,498
Goldriver Hotel & Casino
Corp., Liquidating Trust 8/31/1992--11/17/1992 192,320 0
Intermedia Communications Inc.
(Series B)(Convertible) 3/04/1997--9/11/1998 12,643,109 13,819,097
Page Mart Inc., 11.25% due
2/01/2008 1/22/1998 18,044,744 16,385,000
Sunflower Electric Power Corp.,
8% due 12/31/2016 11/29/1991--8/23/1995 9,957,363 10,094,409
Telesystems International
Wireless Inc., 11.382% due
6/30/2007 1/06/1998--5/20/1998 9,077,668 6,955,000
TransAmerica Refining
Corporation, 13% due
12/15/2002 12/09/1997 35,640,000 36,000,000
Tucson Electric & Power Co.:
10.21% due 1/01/2009 7/27/1993--4/15/1998 33,168,609 39,664,684
10.732% due 1/01/2013 3/01/1993--10/11/1996 20,326,836 25,745,129
Total $145,608,646 $153,665,817
============ ============
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Corporate Bond Fund, Inc., High Income Portfolio
September 30, 1998
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of September 30, 1998
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$7,241,036,775)
(Note 1a) $6,246,831,807
Cash 777,215
Receivables:
Interest $ 150,425,471
Securities sold 20,692,502
Dividends 1,937,599
Capital shares sold 638,756
Paydowns 94,567 173,788,895
--------------
Prepaid registration fees and other assets (Note 1e) 2,544,812
--------------
Total assets 6,423,942,729
--------------
Liabilities: Payables:
Dividends to shareholders (Note 1f) 24,948,094
Capital shares redeemed 15,820,013
Distributor (Note 2) 3,250,933
Securities purchased 3,228,655
Investment adviser (Note 2) 2,170,112 49,417,807
--------------
Accrued expenses and other liabilities 1,606,611
--------------
Total liabilities 51,024,418
--------------
Net Assets: Net assets $6,372,918,311
==============
Net Assets Class A Common Stock, $0.10 par value, 500,000,000 shares authorized $ 13,092,173
Consist of: Class B Common Stock, $0.10 par value 1,500,000,000 shares authorized 63,391,157
Class C Common Stock, $0.10 par value 200,000,000 shares authorized 7,802,410
Class D Common Stock, $0.10 par value 500,000,000 shares authorized 6,098,737
Paid-in capital in excess of par 7,153,375,743
Accumulated distributions in excess of investment income--net
(Note 1f) (1,727,238)
Undistributed realized capital gains on investments--net 125,090,297
Unrealized depreciation on investments--net (994,204,968)
--------------
Net assets $6,372,918,311
==============
Net Asset Class A--Based on $922,820,393 and 130,921,727 shares
Value: outstanding $ 7.05
==============
Class B--Based on $4,469,451,657 and 633,911,571 shares
outstanding $ 7.05
==============
Class C--Based on $550,482,584 and 78,024,103 shares
outstanding $ 7.06
==============
Class D--Based on $430,163,677 and 60,987,369 shares
outstanding $ 7.05
==============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Corporate Bond Fund, Inc., High Income Portfolio
September 30, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations for the Year Ended September 30, 1998
<S> <S> <C> <C>
Investment Interest and discount earned $ 737,099,269
Income Dividends 27,255,739
(Note 1d): Other 8,066,887
--------------
Total income 772,421,895
--------------
Expenses: Account maintenance and distribution fees--Class B (Note 2) $ 41,453,364
Investment advisory fees (Note 2) 31,867,154
Account maintenance and distribution fees--Class C (Note 2) 5,501,857
Transfer agent fees--Class B (Note 2) 4,264,678
Account maintenance fees--Class D (Note 2) 1,313,068
Transfer agent fees--Class A (Note 2) 697,649
Transfer agent fees--Class C (Note 2) 551,160
Accounting services (Note 2) 512,372
Printing and shareholder reports 372,399
Transfer agent fees--Class D (Note 2) 341,346
Registration fees (Note 1e) 226,619
Custodian fees 176,748
Professional fees 137,987
Directors' fees and expenses 31,508
Pricing fees (Note 2) 22,775
Other 65,624
--------------
Total expenses 87,536,308
--------------
Investment income--net 684,885,587
--------------
Realized & Realized gain on investments--net 157,220,808
Unrealized Gain Change in unrealized appreciation/depreciation on
(Loss) on investments--net (1,302,774,162)
Investments--Net --------------
(Notes 1b, Net Decrease in Net Assets Resulting from Operations $ (460,667,767)
1d & 3): ==============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Corporate Bond Fund, Inc., High Income Portfolio
September 30, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended
September 30,
Increase (Decrease) in Net Assets: 1998 1997
<S> <S> <C> <C>
Operations: Investment income--net $ 684,885,587 $ 575,009,241
Realized gain on investments--net 157,220,808 20,040,352
Change in unrealized appreciation/depreciation on
investments--net (1,302,774,162) 292,161,549
-------------- --------------
Net increase (decrease) in net assets resulting from
operations (460,667,767) 887,211,142
-------------- --------------
Dividends & Investment income--net:
Distributions to Class A (100,823,273) (91,922,975)
Shareholders Class B (477,061,317) (407,172,006)
(Note 1f): Class C (58,977,217) (41,118,497)
Class D (48,023,780) (34,795,763)
Realized gains on investments--net:
Class A (6,089,227) --
Class B (32,962,441) --
Class C (4,011,904) --
Class D (3,027,610) --
-------------- --------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (730,976,769) (575,009,241)
-------------- --------------
Capital Share Net increase (decrease) in net assets derived from capital
Transactions share transactions (111,186,550) 1,535,324,290
(Note 4): -------------- --------------
Net Assets: Total increase (decrease) in net assets (1,302,831,086) 1,847,526,191
Beginning of year 7,675,749,397 5,828,223,206
-------------- --------------
End of year $6,372,918,311 $7,675,749,397
============== ==============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Corporate Bond Fund, Inc., High Income Portfolio
September 30, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. Class A
For the Year Ended September 30,
Increase (Decrease) in Net Asset Value: 1998 1997++ 1996++ 1995 1994
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 8.29 $ 7.93 $ 7.80 $ 7.66 $ 8.13
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income--net .75 .74 .75 .81 .75
Realized and unrealized gain (loss)
on investments--net (1.19) .36 .14 .14 (.47)
---------- ---------- ---------- ---------- ----------
Total from investment operations (.44) 1.10 .89 .95 .28
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.75) (.74) (.76) (.81) (.75)
In excess of investment
income--net -- -- --+++ -- --
Realized gain on investments--net (.05) -- -- -- --
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (.80) (.74) (.76) (.81) (.75)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 7.05 $ 8.29 $ 7.93 $ 7.80 $ 7.66
========== ========== ========== ========== ==========
Total Investment Based on net asset value per share (5.98%) 14.58% 11.95% 13.27% 3.42%
Return:* ========== ========== ========== ========== ==========
Ratios to Average Expenses .49% .51% .51% .55% .53%
Net Assets: ========== ========== ========== ========== ==========
Investment income--net 9.40% 9.23% 9.57% 10.70% 9.27%
========== ========== ========== ========== ==========
Supplemental Net assets, end of year
Data: (in thousands) $ 922,820 $1,044,799 $ 947,479 $ 902,321 $ 876,573
========== ========== ========== ========== ==========
Portfolio turnover 41.97% 38.58% 32.44% 24.58% 32.52%
========== ========== ========== ========== ==========
<FN>
++Based on average shares outstanding.
*Total investment returns exclude the effects of sales loads.
+++Amount is less than $.01 per share.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Corporate Bond Fund, Inc., High Income Portfolio
September 30, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued)
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. Class B
For the Year Ended September 30,
Increase (Decrease) in Net Asset Value: 1998 1997++ 1996++ 1995 1994
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 8.30 $ 7.93 $ 7.80 $ 7.66 $ 8.13
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income--net .69 .68 .69 .75 .69
Realized and unrealized gain
(loss) on investments--net (1.20) .37 .15 .14 (.47)
---------- ---------- ---------- ---------- ----------
Total from investment operations (.51) 1.05 .84 .89 .22
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.69) (.68) (.71) (.75) (.69)
In excess of investment income--net -- -- --+++ -- --
Realized gain on investments--net (.05) -- -- -- --
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (.74) (.68) (.71) (.75) (.69)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 7.05 $ 8.30 $ 7.93 $ 7.80 $ 7.66
========== ========== ========== ========== ==========
Total Investment Based on net asset value per share (6.80%) 13.86% 11.11% 12.41% 2.66%
Return:* ========== ========== ========== ========== ==========
Ratios to Average Expenses 1.25% 1.27% 1.28% 1.32% 1.29%
Net Assets: ========== ========== ========== ========== ==========
Investment income--net 8.63% 8.46% 8.80% 9.81% 8.53%
========== ========== ========== ========== ==========
Supplemental Net assets, end of year
Data: (in thousands) $4,469,452 $5,495,488 $4,250,539 $3,220,767 $2,347,223
========== ========== ========== ========== ==========
Portfolio turnover 41.97% 38.58% 32.44% 24.58% 32.52%
========== ========== ========== ========== ==========
<FN>
++Based on average shares outstanding.
*Total investment returns exclude the effects of sales loads.
+++Amount is less than $.01 per share.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Corporate Bond Fund, Inc., High Income Portfolio
September 30, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued)
<CAPTION>
Class C
For the
Period
The following per share data and ratios have been derived For the Oct. 21,
from information provided in the financial statements. Year Ended 1994++++ to
September 30, Sept. 30,
Increase (Decrease) in Net Asset Value: 1998 1997++ 1996++ 1995
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 8.30 $ 7.94 $ 7.81 $ 7.59
Operating ---------- ---------- ---------- ----------
Performance: Investment income--net .69 .68 .68 .71
Realized and unrealized gain (loss) on
investments--net (1.19) .36 .15 .22
Total from investment operations (.50) 1.04 .83 .93
---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.69) (.68) (.70) (.71)
In excess of investment income--net -- -- --+++++ --
Realized gain on investments--net (.05) -- -- --
---------- ---------- ---------- ----------
Total dividends and distributions (.74) (.68) (.70) (.71)
---------- ---------- ---------- ----------
Net asset value, end of period $ 7.06 $ 8.30 $ 7.94 $ 7.81
========== ========== ========== ==========
Total Investment Based on net asset value per share (6.72%) 13.66% 11.05% 12.92%+++
Return:** ========== ========== ========== ==========
Ratios to Average Expenses 1.31% 1.32% 1.33% 1.38%*
Net Assets: ========== ========== ========== ==========
Investment income--net 8.58% 8.39% 8.73% 9.06%*
========== ========== ========== ==========
Supplemental Net assets, end of period (in thousands) $ 550,482 $ 638,626 $ 362,518 $ 135,019
Data: ========== ========== ========== ==========
Portfolio turnover 41.97% 38.58% 32.44% 24.58%
========== ========== ========== ==========
<FN>
++Based on average shares outstanding.
++++Commencement of operations.
*Annualized.
**Total investment returns exclude the effects of sales loads.
+++Aggregate total investment return.
+++++Amount is less than $.01 per share.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Corporate Bond Fund, Inc., High Income Portfolio
September 30, 1998
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
Class D
For the
Period
The following per share data and ratios have been derived For the Oct. 21,
from information provided in the financial statements. Year Ended 1994++++ to
September 30, Sept. 30,
Increase (Decrease) in Net Asset Value: 1998 1997++ 1996++ 1995
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 8.30 $ 7.94 $ 7.80 $ 7.59
Operating ---------- ---------- ---------- ----------
Performance: Investment income--net .73 .72 .72 .75
Realized and unrealized gain (loss) on
investments--net (1.20) .36 .16 .21
---------- ---------- ---------- ----------
Total from investment operations (.47) 1.08 .88 .96
---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.73) (.72) (.74) (.75)
In excess of investment income--net -- -- --+++++ --
Realized gain on investments--net (.05) -- -- --
---------- ---------- ---------- ----------
Total dividends and distributions (.78) (.72) (.74) (.75)
---------- ---------- ---------- ----------
Net asset value, end of period $ 7.05 $ 8.30 $ 7.94 $ 7.80
---------- ---------- ---------- ----------
Total Investment Based on net asset value per share (6.32%) 14.29% 11.82% 13.37%+++
Return:** ========== ========== ========== ==========
Ratios to Average Expenses .74% .76% .76% .81%*
Net Assets: ========== ========== ========== ==========
Investment income--net 9.14% 8.95% 9.30% 9.70%*
========== ========== ========== ==========
Supplemental Net assets, end of period (in thousands) $ 430,164 $ 496,836 $ 267,687 $ 102,676
Data: ========== ========== ========== ==========
Portfolio turnover 41.97% 38.58% 32.44% 24.58%
========== ========== ========== ==========
<FN>
++Based on average shares outstanding.
++++Commencement of operations.
*Annualized.
**Total investment returns exclude the effects of sales loads.
+++Aggregate total investment return.
+++++Amount is less than $.01 per share.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Corporate Bond Fund, Inc., High Income Portfolio
September 30, 1998
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
High Income Portfolio (the "Portfolio") is one of three portfolios
in Merrill Lynch Corporate Bond Fund, Inc. (the "Fund") which is
registered under the Investment Company Act of 1940 as a
diversified, open-end management investment company. The Portfolio
offers four classes of shares under the Merrill Lynch Select
Pricing SM System. Effective March 24, 1998, shares of the Portfolio
will no longer be available for purchase (or exchange). Therefore,
on or after March 24, 1998, the Fund will no longer sell Class A,
Class B, Class C or Class D Shares of the Portfolio, but will
continue to make available for purchase under the following
circumstances: shareholders of the Portfolio may continue to elect
to have dividends and distributions paid on shares of the Portfolio
reinvested in additional shares of the Portfolio; certain
participants in employer-sponsored retirement or savings plans,
including eligible 401(k) plans will continue to be permitted to
purchase shares of the Portfolio through such plans; and shares of
the Portfolio will continue to be available for purchase by
participants in certain fee-based programs, such as the Mutual Fund
Advisor program administered by Merrill Lynch, Pierce, Fenner &
Smith Inc. ("MLPF&S"), a subsidiary of Merrill Lynch & Co. ("ML &
Co."). In addition, shares of the Portfolio will continue to be
available for purchase in single transactions over $1,000,000.
Shares of Class A and Class D 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 B, Class C and Class D 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. The following is a summary of
significant accounting policies followed by the Portfolio.
(a) Valuation of investments--Portfolio securities which are traded
on stock exchanges are valued at the last sale price as of the close
of business on the day the securities are being valued, or lacking
any sales, at the mean between closing bid and asked prices.
Securities traded in the over-the-counter market are valued at the
mean of the most recent bid and ask prices as obtained from one or
more dealers that make markets in the securities. Portfolio
securities which are traded both in the over-the-counter market and
on a stock exchange are valued according to the broadest and most
representative market, and it is expected that for debt securities
this ordinarily will be the over-the-counter market. Short-term
securities are valued at amortized cost, which approximates market
value.
Options on debt securities, which are traded on exchanges, are
valued at the last asked price for options written and last bid
price for options purchased. Financial futures contracts and options
thereon, which are traded on exchanges, are valued at their closing
price at the close of such exchanges. Securities and assets for
which market quotations are not readily available are valued at fair
value as determined in good faith by or under the direction of the
Board of Directors of the Fund, including valuations furnished by a
pricing service retained by the Fund which may use a matrix system
for valuations.
(b) Derivative financial instruments--The Portfolio may engage in
various portfolio strategies to seek to increase its return by
hedging its portfolio against adverse movements in the equity, debt
and currency 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
for the purpose of hedging the market risk on existing securities or
the intended purchase of securities. 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 is authorized to 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.
Merrill Lynch Corporate Bond Fund, Inc., High Income Portfolio
September 30, 1998
NOTES TO FINANCIAL STATEMENTS (continued)
When a security is purchased or sold through an exercise of an
option, the related premium paid (or received) is added to (or
deducted from) the basis of the security acquired or deducted from
(or added to) the proceeds of the security sold. When an option
expires (or the Portfolio enters into a closing transaction), the
Portfolio realizes a gain or loss on the option to the extent of the
premiums received or paid (or loss or gain to the extent the cost of
the closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
(c) Income taxes--It is the Portfolio's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required.
(d) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Dividend income is recorded on the ex-
dividend dates. Interest income (including amortization of discount)
is recognized on the accrual basis. Realized gains and losses on
security transactions are determined on the identified cost basis.
(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) Reclassification--Generally accepted accounting principles
require that certain components of net assets be adjusted to reflect
permanent differences between financial and tax reporting.
Accordingly, current year's permanent book/tax differences of
$1,400,695 have been reclassified between undistributed net realized
capital gains and accumulated distributions in excess of net
investment income. These reclassifications have no effect on net
assets or net asset values per share.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of ML & Co., which is the limited partner. The Fund has
also entered into a Distribution Agreement and Distribution Plans
with Merrill Lynch Funds Distributor ("MLFD" or "Distributor"), a
division of Princeton Funds Distributor, Inc. ("PFD"), which is a
wholly-owned subsidiary of Merrill Lynch Group, Inc.
FAM is responsible for the management of the Fund's Portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee with respect to the Portfolio
based upon the aggregate average daily value of the Fund's net
assets at the following annual rates: 0.55% of the Fund's average
daily net assets not exceeding $250 million; 0.50% of average daily
net assets in excess of $250 million but not exceeding $500 million;
0.45% of average daily net assets in excess of $500 million but not
exceeding $750 million; and 0.40% of average daily net assets in
excess of $750 million. For the year ended September 30, 1998, the
aggregate average daily net assets of the Fund's three Portfolio's
was approximately $9,511,656,000.
Pursuant to the Distribution Plans adopted by the Fund in accordance
with Rule 12b-1 under the Investment Company Act of 1940, the Fund
pays the Distributor ongoing account maintenance and distribution
fees. The fees are accrued daily and paid monthly at annual rates
based upon the average daily net assets of the shares of the
Portfolio as follows:
Account Distribution
Maintenance Fee Fee
Class B 0.25% 0.50%
Class C 0.25% 0.55%
Class D 0.25% --
Pursuant to a sub-agreement with the Distributor, MLPF&S, a
subsidiary of ML & Co., also provides account maintenance and
distribution services to the Fund. The ongoing account maintenance
fee compensates the Distributor and MLPF&S for providing account
maintenance services to Class B, Class C and Class D 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.
Merrill Lynch Corporate Bond Fund, Inc., High Income Portfolio
September 30, 1998
For the year ended September 30, 1998, MLFD earned underwriting
discounts and direct commissions and MLPF&S earned dealer
concessions on sales of the Portfolio's Class A and Class D Shares
as follows:
MLFD MLPF&S
Class A $19,815 $181,514
Class D $91,768 $842,403
For the year ended September 30, 1998, MLPF&S received contingent
deferred sales charges of $8,902,734 and $324,713 relating to
transactions in Class B and Class C Shares of the Portfolio,
respectively, and front-end sales charge waivers of $10,901 and
$114,814 relating to transactions in Class A and Class D Shares,
respectively.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
During the year ended September 30, 1998, the Portfolio paid Merrill
Lynch Security Pricing Service, an affiliate of MLPF&S, $10,638 for
security price quotations to compute the net asset value of the
Portfolio.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of FAM, PSI, MLFD, FDS, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended September 30, 1998 were $3,197,753,879 and
$2,974,292,876, respectively.
Net realized gains (losses) for the year ended September 30, 1998
and net unrealized losses as of September 30, 1998 were as follows:
Realized Unrealized
Gains (Losses) Losses
Long-term investments $157,224,635 $ (994,204,968)
Short-term investments (3,827) --
------------ --------------
Total . $157,220,808 $ (994,204,968)
============ ==============
As of September 30, 1998, net unrealized depreciation for Federal
income tax purposes aggregated $1,006,017,277, of which $122,446,789
related to appreciated securities and $1,128,464,066 related to
depreciated securities. The aggregate cost of investments at
September 30, 1998 for Federal income tax purposes was
$7,252,849,084.
4. Capital Share Transactions:
Net increase (decrease) in net assets derived from capital share
transactions was $(111,186,550) and $1,535,324,290 for the years
ended September 30, 1998 and September 30, 1997, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares
For the Year Dollar
Ended September 30, 1998 Shares Amount
Shares sold 37,248,132 $ 300,632,499
Shares issued to shareholders
in reinvestment of dividends
and distributions 4,991,792 39,932,897
------------- ----------------
Total issued 42,239,924 340,565,396
Shares redeemed (37,279,139) (293,764,069)
------------- ----------------
Net increase 4,960,785 $ 46,801,327
============= ================
Class A Shares
For the Year Dollar
Ended September 30, 1997 Shares Amount
Shares sold 31,134,080 $ 250,373,771
Shares issued to shareholders
in reinvestment of dividends 5,178,555 41,693,780
------------- ----------------
Total issued 36,312,635 292,067,551
Shares redeemed (29,808,906) (240,009,423)
------------- ----------------
Net increase 6,503,729 $ 52,058,128
============= ================
Class B Shares
For the Year Dollar
Ended September 30, 1998 Shares Amount
Shares sold 105,658,317 $ 861,469,852
Shares issued to shareholders
in reinvestment of dividends
and distributions 26,492,259 212,040,844
------------- ----------------
Total issued 132,150,576 1,073,510,696
Automatic conversion of
shares (2,243,101) (18,085,780)
Shares redeemed (158,335,084) (1,243,554,133)
------------- ----------------
Net decrease (28,427,609) $ (188,129,217)
============= ================
Merrill Lynch Corporate Bond Fund, Inc., High Income Portfolio
September 30, 1998
NOTES TO FINANCIAL STATEMENTS (concluded)
Class B Shares for the Year Dollar
Ended September 30, 1997 Shares Amount
Shares sold 201,694,285 $ 1,624,806,467
Shares issued to shareholders
in reinvestment of dividends 22,790,352 183,793,349
------------- ----------------
Total issued 224,484,637 1,808,599,816
Automatic conversion of
shares (2,850,390) (22,812,891)
Shares redeemed (95,044,774) (764,885,115)
------------- ----------------
Net increase 126,589,473 $ 1,020,901,810
============= ================
Class C Shares for the Year Dollar
Ended September 30, 1998 Shares Amount
Shares sold 24,007,667 $ 196,182,886
Shares issued to shareholders
in reinvestment of dividends
and distributions 4,036,571 32,326,933
------------- ----------------
Total issued 28,044,238 228,509,819
Shares redeemed (26,939,585) (212,824,675)
------------- ----------------
Net increase 1,104,653 $ 15,685,144
============= ================
Class C Shares for the Year Dollar
Ended September 30, 1997 Shares Amount
Shares sold 44,892,704 $ 362,128,191
Shares issued to shareholders
in reinvestment of dividends 2,808,746 22,682,139
------------- ----------------
Total issued 47,701,450 384,810,330
Shares redeemed (16,444,400) (132,540,144)
------------- ----------------
Net increase 31,257,050 $ 252,270,186
============= ================
Class D Shares for the Year Dollar
Ended September 30, 1998 Shares Amount
Shares sold 17,388,402 $ 141,752,082
Automatic conversion of
shares 2,241,712 18,085,780
Shares issued to shareholders
in reinvestment of dividends
and distributions 3,165,204 25,339,375
------------- ----------------
Total issued 22,795,318 185,177,237
Shares redeemed (21,664,714) (170,721,041)
------------- ----------------
Net increase 1,130,604 $ 14,456,196
============= ================
Class D Shares for the Year Dollar
Ended September 30, 1997 Shares Amount
Shares sold 35,702,960 $ 287,604,383
Automatic conversion of
shares 2,846,330 22,812,891
Shares issued to shareholders
in reinvestment of dividends 2,248,145 18,168,882
------------- ----------------
Total issued 40,797,435 328,586,156
Shares redeemed (14,668,105) (118,491,990)
------------- ----------------
Net increase 26,129,330 $ 210,094,166
============= ================
Merrill Lynch Corporate Bond Fund, Inc., High Income Portfolio
September 30, 1998
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Merrill Lynch Corporate Bond Fund, Inc.:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments, of the High
Income Portfolio of Merrill Lynch Corporate Bond Fund, Inc. as of
September 30, 1998, the related statements of operations for the
year then ended and changes in net assets for each of the years in
the two-year period then ended, and the financial highlights for
each of the years in the five-year period then ended. These
financial statements and the financial highlights are the
responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and the financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of securities owned at
September 30, 1998 by correspondence with the custodian and brokers.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
the High Income Portfolio of Merrill Lynch Corporate Bond Fund, Inc.
as of September 30, 1998, the results of its operations, the changes
in its net assets, and the financial highlights for the respective
stated periods in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Princeton, New Jersey
November 18, 1998
</AUDIT-REPORT>
IMPORTANT TAX INFORMATION (unaudited)
Of the ordinary income distributions paid monthly by High Income
Portfolio of Merrill Lynch Corporate Bond Fund, Inc. during the
fiscal year ended September 30, 1998, 3.74% qualifies for the
dividends received deduction for corporations. Additionally, the
Fund paid a long-term capital gains distribution of $.019581 per
share to shareholders of record on December 22, 1997. Of this
distribution, 17.92% is subject to the 28% tax rate and 82.08% is
subject to the 20% tax rate.
Please retain this information for your records.
INVESTMENT GRADE PORTFOLIO & INTERMEDIATE TERM PORTFOLIO
MERRILL LYNCH CORPORATE BOND FUND, INC. BEGINS HERE
INVESTMENT GRADE
PORTFOLIO &
INTERMEDIATE
TERM PORTFOLIO
Merrill Lynch
Corporate Bond Fund, Inc.
FUND LOGO
Annual Report
September 30, 1998
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.
Merrill Lynch
Corporate Bond Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
Investment Grade Portfolio & Intermediate Term Portfolio
TO OUR SHAREHOLDERS
Concerns over the prospects for the worldwide economy spilled over
into the US stock market during the quarter ended September 30,
1998. The increased volatility in US share prices reflected the
deteriorating outlook for corporate profits amid signs of a
weakening US economy. The uncertain economic picture and the
resulting flight to quality by investors pushed the 30-year US
Treasury bond to record low yields. In contrast, corporate bonds,
mortgage-backed securities and emerging markets debt underperformed
Treasury securities by a wide margin. The leverage/derivatives-
related problems of a major hedge fund and possible impeachment of
President Clinton further heightened investor uncertainties, as did
Russia's devaluation and effective repudiation of its debt in
August. A one-quarter point cut in the Federal Funds rate in late
September did not restore investor confidence, since a more
significant easing of monetary policy was expected. However, the
central bank unexpectedly cut the Federal Funds rate another quarter
point in October, which investors viewed positively.
As long as worldwide economic prospects appear fragile, it is likely
that stock and bond market volatility will continue. For the overall
global economy, the deepening recession in Japan is of great concern
as well as the difficulties in emerging economies such as Russia and
Brazil. Investors are awaiting decisive programs in Japan designed
to stabilize the financial system and stimulate the economy.
Positive developments in Japan, combined with continued monetary
easing on the part of the Federal Reserve Board, would likely
provide an important element of stability to the volatile investment
environment.
Fiscal Year in Review
During the 12-month period ended September 30, 1998, although the
overall trend in US interest rates had been downward--primarily
because of the financial meltdown in Russia and the correlating
effect it had on global financial liquidity--fixed-income markets
exhibited a significant degree of volatility. Consequently, yield
spread relationships widened dramatically among the various types of
bonds. Within the investment-grade corporate bond market, yield
spreads relative to US Treasury securities were initially impacted
by the significant increase in new corporate issuance and the
deleveraging of financial markets. By the end of the period, yield
spread relationships were rapidly approaching--and in some cases
exceeded--the highs recorded during the early part of the 1990s.
Given our belief that interest rates would continue to trend
downward as we entered 1998, our investments in both Portfolios
emphasized the longer end of the yield curve. Initially, we
purchased US Treasury issues to extend duration, with corporate
bonds subsequently added, as we found attractively priced new or
secondary market issues. By April 1998, spread relationships were
widening from the lows recorded during late 1997, following the
height-ened concerns arising from the Asian situation, as well as
the uncertain political situation in the United States. In response
to the more attractive spreads that developed within the A/BBB-rated
credit sector of the corporate bond market, we increased both
Portfolios' exposure to these securities. We accomplished this
through a reduction in our holdings of US Treasury securities as
well as a modest reduction in several AAA/AA-rated securities that
we believed were being overvalued by investors.
Merrill Lynch Corporate Bond Fund, Inc., Investment Grade
Portfolio & Intermediate Term Portfolio
September 30, 1998
For example, we sold a McDonald's Corp. ten-year note at a gain of
45 basis points in yield and reinvested the proceeds into a duration-
neutral Hospitality Properties Trust, which offered 160 basis points
in yield over the ten-year US Treasury note. The real estate
investment trust sector was one in which we were underweighted
relative to our benchmark. Our weighting now reflects an index-
neutral posture given the attractive spread scenario. Another swap
involved the sale of Kimberly-Clark Corp. bonds to purchase TCI
Communications, Inc. bonds. In this case, we not only sought the
incremental yield that the lower-rated TCI bond generated, but we
felt that TCI had a more favorable relative value. Specifically, it
was our opinion that the communications sector would continue to
benefit from strong fundamentals, and we believed that TCI was
properly positioned to take advantage of the growth opportunities.
As we entered the second half of 1998, there was a significant
increase in cash inflows into the Investment Grade and Intermediate
Term Portfolios as investors sought higher-quality investment
alternatives. Accordingly, we reallocated a portion of both
Portfolios' assets into US Treasury securities given the extent to
which the financial markets had been impacted by the spread of the
Asian contagion, the possibility that many developed economies were
headed toward a recessionary phase or deflationary environment, the
lack of capital flows necessary for orderly markets, and the
deleveraging of the hedge fund industry. Typically, we did not allow
US Treasury positions to exceed 15% of net assets since the
Portfolios' relevant benchmarks do not include US Treasury
components. We felt that this allocation would both address the
uncertainties present in the investment environment, yet would be
consistent with each Portfolio's benchmark.
Throughout the twelve-month period, the steady inflow of new cash
gave us the opportunity to selectively move a portion of both
Portfolios' diversified assets into the higher-quality, more-liquid
corporate issues. Notwithstanding the predictably sharp drop off in
corporate issuance, we have recently seen a number of fundamentally
sound issuers coming to market at very attractive spreads, such as
Associates Corp. of North America, Raytheon Co., Safeway Inc. and
Coca Cola Enterprises. In addition, we invested in Canadian
government bonds, since they also were available at very attractive
yields.
During the fiscal year, we reduced both Portfolios' exposure to the
financial services and brokerage industries and commodity-based
companies that could experience problems as resource-rich, cash-
strapped countries flooded the market with those commodities.
Additionally, we maintained our underweighted position in sovereign
government obligations, high-end retailers and money center banks.
Furthermore, we added to our existing positions in discount
retailers, telecommunication providers, diversified regional banks
and utilities.
During the fiscal year ended September 30, 1998, we altered our
investment strategy for the Investment Grade Portfolio to
incorporate a shift toward a longer duration benchmark. We believed
that the unmanaged Merrill Lynch Corporate Master Index represented
a more appropriate index relative to the objectives and guidelines
of the Portfolio. Accordingly, we extended the Portfolio's duration
to the 6.0-year range. In the Intermediate Term Portfolio, we
decided to incorporate the use of the Merrill Lynch Corporate BBB
1--10 Year Index going forward. This Index has a shorter effective
duration of approximately 4.0 years and limits security maturity to
10 years or less, both consistent with the objectives and guidelines
of the Intermediate Term Portfolio.
Merrill Lynch Corporate Bond Fund, Inc., Investment Grade
Portfolio & Intermediate Term Portfolio
September 30, 1998
Throughout the fiscal year ended September 30, 1998, the Investment
Grade and Intermediate Term Portfolios were able to benefit from our
emphasis on diversification. Positions held in US Treasury
securities enabled both Portfolios to take advantage of the "flight
to quality" that developed during the year. For the 12-month period
ended September 30, 1998, Investment Grade Portfolio's Class A,
Class B, Class C and Class D Shares had total returns of +10.05%,
+9.21%, +9.25% and +9.77%, respectively, as compared to a +10.69%
total return for the unmanaged Merrill Lynch Corporate Master Index.
The Intermediate Term Portfolio's Class A, Class B, Class C and
Class D Shares had total returns of +9.59%, +8.94%, +9.03% and
+9.39%, respectively, as compared to a +9.68% total return for the
unmanaged Merrill Lynch Corporate BBB 1-10 Year Index for the twelve
months ended September 30, 1998.
Looking ahead, we expect the financial markets to remain extremely
volatile, with liquidity remaining at a premium. Although we do not
expect the US economy to become recessionary, we believe that the
Federal Reserve Board will maintain its accommodative posture into
1999. The central bank is clearly concerned about the global credit
crunch that has developed, as well as the negative implications that
could arise as global financial markets deleverage. Accordingly, we
expect to continue to emphasize liquidity in our investment strategy
in the coming months.
In Conclusion
We appreciate your ongoing investment in Investment Grade and
Intermediate Term Portfolios of Merrill Lynch Corporate Bond Fund,
Inc., and we look forward to assisting you with your financial needs
in the months and years ahead.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Christopher G. Ayoub)
Christopher G. Ayoub
Senior Vice President and Portfolio Manager
November 12, 1998
Merrill Lynch Corporate Bond Fund, Inc., Investment Grade
Portfolio & Intermediate Term Portfolio
September 30, 1998
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the
Merrill Lynch Select Pricing SM System, which offers four pricing
alternatives:
* Class A Shares incur a maximum initial sales charge (front-end
load) of 4% and bear no ongoing distribution or account maintenance
fees for Investment Grade Portfolio. Intermediate Term Portfolio
incurs a maximum initial sales charge (front-end load) of 1% and
bears no ongoing distribution or account maintenance fees. Class A
Shares are available only to eligible investors.
* Class B Shares are subject to a maximum contingent deferred sales
charge of 4% if redeemed during the first year, decreasing 1% each
year thereafter to 0% after the fourth year for Investment Grade
Portfolio. Intermediate Term Portfolio is subject to a maximum
contingent deferred sales charge of 1% if redeemed within one year
of purchase. In addition, Investment Grade Portfolio is subject to a
distribution fee of 0.50% and an account maintenance fee of 0.25%.
Intermediate Term Portfolio is subject to a 0.25% distribution fee
and a 0.25% account maintenance fee. These shares automatically
convert to Class D Shares after approximately 10 years. (There is no
initial sales charge for automatic share conversions.)
* Class C Shares are subject to a distribution fee of 0.55% and an
account maintenance fee of 0.25% for Investment Grade Portfolio.
Intermediate Term Portfolio is subject to a distribution fee of
0.25% and an account maintenance fee of 0.25%. In addition, Class C
Shares are subject to a 1% contingent deferred sales charge if
redeemed within one year of purchase.
* Class D Shares incur a maximum initial sales charge of 4% and an
account maintenance fee of 0.25% (but no distribution fee) for
Investment Grade Portfolio. Intermediate Term Portfolio incurs a
maximum initial sales charge of 1% and an account maintenance fee of
0.10% (but no distribution fee).
None of the past results shown should be considered a representation
of future performance. Figures shown in the "Recent Performance
Results" and "Average Annual Total Return" tables assume
reinvestment of all dividends and capital gains distributions at net
asset value on the payable date. Investment return and principal
value of shares will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost. Dividends paid to each
class of shares will vary because of the different levels of account
maintenance, distribution and transfer agency fees applicable to
each class, which are deducted from the income available to be paid
to shareholders.
Average Annual Total Return--Investment Grade Portfolio
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 9/30/98 +10.05% +5.64%
Five Years Ended 9/30/98 + 6.10 +5.24
Ten Years Ended 9/30/98 + 8.94 +8.50
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 9/30/98 +9.21% +5.21%
Five Years Ended 9/30/98 +5.30 +5.30
Inception (10/21/88)
through 9/30/98 +8.08 +8.08
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 9/30/98 + 9.25% +8.25%
Inception (10/21/94)
through 9/30/98 + 8.78 +8.78
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 9/30/98 +9.77% +5.38%
Inception (10/21/94)
through 9/30/98 +9.40 +8.28
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
Merrill Lynch Corporate Bond Fund, Inc., Investment Grade
Portfolio & Intermediate Term Portfolio
September 30, 1998
PERFORMANCE DATA (continued)
Total Return Based on a $10,000 Investment--Investment Grade Portfolio
A line graph depicting the growth of an investment in the Fund's
Class A Shares compared to growth of an investment in the ML C0A0
Index and Lehman Brothers Aggregate Bond Index. Beginning and ending
values are:
9/88 9/98
ML Corporate Bond Fund, Inc.'s
Investment Grade Portfolio++--
Class A Shares* $ 9,600 $22,601
ML Corporate Master Index++++ $10,000 $25,999
Lehman Brothers Aggregate
Bond Index++++++ $10,000 $24,342
A line graph depicting the growth of an investment in the Fund's
Class B Shares compared to growth of an investment in the ML C0A0
Index and Lehman Brothers Aggregate Bond Index. Beginning and ending
values are:
10/21/88** 9/98
ML Corporate Bond Fund, Inc.'s
Investment Grade Portfolio++--
Class B Shares* $10,000 $21,652
ML Corporate Master Index++++ $10,000 $25,730
Lehman Brothers Aggregate
Bond Index++++++ $10,000 $23,897
A line graph depicting the growth of an investment in the Fund's
Class C Shares and Class D Shares compared to growth of an
investment in the ML C0A0 Index and Lehman Brothers Aggregate Bond
Index. Beginning and ending values are:
10/21/94** 9/98
ML Corporate Bond Fund, Inc.'s
Investment Grade Portfolio++--
Class C Shares* $10,000 $13,936
ML Corporate Bond Fund, Inc.'s
Investment Grade Portfolio++--
Class D Shares* $ 9,900 $13,682
ML Corporate Master Index++++ $10,000 $15,107
Lehman Brothers Aggregate
Bond Index $10,000 $14,689
[FN]
*Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
**Commencement of operations.
++The Portfolio invests primarily in long-term corporate bonds rated
A or better by Moody's Investors Service, Inc. or Standard & Poor's
Corp.
++++This unmanaged Index is comprised of all investment-grade
corporate bonds rated BBB3 or higher, of all maturities.
++++++This unmanaged market-weighted Index is comprised of investment-
grade corporate bonds (rated BBB or better), mortgages and US
Treasury and Government agency issues with at least one year to
maturity. The starting date for the Index in the Class B Shares
graph is 10/31/88.
Past performance is not predictive of future performance.
Merrill Lynch Corporate Bond Fund, Inc., Investment Grade
Portfolio & Intermediate Term Portfolio
September 30, 1998
PERFORMANCE DATA (continued)
Total Return Based on a $10,000 Investment--Intermediate Term Portfolio
A line graph depicting the growth of an investment in the Fund's
Class A Shares compared to growth of an investment in the ML
Corporate BBB 1-10 Year Index and ML Corporate BBB 5-10 Year Index.
Beginning and ending values are:
9/88 9/98
ML Corporate Bond Fund, Inc.'s
Intermediate Term Portfolio++--
Class A Shares* $ 9,900 $22,785
ML Corporate BBB 1-10 Year
Index++++ $10,000 $24,198
ML Corporate BBB 5-10
Year Index++++++ $10,000 $25,788
A line graph depicting the growth of an investment in the Fund's
Class B Shares compared to growth of an investment in the ML
Corporate BBB 1-10 Year Index and ML Corporate BBB 5-10 Year Index.
Beginning and ending values are:
11/13/92** 9/98
ML Corporate Bond Fund, Inc.'s
Intermediate Term Portfolio++--
Class B Shares* $10,000 $14,912
ML Corporate BBB 1-10 Year
Index++++ $10,000 $15,815
ML Corporate BBB 5-10
Year Index++++++ $10,000 $16,459
A line graph depicting the growth of an investment in the Fund's
Class C Shares and Class D Shares compared to growth of an
investment in the ML Corporate BBB 1-10 Year Index and ML Corporate
BBB 5-10 Year Index. Beginning and ending values are:
10/21/94** 9/98
ML Corporate Bond Fund, Inc.'s
Intermediate Term Portfolio++--
Class C Shares* $10,000 $13,865
ML Corporate Bond Fund, Inc.'s
Intermediate Term Portfolio++--
Class D Shares* $ 9,900 $13,960
ML Corporate BBB 1-10 Year
Index++++ $10,000 $14,445
ML Corporate BBB 5-10
Year Index++++++ $10,000 $15,018
[FN]
*Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
**Commencement of operations.
++The Portfolio invests primarily in bonds rated in the four highest
rating categories (Baa or higher by Moody's Investors Service, Inc.
or BBB or higher by Standard & Poor's Corp.) with a maximum
remaining maturity not to exceed ten years and, depending on market
conditions, an average remaining maturity of five to seven years.
++++This unmanaged Index is comprised of all investment-grade
corporate bonds maturing in from one to ten years.
++++++This unmanaged Index is comprised of all investment-grade
corporate bonds maturing in from five to ten years.
Past performance is not predictive of future performance.
Merrill Lynch Corporate Bond Fund, Inc., Investment Grade
Portfolio & Intermediate Term Portfolio
September 30, 1998
PERFORMANCE DATA (concluded)
Average Annual Total Return--Intermediate Term Portfolio
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 9/30/98 +9.59% +8.50%
Five Years Ended 9/30/98 +6.19 +5.98
Ten Years Ended 9/30/98 +8.69 +8.59
[FN]
*Maximum sales charge is 1%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 9/30/98 +8.94% +7.94%
Five Years Ended 9/30/98 +5.65 +5.65
Inception (11/13/92)
through 9/30/98 +7.03 +7.03
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 9/30/98 +9.03% +8.03%
Inception (10/21/94)
through 9/30/98 +8.64 +8.64
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 9/30/98 +9.39% +8.30%
Inception (10/21/94)
through 9/30/98 +9.11 +8.83
[FN]
*Maximum sales charge is 1%.
**Assuming maximum sales charge.
<TABLE>
Recent Performance Results*
<CAPTION>
Ten Years/ Standardized
12 Month 3 Month Since Inception 30-day Yield
Total Return Total Return Total Return As of 9/30/98
<S> <C> <C> <C> <C>
Investment Grade Portfolio Class A Shares** +10.05% +3.25% +135.42% 5.57%
Investment Grade Portfolio Class B Shares** + 9.21 +3.05 +116.52 5.04
Investment Grade Portfolio Class C Shares** + 9.25 +3.12 + 39.36 4.98
Investment Grade Portfolio Class D Shares** + 9.77 +3.27 + 42.52 5.33
Intermediate Term Portfolio Class A Shares*** + 9.59 +3.54 +130.18 5.38
Intermediate Term Portfolio Class B Shares*** + 8.94 +3.40 + 49.12 4.92
Intermediate Term Portfolio Class C Shares*** + 9.03 +3.40 + 38.65 4.92
Intermediate Term Portfolio Class D Shares*** + 9.39 +3.51 + 41.00 5.28
<FN>
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included. Total
investment returns are based on changes in net asset values for the
periods shown, and assume reinvestment of all dividends and capital
gains distributions at net asset value on the payable date.
**The Portfolio's ten-year/inception periods are: Class A Shares,
for the ten years ended 9/30/98; Class B Shares, from 10/21/88 to
9/30/98; and Class C & Class D Shares, from 10/21/94 to 9/30/98.
***The Portfolio's ten-year/inception periods are: Class A Shares,
for the ten years ended 9/30/98; Class B Shares, from 11/13/92 to
9/30/98; and Class C & Class D Shares, from 10/21/94 to 9/30/98.
</TABLE>
Merrill Lynch Corporate Bond Fund, Inc., Investment Grade
Portfolio & Intermediate Term Portfolio
September 30, 1998
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Issue Cost (Note 1a)
Bonds & Notes Investment Grade Portfolio
<S> <S> <S> <C> <S> <C> <C>
US Government United States Treasury Bonds & Notes:
Obligations AAA Aaa $ 5,000,000 5.50% due 3/31/2000 $ 4,997,070 $ 5,074,200
- --7.8% AAA Aaa 2,450,000 6.25% due 1/31/2002 2,566,375 2,590,483
AAA Aaa 1,000,000 6.50% due 5/31/2002 1,060,625 1,071,410
AAA Aaa 3,000,000 5.75% due 10/31/2002 3,134,063 3,153,270
AAA Aaa 3,500,000 5.375% due 6/30/2003 3,607,461 3,660,230
AAA Aaa 15,750,000 5.25% due 8/15/2003 16,191,699 16,453,868
AAA Aaa 16,350,000 5.75% due 8/15/2003 16,849,813 17,348,822
AAA Aaa 1,500,000 5.875% due 2/15/2004 1,533,281 1,606,635
AAA Aaa 5,800,000 7.25% due 5/15/2004 6,421,688 6,614,726
AAA Aaa 3,000,000 7.50% due 2/15/2005 3,280,781 3,509,070
AAA Aaa 11,850,000 6.50% due 5/15/2005 12,564,703 13,277,570
AAA Aaa 7,650,000 5.50% due 2/15/2008 7,855,594 8,275,158
AAA Aaa 1,000,000 5.625% due 5/15/2008 1,079,219 1,093,750
AAA Aaa 28,300,000 6.125% due 11/15/2027 31,366,289 32,624,523
-------------- --------------
112,508,661 116,353,715
Asset-Backed AAA Aaa 15,000,000 Aames Financial Corp., 6.46% due 5/15/2028 14,995,313 15,145,313
Securities++ AAA Aaa 4,000,000 Aames Mortgage Trust, Series 1998-C, Class
- --6.8% A2A, 5.912% due 9/15/2028 (a) 4,000,000 4,000,000
AAA Aaa 624,051 Arcadia Automobile Receivables Trust, 6.10%
due 6/15/2000 623,930 624,663
NR+++ Baa2 2,000,000 Bistro Trust 1998-1000, 6.58% due
3/26/2001 (b) 1,999,920 2,038,200
Citibank Credit Card Master Trust I:
AAA Aaa 8,000,000 5.85% due 4/10/2003 7,997,840 8,194,080
AAA Aaa 10,000,000 5.713% due 12/10/2008 (a) 9,996,100 9,943,700
AAA Aaa 5,000,000 Conti Mortgage, 1998-3-A10, 5.84% due
5/15/2016 4,998,955 5,000,000
A A2 9,000,000 First Dominion Funding I, 6.431% due
7/10/2013 (a)(b) 8,966,133 8,820,000
AAA Aaa 6,373,096 First Greensboro, 6.55% due 12/25/2029 6,373,097 6,448,777
AAA Aaa 8,886,867 GMAC Grantor Trust, 6.50% due 4/15/2002 8,884,389 8,973,692
AAA Aaa 12,000,000 IMC-Home Equity, 6.36% due 8/20/2022 (a) 11,997,673 12,498,756
Money Store Home Equity Trust (The):
AAA Aaa 11,000,000 6.13% due 12/15/2000 11,000,000 11,133,100
AAA Aaa 8,850,000 6.225% due 9/15/2023 8,848,685 8,968,922
-------------- --------------
100,682,035 101,789,203
Banking--11.1% BB&T Corporation:
BBB+ A3 6,250,000 7.25% due 6/15/2007 6,220,813 6,790,938
BBB+ A3 12,000,000 6.375% due 6/30/2025 12,050,880 12,615,840
A+ Aa3 3,000,000 BankAmerica Corp., 6.65% due 5/01/2001 2,997,090 3,095,370
A+ A1 10,000,000 First Bank System, Inc., 6.375%
due 3/15/2001 9,911,299 10,244,800
A- A2 11,000,000 First Union Corporation, 6.30% due
4/15/2028 (a) 10,958,420 11,504,900
BBB+ A1 5,500,000 First Union Institutional Capital I, 8.04%
due 12/01/2026 5,835,280 5,970,195
BBB+ A2 4,750,000 Fleet Capital Trust II, 7.92% due
12/11/2026 4,690,720 5,027,875
HSBC Americas Inc.:
A- A3 6,000,000 7% due 11/01/2006 5,949,600 6,354,720
BBB+ A2 14,000,000 7.808% due 12/15/2026 (b) 13,838,440 14,601,804
A- A2 2,000,000 Key Bank USA N.A., 7.55% due 9/15/2006 2,170,940 2,238,560
BBB+ A2 5,000,000 KeyCorp, 7.50% due 6/15/2006 5,401,050 5,564,950
BBB A1 16,400,000 KeyCorp Capital I, 6.427% due 7/01/2028 (a) 16,235,016 15,719,728
BBB+ Baa1 13,750,000 MBNA America Bank N.A., 5.987% due
6/10/2004 (a) 13,537,838 13,578,538
BBB+ A2 6,000,000 Mellon Capital I, 7.72% due 12/01/2026 6,000,000 6,357,780
A A3 5,250,000 Mellon Financial Co., 6.375% due
2/15/2010 5,258,138 5,494,545
</TABLE>
Merrill Lynch Corporate Bond Fund, Inc., Investment Grade
Portfolio & Intermediate Term Portfolio
September 30, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Issue Cost (Note 1a)
Bonds & Notes (continued) Investment Grade Portfolio
<S> <S> <S> <C> <S> <C> <C>
Banking NationsBank Corp.:
(concluded) A+ Aa2 $ 6,000,000 5.75% due 3/15/2001 $ 5,979,480 $ 6,083,400
A Aa3 1,300,000 6.50% due 8/15/2003 1,336,075 1,357,642
A+ Aa2 3,000,000 6.125% due 7/15/2004 3,068,640 3,087,600
A+ Aa2 7,750,000 6.375% due 5/15/2005 7,876,223 8,042,873
Norwest Corp.:
AA- Aa3 3,500,000 6.75% due 5/12/2000 3,494,785 3,594,675
A+ A1 5,000,000 6.625% due 3/15/2003 5,104,650 5,245,250
BBB+ A3 11,200,000 Washington Mutual Bank, 9.875% due
6/15/2001 12,414,640 12,398,288
-------------- --------------
160,330,017 164,970,271
Canadian AA- A1 2,500,000 Manitoba (Province of Canada), 5.50%
Provinces* due 10/01/2008 (1) 2,484,050 2,546,875
- --0.7% Province of Quebec (Canada)(1):
A+ A2 6,000,000 8.80% due 4/15/2003 6,774,360 6,823,440
A+ A2 1,500,000 7.125% due 2/09/2024 1,562,415 1,623,660
-------------- --------------
10,820,825 10,993,975
Finance--2.2% A A2 9,500,000 Beneficial Corporation, 6.80% due
9/16/2003 9,500,000 10,034,204
A Aa3 1,250,000 CIT Capital Trust I, 7.70% due 2/15/2027 1,244,300 1,350,551
Commercial Credit Co.:
A+ Aa3 5,000,000 6.45% due 7/01/2002 5,009,800 5,192,650
A+ Aa3 8,850,000 6.75% due 7/01/2007 9,104,349 9,290,199
A+ Aa3 1,800,000 6.25% due 1/01/2008 1,836,846 1,823,940
A- Baa1 4,500,000 Finova Capital Corp., 6.45% due
6/01/2000 4,524,435 4,566,825
-------------- --------------
31,219,730 32,258,369
Finance-- Bear Stearns Companies, Inc.:
Other--8.1% A A2 2,000,000 6.50% due 7/05/2000 1,996,360 2,023,640
A A2 2,000,000 6.75% due 5/01/2001 1,993,680 2,052,100
BBB- Baa2 6,400,000 Commercial Net Lease Realty, 7.125%
due 3/15/2008 6,382,656 6,427,072
A+ A1 3,500,000 Dean Witter, Discover & Co., 6.75% due
8/15/2000 3,486,805 3,569,475
Donaldson, Lufkin & Jenrette Inc.:
A- A3 11,000,000 6.91% due 11/01/2005 (a) 10,952,615 11,304,370
A- A3 3,500,000 6.50% due 6/01/2008 3,485,475 3,484,775
A A2 7,500,000 Equitable Life Assurance Society of the
US, 7.70% due 12/01/2015 (b) 7,448,310 8,297,692
BBB- Baa3 4,600,000 Hospitality Properties Trust, 7% due
3/01/2008 4,591,720 4,428,880
Lehman Brothers Holdings, Inc.:
A Baa1 4,000,000 6.50% due 10/01/2002 3,996,200 3,940,308
A Baa1 8,500,000 7.36% due 12/15/2003 (a) 8,671,445 8,615,430
AA Aa2 3,950,000 MBIA, Inc., 7.15% due 7/15/2027 3,940,322 4,338,048
A+ A1 8,000,000 Morgan Stanley, Dean Witter, Discover & Co.,
6.09% due 3/09/2011 7,998,720 8,134,560
BBB+ Baa1 7,500,000 PaineWebber Group Inc., 7.99% due
6/09/2017 7,500,000 7,827,225
A+ A2 5,300,000 Prudential Insurance Co., 6.375% due
7/23/2006 (b) 5,276,574 5,498,368
Salomon Smith Barney Holdings, Inc.:
A Aa3 10,000,000 6.25% due 1/15/2005 9,942,460 10,194,130
A Aa3 2,850,000 7.375% due 5/15/2007 2,847,463 3,108,666
BBB+ Baa1 1,000,000 Simon Debartolo Group, Inc., 6.75% due
6/15/2005 (b) 990,460 1,001,368
BBB Baa2 6,000,000 Spieker Properties LP, 7.35% due
12/01/2017 5,999,700 5,742,282
BBB Baa3 9,700,000 Storage USA Partnership, 7.45% due
7/01/2018 9,688,554 9,460,536
</TABLE>
Merrill Lynch Corporate Bond Fund, Inc., Investment Grade
Portfolio & Intermediate Term Portfolio
September 30, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Issue Cost (Note 1a)
Bonds & Notes (continued) Investment Grade Portfolio
<S> <S> <S> <C> <S> <C> <C>
Finance--Other Travelers Corp. (The):
(concluded) AA- Aa2 $ 3,000,000 9.50% due 3/01/2002 $ 3,163,980 $ 3,391,740
AA- Aa2 6,500,000 7.875% due 5/15/2025 6,547,818 7,470,710
-------------- --------------
116,901,317 120,311,375
Industrial-- A+ A1 3,000,000 Anheuser-Busch Cos., Inc., 8.75% due
Consumer 12/01/1999 3,367,590 3,122,850
- --4.0% A A3 10,000,000 Avon Products, Inc., 6.25% due 5/01/2018
(a)(b) 9,987,600 10,450,080
BBB- Baa3 2,500,000 Flowers Industries, Inc., 7.15% due
4/15/2028 2,486,750 2,419,625
A+ A1 3,700,000 Hershey Foods Corporation, 6.95% due
8/15/2012 4,089,832 4,135,638
Nabisco, Inc.:
BBB Baa2 9,000,000 6% due 2/15/2011 8,997,750 8,997,840
BBB Baa2 4,000,000 7.55% due 6/15/2015 3,988,860 3,973,960
A A1 5,670,000 PepsiCo, Inc., 5.75% due 1/02/2003 5,641,310 5,853,175
Philip Morris Companies, Inc.:
A A2 9,500,000 9% due 1/01/2001 9,698,815 10,207,845
A A2 5,000,000 6.15% due 3/15/2010 (a) 4,997,400 5,037,850
A A2 5,000,000 7.75% due 1/15/2027 5,361,500 5,412,300
-------------- --------------
58,617,407 59,611,163
Industrial-- AA Aa2 4,075,000 BP America Inc., 9.375% due 11/01/2000 4,488,287 4,433,029
Energy--2.3% BBB Baa2 7,250,000 Occidental Petroleum Corp., 6.50% due
4/01/2005 7,208,675 7,384,052
BBB+ A3 14,600,000 Sonat, Inc., 7% due 2/01/2018 14,836,782 15,283,280
A+ A1 5,750,000 Texaco Capital Inc., 8.625% due
11/15/2031 7,583,732 7,675,675
-------------- --------------
34,117,476 34,776,036
Industrial-- Applied Materials Inc.:
Manufacturing BBB+ A3 5,000,000 6.75% due 10/15/2007 4,996,750 5,184,950
- --11.2% BBB+ A3 13,000,000 7.125% due 10/15/2017 12,911,080 13,144,690
Ford Motor Credit Company:
A A1 5,000,000 8.20% due 2/15/2002 5,328,850 5,428,200
A A1 5,000,000 8% due 6/15/2002 5,286,350 5,457,150
A A1 5,000,000 7.50% due 6/15/2004 5,140,200 5,501,950
A A1 1,000,000 7.75% due 3/15/2005 999,090 1,122,760
A A1 10,000,000 5.787% due 8/27/2006 (a) 9,993,068 9,999,400
A A1 7,000,000 8.90% due 1/15/2032 8,650,180 8,958,040
AAA Aaa 4,305,000 General Electric Capital Corp., 8.50%
due 7/24/2008 5,228,853 5,338,415
General Motors Acceptance Corp.:
A- A2 4,000,000 6.625% due 9/19/2002 3,915,080 4,211,600
A A2 9,400,000 5.875% due 1/22/2003 9,505,280 9,634,342
A A2 10,000,000 7.70% due 4/15/2016 10,911,500 11,221,000
BBB- Baa2 5,000,000 Georgia-Pacific Group, 7.25% due 6/01/2028 4,975,150 4,945,450
A- Baa1 3,500,000 Goodrich B.F. Company (The), 7% due
4/15/2038 3,479,385 3,547,320
AA Aa2 11,000,000 Kimberly-Clark Corp., 6.375% due 1/01/2028 10,909,360 11,458,700
- - A- Baa1 3,000,000 Lafarge Corporation, 6.875% due 7/15/2013 2,992,770 3,114,300
BBB+ A3 5,000,000 Lockheed Martin Corp., 6.85% due 5/15/2001 4,995,950 5,195,050
BBB+ A3 11,000,000 Loral Corporation, 8.375% due 6/15/2024 11,056,040 13,370,830
A A2 6,600,000 Lucent Technologies Inc., 6.50% due
1/15/2028 6,838,788 6,940,956
Martin Marietta Corp.:
BBB+ A3 6,500,000 6.50% due 4/15/2003 6,539,845 6,799,910
BBB+ A3 4,000,000 7.375% due 4/15/2013 3,846,440 4,260,560
A A2 5,000,000 May Department Stores Co., 6.70% due
9/15/2028 4,979,700 5,161,300
BBB Baa1 2,750,000 Raytheon Co., 6.30% due 3/15/2005 2,743,812 2,870,395
BBB Ba1 14,000,000 Seagate Technology, Inc., 7.125% due
3/01/2004 13,975,500 13,714,400
-------------- --------------
160,199,021 166,581,668
</TABLE>
Merrill Lynch Corporate Bond Fund, Inc., Investment Grade
Portfolio & Intermediate Term Portfolio
September 30, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Issue Cost (Note 1a)
Bonds & Notes (continued) Investment Grade Portfolio
<S> <S> <S> <C> <S> <C> <C>
Industrial-- AAA Aa1 $ 5,700,000 Abbott Laboratories, 5.40% due 9/15/2008 $ 5,688,657 $ 5,832,069
Services-- A A2 10,000,000 Bass America, Inc., 8.125% due 3/31/2002 10,250,610 10,790,700
15.5% A A2 8,000,000 Carnival Cruise Lines, Inc., 7.70% due
7/15/2004 8,076,380 8,766,560
BBB- Baa3 10,000,000 Circus Circus Enterprises, Inc., 6.70%
due 11/15/2096 9,977,700 9,445,000
A- Baa1 11,000,000 Computer Associates International, Inc.,
6.375% due 4/15/2005 (b) 10,941,810 11,233,178
BBB Baa1 5,000,000 Dillard's, Inc., 9.125% due 8/01/2011 6,054,000 6,165,350
First Data Corporation:
A A2 11,500,000 6.75% due 7/15/2005 11,911,930 12,228,180
A A2 10,000,000 6.375% due 12/15/2007 9,974,300 10,434,500
AAA Aaa 7,000,000 Johnson & Johnson, 8.72% due 11/01/2024 7,057,420 8,458,660
BBB- Baa3 12,445,000 News American Holdings, Inc., 8.625% due
2/01/2003 13,585,486 13,808,350
A A2 5,750,000 Nordstrom, Inc., 6.95% due 3/15/2028 5,824,520 5,879,892
Oracle Corporation:
BBB+ Baa2 5,000,000 6.72% due 2/15/2004 5,000,000 5,084,750
BBB+ Baa2 4,000,000 6.91% due 2/15/2007 4,000,000 4,191,800
BBB- Baa3 12,700,000 Royal Caribbean Cruises Ltd., 6.75% due
3/15/2008 12,620,404 12,927,965
A- A2 8,000,000 Sears, Roebuck & Co., 6.82% due 10/17/2002 8,016,320 8,473,360
Service Corporation International:
BBB+ Baa1 7,000,000 6.75% due 6/01/2001 6,978,580 7,102,900
BBB+ Baa1 8,500,000 7.20% due 6/01/2006 8,263,700 9,163,340
BBB+ Baa1 7,000,000 6.30% due 3/15/2020 6,992,300 7,197,260
BBB- Baa3 8,980,000 TCI Communications, Inc., 8.75% due
8/01/2015 10,534,079 11,218,534
Time Warner Entertainment Co.:
BBB- Baa2 6,000,000 10.15% due 5/01/2012 7,356,180 8,111,460
BBB- Baa2 9,900,000 8.375% due 3/15/2023 10,525,871 11,915,145
AA Aa2 14,345,000 Wal-Mart Stores, Inc., 8.50% due 9/15/2024 14,488,240 16,302,375
Walt Disney Co.:
A A2 5,500,000 6.375% due 3/30/2001 5,500,000 5,686,890
A A2 13,590,413 6.85% due 1/10/2007++(b) 13,581,307 14,348,622
BBB+ Baa3 5,350,000 Waste Management Inc., 7% due 7/15/2028 5,290,454 5,458,391
-------------- --------------
218,490,248 230,225,231
Industrial-- BBB Baa2 9,000,000 Federal Express Corporation, 9.65% due 10,137,590 11,235,510
Transportation 6/15/2012
- --2.1% Southwest Airlines, Inc.:
A- A3 10,000,000 9.40% due 7/01/2001 11,326,040 10,976,900
A- A3 2,000,000 8% due 3/01/2005 1,989,220 2,220,060
A- A3 3,000,000 7.875% due 9/01/2007 2,983,950 3,403,380
BBB- Baa3 4,000,000 Union Pacific Corp., 6.625% due 2/01/2008 3,964,880 4,139,080
-------------- --------------
30,401,680 31,974,930
Mortgage- BBB Baa2 11,000,000 DLJ Commercial Mortgage Corp.,
Backed 6.91% due 5/10/2010 11,115,156 11,127,193
Securities++ Federal Home Loan Mortgage Corp.:
- --4.5% AAA Aaa 2,000,000 6% due 6/15/2023 1,989,375 2,069,360
AAA Aaa 2,000,000 6.35% due 9/15/2023 2,022,734 2,098,740
AAA Aaa 6,495,173 Federal National Mortgage Association,
6.452% due 12/25/2012 6,511,411 6,596,660
AAA Aaa 11,000,000 Government National Mortgage Association,
6.375% due 11/20/2026 10,915,781 11,419,320
NR+++ A2 8,500,000 Mortgage Capital Funding, 6.726% due
6/18/2008 8,585,000 8,697,227
</TABLE>
Merrill Lynch Corporate Bond Fund, Inc., Investment Grade
Portfolio & Intermediate Term Portfolio
September 30, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Issue Cost (Note 1a)
Bonds & Notes (continued) Investment Grade Portfolio
<S> <S> <S> <C> <S> <C> <C>
Mortgage-Backed Nomura Asset Securities Corp., Series
Securities 1998-D6:
(concluded) AAA Aaa $ 8,226,741 Class A1A, 6.28% due 3/15/2030 $ 8,270,445 $ 8,668,928
AAA Aaa 10,000,000 Class A1B, 6.59% due 3/15/2030 10,153,125 10,643,750
AAA Aaa 5,680,589 Class A2, 6.769% due 3/17/2028 (a) 5,781,996 6,269,268
-------------- --------------
65,345,023 67,590,446
Utilities-- A- A2 8,700,000 ALLTEL Corporation, 6.75% due 9/15/2005 8,566,020 9,450,375
Communications AA Aa1 6,350,000 Bell Telephone Company of Pennsylvania,
- --5.6% 7.375% due 7/15/2007 7,090,029 7,203,884
A A3 4,650,000 Frontier Corporation, 6% due 10/15/2003 (a) 4,643,676 4,727,841
AA- A2 9,500,000 GTE California, Inc., 8.07% due 4/15/2024 10,152,935 10,925,855
GTE Corp.:
A Baa1 7,500,000 9.375% due 12/01/2000 8,235,170 8,138,250
A Baa1 3,600,000 6.84% due 4/15/2018 3,700,728 3,807,216
Southwestern Bell Telecommunications Corp.:
AA Aa3 2,000,000 6.125% due 3/01/2000 2,011,250 2,027,440
AA Aa3 5,000,000 6.375% due 11/15/2007 5,023,800 5,407,300
A- A3 11,400,000 US West Capital Funding Inc., 6.875% due
7/15/2028 11,590,870 12,084,798
WorldCom Inc.:
BBB+ Baa2 11,000,000 7.75% due 4/01/2007 11,977,665 12,567,940
BBB+ Baa2 6,000,000 6.95% due 8/15/2028 5,943,900 6,321,360
-------------- --------------
78,936,043 82,662,259
Utilities-- AAA Aaa 5,850,000 Cleveland Electric/Toledo Edison (Class B),
Electric--6.1% 7.13% due 7/01/2007 6,137,176 6,696,904
BBB- Baa3 5,000,000 Commonwealth Edison Co., 6.95% due
7/15/2018 4,978,600 5,123,695
A+ A1 9,115,000 Consolidated Edison Inc., 6.25% due
2/01/2008 9,115,000 9,670,195
BBB+ Baa3 5,000,000 Consumers Energy Company, 6.375% due
2/01/2008 4,951,650 5,137,660
AA+ Aa1 3,700,000 Emerson Electric Co., 5.50% due 9/15/2008 3,690,417 3,722,496
A A1 10,000,000 Mississippi Power Co., 6.05% due 5/01/2003 10,224,800 10,535,600
AA- A1 8,000,000 Pacific Gas and Electric Company, 6.25%
due 8/01/2003 8,149,200 8,372,400
A- A3 3,000,000 Pennsylvania Power & Light Resources Inc.,
6.125% due 5/01/2006 (a) 2,998,200 3,080,880
A- A3 10,000,000 Public Service Electric & Gas Co., 6.50%
due 6/01/2000 9,995,705 10,191,100
AA- A1 5,000,000 TECO Energy, Inc., 9.27% due 6/12/2000 5,000,000 5,343,700
Texas Utilities Electric Company:
AAA NR+++ 6,971,000 6.375% due 10/01/2004 6,995,198 6,975,127
BBB Baa2 5,000,000 8.175% due 1/30/2037 5,000,000 5,151,500
A A2 8,500,000 Virginia Electric & Power Co., 8.625% due
10/01/2024 8,377,160 10,064,680
-------------- --------------
85,613,106 90,065,937
Yankee AA- Aa2 6,000,000 ABN AMRO Holding N.V., 7.125% due
Corporates*-- 6/18/2007 (2) 5,997,060 6,472,560
8.2% AmVescap PLC (2):
BBB A3 3,000,000 6.375% due 5/15/2003 2,994,570 3,088,683
BBB A3 9,000,000 6.60% due 5/15/2005 8,986,894 9,329,841
A+ A1 6,000,000 Australia & New Zealand Banking Group
Ltd., 7.55% due 9/15/2006 (2) 5,990,880 6,465,180
BBB+ A2 7,500,000 Banco Central Hispanoamercano S.A.
(Cayman Islands), 7.70% due
7/15/2006 (2) 7,973,775 7,941,300
</TABLE>
Merrill Lynch Corporate Bond Fund, Inc., Investment Grade
Portfolio & Intermediate Term Portfolio
September 30, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Issue Cost (Note 1a)
Bonds & Notes (concluded) Investment Grade Portfolio
<S> <S> <S> <C> <S> <C> <C>
Yankee BBB Baa2 $ 5,550,000 Canadian National Railway Co., 6.90%
Corporates due 7/15/2028 (3) $ 5,526,135 $ 5,692,413
(concluded) Enersis S.A. (3):
A- Baa1 2,500,000 6.90% due 12/01/2006 2,493,550 2,115,475
A- Baa1 4,000,000 6.60% due 12/01/2026 3,992,400 3,558,920
Fairfax Financial Holdings Ltd. (2):
BBB+ Baa3 300,000 7.375% due 4/15/2018 299,346 292,593
BBB+ Baa3 9,800,000 7.75% due 7/15/2037 (b) 9,751,098 9,771,913
Ford Capital B.V. (2):
A A1 10,000,000 9.875% due 5/15/2002 10,531,200 11,450,700
A A1 3,995,000 9.50% due 6/01/2010 4,430,215 5,283,627
A Aa3 2,000,000 Midland Bank PLC, 7.625% due 6/15/2006 (2) 1,995,240 2,189,460
A A2 6,500,000 Norsk Hydro A/S, 6.70% due 1/15/2018 (3) 6,466,720 6,597,883
BBB+ A3 1,500,000 Philips Electronics N.V., 7.75% due
4/15/2004 (3) 1,602,615 1,635,300
BBB+ Baa3 2,000,000 Saga Petroleum ASA, 7.25% due 9/23/2027 (3) 1,979,980 1,807,440
A+ Aa3 4,000,000 Sony Corp., 6.125% due 3/04/2003 (3) 3,991,520 4,114,320
AA+ Aa1 15,500,000 Swiss Bank Corp.--New York, 7.375%
due 6/15/2017 (2) 16,581,680 16,234,855
A- A2 6,000,000 Trans-Canada Pipelines Ltd., 6.49% due
1/21/2009 (3) 6,000,000 6,242,160
A- Baa1 10,500,000 Tyco International Group S.A., 7% due
6/15/2028 (3) 10,424,295 10,986,360
-------------- --------------
118,009,173 121,270,983
Yankee AA- Aa3 8,200,000 Ontario (Province of Canada), 5.50%
Sovereign* due 10/01/2008 (1) 8,151,456 8,338,498
- --0.6%
Total Investments in Bonds & Notes--96.8% 1,390,343,218 1,439,774,059
Short-Term Securities
Repurchase 29,650,000 HSBC Securities Inc., purchased on
Agreements**--2.0% 9/30/1998 to yield 5.50% to 10/01/1998 29,650,000 29,650,000
Total Investments in Short-Term
Securities--2.0% 29,650,000 29,650,000
Total Investments--98.8% $1,419,993,218 1,469,424,059
==============
Other Assets Less Liabilities--1.2% 17,241,549
--------------
Net Assets--100.0% $1,486,665,608
==============
<FN>
*Corresponding industry groups for foreign securities which are
denominated in US dollars:
(1)Government Entity; Guaranteed by the Province.
(2)Financial Institution.
(3)Industrial.
**Repurchase Agreements are fully collateralized by US Government
and Agency Obligations.
++Subject to principal paydowns.
(a)Floating Rate Note.
(b)The security may be offered and sold to "qualified institutional
buyers" under Rule 144A of the Securities Act of 1933.
+++Not Rated.
Ratings of issues shown have not been audited by Deloitte & Touche
LLP.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Corporate Bond Fund, Inc., Investment Grade
Portfolio & Intermediate Term Portfolio
September 30, 1998
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Issue Cost (Note 1a)
Bonds & Notes Intermediate Term Portfolio
<S> <S> <S> <C> <S> <C> <C>
US Government United States Treasury Bonds & Notes:
Obligations AAA Aaa $ 5,000,000 6.50% due 5/31/2002 $ 5,303,125 $ 5,357,050
- --8.6% AAA Aaa 1,500,000 5.375% due 6/30/2003 1,546,055 1,568,670
AAA Aaa 4,000,000 5.25% due 8/15/2003 4,115,937 4,178,760
AAA Aaa 3,500,000 5.875% due 2/15/2004 3,641,641 3,748,815
AAA Aaa 6,800,000 7.25% due 5/15/2004 7,486,375 7,755,196
AAA Aaa 6,500,000 7.25% due 8/15/2004 7,337,383 7,447,570
AAA Aaa 1,500,000 6.50% due 5/15/2005 1,590,469 1,680,705
AAA Aaa 9,500,000 5.625% due 5/15/2008 10,222,969 10,390,625
-------------- --------------
41,243,954 42,127,391
Asset-Backed NR+++ Baa2 3,500,000 Bistro Trust 1998--1000, 6.58% due
Securities++ 3/26/2001 (a) 3,499,860 3,566,850
- --4.1% AAA Aaa 2,000,000 First Bank, Corporate Card Master Trust,
6.40% due 2/15/2003 1,997,545 2,074,242
B B3 10,000,000 Spinnaker Industries, Inc., 6.644% due
5/01/2001 (b) 10,000,000 9,965,000
BBB+ Baa1 5,000,000 York Funding Ltd., 6.687% due 6/15/2005 (b) 5,000,000 4,550,000
-------------- --------------
20,497,405 20,156,092
Banking-- BBB+ A3 4,000,000 BB&T Corporation, 7.25% due 6/15/2007 3,981,320 4,346,200
13.5% A A2 3,500,000 Bank of New York Company, Inc. (The),
7.875% due 11/15/2002 3,873,450 3,813,005
BankAmerica Corp.:
A A1 4,000,000 7.50% due 10/15/2002 4,268,880 4,287,880
A+ Aa2 3,000,000 7.125% due 5/12/2005 2,956,500 3,238,770
A A1 9,000,000 First Chicago Corp., 9% due 6/15/1999 9,548,820 9,211,230
A- A3 1,000,000 HSBC Americas Inc., 7% due 11/01/2006 991,600 1,059,120
A- A2 2,800,000 Key Bank USA N.A., 7.55% due 9/15/2006 3,039,316 3,133,984
BBB+ Baa1 4,000,000 MBNA America Bank N.A., 5.987% due
6/10/2004 (b) 3,938,280 3,950,120
A A3 6,000,000 Mellon Financial Co., 6.875% due
3/01/2003 5,483,220 6,360,720
NationsBank Corp.:
A+ Aa2 2,000,000 5.75% due 3/15/2001 1,993,160 2,027,800
A+ Aa2 11,500,000 6.65% due 4/09/2002 11,423,540 12,030,610
Norwest Corp.:
AA- Aa3 2,000,000 6.125% due 10/15/2000 1,996,440 2,042,260
A+ A1 1,000,000 6.625% due 3/15/2003 1,003,060 1,049,050
BBB+ A3 9,000,000 Washington Mutual Bank, 7.25% due
8/15/2005 8,930,520 9,724,860
-------------- --------------
63,428,106 66,275,609
Canadian A+ A2 5,000,000 Province of Quebec (Canada), 8.80% due
Provinces*--1.2% 4/15/2003 (1) 5,538,670 5,686,200
Finance--3.3% A A2 9,250,000 Beneficial Corporation, 6.80% due 9/16/2003 9,250,000 9,770,146
A+ Aa3 1,000,000 CIT Group Holdings, Inc., 6.625% due
6/15/2005 1,003,390 1,073,060
Commercial Credit Co.:
A+ Aa3 3,000,000 6.45% due 7/01/2002 3,005,880 3,115,590
A+ Aa3 2,080,000 6.25% due 1/01/2008 2,122,578 2,107,664
-------------- --------------
15,381,848 16,066,460
</TABLE>
Merrill Lynch Corporate Bond Fund, Inc., Investment Grade
Portfolio & Intermediate Term Portfolio
September 30, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Issue Cost (Note 1a)
Bonds & Notes (continued) Intermediate Term Portfolio
<S> <S> <S> <C> <S> <C> <C>
Finance-- BBB- Baa2 $5,000,000 Centerpoint Properties Corporation,
Other--5.6% 6.75% due 4/01/2005 $ 4,978,150 $ 4,965,450
BBB- Baa2 5,000,000 Commercial Net Lease Realty, 7.125%
due 3/15/2008 4,986,450 5,021,150
BBB- Baa3 4,250,000 Hospitality Properties Trust, 7% due
3/01/2008 4,242,350 4,091,900
Salomon Smith Barney Holdings, Inc.:
A Aa3 2,000,000 6.50% due 3/01/2000 2,000,000 2,030,160
A Aa3 4,000,000 6.25% due 1/15/2005 3,991,240 4,077,652
A Aa3 1,000,000 7.375% due 5/15/2007 999,110 1,090,760
BBB+ Baa1 4,000,000 Simon Debartolo Group, Inc., 6.75%
due 6/15/2005 (a) 3,961,840 4,005,472
AA- Aa2 2,000,000 Travelers Corp. (The), 9.50% due 3/01/2002 2,168,400 2,261,160
-------------- --------------
27,327,540 27,543,704
Industrial-- Anheuser-Busch Cos., Inc.:
Consumer A+ A1 5,481,000 8.75% due 12/01/1999 6,189,909 5,705,447
Goods--6.8% A+ A1 2,800,000 5.65% due 9/15/2008 2,790,508 2,829,624
A A3 2,000,000 Avon Products, Inc., 6.25% due
5/01/2018 (a)(b) 1,997,520 2,090,016
Nabisco, Inc.:
BBB Baa2 5,000,000 6.70% due 6/15/2002 4,997,050 5,106,750
BBB Baa2 3,000,000 6.85% due 6/15/2005 2,994,300 3,045,810
BBB Baa2 6,000,000 6% due 2/15/2011 5,998,500 5,998,560
Philip Morris Companies, Inc.:
A A2 3,500,000 9% due 1/01/2001 3,576,195 3,760,785
A A2 5,000,000 6.15% due 3/15/2010 (b) 4,997,400 5,037,850
-------------- --------------
33,541,382 33,574,842
Industrial-- BBB- Baa2 9,500,000 KN Energy, Inc., 6.80% due 3/01/2008 9,605,355 9,790,415
Energy--4.4% BBB Baa2 3,000,000 Occidental Petroleum Corp., 6.50% due
4/01/2005 2,982,900 3,055,470
A+ A1 2,000,000 Texaco Capital Inc., 9% due 12/15/1999 2,342,460 2,093,840
BBB Baa2 6,000,000 Ultramar Credit Corp., 8.625% due
7/01/2002 6,521,940 6,551,820
-------------- --------------
21,452,655 21,491,545
Industrial-- A A2 3,000,000 AlliedSignal, Inc., 6.20% due 2/01/2008 2,995,980 3,138,330
Manufacturing-- Applied Materials Inc.:
12.7% BBB+ A3 4,000,000 6.65% due 9/05/2000 4,000,000 4,111,000
BBB+ A3 4,300,000 6.75% due 10/15/2007 4,297,205 4,459,057
BBB Ba1 3,000,000 Blount Inc., 7% due 6/15/2005 2,968,650 3,047,550
A A1 2,700,000 Ford Motor Credit Company, 5.787% due
8/27/2006 (b) 2,698,128 2,699,838
AAA Aaa 8,500,000 General Electric Capital Corp., 8.50%
due 7/24/2008 10,324,100 10,540,425
General Motors Acceptance Corp.:
A A2 3,000,000 6.625% due 10/01/2002 2,994,600 3,154,260
A A2 2,000,000 9% due 10/15/2002 2,213,880 2,257,760
A A2 5,000,000 General Motors Corporation, 6.375%
due 5/01/2008 5,132,550 5,300,450
A- Baa1 3,500,000 Lafarge Corporation, 6.375% due 7/15/2005 3,495,905 3,581,585
BBB+ A3 8,000,000 Lockheed Martin Corp., 6.85% due 5/15/2001 8,018,810 8,312,080
Raytheon Co.:
BBB Baa1 2,750,000 5.95% due 3/15/2001 2,746,617 2,797,108
BBB Baa1 5,000,000 6.45% due 8/15/2002 5,173,850 5,200,900
BBB Ba1 4,000,000 Seagate Technology, Inc., 7.125% due
3/01/2004 3,993,000 3,918,400
-------------- --------------
61,053,275 62,518,743
</TABLE>
Merrill Lynch Corporate Bond Fund, Inc., Investment Grade
Portfolio & Intermediate Term Portfolio
September 30, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Issue Cost (Note 1a)
Bonds & Notes (continued) Intermediate Term Portfolio
<S> <S> <S> <C> <S> <C> <C>
Industrial-- A A2 $ 3,000,000 Bass America, Inc., 6.625% due 3/01/2003 $ 2,825,520 $ 3,126,690
Services-- A A2 6,000,000 Carnival Cruise Lines, Inc., 7.70% due
13.7% 7/15/2004 5,952,060 6,574,920
BBB- Baa3 4,000,000 Comcast Cable Communications Company,
8.375% due 5/01/2007 4,060,680 4,698,256
A- Baa1 4,000,000 Computer Associates International, Inc.,
6.25% due 4/15/2003 3,992,480 4,058,960
BBB Baa1 8,500,000 Dillard's, Inc., 6.08% due 8/01/2010 (b) 8,498,810 8,641,015
BBB Baa3 5,000,000 HEALTHSOUTH Corporation, 7% due
6/15/2008 (a) 4,952,500 5,002,235
BBB- Baa3 4,000,000 News American Holdings, Inc., 8.625% due
2/01/2003 4,286,440 4,438,200
BBB+ Baa2 1,000,000 Oracle Corporation, 6.91% due 2/15/2007 1,000,000 1,047,950
Service Corporation International:
BBB+ Baa1 1,000,000 6.75% due 6/01/2001 996,940 1,014,700
BBB+ Baa1 2,000,000 6.30% due 3/15/2020 1,997,800 2,056,360
TCI Communications, Inc.:
BBB- Baa3 3,000,000 8.65% due 9/15/2004 3,099,270 3,461,010
BBB- Baa3 5,500,000 8% due 8/01/2005 5,561,380 6,285,510
BBB- Baa2 5,000,000 Time Warner Entertainment Co., 9.625%
due 5/01/2002 5,586,000 5,662,500
BBB- Baa3 5,000,000 Turner Broadcasting System, Inc.
(Class B), 7.40% due 2/01/2004 5,108,150 5,422,400
A A2 4,455,873 Walt Disney Co., 6.85% due 1/10/2007++
(a)(b) 4,452,888 4,704,466
BBB+ Baa3 1,000,000 Waste Management, Inc., 6.125% due
7/15/2001 997,950 1,022,247
-------------- --------------
63,368,868 67,217,419
Industrial-- Southwest Airlines, Inc.:
Transportation A- A3 6,500,000 9.40% due 7/01/2001 7,564,180 7,134,985
- --1.9% A- A3 1,000,000 8% due 3/01/2005 994,610 1,110,030
BBB- Baa3 1,000,000 Union Pacific Corp., 6.625% due 2/01/2008 991,220 1,034,770
-------------- --------------
9,550,010 9,279,785
Mortgage- NR+++ Aaa 4,000,000 Federal National Mortgage Association,
Backed 6% due 5/15/2008 4,114,160 4,310,720
Securities++
- --0.9%
Utilities-- A Baa1 5,000,000 360 Communications Co., 7.50% due
Communications 3/01/2006 5,170,100 5,606,450
- --6.7% A- A2 4,000,000 ALLTEL Corporation, 6.75% due 9/15/2005 3,938,400 4,345,000
AA Aa1 2,500,000 Bell Telephone Company of Pennsylvania,
7.375% due 7/15/2007 2,791,350 2,836,175
A A3 3,000,000 Frontier Corporation, 6% due 10/15/2013 (b) 2,995,920 3,050,220
A Baa1 1,000,000 GTE Corp., 9.375% due 12/01/2000 1,090,310 1,085,100
Southwestern Bell Telecommunications
Corp.:
AA Aa3 1,000,000 6.50% due 3/12/2003 1,009,780 1,058,560
AA Aa3 2,200,000 6.625% due 4/01/2005 2,108,590 2,356,090
BBB+ Baa2 11,000,000 WorldCom Inc., 7.75% due 4/01/2007 11,756,720 12,567,940
-------------- --------------
30,861,170 32,905,535
Utilities-- A- Baa1 4,000,000 Arizona Public Service Company, 6.75%
Electric-- due 11/15/2006 3,905,840 4,239,120
5.3% AAA Aaa 3,000,000 Cleveland Electric/Toledo Edison
(Class B), 7.13% due 7/01/2007 3,147,270 3,434,310
BBB+ Baa3 9,000,000 Consumers Energy Company, 6.375% due
2/01/2008 8,912,970 9,247,788
A A1 4,000,000 Mississippi Power Co., 6.05% due 5/01/2003 4,089,920 4,214,240
</TABLE>
Merrill Lynch Corporate Bond Fund, Inc., Investment Grade
Portfolio & Intermediate Term Portfolio
September 30, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Issue Cost (Note 1a)
Bonds & Notes (continued) Intermediate Term Portfolio
<S> <S> <S> <C> <S> <C> <C>
Utilities-- AA- A1 $ 1,500,000 Pacific Gas and Electric Company,
Electric 6.25% due 8/01/2003 $ 1,527,975 $ 1,569,825
(concluded) A- A3 1,000,000 Pennsylvania Power & Light Resources
Inc., 6.125% due 5/01/2006 (b) 999,400 1,026,960
A- A3 2,000,000 Public Service Electric & Gas Co., 6.50%
due 6/01/2000 1,999,120 2,038,220
-------------- --------------
24,582,495 25,770,463
Yankee BBB- Baa3 3,000,000 Abitibi-Consolidated Inc., 6.95% due
Corporates*-- 4/01/2008 (3) 2,994,180 2,987,220
7.1% AmVescap PLC (2):
BBB A3 2,000,000 6.375% due 5/15/2003 1,996,380 2,059,122
BBB A3 2,000,000 6.60% due 5/15/2005 1,997,087 2,073,298
BBB+ A2 5,000,000 Banco Central Hispanoamercano S.A.
(Cayman Islands), 7.70% due
7/15/2006 (2) 5,315,850 5,294,200
A- Baa1 1,500,000 Enersis S.A., 6.90% due 12/01/2006 (3) 1,496,130 1,269,285
A A1 2,000,000 Ford Capital B.V., 9.875% due
5/15/2002 (2) 2,300,380 2,290,140
BBB- Ba2 3,000,000 Gruma S.A. de C.V., 7.625% due
10/15/2007 (3) 2,994,960 2,460,000
AAA Aaa 2,000,000 International Bank for Reconstruction &
Development, 5.625% due 3/17/2003 (2) 1,993,300 2,061,460
BBB+ A3 2,650,000 Philips Electronics N.V., 7.75% due
4/15/2004 (3) 2,831,286 2,889,030
A- A2 5,000,000 Trans-Canada Pipelines Ltd., 6.43% due
3/15/2029 (3) 5,000,000 5,170,300
BBB+ Baa2 6,000,000 WPP Finance (USA) Corp., 6.625% due
7/15/2005 (2) 5,958,540 6,138,444
-------------- --------------
34,878,093 34,692,499
Yankee AA- Aa3 3,000,000 Ontario (Province of Canada), 5.50%
Sovereign*-- due 10/01/2008 (1) 2,982,240 3,050,670
0.6%
Total Investments in Bonds & Notes--96.4% 459,801,871 472,667,677
Short-Term Securities
Repurchase 14,978,000 HSBC Securities Inc., purchased on
Agreements**-- 9/30/1998 to yield 5.50% to 10/01/1998 14,978,000 14,978,000
3.1%
Total Investments in
Short-Term Securities--3.1% 14,978,000 14,978,000
Total Investments--99.5% $ 474,779,871 487,645,677
==============
Other Assets Less Liabilities--0.5% 2,623,188
--------------
Net Assets--100.0% $ 490,268,865
==============
<FN>
*Corresponding industry groups for foreign securities which are
denominated in US dollars:
(1)Government Entity; Guaranteed by the Province.
(2)Financial Institution.
(3)Industrial.
**Repurchase Agreements are fully collateralized by US Government
and Agency Obligations.
++Subject to principal paydowns.
+++Not rated.
(a)The security may be offered and sold to "qualified institutional
buyers" under Rule 144A of the Securities Act of 1933.
(b)Floating Rate Note.
Ratings of issues shown have not been audited by Deloitte & Touche
LLP.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Corporate Bond Fund, Inc., Investment Grade
Portfolio & Intermediate Term Portfolio
September 30, 1998
FINANCIAL INFORMATION
<TABLE>
Statements of Assets and Liabilities as of September 30, 1998
<CAPTION>
Investment Intermediate
Grade Portfolio Term Portfolio
<S> <S> <C> <C>
Assets: Investments, at value* (Note 1a) $1,469,424,059 $ 487,645,677
Cash 369,076 --
Receivables:
Interest 22,990,958 7,902,122
Capital shares sold 7,370,298 669,440
Securities sold 4,713,780 --
Loaned securities (Note 5) 4,218 --
Prepaid registration fees and other assets (Note 1f) 25,685 20,903
-------------- --------------
Total assets 1,504,898,074 496,238,142
-------------- --------------
Liabilities: Payables:
Securities purchased 8,151,456 2,982,240
Capital shares redeemed 5,262,227 1,409,927
Dividends to shareholders (Note 1g) 3,377,936 1,000,491
Investment adviser (Note 2) 432,023 141,092
Distributor (Note 2) 477,830 81,195
Accrued expenses and other liabilities 530,994 354,332
-------------- --------------
Total liabilities 18,232,466 5,969,277
-------------- --------------
Net Assets: Net assets $1,486,665,608 $ 490,268,865
============== ==============
Net Assets Class A Common Stock, $.10 par value++ $ 5,097,890 $ 1,696,469
Consist of: Class B Common Stock, $.10 par value++++ 5,816,708 1,508,597
Class C Common Stock, $.10 par value++++++ 657,195 40,864
Class D Common Stock, $.10 par value++++++++ 1,045,070 898,524
Paid-in capital in excess of par 1,450,964,566 480,873,765
Accumulated realized capital losses on investments--net
(Note 6) (6,840,481) (5,870,447)
Accumulated distributions in excess of realized capital
gains on investments--net (Note 1g) (19,506,181) (1,744,713)
Unrealized appreciation on investments--net 49,430,841 12,865,806
-------------- --------------
Net assets $1,486,665,608 $ 490,268,865
============== ==============
Net Asset Class A: Net assets $ 600,655,063 $ 200,679,008
Value: ============== ==============
Shares outstanding 50,978,895 16,964,688
============== ==============
Net asset value and redemption price per share $ 11.78 $ 11.83
============== ==============
Class B: Net assets $ 685,344,569 $ 178,463,442
============== ==============
Shares outstanding 58,167,078 15,085,969
============== ==============
Net asset value and redemption price per share $ 11.78 $ 11.83
============== ==============
Class C: Net assets $ 77,463,550 $ 4,832,373
============== ==============
Shares outstanding 6,571,952 408,636
============== ==============
Net asset value and redemption price per share $ 11.79 $ 11.83
============== ==============
Class D: Net assets $ 123,202,426 $ 106,294,042
============== ==============
Shares outstanding 10,450,702 8,985,243
============== ==============
Net asset value and redemption price per share $ 11.79 $ 11.83
============== ==============
<FN>
*Identified cost $1,419,993,218 $ 474,779,871
============== ==============
++Authorized shares--Class A 250,000,000 100,000,000
============== ==============
++++Authorized shares--Class B 250,000,000 50,000,000
============== ==============
++++++Authorized shares--Class C 100,000,000 50,000,000
============== ==============
++++++++Authorized shares--Class D 100,000,000 50,000,000
============== ==============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Corporate Bond Fund, Inc., Investment Grade
Portfolio & Intermediate Term Portfolio
September 30, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Operations for the Year Ended September 30, 1998
<CAPTION>
Investment Intermediate
Grade Term
Portfolio Portfolio
<S> <S> <C> <C>
Investment Interest and discount earned $ 87,328,380 $ 29,750,301
Income Loaned securities 262,117 95,159
(Note 1e): -------------- --------------
Total income 87,590,497 29,845,460
-------------- --------------
Expenses: Investment advisory fees (Note 2) 4,551,338 1,541,245
Account maintenance and distribution fees--Class B (Note 2) 4,348,083 771,948
Transfer agent fees--Class B (Note 2) 1,176,741 429,440
Transfer agent fees--Class A (Note 2) 1,009,629 491,350
Account maintenance and distribution fees--Class C (Note 2) 443,418 10,574
Transfer agent fees--Class D (Note 2) 165,624 229,418
Account maintenance fees--Class D (Note 2) 225,932 86,740
Printing and shareholder reports 127,038 43,413
Registration fees (Note 1f) 98,889 61,370
Transfer agent fees--Class C (Note 2) 113,542 6,192
Accounting services (Note 2) 75,981 34,351
Custodian fees 67,498 39,990
Professional fees 20,297 8,170
Pricing fees (Note 2) 11,510 7,873
Directors' fees and expenses 5,161 1,833
Other 16,815 6,338
-------------- --------------
Total expenses 12,457,496 3,770,245
-------------- --------------
Investment income--net 75,133,001 26,075,215
-------------- --------------
Realized & Realized gain on investments--net 12,258,526 3,775,926
Unrealized Change in unrealized appreciation on investments--net 32,346,813 9,218,836
Gain on -------------- --------------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 119,738,340 $ 39,069,977
(Notes 1c, 1e & 3): ============== ==============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Corporate Bond Fund, Inc., Investment Grade
Portfolio & Intermediate Term Portfolio
September 30, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets Investment Grade Portfolio
<CAPTION>
For the Year Ended
September 30,
Increase (Decrease) in Net Assets: 1998 1997
<S> <S> <C> <C>
Operations: Investment income--net $ 75,133,001 $ 87,930,710
Realized gain (loss) on investments--net 12,258,526 (160,363)
Change in unrealized appreciation/depreciation on
investments--net 32,346,813 28,265,493
-------------- --------------
Net increase in net assets resulting from operations 119,738,340 116,035,840
-------------- --------------
Dividends to Investment income--net:
Shareholders Class A (34,390,305) (40,601,509)
(Note 1g): Class B (32,213,539) (39,286,289)
Class C (3,047,800) (3,483,463)
Class D (5,481,357) (4,559,449)
-------------- --------------
Net decrease in net assets resulting from dividends to
shareholders (75,133,001) (87,930,710)
-------------- --------------
Capital Share Net increase (decrease) in net assets derived from capital
Transactions share transactions 217,046,843 (264,834,589)
(Note 4): -------------- --------------
Net Assets: Total increase (decrease) in net assets 261,652,182 (236,729,459)
Beginning of year 1,225,013,426 1,461,742,885
-------------- --------------
End of year $1,486,665,608 $1,225,013,426
============== ==============
See Notes to Financial Statements.
</TABLE>
<TABLE>
Statements of Changes in Net Assets (concluded) Intermediate Term Portfolio
<CAPTION>
For the Year Ended
September 30,
Increase (Decrease) in Net Assets: 1998 1997
<S> <S> <C> <C>
Operations: Investment income--net $ 26,075,215 $ 28,391,875
Realized gain (loss) on investments--net 3,775,926 (507,524)
Change in unrealized appreciation/depreciation on
investments--net 9,218,836 8,329,252
-------------- --------------
Net increase in net assets resulting from operations 39,069,977 36,213,603
-------------- --------------
Dividends to Investment income--net:
Shareholders Class A (11,720,141) (13,458,213)
(Note 1g): Class B (8,877,407) (11,241,646)
Class C (120,517) (414,942)
Class D (5,357,150) (3,277,074)
-------------- --------------
Net decrease in net assets resulting from dividends
to shareholders (26,075,215) (28,391,875)
-------------- --------------
Capital Share Net increase (decrease) in net assets derived from
Transactions capital share transactions 84,105,026 (91,252,583)
(Note 4): -------------- --------------
Net Assets: Total increase (decrease) in net assets 97,099,788 (83,430,855)
Beginning of year 393,169,077 476,599,932
-------------- --------------
End of year $ 490,268,865 $ 393,169,077
============== ==============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Corporate Bond Fund, Inc., Investment Grade
Portfolio & Intermediate Term Portfolio
September 30, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights Investment Grade Portfolio
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. Class A
For the Year Ended September 30,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 11.40 $ 11.16 $ 11.51 $ 10.77 $ 12.81
Operating --------- --------- --------- --------- ---------
Performance: Investment income--net .73 .76 .76 .80 .75
Realized and unrealized gain (loss) on
investments--net .38 .24 (.35) .74 (1.49)
--------- --------- --------- --------- ---------
Total from investment operations 1.11 1.00 .41 1.54 (.74)
--------- --------- --------- --------- ---------
Less dividends and distributions:
Investment income--net (.73) (.76) (.76) (.80) (.75)
Realized gain on investments--net -- -- -- -- (.10)
In excess of realized gain on
investments--net -- -- -- -- (.45)
--------- --------- --------- --------- ---------
Total dividends and distributions (.73) (.76) (.76) (.80) (1.30)
--------- --------- --------- --------- ---------
Net asset value, end of year $ 11.78 $ 11.40 $ 11.16 $ 11.51 $ 10.77
========= ========= ========= ========= =========
Total Investment Based on net asset value per share 10.05% 9.22% 3.60% 14.93% (6.03%)
Return:* ========= ========= ========= ========= =========
Ratios to Average Expenses .58% .57% .56% .58% .53%
Net Assets: ========= ========= ========= ========= =========
Investment income--net 6.32% 6.73% 6.64% 7.30% 6.61%
========= ========= ========= ========= =========
Supplemental Net assets, end of year (in thousands) $ 600,655 $ 519,708 $ 608,901 $ 472,388 $ 366,792
Data: ========= ========= ========= ========= =========
Portfolio turnover 149.41% 113.46% 88.53% 108.07% 159.05%
========= ========= ========= ========= =========
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. Class B
For the Year Ended September 30,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 11.40 $ 11.16 $ 11.51 $ 10.77 $ 12.81
Operating --------- --------- --------- --------- ---------
Performance: Investment income--net .64 .67 .67 .72 .66
Realized and unrealized gain (loss) on
investments--net .38 .24 (.35) .74 (1.49)
--------- --------- --------- --------- ---------
Total from investment operations 1.02 .91 .32 1.46 (.83)
--------- --------- --------- --------- ---------
Less dividends and distributions:
Investment income--net (.64) (.67) (.67) (.72) (.66)
Realized gain on investments--net -- -- -- -- (.10)
In excess of realized gain on
investments--net -- -- -- -- (.45)
--------- --------- --------- --------- ---------
Total dividends and distributions (.64) (.67) (.67) (.72) (1.21)
--------- --------- --------- --------- ---------
Net asset value, end of year $ 11.78 $ 11.40 $ 11.16 $ 11.51 $ 10.77
========= ========= ========= ========= =========
Total Investment Based on net asset value per share 9.21% 8.39% 2.81% 14.04% (6.73%)
Return:* ========= ========= ========= ========= =========
Ratios to Average Expenses 1.34% 1.34% 1.32% 1.35% 1.29%
Net Assets: ========= ========= ========= ========= =========
Investment income--net 5.56% 5.96% 5.88% 6.52% 5.85%
========= ========= ========= ========= =========
Supplemental Net assets, end of year (in thousands) $ 685,345 $ 577,989 $ 724,089 $ 631,517 $ 483,053
Data: ========= ========= ========= ========= =========
Portfolio turnover 149.41% 113.46% 88.53% 108.07% 159.05%
========= ========= ========= ========= =========
<FN>
*Total investment returns exclude the effects of sales loads.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Corporate Bond Fund, Inc., Investment Grade
Portfolio & Intermediate Term Portfolio
September 30, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued) Investment Grade Portfolio
<CAPTION>
Class C
For the
Period
The following per share data and ratios have been derived For the Oct. 21,
from information provided in the financial statements. Year Ended 1994++ to
September 30, Sept. 30,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 11.40 $ 11.17 $ 11.51 $ 10.67
Operating --------- --------- --------- ---------
Performance: Investment income--net .63 .67 .66 .67
Realized and unrealized gain (loss) on
investments--net .39 .23 (.34) .84
--------- --------- --------- ---------
Total from investment operations 1.02 .90 .32 1.51
--------- --------- --------- ---------
Less dividends from investment income--net (.63) (.67) (.66) (.67)
--------- --------- --------- ---------
Net asset value, end of period $ 11.79 $ 11.40 $ 11.17 $ 11.51
========= ========= ========= =========
Total Investment Based on net asset value per share 9.25% 8.23% 2.85% 14.60%+++
Return:** ========= ========= ========= =========
Ratios to Average Expenses 1.40% 1.39% 1.38% 1.40%*
Net Assets: ========= ========= ========= =========
Investment income--net 5.50% 5.91% 5.83% 6.27%*
========= ========= ========= =========
Supplemental Net assets, end of period (in thousands) $ 77,464 $ 49,918 $ 64,931 $ 25,778
Data: ========= ========= ========= =========
Portfolio turnover 149.41% 113.46% 88.53% 108.07%
========= ========= ========= =========
<CAPTION>
Class D
For the
Period
The following per share data and ratios have been derived For the Oct. 21,
from information provided in the financial statements. Year Ended 1994++ to
September 30, Sept. 30,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 11.41 $ 11.17 $ 11.51 $ 10.67
Operating --------- --------- --------- ---------
Performance: Investment income--net .70 .73 .73 .73
Realized and unrealized gain (loss) on
investments--net .38 .24 (.34) .84
--------- --------- --------- ---------
Total from investment operations 1.08 .97 .39 1.57
--------- --------- --------- ---------
Less dividends from investment income--net (.70) (.73) (.73) (.73)
--------- --------- --------- ---------
Net asset value, end of period $ 11.79 $ 11.41 $ 11.17 $ 11.51
========= ========= ========= =========
Total Investment Based on net asset value per share 9.77% 8.95% 3.43% 15.22%+++
Return:** ========= ========= ========= =========
Ratios to Average Expenses .82% .82% .81% .83%*
Net Assets: ========= ========= ========= =========
Investment income--net 6.07% 6.47% 6.40% 6.91%*
========= ========= ========= =========
Supplemental Net assets, end of period (in thousands) $ 123,202 $ 77,398 $ 63,822 $ 25,153
Data: ========= ========= ========= =========
Portfolio turnover 149.41% 113.46% 88.53% 108.07%
========= ========= ========= =========
<FN>
++Commencement of operations.
*Annualized.
**Total investment returns exclude the effects of sales loads.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Corporate Bond Fund, Inc., Investment Grade
Portfolio & Intermediate Term Portfolio
September 30, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued) Intermediate Term Portfolio
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. Class A
For the Year Ended September 30,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 11.49 $ 11.28 $ 11.50 $ 10.90 $ 12.44
Operating --------- --------- --------- --------- ---------
Performance: Investment income--net .73 .73 .73 .79 .75
Realized and unrealized gain (loss) on
investments--net .34 .21 (.22) .60 (1.26)
--------- --------- --------- --------- ---------
Total from investment operations 1.07 .94 .51 1.39 (.51)
--------- --------- --------- --------- ---------
Less dividends and distributions:
Investment income--net (.73) (.73) (.73) (.79) (.75)
In excess of realized gain on
investments--net -- -- -- -- (.28)
--------- --------- --------- --------- ---------
Total dividends and distributions (.73) (.73) (.73) (.79) (1.03)
--------- --------- --------- --------- ---------
Net asset value, end of year $ 11.83 $ 11.49 $ 11.28 $ 11.50 $ 10.90
========= ========= ========= ========= =========
Total Investment Based on net asset value per share 9.59% 8.59% 4.56% 13.33% (4.25%)
Return:* ========= ========= ========= ========= =========
Ratios to Average Expenses .67% .65% .59% .59% .53%
Net Assets: ========= ========= ========= ========= =========
Investment income--net 6.27% 6.43% 6.41% 7.14% 6.48%
========= ========= ========= ========= =========
Supplemental Net assets, end of year (in thousands) $ 200,679 $ 179,115 $ 216,545 $ 217,714 $ 170,222
Data: ========= ========= ========= ========= =========
Portfolio turnover 111.03% 76.99% 96.40% 142.84% 155.42%
========= ========= ========= ========= =========
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. Class B
For the Year Ended September 30,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 11.50 $ 11.28 $ 11.50 $ 10.90 $ 12.44
Operating --------- --------- --------- --------- ---------
Performance: Investment income--net .67 .67 .67 .74 .69
Realized and unrealized gain (loss) on
investments--net .33 .22 (.22) .60 (1.26)
--------- --------- --------- --------- ---------
Total from investment operations 1.00 .89 .45 1.34 (.57)
--------- --------- --------- --------- ---------
Less dividends and distributions:
Investment income--net (.67) (.67) (.67) (.74) (.69)
In excess of realized gain on
investments--net -- -- -- -- (.28)
--------- --------- --------- --------- ---------
Total dividends and distributions (.67) (.67) (.67) (.74) (.97)
--------- --------- --------- --------- ---------
Net asset value, end of year $ 11.83 $ 11.50 $ 11.28 $ 11.50 $ 10.90
========= ========= ========= ========= =========
Total Investment Based on net asset value per share 8.94% 8.13% 4.02% 12.73% (4.72%)
Return:* ========= ========= ========= ========= =========
Ratios to Average Expenses 1.18% 1.17% 1.11% 1.11% 1.04%
Net Assets: ========= ========= ========= ========= =========
Investment income--net 5.75% 5.91% 5.89% 6.61% 5.98%
========= ========= ========= ========= =========
Supplemental Net assets, end of year (in thousands) $ 178,464 $ 148,148 $ 216,641 $ 212,146 $ 141,212
Data: ========= ========= ========= ========= =========
Portfolio turnover 111.03% 76.99% 96.40% 142.84% 155.42%
========= ========= ========= ========= =========
<FN>
*Total investment returns exclude the effects of sales loads.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Corporate Bond Fund, Inc., Investment Grade
Portfolio & Intermediate Term Portfolio
September 30, 1998
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded) Intermediate Term Portfolio
<CAPTION>
Class C
For the
Period
The following per share data and ratios have been derived For the Oct. 21,
from information provided in the financial statements. Year Ended 1994++ to
September 30, Sept. 30,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 11.49 $ 11.28 $ 11.50 $ 10.81
Operating --------- --------- --------- ---------
Performance: Investment income--net .67 .67 .67 .70
Realized and unrealized gain (loss) on
investments--net .34 .21 (.22) .69
--------- --------- --------- ---------
Total from investment operations 1.01 .88 .45 1.39
--------- --------- --------- ---------
Less dividends from investment income--net (.67) (.67) (.67) (.70)
--------- --------- --------- ---------
Net asset value, end of period $ 11.83 $ 11.49 $ 11.28 $ 11.50
========= ========= ========= =========
Total Investment Based on net asset value per share 9.03% 7.99% 3.99% 13.25%+++
Return:** ========= ========= ========= =========
Ratios to Average Expenses 1.20% 1.20% 1.15% 1.14%*
Net Assets: ========= ========= ========= =========
Investment income--net 5.70% 5.89% 5.86% 6.24%*
========= ========= ========= =========
Supplemental Net assets, end of period (in thousands) $ 4,832 $ 1,571 $ 10,144 $ 6,806
Data: ========= ========= ========= =========
Portfolio turnover 111.03% 76.99% 96.40% 142.84%
========= ========= ========= =========
<CAPTION>
Class D
For the
Period
The following per share data and ratios have been derived For the Oct. 21,
from information provided in the financial statements. Year Ended 1994++ to
September 30, Sept. 30,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 11.50 $ 11.28 $ 11.50 $ 10.81
Operating --------- --------- --------- ---------
Performance: Investment income--net .71 .72 .72 .74
Realized and unrealized gain (loss) on
investments--net .33 .22 (.22) .69
--------- --------- --------- ---------
Total from investment operations 1.04 .94 .50 1.43
--------- --------- --------- ---------
Less dividends from investment income--net (.71) (.72) (.72) (.74)
--------- --------- --------- ---------
Net asset value, end of period $ 11.83 $ 11.50 $ 11.28 $ 11.50
========= ========= ========= =========
Total Investment Based on net asset value per share 9.39% 8.58% 4.46% 13.65%+++
Return:** ========= ========= ========= =========
Ratios to Average Expenses .77% .77% .71% .70%*
Net Assets: ========= ========= ========= =========
Investment income--net 6.16% 6.32% 6.32% 6.81%*
========= ========= ========= =========
Supplemental Net assets, end of period (in thousands) $ 106,294 $ 64,335 $ 33,270 $ 16,349
Data: ========= ========= ========= =========
Portfolio turnover 111.03% 76.99% 96.40% 142.84%
========= ========= ========= =========
<FN>
++Commencement of operations.
*Annualized.
**Total investment returns exclude the effects of sales loads.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Corporate Bond Fund, Inc., Investment Grade
Portfolio & Intermediate Term Portfolio
September 30, 1998
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
The Investment Grade Portfolio and the Intermediate Term Portfolio
("Portfolio" or "Portfolios") are two of the three portfolios in
Merrill Lynch Corporate Bond Fund, Inc. (the "Fund") which is
registered under the Investment Company Act of 1940 as a
diversified, open-end management investment company. Each Portfolio
offers four classes of shares under the Merrill Lynch Select
Pricingsm System. Shares of Class A and Class D 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 B, Class C and Class D
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. The following is
a summary of significant accounting policies followed by the
Portfolios.
(a) Valuation of investments--Portfolio securities which are traded
on stock exchanges are valued at the last sale price as of the close
of business on the day the securities are being valued, or lacking
any sales, at the mean between closing bid and asked prices.
Securities traded in the over-the-counter market are valued at the
most recent bid prices as obtained from one or more dealers that
make markets in the securities. Portfolio securities which are
traded both in the over-the-counter market and on a stock exchange
are valued according to the broadest and most representative market,
and it is expected that for debt securities this ordinarily will be
the over-the-counter market. Short-term securities are valued at
amortized cost, which approximates market value.
Options on debt securities, which are traded on exchanges, are
valued at the last asked price for options written and last bid
price for options purchased. Financial futures contracts and options
thereon, which are traded on exchanges, are valued at their closing
price at the close of such exchanges. Securities and assets for
which market quotations are not readily available are valued at fair
value as determined in good faith by or under the direction of the
Board of Directors of the Fund, including valuations furnished by a
pricing service retained by the Fund which may use a matrix system
for valuations.
(b) Repurchase agreements--The Fund invests in US Government
securities pursuant to repurchase agreements. Under such agreements,
the counterparty agrees to repurchase the security at a mutually
agreed upon time and price. The Fund takes possession of the
underlying securities, marks to market such securities and, if
necessary, receives additions to such securities daily to ensure
that the contract is fully collateralized.
(c) Derivative financial instruments--The Portfolios may engage in
various portfolio strategies to seek to increase its return by
hedging its portfolio against adverse movements in the equity, debt
and currency markets. Losses may arise due to changes in the value
of the contract or if the counterparty does not perform under the
contract.
* Financial futures contracts--The Portfolios may purchase or sell
financial futures contracts and options on such futures contracts
for the purpose of hedging the market risk on existing securities or
the intended purchase of securities. Futures contracts are contracts
for delayed delivery of securities at a specific future date and at
a specific price or yield. Upon entering into a contract, each
Portfolio deposits and maintains as collateral such initial margin
as required by the exchange on which the transaction is effected.
Pursuant to the contract, each Portfolio agrees to receive from or
pay to the broker an amount of cash equal to the daily fluctuation
in value of the contract. Such receipts or payments are known as
variation margin and are recorded by each Portfolio as unrealized
gains or losses. When the contract is closed, each Portfolio records
a realized gain or loss equal to the difference between the value of
the contract at the time it was opened and the value at the time it
was closed.
* Options--The Portfolios are authorized to purchase and write call
and put options. When each Portfolio writes an option, an amount
equal to the premium received by each Portfolio is reflected as an
asset and an equivalent liability. The amount of the liability is
subsequently marked to market to reflect the current market value of
the option written.
Merrill Lynch Corporate Bond Fund, Inc., Investment Grade
Portfolio & Intermediate Term Portfolio
September 30, 1998
NOTES TO FINANCIAL STATEMENTS (continued)
When a security is purchased or sold through an exercise of an
option, the related premium paid (or received) is added to (or
deducted from) the basis of the security acquired or deducted from
(or added to) the proceeds of the security sold. When an option
expires (or each Portfolio enters into a closing transaction), each
Portfolio realizes a gain or loss on the option to the extent of the
premiums received or paid (or loss or gain to the extent the cost of
the closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
(d) Income taxes--It is the Portfolios' policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required.
(e) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Interest income (including amortization of
discount) is recognized on the accrual basis. Realized gains and
losses on security transactions are determined on the identified
cost basis.
(f) Prepaid registration fees--Prepaid registration fees are charged
to expense as the related shares are issued.
(g) Dividends and distributions--Dividends from net investment
income are declared daily and paid monthly. Distributions of capital
gains are recorded on the ex-dividend dates.
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 Merrill Lynch Funds
Distributor ("MLFD" or "Distributor"), a division of Princeton Funds
Distributor, Inc. ("PFD"), which is a wholly-owned subsidiary of
Merrill Lynch Group, Inc.
FAM is responsible for the management of the Fund's Portfolios and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, FAM receives at the end of each month a fee with respect
to each Portfolio at the annual rates set forth below which are
based upon the aggregate average daily value of the Fund's net
assets at the following annual rates: 0.50% of the Fund's average
daily net assets not exceeding $250 million; 0.45% of the average
daily net assets in excess of $250 million but not exceeding $500
million; 0.40% of average daily net assets in excess of $500 million
but not exceeding $750 million; and 0.35% of average daily net
assets in excess of $750 million. For the year ended September 30,
1998, the aggregate average daily net assets of the Fund, including
the Fund's High Income Portfolio, was approximately $9,511,656,000.
Pursuant to the Distribution Plans adopted by the Fund in accordance
with Rule 12b-1 under the Investment Company Act of 1940, the Fund
pays the Distributor ongoing account maintenance and distribution
fees. The fees are accrued daily and paid monthly at annual rates
based upon the average daily net assets of the shares of each
Portfolio as follows:
Account Distribution
Maintenance Fees Fees
Portfolio Class B Class C Class D Class B Class C
Investment Grade.. 0.25% 0.25% 0.25% 0.50% 0.55%
Intermediate Term. 0.25% 0.25% 0.10% 0.25% 0.25%
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), a subsidiary of ML & Co.,
also provides account maintenance and distribution services to the
Fund. The ongoing account maintenance fee compensates the
Distributor and MLPF&S for providing account maintenance services to
Class B, Class C and Class D 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.
Merrill Lynch Corporate Bond Fund, Inc., Investment Grade
Portfolio & Intermediate Term Portfolio
September 30, 1998
For the year ended September 30, 1998, MLFD earned underwriting
discounts and direct commissions and MLPF&S earned dealer
concessions on sales of each Portfolio's Class A and Class D Shares
as follows:
MLFD MLPF&S
Portfolio Class A Class D Class A Class D
Investment Grade $3,117 $12,327 $29,070 $107,605
Intermediate Term $ 185 $ 1,895 $ 2,468 $ 17,834
For the year ended September 30, 1998, MLPF&S received contingent
deferred sales charges of $1,107,328 relating to transactions in
Class B Shares, amounting to $1,029,605 and $77,723 in the
Investment Grade Portfolio and Intermediate Term Portfolio,
respectively, $25,119 relating to transactions in Class C Shares,
amounting to $23,584 and $1,535 in the Investment Grade Portfolio
and Intermediate Term Portfolio, respectively. Furthermore, MLPF&S
received contingent deferred sales charges of $7,877 relating to
transactions subject to front-end sales charge waivers in Class A
Shares in the Intermediate Term Portfolio.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
During the year ended September 30, 1998, the Portfolios paid
Merrill Lynch Security Pricing Service, an affiliate of MLPF&S,
$19,245 for security price quotations to compute the net asset
values of the Portfolios.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of FAM, PSI, PFD, FDS, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended September 30, 1998 were as follows:
Investment Intermediate
Grade Term
Portfolio Portfolio
Purchases $2,078,296,222 $ 540,056,204
============== ===============
Sales $1,844,332,806 $ 461,073,108
============== ===============
Net realized gains for the year ended September 30, 1998 and net
unrealized gains as of September 30, 1998 were as follows:
Realized Unrealized
Investment Grade Portfolio Gains Gains
Long-term investments $ 12,258,526 $ 49,430,841
------------ --------------
Total $ 12,258,526 $ 49,430,841
============ ==============
Realized Unrealized
Intermediate Term Portfolio Gains Gains
Long-term investments $ 3,775,926 $ 12,865,806
------------ --------------
Total $ 3,775,926 $ 12,865,806
============ ==============
As of September 30, 1998, net unrealized appreciation for Federal
income tax purposes was as follows:
Investment Intermediate
Grade Portfolio Term Portfolio
Gross unrealized
appreciation $ 53,692,725 $ 15,968,397
Gross unrealized
depreciation (4,545,763) (3,103,841)
-------------- ----------------
Net unrealized appreciation $ 49,146,962 $ 12,864,556
============== ================
The aggregate cost of investments at September 30, 1998 for Federal
income tax purposes was $1,420,277,097 for the Investment Grade
Portfolio and $474,781,121 for the Intermediate Term Portfolio.
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions
for the year ended September 30, 1998 was $217,046,843 for the
Investment Grade Portfolio and $84,105,026 for the Intermediate Term
Portfolio. Net decrease in net assets derived from capital share
transactions for the year ended September 30, 1997 was $264,834,589
for the Investment Grade Portfolio and $91,252,583 for the
Intermediate Term Portfolio.
Transactions in capital shares for each class were as follows:
Investment Grade Portfolio
Class A Shares for the Year Dollar
Ended September 30, 1998 Shares Amount
Shares sold 17,335,975 $ 199,879,084
Shares issued to shareholders
in reinvestment of dividends 718,340 8,272,550
-------------- --------------
Total issued 18,054,315 208,151,634
Shares redeemed (12,662,198) (145,757,775)
-------------- --------------
Net increase 5,392,117 $ 62,393,859
============== ==============
Merrill Lynch Corporate Bond Fund, Inc., Investment Grade
Portfolio & Intermediate Term Portfolio
September 30, 1998
NOTES TO FINANCIAL STATEMENTS (concluded)
Investment Grade Portfolio
Class A Shares for the Year Dollar
Ended September 30, 1997 Shares Amount
Shares sold 28,203,393 $ 318,761,187
Shares issued to shareholders
in reinvestment of dividends 1,509,176 17,026,213
-------------- --------------
Total issued 29,712,569 335,787,400
Shares redeemed (38,665,524) (437,385,917)
-------------- --------------
Net decrease (8,952,955) $ (101,598,517)
============== ==============
Investment Grade Portfolio
Class B Shares for the Year Dollar
Ended September 30, 1998 Shares Amount
Shares sold 24,028,055 $ 277,445,871
Shares issued to shareholders
in reinvestment of dividends 1,698,194 19,561,558
-------------- --------------
Total issued 25,726,249 297,007,429
Automatic conversion of shares (922,142) (10,628,787)
Shares redeemed (17,335,417) (199,555,281)
-------------- --------------
Net increase 7,468,690 $ 86,823,361
============== ==============
Investment Grade Portfolio
Class B Shares for the Year Dollar
Ended September 30, 1997 Shares Amount
Shares sold 12,089,795 $ 136,401,227
Shares issued to shareholders
in reinvestment of dividends 2,232,218 25,197,726
-------------- --------------
Total issued 14,322,013 161,598,953
Automatic conversion of shares (922,371) (10,376,812)
Shares redeemed (27,559,852) (310,463,146)
-------------- --------------
Net decrease (14,160,210) $ (159,241,005)
============== ==============
Investment Grade Portfolio
Class C Shares for the Year Dollar
Ended September 30, 1998 Shares Amount
Shares sold 3,968,421 $ 45,833,671
Shares issued to shareholders
in reinvestment of dividends 174,287 2,008,817
-------------- --------------
Total issued 4,142,708 47,842,488
Shares redeemed (1,947,717) (22,429,950)
-------------- --------------
Net increase 2,194,991 $ 25,412,538
============== ==============
Investment Grade Portfolio
Class C Shares for the Year Dollar
Ended September 30, 1997 Shares Amount
Shares sold 1,929,404 $ 21,778,762
Shares issued to shareholders
in reinvestment of dividends 217,626 2,457,064
-------------- --------------
Total issued 2,147,030 24,235,826
Shares redeemed (3,583,955) (40,346,764)
-------------- --------------
Net decrease (1,436,925) $ (16,110,938)
============== ==============
Investment Grade Portfolio
Class D Shares for the Year Dollar
Ended September 30, 1998 Shares Amount
Shares sold 7,697,534 $ 88,874,921
Automatic conversion of shares 921,625 10,628,787
Shares issued to shareholders
in reinvestment of dividends 248,628 2,867,600
-------------- --------------
Total issued 8,867,787 102,371,308
Shares redeemed (5,202,013) (59,954,223)
-------------- --------------
Net increase 3,665,774 $ 42,417,085
============== ==============
Investment Grade Portfolio
Class D Shares for the Year Dollar
Ended September 30, 1997 Shares Amount
Shares sold 2,634,267 $ 29,755,828
Automatic conversion of shares 921,766 10,376,812
Shares issued to shareholders
in reinvestment of dividends 244,941 2,766,560
-------------- --------------
Total issued 3,800,974 42,899,200
Shares redeemed (2,729,223) (30,783,329)
-------------- --------------
Net increase 1,071,751 $ 12,115,871
============== ==============
Intermediate Term Portfolio
Class A Shares for the Year Dollar
Ended September 30, 1998 Shares Amount
Shares sold 5,842,254 $ 67,706,458
Shares issued to shareholders
in reinvestment of dividends 313,457 3,631,322
-------------- --------------
Total issued 6,155,711 71,337,780
Shares redeemed (4,773,595) (55,306,502)
-------------- --------------
Net increase 1,382,116 $ 16,031,278
============== ==============
Intermediate Term Portfolio
Class A Shares for the Year Dollar
Ended September 30, 1997 Shares Amount
Shares sold 8,879,479 $ 101,009,465
Shares issued to shareholders
in reinvestment of dividends 536,407 6,105,063
-------------- --------------
Total issued 9,415,886 107,114,528
Shares redeemed (13,031,273) (148,126,147)
-------------- --------------
Net decrease (3,615,387) $ (41,011,619)
============== ==============
Intermediate Term Portfolio
Class B Shares for the Year Dollar
Ended September 30, 1998 Shares Amount
Shares sold 7,031,396 $ 81,620,955
Shares issued to shareholders
in reinvestment of dividends 460,065 5,330,419
-------------- --------------
Total issued 7,491,461 86,951,374
Automatic conversion of shares (276,942) (3,211,027)
Shares redeemed (5,016,417) (58,121,721)
-------------- --------------
Net increase 2,198,102 $ 25,618,626
============== ==============
Merrill Lynch Corporate Bond Fund, Inc., Investment Grade
Portfolio & Intermediate Term Portfolio
September 30, 1998
Intermediate Term Portfolio
Class B Shares for the Year Dollar
Ended September 30, 1997 Shares Amount
Shares sold 4,113,147 $ 46,806,563
Shares issued to shareholders
in reinvestment of dividends 648,555 7,381,806
-------------- --------------
Total issued 4,761,702 54,188,369
Automatic conversion of shares (121,230) (1,377,088)
Shares redeemed (10,958,440) (124,411,387)
-------------- --------------
Net decrease (6,317,968) $ (71,600,106)
============== ==============
Intermediate Term Portfolio
Class C Shares for the Year Dollar
Ended September 30, 1998 Shares Amount
Shares sold 882,899 $ 10,254,262
Shares issued to shareholders
in reinvestment of dividends 6,071 70,376
-------------- --------------
Total issue 888,970 10,324,638
Shares redeemed (617,010) (7,160,180)
-------------- --------------
Net increase 271,960 $ 3,164,458
============== ==============
Intermediate Term Portfolio
Class C Shares for the Year Dollar
Ended September 30, 1997 Shares Amount
Shares sold 217,464 $ 2,473,168
Shares issued to shareholders
in reinvestment of dividends 26,883 305,857
-------------- --------------
Total issued 244,347 2,779,025
Shares redeemed (1,006,967) (11,417,394)
-------------- --------------
Net decrease (762,620) $ (8,638,369)
============== ==============
Intermediate Term Portfolio
Class D Shares for the Year Dollar
Ended September 30, 1998 Shares Amount
Shares sold 6,222,564 $ 72,129,494
Automatic conversion of shares 276,942 3,211,027
Shares issued to shareholders
in reinvestment of dividends 189,794 2,199,224
-------------- --------------
Total issued 6,689,300 77,539,745
Shares redeemed (3,300,479) (38,249,081)
-------------- --------------
Net increase 3,388,821 $ 39,290,664
============== ==============
Intermediate Term Portfolio
Class D Shares for the Year Dollar
Ended September 30, 1997 Shares Amount
Shares sold 4,009,184 $ 45,468,396
Automatic conversion of shares 121,231 1,377,088
Shares issued to shareholders
in reinvestment of dividends 167,855 1,910,367
-------------- --------------
Total issued 4,298,270 48,755,851
Shares redeemed (1,651,097) (18,758,340)
-------------- --------------
Net increase 2,647,173 $ 29,997,511
============== ==============
5. Loaned Securities:
At September 30, 1998, the Investment Grade Portfolio held US
Treasury Bonds/Notes having an aggregate value of approximately
$12,544,000 as collateral for Portfolio securities loaned, having a
market value of approximately $12,183,000.
6. Capital Loss Carryforward:
At September 30, 1998, the Fund had a capital loss carryforward of
approximately $26,063,000 in the Investment Grade Portfolio, of
which $23,459,000 expires in 2003 and $2,604,000 expires in 2005 and
approximately $7,614,000 in the Intermediate Term Portfolio, of
which $7,338,000 expires in 2003 and $276,000 expires in 2005. These
amounts will be available to offset like amounts of any future
taxable gains.
Merrill Lynch Corporate Bond Fund, Inc., Investment Grade
Portfolio & Intermediate Term Portfolio
September 30, 1998
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Merrill Lynch Corporate Bond Fund, Inc.:
We have audited the accompanying statements of assets and
liabilities, including the schedule of investments, of Investment
Grade and Intermediate Term Portfolios of Merrill Lynch Corporate
Bond Fund, Inc. as of September 30, 1998, the related statements of
operations for the year then ended and changes in net assets for
each of the years in the two-year period then ended, and the
financial highlights for each of the years in the five-year period
then ended. These financial statements and the financial highlights
are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of securities owned at
September 30, 1998 by correspondence with the custodian and brokers.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
Investment Grade and Intermediate Term Portfolios of Merrill Lynch
Corporate Bond Fund, Inc. as of September 30, 1998, the results of
their operations, the changes in their net assets, and the financial
highlights for the respective stated periods in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
November 18, 1998
</AUDIT-REPORT>
Merrill Lynch Corporate Bond Fund, Inc., Investment Grade
Portfolio & Intermediate Term Portfolio
September 30, 1998
IMPORTANT TAX INFORMATION (unaudited)
None of the ordinary income distributions paid monthly by Investment
Grade and Intermediate Term Portfolios during the fiscal year ended
September 30, 1998 qualify for the dividends received deduction for
corporations. Additionally, there were no long-term capital gain
distributions paid during the year.
The law varies in each state as to whether and what percentage of
dividend income attributable to Federal obligations is exempt from
state income tax. We recommend that you consult your tax adviser to
determine if any portion of the dividends you received is exempt
from state income tax.
Listed below are the percentages of total assets of the Portfolios
invested in Federal obligations* as of the end of each quarter of
the fiscal year.
For the Investment Grade Intermediate Term
Quarter Ended Portfolio Portfolio
December 31, 1997 17.91% 8.60%
March 31, 1998 4.67% 2.70%
June 30, 1998 5.78% 6.30%
September 30, 1998 7.73% 8.49%
Of the Fund's ordinary income dividends paid monthly to shareholders
from the Intermediate Term and Investment Grade Portfolios during
the fiscal year ended September 30, 1998, 4.90% and 6.60%,
respectively, were attributable to Federal obligations. In
calculating the foregoing percentages, expenses of the Portfolios
have been allocated on a pro rata basis.
Please retain this information for your records.
* For purposes of this calculation, Federal obligations include US
Treasury Notes, US Treasury Bills, and US Treasury Bonds. Also
included are obligations issued by the following agencies: Banks for
Cooperatives, Federal Intermediate Credit Banks, Federal Land Banks,
Federal Home Loan Banks, and the Student Loan Marketing Association.
Repurchase agreements are not included in this calculation.
OFFICERS AND DIRECTORS
Arthur Zeikel, President and Director
Ronald W. Forbes, Director
Cynthia A. Montgomery, Director
Charles C. Reilly, Director
Kevin A. Ryan, Director
Richard R. West, Director
Terry K. Glenn, Executive Vice President
Christopher G. Ayoub, Senior Vice President
Jay C. Harbeck, Senior Vice President
Vincent T. Lathbury III, Senior Vice President
Joseph T. Monagle Jr., Senior Vice President
Donald C. Burke, Vice President
Gerald M. Richard, Treasurer
Philip M. Mandel, Secretary
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
