MERRILL
LYNCH
MUNICIPAL
BOND
FUND, INC.
FUND LOGO
Quarterly Report March 31, 1994
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 per-
formance. Investment return and principal value of shares
will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost.
Merrill Lynch
Municipal Bond Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
TO OUR SHAREHOLDERS
Inflationary expectations changed sharply during the March quarter.
Following better-than-expected economic results, Federal Reserve
Board Chairman Alan Greenspan indicated in Congressional testimony
in January that continued strong expansion of the economy would lead
the central bank to tighten monetary policy in an effort to control
inflation. On February 4, 1994, the central bank broke with tradition
and publicly announced a modest 25 basis point (0.25%) increase in
short-term interest rates. At the March 22 meeting of the Federal
Open Market Committee, the Federal Reserve Board again raised the
Federal Funds rate by 25 basis points, and also announced the increase.
Rather than view the Federal Reserve Board's first tightening move
as a preemptive strike against inflation, fixed-income investors
focused on Chairman Greenspan's implicit promise of further tight-
ening should the rate of inflation accelerate, and bond prices
declined sharply. The setback in the bond market was also reflected
in greater stock market volatility. While the second increase in
the Federal Funds rate was less of a surprise, investors remained
concerned that interest rates would trend upward sharply. As a re-
sult, stock and bond prices continued to decline through the end
of March. The volatility in the US capital markets was mirrored in
international markets. Political and economic developments, along
with concerns of heightened global inflationary pressures, led to
a sell-off in most capital markets, especially the emerging markets
that had appreciated strongly in 1993.
<PAGE>
In the weeks ahead, investors will continue to gauge the pace of
the economic expansion and watch for signs of an overheating economy.
At this time, there is little evidence that the rate of inflation
will increase rapidly. Therefore, although the secular long-term
trend toward lower interest rates may be over, it is not yet certain
whether the pace of economic activity will accelerate to the point
where significant Federal Reserve Board tightening will be necessary
to contain inflation.
The Municipal Market
During the three months ended March 31, 1994, yields on long-term
tax-exempt bonds rose to their highest levels in more than three years.
As measured by the Bond Buyer Revenue Bond Index, the yield on newly
issued municipal bonds maturing in 30 years increased by over 90 basis
points (0.90%) to 6.39%. Yields on seasoned municipal revenue bonds
rose by over 100 basis points in conjunction with the equally dramatic
increase in US Treasury bond yields. During the March quarter, the
yield on long-term US Treasury securities rose by over 90 basis points
to approximately 7.25%.
Municipal bond yields were essentially unchanged in January. However,
following the initial interest rate increase by the Federal Reserve
Board in early February, municipal bond prices began to slowly erode
in concert with taxable bond prices as investors sold securities in
anticipation of further interest rate increases. This concern also
led investors to withdraw from the tax-exempt market. As a result,
total assets of all tax-exempt bond funds declined by $14 billion to
$247 billion between early February and the end of March. This de-
cline in investor demand, coupled with concerns that the robust eco-
nomic recovery seen in the fourth quarter of 1993 would continue into
much of 1994, helped push municipal bond yields higher in February
and March.
A rise in tax-exempt bond yields the magnitude of that experienced
this past quarter has not been seen since 1987 when municipal bond
rates rose 250 basis points between March and October. It is very im-
portant to note that the municipal bond price declines of the March
quarter, while certainly damaging, were essentially much different
than those in 1987. Recent price declines largely have been the result
of persistent selling pressures over the last two months. In 1987,
the tax-exempt bond market was much more volatile and, at times,
chaotic as investors sought to liquidate positions without concern
to fundamental value. For the most part, the recent price deteriora-
tion has been orderly, and the municipal bond market's liquidity and
integrity have not been challenged or jeopardized.
To a large extent the municipal bond market has continued to be sup-
ported by a strong technical position. New-issue volume during the
March 1994 quarter declined by over 25% compared to the first three
months of 1993. Less than $50 billion in long-term municipal bonds
have been issued thus far in 1994. This decline was expected and has
been discussed in previous shareholder reports. This reduced issuance
has minimized potential selling pressure in recent months since in-
stitutional investors have been wary of selling appreciable amounts
of securities that they may be unable to replace later in the year
at any price level. We expect this decline in issuance to continue
since we expect recent yield increases to significantly curtail future
municipal bond issuance. Just as higher mortgage rates slow home
mortgage refinancings, the recent rise in bond yields will prevent
bond refinancings from becoming the driving force in bond issuance in
1994 as they were in 1993.
<PAGE>
Despite recent price declines, tax-exempt securities remain among
the most attractive investment alternatives available. After the
yield increases experienced in the March quarter, longer-term mun-
icipal securities yield approximately 90% of comparable US Treasury
yields. Purchasers of these municipal bonds also accrue substantial
after-tax yield advantages. To investors in the 39% marginal Federal
income tax bracket, the purchase of a municipal bond yielding 6.50%
represents an after-tax equivalent of 10.65%. With prevailing esti-
mates of 1994 inflation at no more than 3%--4%, real after-tax rates
in excess of 6.50% easily compensate longer-term investors for much
of the price volatility recently experienced.
We continue to look for municipal bond yields to decline later this
year and into 1995 as inflationary pressures remain low and as the
domestic economy is further slowed by the impact of higher interest
rates. As this scenario unfolds, we expect currently available tax-
exempt products to generate significant returns for long-term in-
vestors.
Portfolio Strategy
The primary strategy for the Insured and National Portfolios was to
seek to provide a high level of tax-exempt income. In the coming quar-
ters, the Portfolios will continue to emphasize income-oriented sec-
urities rather than those bonds which generate capital appreciation.
We plan to purchase noncallable bonds and bonds issued with ten-year
call protection whenever they are attractively priced to ensure that
the income stream will be maintained into the future.
We will keep the cash reserve position low since large cash positions
still negatively impact the Portfolios' current yields. Also, given
forecasts of reduced bond supply, the availability of attractively
priced investment-grade securities may be limited during the coming
quarters.
The Limited Maturity Portfolio continued to be defensively positioned
in anticipation of higher short-term interest rates as the Federal Re-
serve Board began to pursue a tighter monetary policy in response to
an expanding economic environment. We continued to maintain a cash re-
serve position of over 20%, and we reduced the average portfolio ma-
turity to less than 1.5 years. We will emphasize higher-quality, in-
come-oriented securities in an effort to offer shareholders as high a
level of income as possible, while limiting principal risk to some
degree in this volatile market environment.
We appreciate your ongoing interest in Merrill Lynch Municipal Bond
Fund, Inc., and we look forward to serving your investment needs and
objectives in the months and years to come.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Vice President and Portfolio Manager
(Kenneth A. Jacob)
Kenneth A. Jacob
Vice President and Portfolio Manager
April 19, 1994
<PAGE>
PERFORMANCE DATA
None of the past results shown should 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.
Average Annual
Total Return
Insured Portfolio
% Return Without % Return With
Class A Shares* Sales Charge Sales Charge**
Year Ended 3/31/94 +1.99% -2.09%
Five Years Ended 3/31/94 +8.47 +7.59
Ten Years Ended 3/31/94 +9.64 +9.20
% Return % Return
Class B Shares* Without CDSC With CDSC**
Year Ended 3/31/94 +1.22% -2.52%
Five Years Ended 3/31/94 +7.69 +7.69
Inception (10/21/88) through 3/31/94 +7.33 +7.33
National Portfolio
% Return Without % Return With
Class A Shares* Sales Charge Sales Charge**
Year Ended 3/31/94 +2.37% -1.73%
Five Years Ended 3/31/94 +8.46 +7.58
Ten Years Ended 3/31/94 +9.93 +9.48
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Class B Shares* Without CDSC With CDSC**
Year Ended 3/31/94 +1.59% -2.15%
Five Years Ended 3/31/94 +7.65 +7.65
Inception (10/21/88) through 3/31/94 +7.23 +7.23
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to
0% after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
Limited Maturity Portfolio
% Return Without % Return With
Class A Shares* Sales Charge Sales Charge**
Year Ended 3/31/94 +2.78% +2.01%
Five Years Ended 3/31/94 +5.82 +5.66
Ten Years Ended 3/31/94 +5.86 +5.78
<PAGE>
[FN]
*Maximum sales charge is 0.75%.
**Assuming maximum sales charge.
% Return % Return
Class B Shares* Without CDSC With CDSC**
Year Ended 3/31/94 +2.41% +1.42%
Inception (11/2/92) through 3/31/94 +3.33 +3.33
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to
0% after one year.
**Assuming payment of applicable contingent deferred sales charge.
PERFORMANCE DATA (concluded)
<TABLE>
Performance Summary--
Class A Shares
<CAPTION>
1/1-12/31 Beginning/Ending Net Asset Value Dividends Paid* % Change**
Period Limited Limited Limited
Covered Insured National Maturity Insured National Maturity Insured National Maturity
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10/77--12/77 $9.80/9.80 -- -- $ 0.09 -- -- + 0.94% -- --
1978 9.80/8.97 -- -- 0.48 -- -- - 3.69 -- --
1979++ 8.97/8.39 $ 9.60/9.60 $9.90/9.88 0.53 $ 0.11 $0.10 - 0.75 + 1.17% +0.86%
1980 8.39/6.86 9.60/8.54 9.88/9.74 0.60 0.79 0.64 -11.44 - 3.00 +5.13
1981 6.86/5.66 8.54/7.34 9.74/9.78 0.65 0.90 0.77 - 8.51 - 3.82 +8.64
1982 5.66/6.81 7.34/8.71 9.78/9.89 0.67 0.93 0.80 +33.96 +33.16 +9.67
1983 6.81/6.97 8.71/9.01 9.89/9.76 0.65 0.89 0.67 +12.41 +14.04 +5.57
1984 6.97/6.88 9.01/8.96 9.76/9.74 0.66 0.90 0.67 + 8.49 +10.00 +6.91
1985 6.88/7.53 8.96/9.86 9.74/9.75 0.64 0.88 0.63 +19.56 +20.76 +6.71
1986 7.53/8.18 9.86/10.67 9.75/9.90 0.61(1) 1.01(1) 0.56 +17.24 +19.08 +7.47
1987 8.18/7.56 10.67/9.76 9.90/9.68 0.68(2) 0.86(2) 0.53(2) + 0.86 - 0.40 +3.18
1988 7.56/7.79 9.76/10.11 9.68/9.68 0.57 0.76 0.56 +10.92 +11.71 +5.90
1989 7.79/7.94 10.11/10.25 9.68/9.74 0.57 0.75 0.59 + 9.49 + 9.11 +6.93
1990 7.94/7.86 10.25/10.09 9.74/9.72 0.61(3) 0.73 0.60 + 7.07 + 5.85 +6.11
1991 7.86/8.18 10.09/10.49 9.72/9.88 0.60(4) 0.82(4) 0.54 +12.07 +12.58 +7.39
1992 8.18/8.27 10.49/10.55 9.88/9.97 0.63(5) 0.89(5) 0.45 + 9.06 + 9.37 +5.62
1993 8.27/8.60 10.55/10.91 9.97/10.01 0.71(6) 0.94(6) 0.38 +12.85 +12.59 +4.30
1/1/94--3/31/94 8.60/7.93 10.91/10.11 10.01/9.90 0.12 0.15 0.09 - 6.48 - 5.98 -0.20
------ ------ -----
Total $10.07 $12.31 $8.58
Cumulative total return as of 3/31/94: +202.21%** +279.74%** +139.38%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the payable date, and do not
include sales charge; results would be lower if sales charge was
included.
++For National and Limited Maturity Portfolios, period covered is
from 11/30/79 to 12/31/79.
(1)Includes capital gains of $0.011 and $0.178 for the Insured and
National Portfolios, respectively.
(2)Includes capital gains of $0.098, $0.073, and $0.012 for the
Insured, National and Limited Maturity Portfolios, respectively.
(3)Includes capital gains of $0.064 for the Insured Portfolio.
(4)Includes capital gains of $0.058 and $0.060 for the Insured and
National Portfolios, respectively.
(5)Includes capital gains of $0.084 and $0.130 for the Insured and
National Portfolios, respectively.
(6)Includes capital gains of $0.181 and $0.157 for the Insured and
National Portfolios, respectively.
</TABLE>
<PAGE>
<TABLE>
Performance Summary--
Class B Shares
<CAPTION>
1/1-12/31 Beginning/Ending Net Asset Value Dividends Paid* % Change**
Period Limited Limited Limited
Covered Insured National Maturity*** Insured National Maturity*** Insured National Maturity***
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10/21/88--12/31/88 $7.81/7.78 $10.14/10.11 -- $0.11 $0.14 -- + 0.97% + 1.08% --
1989 7.78/7.94 10.11/10.25 -- 0.51 0.67 -- + 8.81 + 8.29 --
1990 7.94/7.86 10.25/10.09 -- 0.55(1) 0.66 -- + 6.28 + 5.05 --
1991 7.86/8.17 10.09/10.49 -- 0.54(2) 0.75(2) -- +11.10 +11.74 --
1992 8.17/8.27 10.49/10.55 $ 9.93/9.97 0.56(3) 0.81(3) $0.06 + 8.36 + 8.54 + 1.05%
1993 8.27/8.59 10.55/10.90 9.97/10.01 0.64(4) 0.85(4) 0.35 +11.88 +11.65 + 3.93
1/1/94--3/31/94 8.59/7.93 10.90/10.11 10.01/9.90 0.10 0.13 0.08 - 6.55 - 6.07 - 0.29
----- ----- -----
Total $3.01 $4.01 $0.49
Cumulative total return as of 3/31/94: +46.98%** +46.26%** +4.72%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the payable date, and do not reflect
deduction of any sales charge; results would be lower if sales charge
was deducted.
***Commenced operations on 11/02/92.
(1)Includes capital gains of $0.064 for the Insured Portfolio.
(2)Includes capital gains of $0.058 and $0.060 for the Insured and
National Portfolios, respectively.
(3)Includes capital gains of $0.084 and $0.130 for the Insured and
National Portfolios, respectively.
(4)Includes capital gains of $0.181 and $0.157 for the Insured and
National Portfolios, respectively.
</TABLE>
<TABLE>
Recent
Performance
Results*
<CAPTION>
12 Month 3 Month
3/31/94 12/31/93 3/31/93 % Change % Change
<S> <C> <C> <C> <C> <C>
Insured Portfolio Class A Shares $ 7.93 $ 8.60 $ 8.44 -4.07%(1) -7.79%
Insured Portfolio Class B Shares 7.93 8.59 8.44 -4.07(1) -7.68
National Portfolio Class A Shares 10.11 10.91 10.75 -4.60(2) -7.33
National Portfolio Class B Shares 10.11 10.90 10.75 -4.60(2) -7.25
Limited Maturity Portfolio Class A Shares 9.90 10.01 10.00 -1.00 -1.10
Limited Maturity Portfolio Class B Shares 9.90 10.01 10.00 -1.00 -1.10
Insured Portfolio Class A Shares--Total Return +1.99(3) -6.48(4)
Insured Portfolio Class B Shares--Total Return +1.22(5) -6.55(6)
National Portfolio Class A Shares--Total Return +2.37(7) -5.98(8)
National Portfolio Class B Shares--Total Return +1.59(9) -6.07(10)
Limited Maturity Portfolio Class A Shares--Total Return +2.78(11) -0.20(12)
Limited Maturity Portfolio Class B Shares--Total Return +2.41(13) -0.29(14)
Insured Portfolio Class A Shares--Standardized 30-day Yield 5.71%
Insured Portfolio Class B Shares--Standardized 30-day Yield 5.16%
National Portfolio Class A Shares--Standardized 30-day Yield 5.89%
National Portfolio Class B Shares--Standardized 30-day Yield 5.34%
Limited Maturity Portfolio Class A Shares--Standardized 30-day Yield 3.24%
Limited Maturity Portfolio Class B Shares--Standardized 30-day Yield 2.91%
<PAGE>
<FN>
*Investment results shown for the 3-month and 12-month periods are
before the deduction of any sales charges.
(1)Percent change includes reinvestment of $0.181 per share capital
gains distributions.
(2)Percent change includes reinvestment of $0.157 per share capital
gains distributions.
(3)Percent change includes reinvestment of $0.528 per share ordinary
income dividends and $0.081 per share capital gains distributions.
(4)Percent change includes reinvestment of $0.117 per share ordinary
income dividends.
(5)Percent change includes reinvestment of $0.462 per share ordinary
income dividends and $0.081 per share capital gains distributions.
(6)Percent change includes reinvestment of $0.101 per share ordinary
income dividends.
(7)Percent change includes reinvestment of $0.775 per share ordinary
income dividends and $0.157 per share capital gains distributions.
(8)Percent change includes reinvestment of $0.153 per share ordinary
income dividends.
(9)Percent change includes reinvestment of $0.691 per share ordinary
income dividends and $0.157 per share capital gains distributions.
(10)Percent change includes reinvestment of $0.133 per share ordinary
income dividends.
(11)Percent change includes reinvestment of $0.375 per share ordinary
income dividends.
(12)Percent change includes reinvestment of $0.090 per share ordinary
income dividends.
(13)Percent change includes reinvestment of $0.339 per share ordinary
income dividends.
(14)Percent change includes reinvestment of $0.082 per share ordinary
income dividends.
</TABLE>
PORTFOLIO COMPOSITION
Insured
Portfolio
For the Quarter Ended March 31, 1994
Top Ten States*
Texas 13.42%
Florida 9.70
Pennsylvania 8.74
Illinois 7.39
California 6.75
South Carolina 5.62
Washington 4.86
New York 4.67
Michigan 4.40
Georgia 2.91
-------
Total Top Ten 68.46
Total Others 31.54
-------
Total Portfolio 100.00%
=======
Net assets as of March 31, 1994 were $2,890,547,687.
<PAGE>
GRAPHIC MATERIAL APPEARS HERE. SEE APPENDIX
GRAPHIC AND IMAGE MATERIAL: Item 1
National
Portfolio
Top Ten States*
New York 16.98%
Texas 10.49
Massachusetts 7.90
California 5.28
Illinois 5.13
Florida 5.11
Michigan 4.90
Pennsylvania 4.74
Arizona 3.39
Alaska 2.50
-------
Total Top Ten 66.42
Total Others 33.58
-------
Total Portfolio 100.00%
=======
Net assets as of March 31, 1994 were $1,700,931,824.
GRAPHIC MATERIAL APPEARS HERE. SEE APPENDIX
GRAPHIC AND IMAGE MATERIAL: Item 2
Limited
Maturity
Portfolio
Top Ten States*
Ohio 13.75%
Texas 9.44
Illinois 7.27
New Jersey 6.25
Florida 5.09
New York 4.92
Washington 4.59
Massachusetts 3.99
Missouri 3.78
California 3.60
-------
Total Top Ten 62.68
Total Others 37.32
-------
Total Portfolio 100.00%
=======
Net assets as of March 31, 1994 were $1,010,489,904.
GRAPHIC MATERIAL APPEARS HERE. SEE APPENDIX
GRAPHIC AND IMAGE MATERIAL: Item 3
<PAGE>
OFFICERS AND DIRECTORS
Arthur Zeikel, President and Director
Ronald W. Forbes, Director
Charles C. Reilly, Director
Kevin A. Ryan, Director
Richard R. West, Director
Terry K. Glenn, Executive Vice President
Vincent R. Giordano, Senior Vice President
Donald C. Burke, Vice President
Kenneth A. Jacob, Vice President
Gerald M. Richard, Treasurer
Mark B. Goldfus, Secretary
Custodian
The Bank of New York
110 Washington Street
New York, New York 10286
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
APPENDIX, GRAPHIC AND IMAGE MATERIAL.
Item 1:
Insured Portfolio
Quality Ratings*
(Based on Nationally Recognized Rating Services)
A pie chart illustrating the following percentages:
AAA/Aaa 93%
Other++ 7%
[FN]
*Based on total market value of the portfolio as of March 31, 1994.
++Temporary investments in short-term municipal securities.
Item 2:
National Portfolio
Quality Ratings*
(Based on Nationally Recognized Rating Services)
A pie chart illustrating the following percentages:
AAA/Aaa 16%
AA/Aa 25%
A/A 26%
BBB/Baa 21%
Other++ 9%
NR 3%
[FN]
*Based on total market value of the portfolio as of March 31, 1994.
++Temporary investments in short-term municipal securities.
<PAGE>
Item 3:
Limited Maturity Portfolio
Quality Ratings*
(Based on Nationally Recognized Rating Services)
A pie chart illustrating the following percentages:
AAA/Aaa 26%
AA/Aa 23%
A/A 31%
BBB/Baa 2%
Other++ 15%
NR 3%
[FN]
*Based on total market value of the portfolio as of March 31, 1994.
++Temporary investments in short-term municipal securities.
