MERRILL
LYNCH
MUNICIPAL
BOND
FUND, INC.
FUND LOGO
Quarterly Report September 30, 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 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.
Merrill Lynch
Municipal Bond Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
<PAGE>
TO OUR SHAREHOLDERS
Concerns of increasing inflationary pressures continued to prompt
volatility in the US stock and bond markets during the September
quarter. In addition, the weakness of the US dollar in foreign
exchange markets prolonged stock and bond market declines during
July. While the immediate concerns regarding the US dollar had
diminished by late July, the possibility of continued tightening by
the Federal Reserve Board persisted for most of the period. However,
a lower-than-expected rate of growth reported for the US economy
during the second calendar quarter allayed inflationary concerns to
some degree, despite the fifth increase in short-term interest rates
made by the central bank in mid-August. Inflationary expectations
surfaced again with the announcement of significant upward revisions
in industrial production and capacity utilization for the May-July
period. When the central bank did not raise short-term interest
rates at the late September Federal Open Market Committee meeting,
financial markets rallied on the expectation that the US economy was
not overheating and therefore significant further monetary policy
tightening would not be necessary.
Despite the stronger-than-expected industrial production results,
other economic data suggest that while the economic recovery is
continuing, it is losing some momentum. Consumer spending is
increasing, but at a relatively slow pace, and existing home sales
may have peaked. Inflation remains subdued at the retail level. In
the industrial sector, the sharp increase in manufacturing production
in August was largely the result of a strong increase in motor
vehicle assemblies, which may level off in the weeks ahead. On
balance, it appears that the growth in US industry is progressing at
a steady, modest rate.
Despite evidence of a moderating trend in the US economy, Chairman
Greenspan indicated in his July Humphrey-Hawkins testimony that the
central bank would prefer to err on the side of too much monetary
tightening rather than too little. In the weeks ahead, investors
will continue to assess economic data and inflationary trends in
order to gauge whether further increases in short-term interest
rates are imminent. Continued indications of moderate and
sustainable levels of economic growth would be positive for the US
capital markets.
The Municipal Market
During the September quarter, long-term municipal bond yields rose
slightly amid continued weekly volatility. Tax-exempt bond yields,
as measured by the Bond Buyer Revenue Bond Index, rose 11 basis
points (0.11%) to 6.70% during the three months ended September 30,
1994. However, as in recent quarters yields continued to fluctuate
by as much as 15 basis points from week to week. US Treasury bond
yields rose 14 basis points to end the September quarter at 7.85%.
The fixed-income markets, including the municipal bond market, were
largely without conviction during the September quarter. Investors
were faced with mixed economic signals throughout the quarter, with
modest economic growth coupled with moderate inflationary pressures
being the dominant theme. Yields fluctuated as economic indicators
either supported or undermined this theme. The principal stabilizing
factor within the tax-exempt market has been the dramatic reduction
in new-issue supply. During the September quarter, less than $35
billion in long-term securities were issued, a decline of more than
50% versus the September 1993 quarter. As discussed in earlier
reports, this reduction in new-issue supply has helped minimize
selling pressures from institutional investors supporting the
municipal market at current levels for most of the last six months.
<PAGE>
The overall attractiveness of municipal securities has continued
throughout the September quarter. For example, long-term tax-exempt
issues yielding 6.70% represent an after-tax equivalent of more than
10.95%. Current long-term municipal bonds also yield over 85% of
comparable US Treasury securities. This level is at the upper end of
the trading range seen thus far in 1994. Municipal bonds have traded
as high as approximately 80% of US Treasury bonds. Given their
strong after-tax yield advantage and attractive yield relationship
to taxable securities, currently available municipal bonds yields
should prove attractive to long-term investors.
Portfolio Strategy
During the quarter ended September 30, 1994, the portfolio strategy
for both the Insured and National Portfolios was based on a
projection of rising interest rates. The Portfolios were both net
sellers of securities, which enabled us to raise the Portfolios'
cash reserve position to approximately 10% of net assets. As we
reinvested a portion of our cash reserve position, transactions were
directed toward more defensively oriented issues. In particular,
recent periods of market volatility have afforded us the opportunity
to add to the Portfolios a number of attractively priced, higher-
coupon issues. These issues have the dual advantage of generating
significant amounts of coupon income and reducing capital
depreciation during periods of interest rate volatility.
The Limited Maturity Portfolio continued to be defensively
positioned during the September quarter as the Federal Reserve Board
continued to pursue a restrictive monetary policy by raising short-
term interest rates in response to the ongoing economic strength.
This defensive position was achieved by maintaining an average
portfolio maturity of approximately 1.5 years and a cash position of
between 15%--20% of net assets throughout most of the quarter.
Additionally, purchases in the Portfolio were focused on higher-
coupon bonds which offer a high level of current tax-exempt income
while preserving capital better than do lower coupon bonds in
periods of rising interest rates.
<PAGE>
In Conclusion
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
Senior Vice President and
Portfolio Manager
(Kenneth A. Jacob)
Kenneth A. Jacob
Vice President and
Portfolio Mananger
October 12, 1994
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 9/30/94 -4.41% -8.24%
Five Years Ended 9/30/94 +7.57 +6.70
Ten Years Ended 9/30/94 +9.55 +9.11
<PAGE>
% Return % Return
Class B Shares* Without CDSC With CDSC**
Year Ended 9/30/94 -5.25% -8.75%
Five Years Ended 9/30/94 +6.75 +6.75
Inception (10/21/88)
through 9/30/94 +6.77 +6.77
National Portfolio
% Return Without % Return With
Class A Shares* Sales Charge Sales Charge**
Year Ended 9/30/94 -3.65% -7.51%
Five Years Ended 9/30/94 +7.66 +6.78
Ten Years Ended 9/30/94 +9.82 +9.38
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Class B Shares* Without CDSC With CDSC**
Year Ended 9/30/94 -4.38% -7.90%
Five Years Ended 9/30/94 +6.85 +6.85
Inception (10/21/88)
through 9/30/94 +6.77 +6.77
[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 9/30/94 +2.28% +1.52%
Five Years Ended 9/30/94 +5.30 +5.15
Ten Years Ended 9/30/94 +5.71 +5.63
[FN]
*Maximum sales charge is 0.75%.
**Assuming maximum sales charge.
<PAGE>
% Return % Return
Class B Shares* Without CDSC With CDSC**
Year Ended 9/30/94 +1.86% +0.87%
Inception (11/2/92)
through 9/30/94 +3.14 +3.14
[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
1/1/94-9/30/94 8.60/7.78 10.91/ 9.96 10.01/ 9.85 0.33 0.44 0.27 - 5.59 - 4.65 +1.23
------ ------ -----
Total $10.28 $12.60 $8.76
Cumulative total return as of 9/30/94: + 205.09%** + 285.11%** + 142.80%**
<PAGE>
<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 $0.060 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>
<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
1/1/94-9/30/94 8.59/7.77 10.90/ 9.95 10.01/ 9.85 0.29 0.38 0.25 - 6.13 - 5.18 + 1.00
----- ----- -----
Total $3.20 $4.26 $0.66
Cumulative total return as of 9/30/94: + 47.65%** + 47.64%** + 6.07%**
<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>
<PAGE>
<TABLE>
Recent
Performance
Results
<CAPTION>
12 Month 3 Month
9/30/94 6/30/94 9/30/93 % Change % Change
<S> <C> <C> <C> <C> <C>
Insured Portfolio Class A Shares* $7.78 $ 7.88 $ 8.84 -10.14%(1) -1.27%
Insured Portfolio Class B Shares* 7.77 7.87 8.84 -10.26(1) -1.27
National Portfolio Class A Shares* 9.96 10.08 11.25 -10.19(2) -1.19
National Portfolio Class B Shares* 9.95 10.07 11.24 -10.20(2) -1.19
Limited Maturity Portfolio Class A Shares* 9.85 9.87 10.00 - 1.50 -0.20
Limited Maturity Portfolio Class B Shares* 9.85 9.87 10.01 - 1.60 -0.20
Insured Portfolio Class A Shares--Total Return* - 4.41(3) +0.24(4)
Insured Portfolio Class B Shares--Total Return* - 5.25(5) +0.03(6)
National Portfolio Class A Shares--Total Return* - 3.65(7) +0.25(8)
National Portfolio Class B Shares--Total Return* - 4.38(9) +0.15(10)
Limited Maturity Portfolio Class A Shares--Total Return* + 2.28(11) +0.82(12)
Limited Maturity Portfolio Class B Shares--Total Return* + 1.86(13) +0.73(14)
Insured Portfolio Class A Shares--Standardized 30-day Yield 5.24%
Insured Portfolio Class B Shares--Standardized 30-day Yield 4.68%
National Portfolio Class A Shares--Standardized 30-day Yield 5.52%
National Portfolio Class B Shares--Standardized 30-day Yield 4.99%
Limited Maturity Portfolio Class A Shares--Standardized 30-day Yield 3.52%
Limited Maturity Portfolio Class B Shares--Standardized 30-day Yield 3.19%
<FN>
*Investment results shown do not reflect any sales charges; results shown would be lower if a sales charge was included.
(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 $0.502 per share ordinary income dividends and $0.181 per share capital gains
distributions.
(4)Percent change includes reinvestment of $0.120 per share ordinary income dividends.
(5)Percent change includes reinvestment of $0.440 per share ordinary income dividends and $0.181 per share capital gains
distributions.
(6)Percent change includes reinvestment of $0.103 per share ordinary income dividends.
(7)Percent change includes reinvestment of $0.737 per share ordinary income dividends and $0.157 per share capital gains
distributions.
(8)Percent change includes reinvestment of $0.156 per share ordinary income dividends.
(9)Percent change includes reinvestment of $0.658 per share ordinary income dividends and $0.157 per share capital gains
distributions.
(10)Percent change includes reinvestment of $0.136 per share ordinary income dividends.
(11)Percent change includes reinvestment of $0.365 per share ordinary income dividends.
(12)Percent change includes reinvestment of $0.101 per share ordinary income dividends.
(13)Percent change includes reinvestment of $0.333 per share ordinary income dividends.
(14)Percent change includes reinvestment of $0.091 per share ordinary income dividends.
</TABLE>
<PAGE>
PORTFOLIO COMPOSITION
For the Quarter Ended September 30, 1994
Insured
Portfolio
Top Ten States*
Texas 13.22%
Pennsylvania 8.75
California 7.33
Florida 6.80
South Carolina 6.50
New York 6.10
Illinois 5.30
Michigan 3.94
Washington 3.79
Nevada 3.53
-------
Total Top Ten 65.26
Total Others 34.74
-------
Total Portfolio 100.00%
=======
Net assets as of September 30, 1994 were $2,693,027,152.
Quality Ratings*
(Based on Nationally Recognized Rating Services)
GRAPHIC MATERIAL APPEARS HERE.
SEE APPENDIX GRAPHIC AND IMAGE MATERIAL ITEM 1.
[FN]
*Based on total market value of the Portfolio as of
September 30, 1994.
++Temporary investments in short-term municipal securities.
<PAGE>
National
Portfolio
Top Ten States*
New York 18.19%
Texas 7.86
Pennsylvania 6.10
Illinois 5.41
California 5.25
Michigan 5.17
Massachusetts 5.04
New Jersey 4.59
Florida 3.82
Arizona 3.34
-------
Total Top Ten 64.77
Total Others 35.23
-------
Total Portfolio 100.00%
=======
Net assets as of September 30, 1994 were $1,602,344,733.
Quality Ratings*
(Based on Nationally Recognized Rating Services)
GRAPHIC MATERIAL APPEARS HERE.
SEE APPENDIX GRAPHIC AND IMAGE MATERIAL ITEM 2.
[FN]
*Based on total market value of the Portfolio as of
September 30, 1994.
++Temporary investments in short-term municipal securities.
<PAGE>
Limited
Maturity
Portfolio
Top Ten States*
Ohio 9.05%
California 8.82
Texas 8.19
Illinois 8.07
New Jersey 7.92
New York 5.90
Washington 4.96
Florida 4.52
Massachusetts 4.08
Utah 3.91
-------
Total Top Ten 65.42
Total Others 34.58
-------
Total Portfolio 100.00%
=======
Net assets as of September 30, 1994 were $900,424,318.
Quality Ratings*
(Based on Nationally Recognized Rating Services)
GRAPHIC MATERIAL APPEARS HERE.
SEE APPENDIX GRAPHIC AND IMAGE MATERIAL ITEM 3.
[FN]
*Based on total market value of the Portfolio as of
September 30, 1994.
++Temporary investments in short-term municipal securities.
<PAGE>
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
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 95%
Other++ 5%
[FN]
*Based on total market value of the Portfolio as of
September 30, 1994.
++Temporary investments in short-term municipal securities.
<PAGE>
ITEM 2:
National Portfolio
Quality Ratings*
(Based on Nationally Recognized Rating Services)
A pie chart illustrating the following percentages:
AAA/Aaa 16%
AA/Aa 23%
A/A 24%
BBB/Baa 21%
BB/Ba 4%
Other++ 8%
NR 4%
[FN]
*Based on total market value of the Portfolio as of
September 30, 1994.
++Temporary investments in short-term municipal securities.
ITEM 3:
Limited Maturity Portfolio
Quality Ratings*
(Based on Nationally Recognized Rating Services)
A pie chart illustrating the following percentages:
AAA/Aaa 23%
AA/Aa 25%
A/A 28%
BBB/Baa 1%
Other++ 15%
NR 8%
[FN]
*Based on total market value of the Portfolio as of
September 30, 1994.
++Temporary investments in short-term municipal securities.
