MERRILL LYNCH
MUNICIPAL BOND
FUND, INC.
FUND LOGO
Quarterly Report
March 31, 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
Municipal Bond Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
MERRILL LYNCH MUNICIPAL BOND FUND, INC.
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
Peter J. Hayes, Vice President
Kenneth A. Jacob, Vice President
Walter C. O'Connor, Vice President
Gerald M. Richard, Treasurer
Barbara G. Fraser, Secretary
Custodian
The Bank of New York
90 Washington Street, 12th Floor
New York, NY 10286
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
Merrill Lynch Municipal Bond Fund, Inc., March 31, 1998
DEAR SHAREHOLDER
The Municipal Market
Environment
Taxable and tax-exempt bond yields remained essentially unchanged
for the three months ended March 31, 1998. At times during the
period, indications of a continued strong US economy pushed interest
rates up, as investors feared that such growth would eventually lead
to higher inflation. However, inflationary pressures have yet to
appear. In fact, most annual measures of inflation have either been
stable or slightly declining. Thus far, this positive inflationary
environment has counteracted any fear of the potential consequences
of strong economic growth and allowed interest rates to remain
relatively stable. At the end of the March 31, 1998 quarter, the 30-
year US Treasury bond yield was essentially unchanged at 5.93%.
Similarly, the Bond Buyer Revenue Bond Index, which represents the
yield of long-term uninsured municipal revenue bonds, was also
unchanged over the past three months at 5.42%.
The performance of the municipal bond market in recent months has
been particularly impressive relative to taxable bonds. While the
overall interest rate environment has remained positive, the tax-
exempt market's recent negative technical position has further
weakened. Over the last six months, more than $130 billion in new
long-term bonds have been issued, an increase of over 40% compared
to the same period a year earlier. As interest rates have remained
near recent historic lows, new tax-exempt bond issuance has
dramatically increased. Over $65 billion in long-term municipal
securities were issued during the March 31, 1998 quarter, an
increase of over 70% compared to the March 31, 1997 quarter. During
the past month, almost $30 billion in new long-term tax-exempt bonds
were underwritten, representing an increase of nearly 70% compared
to the March 1997 issuance and the largest March issuance ever.
Given the relative abundance of new municipal bond issuance in
recent months, it would be expected that tax-exempt bond yields
would rise relative to their taxable counterparts. Although this did
not occur, it is likely that much of the municipal bond market's
performance over the recent quarter has reflected increased investor
recognition of the ongoing relative attractiveness of tax-exempt
securities. Additionally, the prospect of at least stable, if not
declining, bond yields for the remainder of 1998 has probably
minimized investors' willingness to sell an already attractive
asset.
In our opinion, the recent correction in Asian financial markets has
enhanced the near-term prospects for continued low interest rates in
the United States. It is likely that the recent correction will
result in slower US economic growth in the coming months. This
decline in growth should be generated in part by reduced US export
growth to these troubled economies. Additionally, US inflation
should be positively impacted by lower import prices as Asian
producers lower the cost of their goods in order to accelerate their
struggling economies. More important, it is likely that, barring a
dramatic and unexpected resurgence of domestic inflation, the
Federal Reserve Board will be unwilling to raise interest rates
until the full impact of the Asian market turmoil can be
established.
It is also likely that at least some of the recent economic strength
seen in the United States will be reversed in the coming months. A
particularly mild winter has been partially responsible for a strong
housing sector, as well as for other areas of the construction
industry. This past winter's economic strength may have borrowed
from future quarters' growth. This recent strong trend may not be
sustainable and may lead to weaker construction growth later this
year. Additionally, strong economic growth in 1997 and the increased
use of electronic tax filings have resulted in larger and earlier
Federal and state income tax refunds to many individuals. These
refunds appear to have supported strong consumer spending in recent
months that again may be borrowing against weaker spending later
this year.
All these factors suggest that over the near term, interest rates,
including tax-exempt bond yields, are unlikely to rise by any
appreciable amount. It is likely, however, that municipal bond
yields will remain under some relative pressure because of continued
strong new-issue supply. However, the recent pace of municipal bond
issuance is unlikely to escalate. Continued increases in bond
issuance will require lower and lower tax-exempt bond yields to
generate the economic savings necessary for additional municipal
bond refinancings. Preliminary estimates of 1998 total municipal
bond issuance are presently in the $195 billion--$220 billion range.
These estimates suggest that recent supply pressures are likely to
abate somewhat next year, or at least exert only minimal technical
pressures during 1998. Additionally, municipal bond investors
received approximately $30 billion during the March quarter in
coupon payments, bond maturities and proceeds from early
redemptions, which should serve to intensify investor demand in the
near future. With tax-exempt bond yields at already attractive yield
ratios relative to US Treasury bonds (approximately 90% at the end
of March), any further pressure on the municipal market may well
represent an attractive investment opportunity.
Portfolio Strategy
Insured Portfolio and
National Portfolio
A combination of several positive technical and economic factors
have contributed to a scenario where the fixed-income markets, and
the tax-exempt market in particular, have reached historically low
levels of nominal interest rates. Over the March quarter, our
strategies for the Insured and National Portfolios have been to
maintain a fully invested posture and use any fluctuations in the
market to restructure the Portfolios more aggressively. The strength
of each Portfolio has been a high level of current yield, while
providing well- above industry averages of tax-exempt income to
shareholders. Our challenge during the quarter has been to identify
correctly the timing for re-entering the market with a more
aggressive strategy. At current interest rate levels, where long-
term municipal bonds are nearing 5%, we will begin to sell some of
the Portfolios' more aggressively structured, discounted securities
and use the proceeds to purchase more income-oriented bonds.
Although the fundamental economic backdrop for the marketplace is
still quite supportive, we would expect the municipal market to
participate only marginally in any further price gains. Therefore,
we will concentrate on seeking to enhance each Portfolio's current
return by searching to uncover higher-yielding securities within the
credit quality limits as defined in the Fund's prospectus.
Limited Maturity Portfolio
We maintained our aggressive position for Limited Maturity Portfolio
throughout most of the quarter ended March 31, 1998 as inflationary
data continued to be overwhelmingly favorable and Federal Reserve
Board monetary policy remained unchanged. We kept the Portfolio's
cash reserves in the 1%--2% range for most of the quarter, and the
average life was held at approximately 1.8 years, close to its
allowable maximum of 2.0 years. However, at quarter-end, we became
defensive on the short-term municipal market as new-issue supply was
building. Additionally, interest rates have become expensive
relative to taxable investments, and with the large new-issue volume
looming, we believed that the market was poised for short-term tax-
exempt interest rates to increase in order for this supply to
attract investor interest. By quarter-end, we raised cash reserves
to over 10% of net assets and reduced the average portfolio maturity
to approximately 1.4 years. We anticipate becoming more aggressively
positioned over the coming months after the majority of new-issue
supply has been sold. We would view an increase in interest rates as
a potential buying opportunity, especially if the economy begins to
slow in the wake of the Asian financial crisis.
Merrill Lynch Municipal Bond Fund, Inc., March 31, 1998
In Conclusion
We appreciate your ongoing interest in Merrill Lynch Municipal Bond
Fund, Inc., and we look forward to serving your investment needs in
the months and years to come.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Senior Vice President
(Kenneth A. Jacob)
Kenneth A. Jacob
Vice President and Portfolio Manager
(Walter C. O'Connor)
Walter C. O'Connor
Vice President and Portfolio Manager
(Peter J. Hayes)
Peter J. Hayes
Vice President and Portfolio Manager
April 23, 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 Insured and National Portfolios. Limited Maturity Portfolio
incurs a maximum initial sales charge (front-end load) of 1% and
bears no ongoing distribution or account maintenance fees.
* 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 Insured and National
Portfolios. Limited Maturity Portfolio is subject to a maximum
contingent deferred sales charge of 1% if redeemed within one year
of purchase. In addition, Insured and National Portfolios are
subject to a distribution fee of 0.50% and an account maintenance
fee of 0.25%. Limited Maturity Portfolio is subject to a
distribution fee of 0.20% and an account maintenance fee of 0.15%.
Class B Shares of all three Portfolios 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 Insured and National
Portfolios. Limited Maturity Portfolio is subject to a distribution
fee of 0.20% and an account maintenance fee of 0.15%. 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
Insured and National Portfolios. Limited Maturity 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 "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.
Merrill Lynch Municipal Bond Fund, Inc., March 31, 1998
PERFORMANCE DATA (concluded)
<TABLE>
Recent
Performance
Results
<CAPTION>
Ten Years/
Since Standardized
12 Month 3 Month Inception 30-Day Yield
Total Return Total Return Total Return As of 3/31/98
<S> <C> <C> <C> <C>
ML Municipal Bond Fund, Inc. Insured Portfolio Class A Shares* +10.62% +0.69% +115.27% 4.62%
ML Municipal Bond Fund, Inc. Insured Portfolio Class B Shares* + 9.93 +0.50 + 89.09 4.05
ML Municipal Bond Fund, Inc. Insured Portfolio Class C Shares* + 9.74 +0.49 + 29.04 4.00
ML Municipal Bond Fund, Inc. Insured Portfolio Class D Shares* +10.35 +0.62 + 31.54 4.38
ML Municipal Bond Fund, Inc. National Portfolio Class A Shares** +10.69 +0.99 +121.21 4.62
ML Municipal Bond Fund, Inc. National Portfolio Class B Shares** + 9.75 +0.71 + 92.39 4.05
ML Municipal Bond Fund, Inc. National Portfolio Class C Shares** + 9.80 +0.79 + 31.17 4.00
ML Municipal Bond Fund, Inc. National Portfolio Class D Shares** +10.30 +0.93 + 33.70 4.38
ML Municipal Bond Fund, Inc. Limited Maturity Portfolio Class A Shares*** + 4.61 +0.95 + 62.91 3.43
ML Municipal Bond Fund, Inc. Limited Maturity Portfolio Class B Shares*** + 4.34 +0.86 + 21.58 3.10
ML Municipal Bond Fund, Inc. Limited Maturity Portfolio Class C Shares*** + 4.22 +0.86 + 14.16 3.08
ML Municipal Bond Fund, Inc. Limited Maturity Portfolio Class D Shares*** + 4.61 +0.93 + 15.70 3.34
<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 dates are: Class A Shares, ten years ended
3/31/98; Class B Shares, 10/21/88; and Class C and Class D Shares,
10/21/94.
**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 dates are: Class A Shares, ten years ended
3/31/98; Class B Shares, 10/21/88; and Class C and Class D Shares,
10/21/94.
***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 dates are: Class A Shares, ten years ended
3/31/98; Class B Shares, 11/2/92; and Class C and Class D Shares,
10/21/94.
</TABLE>
Average Annual
Total Returns
Insured Portfolio
% Return Without % Return With
Class A Shares* Sales Charge Sales Charge**
Year Ended 3/31/98 +10.62% +6.20%
Five Years Ended 3/31/98 + 6.22 +5.36
Ten Years Ended 3/31/98 + 7.97 +7.53
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Class B Shares* Without CDSC With CDSC**
Year Ended 3/31/98 +9.93% +5.93%
Five Years Ended 3/31/98 +5.43 +5.43
Inception (10/21/88) through 3/31/98 +6.98 +6.98
[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
Class C Shares* Without CDSC With CDSC**
Year Ended 3/31/98 +9.74% +8.74%
Inception (10/21/94) through 3/31/98 +7.69 +7.69
[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
Class D Shares* Sales Charge Sales Charge**
Year Ended 3/31/98 +10.35% +5.93%
Inception (10/21/94) through 3/31/98 + 8.29 +7.02
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
National Portfolio
% Return Without % Return With
Class A Shares* Sales Charge Sales Charge**
Year Ended 3/31/98 +10.69% +6.26%
Five Years Ended 3/31/98 + 6.80 +5.93
Ten Years Ended 3/31/98 + 8.26 +7.82
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Class B Shares* Without CDSC With CDSC**
Year Ended 3/31/98 +9.75% +5.75%
Five Years Ended 3/31/98 +5.97 +5.97
Inception (10/21/88) through 3/31/98 +7.18 +7.18
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payments of applicable contingent deferred sales charge.
% Return % Return
Class C Shares* Without CDSC With CDSC**
Year Ended 3/31/98 +9.80% +8.80%
Inception (10/21/94) through 3/31/98 +8.21 +8.21
[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
Class D Shares* Sales Charge Sales Charge**
Year Ended 3/31/98 +10.30% +5.89%
Inception (10/21/94) through 3/31/98 + 8.81 +7.52
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
Limited Maturity Portfolio
% Return Without % Return With
Class A Shares* Sales Charge Sales Charge**
Year Ended 3/31/98 +4.61% +3.56%
Five Years Ended 3/31/98 +3.86 +3.66
Ten Years Ended 3/31/98 +5.00 +4.90
[FN]
*Maximum sales charge is 1%.
**Assuming maximum sales charge.
% Return % Return
Class B Shares* Without CDSC With CDSC**
Year Ended 3/31/98 +4.34% +3.34%
Five Years Ended 3/31/98 +3.52 +3.52
Inception (11/2/92) through 3/31/98 +3.68 +3.68
[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
Class C Shares* Without CDSC With CDSC**
Year Ended 3/31/98 +4.22% +3.22%
Inception (10/21/94) through 3/31/98 +3.92 +3.92
[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
Class D Shares* Sales Charge Sales Charge**
Year Ended 3/31/98 +4.61% +3.56%
Inception (10/21/94) through 3/31/98 +4.33 +4.03
[FN]
*Maximum sales charge is 1%.
**Assuming maximum sales charge.
Merrill Lynch Municipal Bond Fund, Inc., March 31, 1998
PORTFOLIO COMPOSITION
For the Quarter Ended March 31, 1998
Insured
Portfolio
Top Ten States*
Illinois 17.51%
New York 16.25
Texas 11.09
Massachusetts 8.10
Pennsylvania 5.64
Colorado 5.09
New Jersey 4.52
Wisconsin 3.20
Washington 3.08
Michigan 2.81
-------
Total Top Ten 77.29
Total Others 22.71
-------
Total Portfolio 100.00%
=======
Net assets as of March 31, 1998 were $1,982,697,789.
Quality Ratings*
(Based on Nationally Recognized Rating Services)
A pie chart illustrating the following percentages:
AAA/Aaa 94%
Other+ 6%
[FN]
*Based on total market value of the Portfolio as of March 31, 1998.
++Temporary investments in short-term municipal securities.
National
Portfolio
Top Ten States*
Texas 18.36%
New York 15.27
Colorado 7.75
Massachusetts 6.31
Florida 6.11
California 5.96
Pennsylvania 4.01
Illinois 3.84
Louisiana 3.82
Wisconsin 2.67
-------
Total Top Ten 74.10
Total Others 25.90
-------
Total Portfolio 100.00%
=======
Net assets as of March 31, 1998 were $1,483,333,121.
Quality Ratings*
(Based on Nationally Recognized Rating Services)
A pie chart illustrating the following percentages:
AAA/Aaa 51%
AA/Aa 20%
A/A 10%
BBB/Baa 9%
BB/Ba 2%
B/B 1%
Other+ 3%
NR++ 4%
[FN]
*Based on total market value of the Portfolio as of March 31, 1998.
++Temporary investments in short-term municipal securities.
+++Not Rated.
Limited Maturity
Portfolio
Top Ten States*
New York 13.17%
Ohio 8.78
Washington 7.64
Texas 6.63
Illinois 6.02
Louisiana 5.50
Mississippi 4.78
Pennsylvania 4.10
Wisconsin 3.92
Massachusetts 3.61
-------
Total Top Ten 64.15
Total Others 35.85
-------
Total Portfolio 100.00%
=======
Net assets as of March 31, 1998 were $433,301,226.
Quality Ratings*
(Based on Nationally Recognized Rating Services)
A pie chart illustrating the following percentages:
AAA/Aaa 46%
AA/Aa 25%
A/A 10%
BBB/Baa 8%
Other+ 11%
[FN]
*Based on total market value of the Portfolio as of March 31, 1998.
++Temporary investments in short-term municipal securities.
Merrill Lynch Municipal Bond Fund, Inc., March 31, 1998
IMPORTANT TAX INFORMATION
On March 20, 1998, substantially all of the assets of Merrill Lynch
Massachusetts Limited Maturity Municipal Bond Fund of Merrill Lynch
Multi-State Limited Maturity Municipal Series Trust were acquired by
the Limited Maturity Portfolio of Merrill Lynch Municipal Bond Fund,
Inc.
All of the net investment income distributions paid monthly by
Merrill Lynch Massachusetts Limited Maturity Municipal Bond Fund of
Merrill Lynch Multi-State Limited Maturity Municipal Series Trust to
the shareholders of said Fund during the taxable period ended March
23, 1998 qualify as tax-exempt interest dividends for Federal income
tax purposes. Additionally, there were no capital gains distributed
by the Fund during the period.
On March 20, 1998, substantially all of the assets of Merrill Lynch
New Jersey Limited Maturity Municipal Bond Fund of Merrill Lynch
Multi-State Limited Maturity Municipal Series Trust were acquired by
the Limited Maturity Portfolio of Merrill Lynch Municipal Bond Fund,
Inc.
All of the net investment income distributions paid monthly by
Merrill Lynch New Jersey Limited Maturity Municipal Bond Fund of
Merrill Lynch Multi-State Limited Maturity Municipal Series Trust to
the shareholders of said Fund during the taxable period ended March
23, 1998 qualify as tax-exempt interest dividends for Federal income
tax purposes. Additionally, the Fund distributed long-term capital
gains of $.010407 per share to shareholders of record on March 19,
1998, all of which is subject to a 20% tax rate.
On March 20, 1998, substantially all of the assets of Merrill Lynch
Pennsylvania Limited Maturity Municipal Bond Fund of Merrill Lynch
Multi-State Limited Maturity Municipal Series Trust were acquired by
the Limited Maturity Portfolio of Merrill Lynch Municipal Bond Fund,
Inc.
All of the net investment income distributions paid monthly by
Merrill Lynch Pennsylvania Limited Maturity Municipal Bond Fund of
Merrill Lynch Multi-State Limited Maturity Municipal Series Trust to
the shareholders of said Fund during the taxable period ended March
23, 1998 qualify as tax-exempt interest dividends for Federal income
tax purposes. Additionally, the Fund distributed long-term capital
gains of $.229177 per share to shareholders of record on March 19,
1998, all of which is subject to a 20% tax rate.
Please retain this information for your records.
