MERRILL LYNCH
MUNICIPAL BOND
FUND, INC.
FUND LOGO
Quarterly Report
September 30, 1999
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
Terry K. Glenn, President and Director
Ronald W. Forbes, Director
Cynthia A. Montgomery, Director
Charles C. Reilly, Director
Kevin A. Ryan, Director
Richard R. West, Director
Arthur Zeikel, Director
Vincent R. Giordano, Senior Vice President
Peter J. Hayes, Vice President
Kenneth A. Jacob, Vice President
Walter C. O'Connor, Vice President
Donald C. Burke, Vice President and Treasurer
William E. Zitelli, Secretary
Custodian
The Bank of New York
90 Washington Street, 12th Floor
New York, NY 10286
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
Merrill Lynch Municipal Bond Fund, Inc., September 30, 1999
DEAR SHAREHOLDER
The combination of steady strong domestic economic growth,
improvement in foreign economies (most notably in Japan) and
increasing investor concerns regarding potential increases in US
inflation put upward pressure on bond yields throughout the three-
month period ended September 30, 1999. Strong US employment growth
was among the reasons the Federal Reserve Board cited for raising
short-term interest rates in late June and again in late August. US
Treasury bond yields reacted by climbing above 6.25% by mid-August
before improving somewhat to 6.05% by September 30, 1999. During the
period, yields on 30-year US Treasury bonds increased by 10 basis
points (0.10%).
Long-term tax-exempt bond yields also rose during the three months
ended September 30, 1999. Until early May, the municipal bond market
was able to withstand much of the upward pressure on bond yields.
However, investor concerns of additional moves by the Federal
Reserve Board to moderate US economic growth and, more importantly,
the loss of the strong technical support that the tax-exempt market
enjoyed in early 1999 helped push municipal bond yields
significantly higher for the remainder of the period. The yields on
long-term tax-exempt revenue bonds rose over 35 basis points to
5.96% by September 30, 1999, as measured by the Bond Buyer Revenue
Bond Index.
In recent months, the significant decline in new tax-exempt bond
issuance has remained a positive factor within the municipal bond
market, as it had been for much of the past year. During the last
six months, more than $113 billion in long-term municipal bonds was
issued, a decline of over 20% compared to the same period a year
ago. During the past three months, $55 billion in municipal bonds
was underwritten, representing a decline of nearly 15% compared to
the corresponding period in 1998. Additionally, in June and July,
investors received more than $40 billion in coupon income and
proceeds from bond maturities and early bond redemptions. These
proceeds have generated considerable retail investor interest, which
has helped absorb the recent diminished supply.
Although tax-exempt bond yields are at their highest level in over
two years and have attracted significant retail investor interest,
institutional demand has declined sharply. The demand from
property/casualty insurance companies has weakened as a result of
the losses, and anticipated losses, incurred as a result of the
series of damaging storms across much of the eastern United States.
Additionally, many institutional investors who were attracted to the
municipal bond market in recent years by historically attractive tax-
exempt bond yield ratios of over 90% have found other asset classes
even more attractive. Even with a reduced supply position, tax-
exempt issuers have been forced to repeatedly raise municipal bond
yields in the attempt to attract adequate demand.
The recent relative underperformance of the municipal bond market
has resulted in an opportunity for long-term investors to purchase
tax-exempt issues whose yields are nearly identical to taxable US
Treasury securities. At September 30, 1999, long-term uninsured
municipal revenue bond yields were almost 99% of comparable US
Treasury securities. In recent months, many taxable asset classes,
such as corporate bonds, mortgage-backed securities and US agency
debt, have all accelerated debt issuance. This acceleration was
initiated largely to avoid issuing securities at year-end and to
minimize any associated Year 2000 (Y2K) problems that may develop.
However, this increased issuance has also resulted in higher yield
levels in the various asset classes as lower bond prices became
necessary to attract sufficient investor demand. Going forward, it
is believed that the pace of non-US Government debt issuance is
likely to slow significantly. As the supply of this debt declines,
we would expect many institutional investors to return to the
municipal bond market and the attractive yield ratios available.
Looking ahead, it appears to us that long-term municipal bond yields
will remain under pressure, trading in a broad range centered near
current levels. Investors are likely to remain concerned about
future action by the Federal Reserve Board. Y2K considerations may
prohibit a series of Federal Reserve Board moves at the end of the
year and the beginning of 2000. Any improvement in bond prices will
probably be contingent upon weakening in both US employment growth
and consumer spending. The 100 basis point rise in US Treasury bond
yields seen thus far this year may negatively affect US economic
growth. The US housing market will be among the first sectors likely
to be affected, as some declines have already been evidenced in
response to higher mortgage rates. We believe that it is also
unrealistic to expect double-digit returns in US equity markets to
continue indefinitely. Much of the US consumer's wealth is tied to
recent stock market appreciation. Any slowing in these growth rates
is likely to reduce consumer spending. We believe that these factors
suggest that the worst of the recent increase in bond yields has
passed and stable, if not slightly improving, bond prices may be
expected.
Portfolio Strategy
Insured Portfolio and
National Portfolio
During the three months ended September 30, 1999 through our
investments in the Insured and National Portfolios, we strived to
provide an attractive level of tax-exempt income as well as
competitive total returns. However, while we were able to provide an
attractive level of tax-exempt income, we were less successful in
achieving competitive total returns. This was largely the result of
both Portfolios being relatively fully invested in an environment of
dramatically rising interest rates. This caused each Portfolio's net
asset valuations to decline. These declines were not offset by
dividend income, as reflected in the Portfolio's total returns.
(Complete performance information can be found on pages 4--6 of this
report to shareholders.)
Helping the Portfolios' performances to some degree during the
September quarter was our emphasis on credit quality as credit
spreads widened in the rising interest rate environment. With value
having been restored to the taxable and tax-exempt fixed-income
markets, we intend to stay the course and monitor financial data for
signs pointing to an environment more supportive of fixed-income
securities.
At September 30, 1999, the National Portfolio was overweighted in
high-quality holdings with nearly 75% of Portfolio assets rated AA
or higher by at least one of the major rating agencies. Within the
Insured Portfolio, 100% of the holdings were insured and 94% rated
AAA.
Limited Maturity Portfolio
Based on our belief that yields would rise, the Limited Maturity
Portfolio began the September quarter somewhat defensively
positioned. We accomplished this by maintaining cash reserves of
between 5%--10% and an average portfolio maturity of 1.6 years.
However, after the second tightening by the Federal Reserve Board in
August, we moved to a neutral-to-slightly positive investment
structure. As a result, we increased the average portfolio maturity
to 1.8 years with 2% of net assets in cash reserves. This strategy
enhanced Portfolio performance and helped the Portfolio out-perform
the average of its peer group for the period, as measured by Lipper
Analytical Services, Inc. Our focus continues to be on higher-
coupon, higher-quality issues that offer an attractive current yield
and the potential to limit principal risk in periods of interest
rate volatility.
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,
(Terry K. Glenn)
Terry K. Glenn
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
November 8, 1999
Merrill Lynch Municipal Bond Fund, Inc., September 30, 1999
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%.
All three 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% 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 for all three portfolios 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 "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 Years/
Since
3 Month 12 Month Inception Standardized
As of September 30, 1999 Total Return Total Return Total Return 30-Day Yield
<S> <C> <C> <C> <C>
ML Municipal Bond Fund, Inc. Insured Portfolio Class A Shares** -1.82% -3.54% +91.10% 4.86%
ML Municipal Bond Fund, Inc. Insured Portfolio Class B Shares** -2.01 -4.39 +77.01 4.30
ML Municipal Bond Fund, Inc. Insured Portfolio Class C Shares** -2.02 -4.44 +28.59 4.25
ML Municipal Bond Fund, Inc. Insured Portfolio Class D Shares** -2.01 -3.90 +32.18 4.62
ML Municipal Bond Fund, Inc. National Portfolio Class A Shares** -2.36 -4.14 +94.15 5.04
ML Municipal Bond Fund, Inc. National Portfolio Class B Shares** -2.45 -4.86 +80.23 4.48
ML Municipal Bond Fund, Inc. National Portfolio Class C Shares** -2.56 -4.99 +30.05 4.43
ML Municipal Bond Fund, Inc. National Portfolio Class D Shares** -2.42 -4.46 +33.66 4.79
ML Municipal Bond Fund, Inc. Limited Maturity Portfolio Class A Shares*** +0.84 +2.73 +58.02 3.71
ML Municipal Bond Fund, Inc. Limited Maturity Portfolio Class B Shares*** +0.64 +2.26 +27.14 3.40
ML Municipal Bond Fund, Inc. Limited Maturity Portfolio Class C Shares*** +0.64 +2.25 +19.37 3.39
ML Municipal Bond Fund, Inc. Limited Maturity Portfolio Class D Shares*** +0.71 +2.52 +21.47 3.62
<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/since inception periods are ten years for
Class A & Class B Shares and from 10/21/94 for Class C & Class D
Shares.
***The Fund's ten-year/since inception periods are ten years for
Class A Shares; from 11/2/92 for Class B Shares; and from 10/21/94
for Class C & Class D Shares.
</TABLE>
Insured Portfolio
Average Annual
Total Return
% Return Without % Return With
Class A Shares* Sales Charge Sales Charge**
Year Ended 9/30/99 -3.54% -7.39%
Five Years Ended 9/30/99 +5.82 +4.96
Ten Years Ended 9/30/99 +6.69 +6.26
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Class B Shares* Without CDSC With CDSC**
Year Ended 9/30/99 -4.39% -7.96%
Five Years Ended 9/30/99 +5.02 +5.02
Ten Years Ended 9/30/99 +5.88 +5.88
[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 9/30/99 -4.44% -5.33%
Inception (10/21/94) through 9/30/99 +5.22 +5.22
[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 9/30/99 -3.90% -7.75%
Inception (10/21/94) through 9/30/99 +5.81 +4.94
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
National Portfolio
Average Annual
Total Return
% Return Without % Return With
Class A Shares* Sales Charge Sales Charge**
Year Ended 9/30/99 -4.14% -7.97%
Five Years Ended 9/30/99 +6.07 +5.21
Ten Years Ended 9/30/99 +6.86 +6.42
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Class B Shares* Without CDSC With CDSC**
Year Ended 9/30/99 -4.86% -8.49%
Five Years Ended 9/30/99 +5.29 +5.29
Ten Years Ended 9/30/99 +6.07 +6.07
[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 9/30/99 -4.99% -5.90%
Inception (10/21/94) through 9/30/99 +5.46 +5.46
[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 9/30/99 -4.46% -8.28%
Inception (10/21/94) through 9/30/99 +6.05 +5.17
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
Merrill Lynch Municipal Bond Fund, Inc., September 30, 1999
PERFORMANCE DATA (concluded)
Limited Maturity
Portfolio
Average Annual
Total Return
% Return Without % Return With
Class A Shares* Sales Charge Sales Charge**
Year Ended 9/30/99 +2.73% +1.70%
Five Years Ended 9/30/99 +4.06 +3.85
Ten Years Ended 9/30/99 +4.68 +4.58
[FN]
*Maximum sales charge is 1%.
**Assuming maximum sales charge.
% Return % Return
Class B Shares* Without CDSC With CDSC**
Year Ended 9/30/99 +2.26% +1.27%
Five Years Ended 9/30/99 +3.69 +3.69
Inception (11/2/92) through 9/30/99 +3.54 +3.54
[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 9/30/99 +2.25% +1.26%
Inception (10/21/94) through 9/30/99 +3.65 +3.65
[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 9/30/99 +2.52% +1.50%
Inception (10/21/94) through 9/30/99 +4.01 +3.80
[FN]
*Maximum sales charge is 1%.
**Assuming maximum sales charge.
PORTFOLIO COMPOSITION
For the Quarter Ended September 30, 1999
Insured
Portfolio
Top Ten States*
Illinois 15.31%
Texas 15.23
New York 14.90
Massachusetts 5.95
Alabama 5.59
Colorado 4.04
Washington 3.67
New Jersey 3.53
Nevada 3.04
Wisconsin 3.03
-------
Total Top Ten 74.29
Total Others 25.71
-------
Total Portfolio 100.00%
=======
Net assets as of September 30, 1999 were $1,602,609,042.
Quality Ratings*
(Based on Nationally Recognized Rating Services)
A pie chart depicting portfolio composition for the Insured
Portfolio according to ratings for the quarter ended September 30,
1999.
AAA/Aaa--94%
AA/Aa--1%
Other++--4%
NR+++--1%
[FN]
*Based on total market value of the Portfolio as of September 30,
1999.
++Temporary investments in short-term municipal securities.
+++Not Rated.
National
Portfolio
Top Ten States*
New York 13.87%
California 13.42
Texas 11.50
Colorado 9.42
Illinois 4.99
Pennsylvania 4.19
Louisiana 3.97
Alaska 3.33
Georgia 3.08
Massachusetts 2.76
-------
Total Top Ten 70.53
Total Others 29.47
-------
Total Portfolio 100.00%
=======
Net assets as of September 30, 1999 were $1,280,848,822.
Quality Ratings*
(Based on Nationally Recognized Rating Services)
A pie chart depicting portfolio composition for the National
Portfolio according to ratings for the quarter ended September 30,
1999.
AAA/Aaa--54%
AA/Aa--21%
A/A--9%
BBB/Baa--7%
B/B--1%
CC/Ca--1%
Other++--1%
NR+++--6%
[FN]
*Based on total market value of the Portfolio as of September 30,
1999.
++Temporary investments in short-term municipal securities.
+++Not Rated.
Limited Maturity
Portfolio
Top Ten States*
New York 9.74%
Illinois 9.12
Texas 7.53
Ohio 7.44
Connecticut 5.37
Wisconsin 4.82
New Jersey 4.60
Arizona 4.40
Kansas 4.17
Indiana 4.00
-------
Total Top Ten 61.19
Total Others 38.81
-------
Total Portfolio 100.00%
=======
Net assets as of September 30, 1999 were $357,149,040.
Quality Ratings*
(Based on Nationally Recognized Rating Services)
A pie chart depicting portfolio composition for the Limited Maturity
Portfolio according to ratings for the quarter ended September 30,
1999.
MIG1++/SP-1--4%
AAA/Aaa--48%
AA/Aa--31%
A/A--5%
BBB/Baa--9%
NR+++--3%
[FN]
*Based on total market value of the Portfolio as of September 30,
1999.
++Highest short-term rating by Moody's Investors Service, Inc.
+++Not Rated.
