MERRILL LYNCH
MUNICIPAL BOND
FUND, INC.
FUND LOGO
Quarterly Report
March 31, 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
Gerald M. Richard, Treasurer of Merrill Lynch Municipal Bond Fund,
Inc. has recently retired. His colleagues at Merrill Lynch Asset
Management, L.P. join the Fund's Board of Directors in wishing Mr.
Richard well in his retirement.
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., March 31, 1999
DEAR SHAREHOLDER
During the three-month period ended March 31, 1999, long-term tax-
exempt revenue bond yields were little changed. However, long-term
US Treasury bond yields were under significant pressure throughout
the March period. Investors became increasingly concerned that the
strong growth the US economy displayed during the fourth quarter in
1998 would continue into the first half of 1999. Continued strong US
equity market performance also reduced investor interest in long-
term fixed-income products. Furthermore, foreign economic growth,
while clearly not expanding, appears to have stabilized. This
reduced much of the strong "flight to quality" benefit the US
Treasury market had enjoyed in recent quarters. These factors helped
push US Treasury bond yields higher through-out the period. US
Treasury bond yields rose 50 basis points (0.50%) to end the March
period at 5.625%. Long-term municipal revenue bond yields rose less
than 5 basis points to end the March period at 5.29% as measured by
the Bond Buyer Revenue Bond Index.
The relative stability of the municipal bond market in recent months
was largely the result of a return to a strong technical position
within the tax-exempt market. For much of 1998, new long-term
municipal bond issuance was significantly above recent historic
trends. Additionally, the strong demand exerted by world equity
markets also sapped much of the demand for tax-advantaged products.
However, in recent months, a much stronger supply/demand
relationship has developed.
Over the last 12 months, nearly $275 billion in new long-term
municipal bonds was issued, an increase of approximately 10%
compared to the same period a year ago. As interest rates declined
in recent quarters, it has become increasingly difficult for
municipalities to generate the economic savings necessary for
additional tax-free financings. Consequently, the pace of new bond
issuance slowed in recent quarters. During the six months ended
March 31, 1999, more than $125 billion in new long-term municipal
securities was underwritten, a decrease of 6% compared to the same
six-month period a year ago. During the quarter ended March 31,
1999, approximately $60 billion in new long-term tax-exempt bonds
was issued, a decline of almost 20% compared to the quarter ended
March 31, 1998.
Additionally, in January and February, tax-exempt bond holders
received over $40 billion from coupon payments, bond maturities and
proceeds from early bond redemptions. Consequently, retail investor
demand has been strong in recent months, easily matching, if not at
times exceeding, available supply. We will monitor this trend
closely in the coming months to determine if the supply pressures
exerted in 1998 are abating and fostering a more balanced
supply/demand environment for 1999.
The recent relative outperformance of the municipal bond market has
resulted in a decline in their recent historic high yield ratios. As
recently as the end of 1998, long-term, A-rated municipal revenue
bond yields were in excess of 100% of comparable US Treasury bond
yields. At March 31, 1999, municipal bond yield ratios were
approximately 95% of their taxable counterparts, still well above
their recent historic average. During 1997, tax-exempt bond yield
ratios averaged 84%. Should the current positive technical
environment in municipal securities continue to improve, it is
likely that tax-exempt bond yield ratios will return to more
historic levels.
Looking ahead, the direction and intensity of the next move in
interest rates is difficult to predict. In recent years, US bond
yields tended to reach their annual peak sometime in April and move
downward for the remainder of the year. However, such trends have
been predicated on subsequent declines in US economic activity.
Currently, there appears to be little indication of significant
economic weakness going forward. On the other hand, by nearly every
measure, inflation is well contained. Future indicators of
inflation, such as the prices of commodity and gold, are giving
little evidence for any significant inflationary increase.
Additionally, inflation-adjusted real rates of return are
historically attractive to long-term investors. These factors
suggest that fixed-income bond yields may trade in a relatively
narrow range, centered around current levels, for a protracted
period of time. Should the US economy weaken later this year, it is
likely that bond yields will decline as they have in recent years.
Portfolio Strategy
Insured Portfolio and
National Portfolio
The Insured and National Portfolios entered the quarter ended March
31, 1999 with an aggressive market posture. The relative
attractiveness of tax-exempt yields at historically high percentages
relative to their taxable counterparts gave us confidence that
municipal securities would perform well in absolute terms should
interest rates fall, or certainly in relative terms should they
rise. Our strategy concentrated on capturing a fairly well-defined
trading range, purchasing performance-oriented coupons at the high-
yield point and selling them as long-term US Treasury yields
approached 5%. As interest rates rose, municipal securities
outperformed taxable securities on a relative basis. We used this
advantaged position to reduce the Portfolios' exposure to the more
aggressively structured holdings. Effectively, we reduced the
Portfolios' sensitivity to interest rate changes in an effort to
temper any negative effects of rising interest rates. Credit quality
spreads in the municipal marketplace remain inordinately tight.
Therefore, we focused any recent purchases for the National
Portfolio in securities with insurance or with securities that held
a rating of AA or better in the underlying issuer. We recently
increased investments in insured, AAA-rated securities in the
intermediate maturity range for the Insured Portfolio. Although we
are currently somewhat cautious on the immediate direction of
interest rates, we do anticipate re-entering the market with a more
aggressive stance should domestic economic conditions begin to
reflect a better backdrop for fixed-income securities.
Limited Maturity Portfolio
During the December quarter, we positioned the Limited Maturity
Portfolio less aggressively based on our belief that tax-exempt
yields would rise. This rise occurred at the outset of the quarter
ended March 31, 1999, and we viewed this as an opportunity to
purchase securities at attractive yield levels. Consequently, the
Portfolio once again became fully invested and ended the quarter
with no cash reserves in an effort to seek to enhance the yield to
our shareholders. Additionally, the average portfolio maturity was
increased to 1.9 years, close to its permissable maximum of 2.0
years. We anticipate maintaining this position until economic data
emerges, which will give us a clearer picture as to the strength of
the domestic economy.
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 and Director
(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
May 5, 1999
After more than 20 years of service, Arthur Zeikel recently retired
as Chairman of Merrill Lynch Asset Management, L.P. (MLAM). Mr.
Zeikel served as President of MLAM from 1977 to 1997 and as Chairman
since December 1997. Mr. Zeikel is one of the country's most
respected leaders in asset management and presided over the growth
of Merrill Lynch's asset management business. During his tenure,
client assets under management grew from $300 million to over $500
billion. Mr. Zeikel will remain on Merrill Lynch Municipal Bond
Fund, Inc.'s Board of Directors. We are pleased to announce that
Terry K. Glenn has been elected President and Director of the Fund.
Mr. Glenn has held the position of Executive Vice President of MLAM
since 1983.
Mr. Zeikel's colleagues at MLAM join the Fund's Board of Directors
in wishing him well in his retirement from Merrill Lynch and are
pleased that he will continue as a member of the Fund's Board of
Directors.
Merrill Lynch Municipal Bond Fund, Inc., March 31, 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 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 Standardized
12 Month 3 Month Inception 30-Day Yield
Total Return Total Return Total Return As of 3/31/99
<S> <C> <C> <C> <C>
ML Municipal Bond Fund, Inc. Insured Portfolio Class A Shares** +5.63% +0.57% +110.35% 4.27%
ML Municipal Bond Fund, Inc. Insured Portfolio Class B Shares** +4.71 +0.26 + 95.12 3.70
ML Municipal Bond Fund, Inc. Insured Portfolio Class C Shares** +4.66 +0.25 + 35.05 3.65
ML Municipal Bond Fund, Inc. Insured Portfolio Class D Shares** +5.37 +0.51 + 38.60 4.03
ML Municipal Bond Fund, Inc. National Portfolio Class A Shares*** +4.91 +0.59 +113.66 4.33
ML Municipal Bond Fund, Inc. National Portfolio Class B Shares*** +4.21 +0.40 + 98.15 3.75
ML Municipal Bond Fund, Inc. National Portfolio Class C Shares*** +4.16 +0.39 + 36.64 3.70
ML Municipal Bond Fund, Inc. National Portfolio Class D Shares*** +4.74 +0.53 + 40.04 4.08
ML Municipal Bond Fund, Inc. Limited Maturity Portfolio Class A Shares**** +4.35 +0.69 + 62.86 3.10
ML Municipal Bond Fund, Inc. Limited Maturity Portfolio Class B Shares**** +3.87 +0.60 + 26.28 2.78
ML Municipal Bond Fund, Inc. Limited Maturity Portfolio Class C Shares**** +3.86 +0.60 + 18.57 2.78
ML Municipal Bond Fund, Inc. Limited Maturity Portfolio Class D Shares**** +4.14 +0.66 + 20.49 3.01
<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 Class A & Class B
Shares, for the ten years ended 3/31/99 and Class C & Class D
Shares, from 10/21/94 to 3/31/99.
***The Fund's ten-year/since inception periods are Class A & Class B
Shares, for the ten years ended 3/31/99 and Class C & Class D
Shares, from 10/21/94 to 3/31/99.
****The Fund's ten-year/since inception periods are: Class A Shares,
for the ten years ended 3/31/99; Class B Shares, from 11/2/92 to
3/31/99; and Class C & Class D Shares, from 10/21/94 to 3/31/99.
</TABLE>
Average Annual
Total Returns
Insured Portfolio
% Return Without % Return With
Class A Shares* Sales Charge Sales Charge**
Year Ended 3/31/99 +5.63% +1.41%
Five Years Ended 3/31/99 +6.97 +6.10
Ten Years Ended 3/31/99 +7.72 +7.28
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Class B Shares* Without CDSC With CDSC**
Year Ended 3/31/99 +4.71% +0.79%
Five Years Ended 3/31/99 +6.14 +6.14
Ten Years Ended 3/31/99 +6.91 +6.91
[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 3/31/99 +4.66% +3.68%
Inception (10/21/94) through 3/31/99 +7.00 +7.00
[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 3/31/99 +5.37% +1.16%
Inception (10/21/94) through 3/31/99 +7.63 +6.64
[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 3/31/99 +4.91% +0.71%
Five Years Ended 3/31/99 +7.32 +6.45
Ten Years Ended 3/31/99 +7.89 +7.45
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Class B Shares* Without CDSC With CDSC**
Year Ended 3/31/99 +4.21% +0.23%
Five Years Ended 3/31/99 +6.51 +6.51
Ten Years Ended 3/31/99 +7.08 +7.08
[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 3/31/99 +4.16% +3.17%
Inception (10/21/94) through 3/31/99 +7.28 +7.28
[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 3/31/99 +4.74% +0.55%
Inception (10/21/94) through 3/31/99 +7.88 +6.89
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
Merrill Lynch Municipal Bond Fund, Inc., March 31, 1999
PERFORMANCE DATA (concluded)
Average Annual
Total Returns
(concluded)
Limited Maturity Portfolio
% Return Without % Return With
Class A Shares* Sales Charge Sales Charge**
Year Ended 3/31/99 +4.35% +3.30%
Five Years Ended 3/31/99 +4.18 +3.97
Ten Years Ended 3/31/99 +5.00 +4.89
[FN]
*Maximum sales charge is 1%.
**Assuming maximum sales charge.
% Return % Return
Class B Shares* Without CDSC With CDSC**
Year Ended 3/31/99 +3.87% +2.87%
Five Years Ended 3/31/99 +3.81 +3.81
Inception (11/2/92) through 3/31/99 +3.71 +3.71
[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 3/31/99 +3.86% +2.86%
Inception (10/21/94) through 3/31/99 +3.91 +3.91
[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 3/31/99 +4.14% +3.10%
Inception (10/21/94) through 3/31/99 +4.29 +4.05
[FN]
*Maximum sales charge is 1%.
**Assuming maximum sales charge.
PORTFOLIO COMPOSITION
For the Quarter Ended March 31, 1999
Insured
Portfolio
Top Ten States*
New York 18.95%
Texas 10.57
Illinois 10.10
Pennsylvania 6.40
Florida 6.14
Nevada 5.94
Colorado 5.87
New Jersey 4.08
Massachusetts 4.03
Washington 3.31
-------
Total Top Ten 75.39
Total Others 24.61
-------
Total Portfolio 100.00%
=======
Net assets as of March 31, 1999 were $1,856,478,829.
Quality Ratings*
(Based on Nationally Recognized Rating Services)
A pie chart illustrating the following percentages:
AAA/Aaa 96%
AA/Aa 1%
Other++ 3%
[FN]
*Based on total market value of the Portfolio as of March 31, 1999.
++Temporary investments in short-term municipal securities.
National
Portfolio
Top Ten States*
New York 18.89%
California 11.49
Texas 8.07
Florida 6.78
Colorado 5.81
Massachusetts 4.54
Illinois 4.41
Pennsylvania 4.20
Alabama 3.58
Louisiana 3.39
-------
Total Top Ten 71.16
Total Others 28.84
-------
Total Portfolio 100.00%
=======
Net assets as of March 31, 1999 were $1,474,561,002.
Quality Ratings*
(Based on Nationally Recognized Rating Services)
A pie chart illustrating the following percentages:
AAA/Aaa 55%
AA/Aa 19%
A/A 8%
BBB/Baa 7%
B/B 1%
Other++ 6%
NR+++ 4%
[FN]
*Based on total market value of the Portfolio as of March 31, 1999.
++Temporary investments in short-term municipal securities.
+++Not Rated.
Limited Maturity
Portfolio
Top Ten States*
New York 15.51%
Ohio 10.18
Washington 7.37
Illinois 6.46
Massachusetts 6.35
Texas 5.89
New Jersey 5.70
Wisconsin 4.36
Pennsylvania 3.20
Connecticut 3.18
-------
Total Top Ten 68.20
Total Others 31.80
-------
Total Portfolio 100.00%
=======
Net assets as of March 31, 1999 were $408,104,604.
Quality Ratings*
(Based on Nationally Recognized Rating Services)
A pie chart illustrating the following percentages:
MIG1+/SP-1 6%
AAA/Aaa 42%
AA/Aa 28%
A/A 7%
BBB/Baa 9%
Other++ 5%
NR+++ 3%
[FN]
*Based on total market value of the Portfolio as of
March 31, 1999.
++Highest short-term rating by Moody's Investors Service, Inc.
++++Temporary investments in short-term municipal securities.
+++Not Rated.
