N-CSRS 1 ml7350.txt MERRILL LYNCH MUNICIPAL BOND FUND, INC. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSRS CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-02688 Name of Fund: Merrill Lynch Municipal Bond Fund, Inc. Fund Address: P.O. Box 9011 Princeton, NJ 08543-9011 Name and address of agent for service: Robert C. Doll, Jr., Chief Executive Officer, Merrill Lynch Municipal Bond Fund, Inc., 800 Scudders Mill Road, Plainsboro, NJ, 08536. Mailing address: P.O. Box 9011, Princeton, NJ, 08543-9011 Registrant's telephone number, including area code: (609) 282-2800 Date of fiscal year end: 06/30/06 Date of reporting period: 07/01/05 - 12/31/05 Item 1 - Report to Stockholders Merrill Lynch Municipal Bond Fund, Inc. Semi-Annual Report December 31, 2005 (BULL LOGO) Merrill Lynch Investment Managers www.mlim.ml.com Mercury Advisors A Division of Merrill Lynch Investment Managers www.mercury.ml.com 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. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available (1) without charge, upon request, by calling toll-free 1-800-637-3863; (2) at www.mutualfunds.ml.com; and (3) on the Securities and Exchange Commission's Web site at http://www.sec.gov. Information about how the Fund voted proxies relating to securities held in the Fund's portfolio during the most recent 12-month period ended June 30 is available (1) at www.mutualfunds.ml.com and (2) on the Securities and Exchange Commission's Web site at http://www.sec.gov. Merrill Lynch Municipal Bond Fund, Inc. Box 9011 Princeton, NJ 08543-9011 (GO PAPERLESS LOGO) It's Fast, Convenient, & Timely! To sign up today, go to www.icsdelivery.com/live. A Letter From the President Dear Shareholder On balance, 2005 was a year of "muddling through" for the U.S. financial markets, as oil prices reached new record highs, the Federal Reserve Board (the Fed) increased the target federal funds rate from 2.25% to 4.25%, the housing market and the consumer finally showed some signs of slowing, and Hurricanes Katrina and Rita ravaged the Gulf Coast, causing yet untold economic damage. Although they struggled, stocks managed to post their third straight year of positive performance. The year was equally uncertain for fixed income markets, which were bemused by a flattening yield curve and a number of significant credit events that brought a slowdown in high yield market returns. Notably, the one-year results for the major asset classes - stocks, bonds and cash - were the closest they have been in more than 100 years. For the 12- and six-month periods ended December 31, 2005, most of the major market indexes managed to land in positive territory:
Total Returns as of December 31, 2005 6-month 12-month U.S. equities (Standard & Poor's 500 Index) + 5.77% + 4.91% Small-cap U.S. equities (Russell 2000 Index) + 5.88 + 4.55 International equities (MSCI Europe Australasia Far East Index) +14.88 +13.54 Fixed income (Lehman Brothers Aggregate Bond Index) - 0.08 + 2.43 Tax-exempt fixed income (Lehman Brothers Municipal Bond Index) + 0.60 + 3.51 High yield bonds (Credit Suisse First Boston High Yield Index) + 1.48 + 2.26
In hindsight, these numbers are reasonably good given the headwinds facing the markets in 2005. U.S. equities found support in strong corporate earnings, low core inflation and healthy company balance sheets. Strength in the global economy and non-U.S. equity markets helped, as did robust dividend- distribution, share-buyback and merger-and-acquisition activity. International stocks had an excellent year, with many markets benefiting from strong economic statistics, trade surpluses and solid finances. In the U.S. bond market, long- term yields remained low and, at year-end, the Treasury curve appeared ready to invert. As 2006 begins, the largest question marks center on the Fed's future moves, the U.S. consumer's ability (or inability) to continue spending, the direction of the U.S. dollar following a year of appreciation and the potential for continued strong economic and corporate earnings growth. As you turn the calendar and consider how these factors might impact your investments, remember that the new year is a good time to meet with your financial advisor to review your financial goals, and to make portfolio changes where necessary. For investing insights and timely "food for thought" for investors, we also invite you to visit Shareholder magazine at www.mlim.ml.com/shareholdermagazine. As always, we thank you for trusting Merrill Lynch Investment Managers with your investment assets, and we look forward to serving you in the new year and beyond. Sincerely, (Robert C. Doll, Jr.) Robert C. Doll, Jr. President and Director MERRILL LYNCH MUNICIPAL BOND FUND, INC. DECEMBER 31, 2005 We are pleased to present to you the management teams of Merrill Lynch Municipal Bond Fund, Inc. Short-Term Portfolio Peter Hayes, who joined Merrill Lynch Investment Managers in 1987, is the Senior Portfolio Manager of Merrill Lynch Municipal Bond Fund, Inc. - Short- Term Portfolio. Mr. Hayes received a bachelor's degree from the College of the Holy Cross. Mr. Hayes' team includes Thomas Steffens. Mr. Steffens received a bachelor's degree from Villanova University. Peter J. Hayes Senior Portfolio Manager Table of Contents A Letter From the President 2 A Discussion With Your Fund's Portfolio Managers 5 Officers and Directors 9 Performance Data 10 Portfolio Information 13 Disclosure of Expenses 14 Schedule of Investments--Short-Term Portfolio 16 Schedule of Investments--Insured Portfolio 19 Schedule of Investments--National Portfolio 22 Financial Statements 32 Financial Highlights 38 Notes to Financial Statements 50 Disclosure of Investment Advisory Contract 57 MERRILL LYNCH MUNICIPAL BOND FUND, INC. DECEMBER 31, 2005 Insured Portfolio Robert DiMella, who joined Merrill Lynch Investment Managers in 1993, is the Senior Portfolio Manager of Merrill Lynch Municipal Bond Fund, Inc. - Insured Portfolio. Mr. DiMella received a bachelor's degree from the University of Connecticut and an MBA from Rutgers University. He is a CFA (R) charterholder and a member of the CFA Institute. Mr. DiMella's team includes Portfolio Assistant Janine Bianchino and Analysts Jeff Moore, Mary Ezzo and Timothy Milway. Mr. Moore and Mr. Milway are CFA charterholders and members of the CFA Institute. Robert A. DiMella Senior Portfolio Manager National Portfolio Walter O'Connor, who joined Merrill Lynch Investment Managers in 1991, is the Senior Portfolio Manager of Merrill Lynch Municipal Bond Fund, Inc. - National Portfolio. Mr. O'Connor received a bachelor's degree from the University of Notre Dame. He is a CFA (R) charterholder and a member of the CFA Institute as well as a member of the New York Society of Security Analysts. Mr. O'Connor's team includes Jim Schwartz and Greg Bennett. Mr. Schwartz earned a bachelor's degree from Rutgers College and an MBA from Monmouth University. He is a CFA charterholder. Mr. Bennett earned a bachelor's degree from West Chester University. CFA (R) and Chartered Financial Analyst (R) are trademarks owned by the CFA Institute. Walter C. O'Connor Senior Portfolio Manager MERRILL LYNCH MUNICIPAL BOND FUND, INC. DECEMBER 31, 2005 A Discussion With Your Fund's Portfolio Managers With the Federal Reserve Board nearing the end of its monetary tightening cycle, we expect a more stable interest rate environment ahead and have shifted the Portfolios toward a more neutral position with respect to interest rate risk. Describe the recent market environment relative to municipal bonds. Long-term bond yields generally rose over the past six months, while their prices, which move in the opposite direction, fell. The decline in bond prices, and corresponding rise in yields, came as investors continued to focus on potential inflationary pressures and a strengthening U.S. economy. For the third quarter of 2005, gross domestic product grew at a faster-than-expected rate of 4.1%. By period-end, 30-year U.S. Treasury bond yields stood at 4.54%, up 35 basis points (.35%) compared to six months earlier. The Federal Reserve Board (the Fed) continued to raise short-term interest rates at each of its meetings during the period, lifting the federal funds target rate to 4.25%. Investors did not expect the current interest rate tightening cycle to be curtailed in early 2006. Accordingly, the yield curve continued to flatten, indicating that short-term interest rates were rising more than longer-term interest rates. During the past six months, 10-year Treasury note yields rose 45 basis points to 4.39%, slightly more than the increase seen in long-bond yields. The two-year Treasury yield rose a more dramatic 75 basis points to 4.41%. Tax-exempt bond yields exhibited a similar pattern during the period. According to Municipal Market Data, the yield on AAA-rated issues maturing in 30 years increased by 13 basis points to 4.39%, while the yield on AAA-rated issues maturing in 10 years rose 31 basis points to 3.76% and two-year municipal bond yields rose 53 basis points to 3.20%. Municipalities issued more than $408 billion in new tax-exempt debt in 2005, nearly 14% over the prior year's issuance and establishing a new annual record. During the six-month period, more than $200 billion in new long-term municipal bonds was underwritten, an 18% increase over the same six months of 2004. Meanwhile, the volume of refunding issues in 2005 increased by more than 47% compared to 2004 as issuers took advantage of declining long-term bond yields and a flattening yield curve to refinance outstanding higher-couponed debt. Investor demand for municipal product has generally remained positive. The most current statistics from the Investment Company Institute indicate that, year-to-date through November 2005, net new cash flows into long-term municipal bond funds amounted to $6.25 billion - a significant improvement from the $12.7 billion net outflow seen during the same period in 2004. In December, however, surging equity prices and holiday seasonal factors led to reduced investor interest in long-term tax-exempt bond funds. In early 2006, we look for the municipal bond market to at least match the performance of the U.S. Treasury market. The fundamentals for the tax-exempt bond market appear very favorable, and continued positive cash flows are anticipated. With municipal bonds currently yielding up to 98% of comparable U.S. Treasury bond yields, and given the prospects for reduced annual issuance in 2006, we believe the municipal bond market could enjoy solid results in the coming months. Short-Term Portfolio How did the Portfolio perform during the period in light of the existing market conditions? For the six-month period ended December 31, 2005, Short-Term Portfolio's Class A, Class B, Class C and Class I Shares had total returns of +.60%, +.47%, +.47% and +.75%, respectively. (Portfolio results shown do not reflect sales charges and would be lower if sales charges were included. Complete performance information can be found on pages 10 - 13 of this report to shareholders.) For the same period, the Portfolio's unmanaged benchmarks, the Lehman Brothers Municipal Bond 3-Year General Obligation Index and the Lehman Brothers Municipal Bond Index, had respective returns of +.42% and +.60%. The Portfolio's comparable Lipper category of Short Municipal Debt Funds recorded an average return of +.86% for the six-month period. (Funds in the Short Municipal Debt Funds category invest primarily in municipal debt issues with dollar-weighted average maturities of less than three years.) MERRILL LYNCH MUNICIPAL BOND FUND, INC. DECEMBER 31, 2005 A Discussion With Your Fund's Portfolio Managers (continued) With the short-term municipal market having priced in the prospect of additional interest rate increases from the Fed, the front end of the yield curve underperformed the curve's longer end - indicating that short-term bond yields were rising faster than their long-term counterparts. This flattening of the yield curve had a modestly negative impact on the Fund's performance, despite our increasingly neutral interest rate stance. However, the more neutral positioning enabled us to maintain the Portfolio's performance relatively close to that of our peer group average. It also allowed us to manage volatility and reduce fluctuations in the Portfolio's net asset value. What changes were made to the Portfolio during the period? Throughout the period, we continued to swap out of securities purchased in a lower interest rate environment, using the proceeds of those sales to buy newer bonds offering higher prevailing yields. We generally targeted the two-year - three-year maturity range where yields above 3% were available. Toward the end of the period, we held a somewhat higher than usual cash position in the portfolio. This enabled us to take advantage of an inversion in the front end of the municipal yield curve, which was due to high rates of financing inventory at the end of the calendar year. Essentially, dealers of variable rate securities want to avoid carrying inventory over year-end because borrowing rates are relatively high at that time. Thus, they push rates on these very short-term securities higher to attract crossover buyers. Our strategy helped to enhance performance in the last two months of the period. How would you characterize the Portfolio's position at the close of the period? We expect to maintain the Portfolio's near-neutral positioning with respect to interest rate risk, as the market appears to have discounted future Fed interest rate hikes. One source of uncertainty for the market is the expected ascension of Ben Bernanke to the post of Fed chairman. Investors are wondering how Bernanke's approach may differ from that of his predecessor, longtime Fed Chairman Alan Greenspan. We believe the Portfolio is well-positioned should the Fed decide to end its series of interest rate hikes - a move that would likely lead to a rally in short-term bonds. Peter J. Hayes Vice President and Senior Portfolio Manager Insured Portfolio How did the Portfolio perform during the period in light of the existing market conditions? For the six-month period ended December 31, 2005, Insured Portfolio's Class A, Class B, Class C and Class I Shares had total returns of +.58%, +.45%, +.30% and +.83%, respectively. (Portfolio results shown do not reflect sales charges and would be lower if sales charges were included. Complete performance information can be found on pages 10 - 13 of this report to shareholders.) Portfolio returns were generally competitive with the +.60% return of the benchmark Lehman Brothers Municipal Bond Index. The Portfolio outperformed its comparable Lipper category of Insured Municipal Debt Funds, which had an average return of +.10% for the six-month period. (Funds in this Lipper category invest primarily in municipal debt issues insured as to timely payment.) For the most part, Portfolio performance benefited from our yield curve positioning and our strategy of favoring refundable issues given their price appreciation potential. In particular, we overweighted bonds with maturities greater than 20 years for most of the period. This strategy added to relative performance as interest rates on longer-term bonds declined at a faster rate than those on shorter bonds - an indication of a flattening yield curve. In addition, the Portfolio benefited when one large holding that represented more than 3% of net assets was advance refunded during the period. When a municipal bond is advance refunded, the price of the bond tends to increase at a greater rate than the market as a whole. This added to the Portfolio's relative performance during the period. MERRILL LYNCH MUNICIPAL BOND FUND, INC. DECEMBER 31, 2005 What changes were made to the Portfolio during the period? We continued to focus on providing our investors with a competitive yield and preserving the Portfolio's net asset value. Throughout the past six months, we continued to emphasize securities that we felt represented the best relative value in the insured municipal marketplace. We increased the Portfolio's exposure to municipal bonds from high-tax states in which demand for tax-exempt securities is strong, such as New Jersey, California and Massachusetts. For example, the Portfolio's allocation to New Jersey municipal debt increased by more than 5%, as an increase in supply caused the bonds to trade at what we felt were very attractive levels. We also increased the Portfolio's exposure to California and Massachusetts bonds by 1.2% and 1.5%, respectively, during the six-month period. We anticipate that all of these states' bonds could outperform should spreads widen in the future. How would you characterize the Portfolio's position at the close of the period? At period-end, the Portfolio was fully invested and positioned neutrally relative to the market with respect to interest rate risk. We also were in the process of shifting our yield-curve strategy to a neutral positioning because of the possibility that the curve's trend toward flattening may be nearing its conclusion. This involves shifting the Portfolio's exposure toward 10-year - 15-year maturities. Robert A. DiMella, CFA Vice President and Senior Portfolio Manager National Portfolio How did the Portfolio perform during the period in light of the existing market conditions? For the six-month period ended December 31, 2005, National Portfolio's Class A, Class B, Class C and Class I Shares had total returns of +.92%, +.66%, +.73% and +1.14%, respectively. (Portfolio results shown do not reflect sales charges and would be lower if sales charges were included. Complete performance information can be found on pages 10 - 13 of this report to shareholders.) For the same period, the Portfolio's benchmark, the Lehman Brothers Municipal Bond Index, returned +.60% and the Lipper General Municipal Debt Funds category had an average return of +.47%. (Funds in this Lipper category invest primarily in municipal debt issues in the top four credit-rating categories.) With long-term interest rates relatively flat but increasing slightly during the six-month period, the Portfolio performed well. Our fully invested stance in a relatively stable interest rate environment provided shareholders with an above-average amount of income accrual. The Portfolio also benefited from its generally high level of coupon income. The Portfolio achieved these results while maintaining a relatively high degree of credit quality. At period-end, 80% of the Portfolio was invested in investment grade bonds (bonds with credit ratings of BBB or better), while approximately half of the Portfolio was invested in bonds rated AAA, the highest possible credit rating. At the same time, we maintained a stable exposure to lower-rated bonds, which added to the Portfolio's very competitive level of tax-exempt income. What changes were made to the Portfolio during the period? We took advantage of periods of weakness in the municipal market to position the Portfolio more neutrally with respect to duration. We made this transition as the Fed appeared closer to ending its monetary tightening campaign and the markets offered higher yields in which to invest. This presented an opportunity to invest some assets in longer-dated bonds before their yields can recede again once the market views the Fed tightening as complete. Currently, we favor issues in the 20-year - 25-year maturity range over those in the 30-year - 35-year range. In our view, the limited additional yield available in the longer range is not enough to compensate for the risk associated with extending the additional 10 years. We find that we can capture the majority of the yield available on the curve in the 20-year range. Other activity during the period involved the sale of certain uninsured Puerto Rico credits, due to recent deterioration in the Commonwealth's financial situation. We suspect that there could be some further widening of credit spreads there. MERRILL LYNCH MUNICIPAL BOND FUND, INC. DECEMBER 31, 2005 A Discussion With Your Fund's Portfolio Managers (concluded) Finally, we maintained the Portfolio's fully invested posture to enhance its level of current income. We believe, in fact, that the Portfolio's greatest advantages are its steady focus on income enhancement with relatively muted levels of volatility, and a relatively high degree of credit quality. How would you characterize the Portfolio's position at the close of the period? With the Fed nearing the end of its monetary tightening cycle, we expect a stable interest rate environment ahead. Accordingly, we have positioned the Portfolio to be close to neutral with respect to interest rate risk. If the Fed stops raising interest rates, we see the opportunity for some of the Portfolio's holdings to appreciate in value - one reason why we believe that a strictly defensive management stance may not be warranted now. However, our primary focus remains on delivering a generous degree of tax-exempt income through the Portfolio's above-average coupon structure. Currently, the Portfolio's average coupon of more than 6% exceeds the average estimated coupon of 4.45% on the 30-year Municipal Market Data scale. Walter C. O'Connor, CFA Vice President and Senior Portfolio Manager January 30, 2006 MERRILL LYNCH MUNICIPAL BOND FUND, INC. DECEMBER 31, 2005 Officers and Directors Robert C. Doll, Jr., President and Director Ronald W. Forbes, Director Cynthia A. Montgomery, Director Jean Margo Reid, Director Roscoe S. Suddarth, Director Richard R. West, Director Edward D. Zinbarg, Director Donald C. Burke, Vice President and Treasurer Kenneth A. Jacob, Senior Vice President John M. Loffredo, Senior Vice President Robert A. DiMella, Vice President Peter J. Hayes, Vice President Walter C. O'Connor, Vice President Jeffrey Hiller, Chief Compliance Officer Alice A. Pellegrino, Secretary Custodian The Bank of New York 100 Church Street 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. DECEMBER 31, 2005 Performance Data About Fund Performance Investors are able to purchase shares of the Fund through multiple pricing alternatives: * Class A Shares incur a maximum initial sales charge (front-end load) of 4% and an account maintenance fee of 0.25% per year (but no distribution fee) for Insured and National Portfolios. Short-Term Portfolio incurs a maximum initial sales charge (front-end load) of 1% and an account maintenance fee of 0.10% per year (but no distribution fee). * Class B Shares are subject to a maximum contingent deferred sales charge of 4%, declining to 0% after six years for Insured and National Portfolios. Short-Term Portfolio is subject to a maximum contingent deferred sales charge of 1% if redeemed within three years of purchase. All Class B Shares purchased prior to December 1, 2002 will maintain the four-year schedule and one-year schedule, respectively. In addition, Insured and National Portfolios are subject to a distribution fee of 0.50% per year and an account maintenance fee of 0.25% per year. Short-Term Portfolio is subject to a distribution fee of 0.20% per year and an account maintenance fee of 0.15% per year. All three classes of shares automatically convert to Class A 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% per year and an account maintenance fee of 0.25% per year for Insured and National Portfolios. Short-Term Portfolio is subject to a distribution fee of 0.20% per year and an account maintenance fee of 0.15% per year. 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. * Effective December 28, 2005, Class I Shares for all Portfolios are no longer subject to any front-end sales charge. Class I Shares bear no ongoing distribution or account maintenance fees and are available only to eligible investors. Had the sales charge been included, each Portfolio's Class I Shares' performance would have been lower. None of the past results shown should be considered a representation of future performance. Current performance may be lower or higher than the performance data quoted. Refer to www.mlim.ml.com to obtain performance data current to the most recent month-end. Performance results do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Figures shown in each of the following tables assume reinvestment of all dividends and capital gain distributions, if any, 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. The Fund's Investment Adviser reimbursed a portion of its management fee. Without such reimbursement, performance would have been lower. MERRILL LYNCH MUNICIPAL BOND FUND, INC. DECEMBER 31, 2005 Performance Data (continued) Recent Performance Results*
6-Month 12-Month 10-Year Standardized As of December 31, 2005 Total Return Total Return Total Return 30-day Yield Short-Term Portfolio Class A Shares +0.60% +1.20% +35.86% 2.86% Short-Term Portfolio Class B Shares +0.47 +1.04 +32.42 2.63 Short-Term Portfolio Class C Shares +0.47 +0.94 +31.39 2.63 Short-Term Portfolio Class I Shares +0.75 +1.40 +37.22 2.95 Insured Portfolio Class A Shares +0.58 +3.72 +62.09 3.62 Insured Portfolio Class B Shares +0.45 +3.20 +54.27 3.26 Insured Portfolio Class C Shares +0.30 +3.14 +53.31 3.21 Insured Portfolio Class I Shares +0.83 +3.98 +66.36 3.85 National Portfolio Class A Shares +0.92 +4.44 +69.13 3.84 National Portfolio Class B Shares +0.66 +3.91 +60.76 3.49 National Portfolio Class C Shares +0.73 +3.96 +60.13 3.44 National Portfolio Class I Shares +1.14 +4.80 +73.52 4.07 Lehman Brothers 3-Year General Obligation Bond Index++ +0.42 +0.84 +50.33 -- Lehman Brothers Municipal Bond Index++++ +0.60 +3.51 +74.30 -- * Investment results shown do not reflect sales charges; results shown would be lower if a sales charge was included. Cumulative 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. ++ This unmanaged Index consists of state and local government obligation bonds that mature in 3 - 4 years, rated Baa or better. ++++ This unmanaged Index consists of revenue bonds, prerefunded bonds, general obligation bonds and insured bonds, all of which mature within 30 years.
MERRILL LYNCH MUNICIPAL BOND FUND, INC. DECEMBER 31, 2005 Performance Data (continued) Average Annual Total Return--Short-Term Portfolio Return Without Return With Sales Charge Sales Charge** Class A Shares* One Year Ended 12/31/05 +1.20% +0.19% Five Years Ended 12/31/05 +2.39 +2.19 Ten Years Ended 12/31/05 +3.11 +3.01 * Maximum sales charge is 1%. ** Assuming maximum sales charge. Return Return Without CDSC With CDSC** Class B Shares* One Year Ended 12/31/05 +1.04% +0.05% Five Years Ended 12/31/05 +2.15 +2.15 Ten Years Ended 12/31/05 +2.85 +2.85 * Maximum contingent deferred sales charge is 1% and is reduced to 0% after three years. ** Assuming payment of applicable contingent deferred sales charge. Return Return Without CDSC With CDSC** Class C Shares* One Year Ended 12/31/05 +0.94% -0.05% Five Years Ended 12/31/05 +2.13 +2.13 Ten Years Ended 12/31/05 +2.77 +2.77 * Maximum contingent deferred sales charge is 1% and is reduced to 0% after one year. ** Assuming payment of applicable contingent deferred sales charge. Class I Shares Return One Year Ended 12/31/05 +1.40% Five Years Ended 12/31/05 +2.51 Ten Years Ended 12/31/05 +3.21 Average Annual Total Return--Insured Portfolio Return Without Return With Sales Charge Sales Charge** Class A Shares* One Year Ended 12/31/05 +3.72% -0.43% Five Years Ended 12/31/05 +5.33 +4.47 Ten Years Ended 12/31/05 +4.95 +4.52 * Maximum sales charge is 4%. ** Assuming maximum sales charge. Return Return Without CDSC With CDSC** Class B Shares* One Year Ended 12/31/05 +3.20% -0.77% Five Years Ended 12/31/05 +4.80 +4.46 Ten Years Ended 12/31/05 +4.43 +4.43 * Maximum contingent deferred sales charge is 4% and is reduced to 0% after six years. ** Assuming payment of applicable contingent deferred sales charge. Return Return Without CDSC With CDSC** Class C Shares* One Year Ended 12/31/05 +3.14% +2.15% Five Years Ended 12/31/05 +4.75 +4.75 Ten Years Ended 12/31/05 +4.37 +4.37 * Maximum contingent deferred sales charge is 1% and is reduced to 0% after one year. ** Assuming payment of applicable contingent deferred sales charge. Class I Shares Return One Year Ended 12/31/05 +3.98% Five Years Ended 12/31/05 +5.62 Ten Years Ended 12/31/05 +5.22 MERRILL LYNCH MUNICIPAL BOND FUND, INC. DECEMBER 31, 2005 Performance Data (concluded) Average Annual Total Return--National Portfolio Return Without Return With Sales Charge Sales Charge** Class A Shares* One Year Ended 12/31/05 +4.44% +0.27% Five Years Ended 12/31/05 +5.94 +5.08 Ten Years Ended 12/31/05 +5.40 +4.97 * Maximum sales charge is 4%. ** Assuming maximum sales charge. Return Return Without CDSC With CDSC** Class B Shares* One Year Ended 12/31/05 +3.91% -0.07% Five Years Ended 12/31/05 +5.40 +5.08 Ten Years Ended 12/31/05 +4.86 +4.86 * Maximum contingent deferred sales charge is 4% and is reduced to 0% after six years. ** Assuming payment of applicable contingent deferred sales charge. Return Return Without CDSC With CDSC** Class C Shares* One Year Ended 12/31/05 +3.96% +2.96% Five Years Ended 12/31/05 +5.35 +5.35 Ten Years Ended 12/31/05 +4.82 +4.82 * Maximum contingent deferred sales charge is 1% and is reduced to 0% after one year. ** Assuming payment of applicable contingent deferred sales charge. Class I Shares Return One Year Ended 12/31/05 +4.80% Five Years Ended 12/31/05 +6.20 Ten Years Ended 12/31/05 +5.67 Portfolio Information as of December 31, 2005 Distribution by Market Sector Percent of Total Short-Term Portfolio Investments Other Revenue Bonds 56.3% General Obligation Bonds 31.9 Prerefunded Bonds 11.8 Percent of Total Insured Portfolio Investments Other Revenue Bonds 60.7% General Obligation Bonds 25.9 Prerefunded Bonds 13.4 Percent of Total National Portfolio Investments Other Revenue Bonds 69.1% General Obligation Bonds 17.5 Prerefunded Bonds 13.4 MERRILL LYNCH MUNICIPAL BOND FUND, INC. DECEMBER 31, 2005 Disclosure of Expenses Shareholders of this Fund may incur the following charges: (a) expenses related to transactions, including sales charges, redemption fees and exchange fees; and (b) operating expenses including advisory fees, distribution fees including 12b-1 fees, and other Fund expenses. The following example (which is based on a hypothetical investment of $1,000 invested on July 1, 2005 and held through December 31, 2005) is intended to assist shareholders both in calculating expenses based on an investment in the Fund and in comparing these expenses with similar costs of investing in other mutual funds. The first table of each Portfolio provides information about actual account values and actual expenses. In order to estimate the expenses a shareholder paid during the period covered by this report, shareholders can divide their account value by $1,000 and then multiply the result by the number in the first line under the heading entitled "Expenses Paid During the Period." The second table of each Portfolio provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses. In order to assist shareholders in comparing the ongoing expenses of investing in this Fund and other funds, compare the 5% hypothetical example with the 5% hypothetical examples that appear in other funds' shareholder reports. The expenses shown in the table are intended to highlight shareholders' ongoing costs only and do not reflect any transactional expenses, such as sales charges, redemption fees or exchange fees. Therefore, the second table is useful in comparing ongoing expenses only, and will not help shareholders determine the relative total expenses of owning different funds. If these transactional expenses were included, shareholder expenses would have been higher. Short-Term Portfolio
Expenses Paid Beginning Ending During the Period* Account Value Account Value July 1, 2005 to July 1, December 31, December 31, 2005 2005 2005 Actual Class A $1,000 $1,006.00 $2.76 Class B $1,000 $1,004.70 $4.09 Class C $1,000 $1,004.70 $4.09 Class I $1,000 $1,007.50 $2.25 Hypothetical (5% annual return before expenses)** Class A $1,000 $1,022.75 $2.78 Class B $1,000 $1,021.42 $4.12 Class C $1,000 $1,021.42 $4.12 Class I $1,000 $1,023.26 $2.27 * For each class of the Portfolio, expenses are equal to the annualized expense ratio for the class (.54% for Class A, .80% for Class B, .80% for Class C and .44% for Class I), multiplied by the average account value over the period, multiplied by 186/365 (to reflect the one-half year period shown). ** Hypothetical 5% annual return before expenses is calculated by pro-rating the number of days in the most recent fiscal half year divided by 365.
MERRILL LYNCH MUNICIPAL BOND FUND, INC. DECEMBER 31, 2005 Disclosure of Expenses (concluded) Insured Portfolio
Expenses Paid Beginning Ending During the Period* Account Value Account Value July 1, 2005 to July 1, December 31, December 31, 2005 2005 2005 Actual Class A $1,000 $1,005.80 $3.63 Class B $1,000 $1,004.50 $6.18 Class C $1,000 $1,003.00 $6.43 Class I $1,000 $1,008.30 $2.35 Hypothetical (5% annual return before expenses)** Class A $1,000 $1,021.88 $3.66 Class B $1,000 $1,019.33 $6.23 Class C $1,000 $1,019.08 $6.48 Class I $1,000 $1,023.16 $2.37 * For each class of the Portfolio, expenses are equal to the annualized expense ratio for the class (.71% for Class A, 1.21% for Class B, 1.26% for Class C and .46% for Class I), multiplied by the average account value over the period, multiplied by 186/365 (to reflect the one-half year period shown). ** Hypothetical 5% annual return before expenses is calculated by pro-rating the number of days in the most recent fiscal half year divided by 365.
National Portfolio
Expenses Paid Beginning Ending During the Period* Account Value Account Value July 1, 2005 to July 1, December 31, December 31, 2005 2005 2005 Actual Class A $1,000 $1,009.20 $4.30 Class B $1,000 $1,006.60 $6.90 Class C $1,000 $1,007.30 $7.16 Class I $1,000 $1,011.40 $3.02 Hypothetical (5% annual return before expenses)** Class A $1,000 $1,021.22 $4.33 Class B $1,000 $1,018.62 $6.94 Class C $1,000 $1,018.37 $7.20 Class I $1,000 $1,022.49 $3.04 * For each class of the Portfolio, expenses are equal to the annualized expense ratio for the class (.84% for Class A, 1.35% for Class B, 1.40% for Class C and .59% for Class I), multiplied by the average account value over the period, multiplied by 186/365 (to reflect the one-half year period shown). ** Hypothetical 5% annual return before expenses is calculated by pro-rating the number of days in the most recent fiscal half year divided by 365.
MERRILL LYNCH MUNICIPAL BOND FUND, INC. DECEMBER 31, 2005 Schedule of Investments Short-Term Portfolio (In Thousands) Face Amount Municipal Bonds Value Alaska--1.9% $ 5,000 Alaska State Housing Financing Corporation, Collateralized Revenue Bonds (Veterans Mortgage Program), AMT, 3.43% due 12/01/2006 (i) $ 5,000 2,150 Alaska Student Loan Corporation, Capital Project Revenue Bonds, Series A, 5% due 1/01/2008 (e) 2,219 Delaware--1.1% 4,125 Delaware State, GO, Series A, 5% due 1/01/2006 4,125 Florida--4.7% 4,365 Saint Johns River Management District, Florida, Land Acquisition Revenue Refunding Bonds, 4.50% due 7/01/2007 (e) 4,441 13,100 Volusia County, Florida, Educational Facility Authority, Educational Facilities Revenue Bonds (Embry-Riddle Aeronautical University Project), Series A, 6.125% due 10/15/2006 (a) 13,636 Georgia--2.9% Georgia Municipal Electric Authority, Power Revenue Refunding Bonds, Series DD (d): 220 7% due 1/01/2008 (g) 236 6,005 7% due 1/01/2008 6,417 2,550 Georgia State, GO, Refunding, Series A, 6.25% due 3/01/2006 2,563 2,000 Georgia State, GO, Series B, 6.25% due 4/01/2008 2,129 Illinois--7.6% 12,500 Chicago, Illinois, O'Hare International Airport, Revenue Refunding Bonds, Third Lien, Series A, 5% due 1/01/2008 (d) 12,877 7,350 Illinois Development Finance Authority, PCR, Refunding (Commonwealth Edison Company Project), Series A, 4.40% due 12/01/2006 (c) 7,417 4,950 Illinois State, GO, Series A, 5% due 3/01/2009 5,182 3,740 Metropolitan Pier and Exposition Authority, Illinois, Dedicated State Tax Revenue Refunding Bonds, Series A, 6% due 12/15/2006 (c) 3,835 Face Amount Municipal Bonds Value Indiana--3.8% $10,000 Indiana Health Facilities Financing Authority, Subordinate Credit Group Revenue Bonds (Ascension Health), Series A, 5% due 5/01/2008 $ 10,353 4,300 Indiana State Development Finance Authority, PCR, Refunding (Southern Indiana Gas & Electric), VRDN, AMT, Series C, 5% due 3/01/2030 (b) 4,306 Iowa--1.1% 4,000 Iowa Finance Authority, State Revolving Fund, Revenue Refunding Bonds, 5% due 8/01/2008 4,168 Louisiana--4.1% 6,000 Louisiana HFA, S/F Mortgage Revenue Bonds, VRDN, AMT, 3.87% due 11/28/2008 (b) 6,001 10,000 Louisiana HFA, S/F Mortgage Revenue Refunding Bonds, VRDN, AMT, 4.384% due 4/30/2007 (b) 10,000 Massachusetts--3.2% 12,000 Massachusetts Municipal Wholesale Electric Company, Power Supply System Revenue Refunding Bonds (Nuclear Project Number 4 Issue), Series A, 5% due 7/01/2007 (d) 12,290 Michigan--1.3% 3,000 Michigan State, GO, Series A, 4.50% due 9/29/2006 3,026 2,000 Michigan State Hospital Finance Authority, Revenue Refunding Bonds (Oakwood Obligated Group), 5% due 11/01/2006 2,025 Minnesota--3.3% 2,500 Lakeville, Minnesota, Independent School District Number 194, GO, Refunding, Series B, 4% due 2/01/2007 (j) 2,520 2,890 Minneapolis--St. Paul Metropolitan Area Council, Minnesota, Waste Water, GO, Refunding, Series B, 5% due 5/01/2008 3,000 7,000 Minnesota Public Facilities Authority, Water, PCR, Refunding, Series C, 5% due 3/01/2008 7,248 Portfolio Abbreviations To simplify the listings of Merrill Lynch Municipal Bond Fund, Inc.'s portfolio holdings in the Schedule of Investments, we have abbreviated the names of many of the securities according to the list at right. AMT Alternative Minimum Tax (subject to) CARS Complementary Auction Rate Securities COP Certificates of Participation DRIVERS Derivative Inverse Tax-Exempt Receipts EDA Economic Development Authority GO General Obligation Bonds HFA Housing Finance Agency IDA Industrial Development Authority IDB Industrial Development Boards IDR Industrial Development Revenue Bonds M/F Multi-Family PCR Pollution Control Revenue Bonds RIB Residual Interest Bonds ROLS Reset Option Long Securities S/F Single-Family VRDN Variable Rate Demand Notes MERRILL LYNCH MUNICIPAL BOND FUND, INC. DECEMBER 31, 2005 Schedule of Investments (continued) Short-Term Portfolio (In Thousands) Face Amount Municipal Bonds Value Missouri--2.1% $ 3,980 Kansas City, Missouri, Passenger Facility Charge Revenue Bonds, AMT, 5% due 4/01/2007 (c) $ 4,054 4,000 Kansas City, Missouri, School District, Building Revenue Refunding Bonds, Series A, 5% due 2/01/2006 (f) 4,006 Nebraska--4.0% 14,730 Nebraska Public Power District, General Revenue Refunding Bonds, Series A, 5.25% due 1/01/2008 (a)(d) 15,432 Nevada--2.2% 5,825 Las Vegas Valley Water District, Nevada, GO, Refunding, Series B, 4% due 6/01/2007 5,882 2,430 Nevada State, Capital Improvement, GO, Refunding, Series A, 5% due 2/01/2009 2,545 New Jersey--4.7% New Jersey State Educational Facilities Authority, Revenue Refunding Bonds (Higher Education Trust Fund), Sub-Series A-1: 4,000 5% due 9/01/2007 4,106 5,000 5% due 9/01/2008 5,200 3,375 New Jersey State, GO, Refunding, Series M, 5% due 7/15/2007 (c) 3,462 5,000 New Jersey State Transit Corporation, COP, 6.50% due 4/01/2007 (a)(e) 5,244 New Mexico--1.4% 5,440 New Mexico State, GO (Capital Projects), Series A, 4% due 3/01/2008 5,519 New York--7.7% 9,800 Long Island Power Authority, New York, Electric System Revenue Refunding Bonds, Series A, 6% due 12/01/2007 (c) 10,285 11,025 Metropolitan Transportation Authority, New York, Commuter Facilities Revenue Bonds, Series C-1, 5.30% due 7/01/2009 (a)(f) 11,741 New York City, New York, GO: 3,910 Series J, 5% due 3/01/2008 4,042 3,645 Series M, 4% due 4/01/2008 3,693 North Carolina--4.1% 10,500 North Carolina State, Public Improvements, GO, Series A, 5% due 3/01/2007 10,714 5,000 North Carolina State, Public School Building, GO, 4.60% due 4/01/2006 5,018 Ohio--1.2% 4,500 Ohio State Water Development Authority, Water Pollution Control, Revenue Refunding Bonds, VRDN, Series A, 3.35% due 6/01/2033 (b) 4,495 Face Amount Municipal Bonds Value Pennsylvania--2.8% Pennsylvania State, GO, Refunding, Second Series: $ 5,415 5% due 7/01/2006 $ 5,463 5,000 5% due 7/01/2009 (f) 5,276 Tennessee--1.5% 5,830 Metropolitan Government of Nashville and Davidson County, Tennessee, GO, Refunding, Series B, 4% due 1/01/2007 5,873 Texas--12.3% 9,080 Brazos River Authority, Texas, PCR, Refunding (Utilities Electric Company), VRDN, AMT, Series B, 5.05% due 6/01/2030 (b) 9,137 4,500 El Paso, Texas, GO, 5.75% due 8/15/2007 (a)(e) 4,676 14,000 Matagorda County, Texas, Navigation District No. 1, PCR (Central Power and Light Company), Refunding, VRDN, Series A, 4.55% due 11/01/2029 (b) 14,102 2,500 San Antonio, Texas, Electric and Gas System, Junior Lien Revenue Bonds, VRDN, 3.55% due 12/01/2027 (b) 2,506 3,885 Tarrant Regional Water District, Texas, Water Improvement Revenue Refunding Bonds, 5% due 3/01/2009 (e) 4,069 4,300 Texas State, GO, Refunding, Series A, 8% due 10/01/2007 4,636 7,995 Texas State Public Finance Authority, GO, Refunding, Series A, 5.25% due 10/01/2007 8,259 Virginia--4.3% 4,490 Virginia Beach, Virginia, Development Authority, Public Facility Revenue Refunding Bonds, Series A, 5% due 5/01/2007 4,592 5,560 Virginia State Public Building Authority, Public Facilities Revenue Bonds, Series B, 5% due 8/01/2008 5,789 6,000 Virginia State Public School Authority, School Financing Revenue Bonds (1997 Resolution), Series D, 5% due 8/01/2007 6,159 Washington--8.3% 11,500 Energy Northwest, Washington, Electric Revenue Refunding Bonds (Columbia Generating Station), Series A, 5.25% due 7/01/2008 12,012 5,000 Washington State, GO (Motor Vehicle Fuel Tax), Refunding, Series R, 4.50% due 1/01/2009 (d) 5,160 Washington State, GO, Series A: 6,810 5% due 7/01/2008 (f) 7,081 7,185 5.625% due 7/01/2009 (a) 7,714 Wisconsin--2.5% 4,250 Franklin, Wisconsin, Solid Waste Disposal, Revenue Bonds, VRDN, 3.625% due 4/01/2016 (b) 4,245 5,180 Wisconsin State, Petroleum Inspection Fee Revenue Refunding Bonds, Series 1, 5% due 7/01/2008 (e) 5,382 MERRILL LYNCH MUNICIPAL BOND FUND, INC. DECEMBER 31, 2005 Schedule of Investments (concluded) Short-Term Portfolio (In Thousands) Face Amount Municipal Bonds Value Puerto Rico--1.3% $ 5,000 Puerto Rico Commonwealth Highway and Transportation Authority, Highway Revenue Refunding Bonds, Series AA, 5% due 7/01/2006 $ 5,038 Total Municipal Bonds (Cost--$369,168)--95.4% 367,621 Shares Held Short-Term Securities Value 22,589 Merrill Lynch Institutional Tax-Exempt Fund (h) $ 22,589 Total Short-Term Securities (Cost--$22,589)--5.9% 22,589 Total Investments (Cost--$391,757*)--101.3% 390,210 Liabilities in Excess of Other Assets--(1.3%) (5,012) ---------- Net Assets--100.0% $ 385,198 ========== * The cost and unrealized appreciation (depreciation) of investments as of December 31, 2005, as computed for federal income tax purposes, were as follows: Aggregate cost $ 391,757 =============== Gross unrealized appreciation $ 32 Gross unrealized depreciation (1,579) --------------- Net unrealized depreciation $ (1,547) =============== (a) Prerefunded. (b) Security may have a maturity of more than one year at time of issuance, but has variable rate and demand features that qualify it as a short-term security. The rate disclosed is that currently in effect. This rate changes periodically based upon prevailing market rates. (c) AMBAC Insured. (d) MBIA Insured. (e) FSA Insured. (f) FGIC Insured. (g) Escrowed to maturity. (h) Investments in companies considered to be an affiliate of the Fund, for purposes of Section 2(a)(3) of the Investment Company Act of 1940, were as follows: Net Dividend Affiliate Activity Income Merrill Lynch Institutional Tax-Exempt Fund 22,585 $415 (i) FNMA/GNMA Collateralized. (j) XL Capital Insured. See Notes to Financial Statements. MERRILL LYNCH MUNICIPAL BOND FUND, INC. DECEMBER 31, 2005 Schedule of Investments Insured Portfolio (In Thousands) Face Amount Municipal Bonds Value Alabama--2.2% $ 3,020 Alabama Water Pollution Control Authority Revenue Bonds, 5.75% due 8/15/2018 (a) $ 3,289 10,000 Lauderdale County and Florence, Alabama, Health Care Authority, Revenue Refunding Bonds (Coffee Health Group), Series A, 6% due 7/01/2029 (b) 11,058 7,000 University of Alabama, University Revenue Bonds (Birmingham), 6% due 10/01/2009 (d)(g) 7,636 Arkansas--0.5% 5,000 University of Arkansas, University Revenue Bonds (Various Facilities-Fayetteville Campus), 5% due 12/01/2027 (d) 5,201 California--20.8% 10,680 California Pollution Control Financing Authority, PCR, Refunding, DRIVERS, AMT, Series 878Z, 6.85% due 12/01/2009 (b)(j) 12,118 2,075 California State Department of Veteran Affairs, Home Purpose Revenue Refunding Bonds, Series A, 5.35% due 12/01/2027 (a) 2,170 6,825 Chula Vista, California, IDR (San Diego Gas and Electric Company), AMT, Series D, 5% due 12/01/2027 (a) 7,080 East Side Union High School District, California, Santa Clara County, GO (Election of 2002), Series D (i): 1,375 5% due 8/01/2016 1,491 2,795 5% due 8/01/2017 3,013 3,480 5% due 8/01/2022 3,689 8,120 5% due 8/01/2026 8,536 5,170 Fresno, California, Unified School District, GO (Election of 2001), Series D, 5% due 8/01/2027 (b) 5,456 5,000 Golden State Tobacco Securitization Corporation of California, Tobacco Settlement Revenue Bonds, Series B, 5.50% due 6/01/2013 (d)(g) 5,560 Industry, California, Urban Development Agency, Tax Allocation Bonds, Series 1-B (b): 5,645 5% due 5/01/2020 5,905 6,000 5% due 5/01/2021 6,283 5,000 Los Angeles, California, GO, Series A, 5% due 9/01/2019 (b) 5,327 Los Angeles, California, Unified School District, GO: 24,465 (Election of 1997), Series F, 5% due 1/01/2028 (d) 25,637 13,780 Series A, 5% due 1/01/2028 (b) 14,440 6,680 Los Angeles County, California, Metropolitan Transportation Authority, Sales Tax Revenue Refunding Bonds, Proposition A, First Tier Senior-Series A, 5% due 7/01/2021 (a) 7,138 8,965 Modesto, California, Schools Infrastructure Financing Agency, Special Tax Bonds, 5.50% due 9/01/2036 (a) 9,786 12,040 Mount Diablo, California, Unified School District, GO (Election of 2002), 5% due 7/01/2027 (d) 12,583 Oakland, California, Sewer Revenue Bonds, Series A (f): 3,875 5% due 6/15/2027 4,068 2,270 5% due 6/15/2029 2,378 6,440 Palm Springs, California, Financing Authority, Lease Revenue Refunding Bonds (Convention Center Project), Series A, 5.50% due 11/01/2035 (b) 7,126 11,685 Rialto, California, Unified School District, GO, Series A, 6.24%** due 6/01/2025 (d) 4,732 5,000 Roseville, California, Joint Union High School District, GO (Election of 2004), Series A, 5% due 8/01/2029 (d) 5,242 Face Amount Municipal Bonds Value California (concluded) $ 5,075 Sacramento, California, Unified School District, GO (Election of 1999), Series B, 5% due 7/01/2026 (d) $ 5,283 San Diego, California, Unified School District, GO (Election of 1998), Series G (f): 3,000 5% due 7/01/2028 3,160 4,645 5% due 7/01/2029 4,889 7,500 San Jose, California, Financing Authority, Lease Revenue Refunding Bonds (Civic Center Project), Series B, 5% due 6/01/2032 (a) 7,729 3,700 San Jose, California, GO (Libraries, Parks and Public Safety Projects), 5% due 9/01/2030 (b) 3,858 10,055 Sequoia, California, Unified High School District, GO, Refunding, Series B, 5.50% due 7/01/2035 (f) 11,210 2,755 Tahoe Truckee, California, Unified School District, GO (School Facilities Improvement District Number 2), Series A, 5.25% due 8/01/2029 (b) 2,945 9,330 Tustin, California, Unified School District, Senior Lien Special Tax Bonds (Community Facilities District No. 97-1), Series A, 5% due 9/01/2038 (f) 9,569 Colorado--2.6% 19,250 Aurora, Colorado, COP, 6% due 12/01/2025 (a) 21,190 4,000 Logan County, Colorado, Justice Center Finance Corporation, COP, 5.50% due 12/01/2020 (b) 4,340 Connecticut--0.3% Hartford, Connecticut, GO, Refunding, Series D (b): 1,300 5% due 9/01/2017 1,408 1,105 5% due 9/01/2018 1,193 Florida--0.8% 5,500 Dade County, Florida, Water and Sewer System Revenue Bonds, 5.25% due 10/01/2026 (d) 5,694 1,955 West Coast Regional Water Supply Authority, Florida, Capital Improvement Revenue Bonds, 10.40% due 10/01/2010 (a)(g) 2,268 Georgia--3.7% Georgia Municipal Electric Authority, Power Revenue Refunding Bonds (a): 20,000 Series EE, 7% due 1/01/2025 27,026 90 Series Y, 6.40% due 1/01/2011 (g) 102 490 Series Y, 6.40% due 1/01/2013 (h) 557 8,420 Series Y, 6.40% due 1/01/2013 9,599 Illinois--2.8% Chicago, Illinois, O'Hare International Airport, General Revenue Bonds, Third Lien, Series A: 5,900 5% due 1/01/2029 (b) 6,145 3,800 5% due 1/01/2033 (d) 3,936 8,845 Chicago, Illinois, O'Hare International Airport Revenue Bonds, DRIVERS, AMT, Series 845-Z, 8.13% due 1/01/2012 (b)(i)(j) 10,919 6,800 Illinois State, GO, 5.75% due 5/01/2021 (b) 6,989 Indiana--0.7% 7,100 Indianapolis, Indiana, Local Public Improvement Bond Bank, Revenue Refunding Bonds (Indianapolis Airport Authority Project), AMT, Series B, 5.25% due 1/01/2029 (b) 7,432 Kansas--0.6% 5,145 Manhattan, Kansas, Hospital Revenue Bonds (Mercy Health Center), 5.50% due 8/15/2020 (f) 5,557 Louisiana--0.5% 5,000 New Orleans, Louisiana, GO (Public Improvements), 5.25% due 12/01/2029 (a) 5,273 MERRILL LYNCH MUNICIPAL BOND FUND, INC. DECEMBER 31, 2005 Schedule of Investments (continued) Insured Portfolio (In Thousands) Face Amount Municipal Bonds Value Maryland--0.6% $ 4,400 Maryland State Health and Higher Educational Facilities Authority Revenue Bonds (University of Maryland Medical System), Series B, 7% due 7/01/2022 (d) $ 5,763 Massachusetts--5.5% Massachusetts State HFA, Rental Housing Mortgage Revenue Bonds, AMT (f): 10,720 Series A, 5.15% due 7/01/2026 10,781 4,000 Series C, 5.60% due 1/01/2045 4,218 15,000 Massachusetts State School Building Authority, Dedicated Sales Tax Revenue Bonds, Series A, 5% due 8/15/2030 (f) 15,771 22,250 Massachusetts State Special Obligation Dedicated Tax Revenue Bonds, 5.25% due 1/01/2014 (d)(g) 24,410 Michigan--0.7% 6,170 Michigan State Strategic Fund, Limited Obligation Revenue Refunding Bonds, DRIVERS, AMT, Series 858Z, 7.131% due 12/01/2011 (i)(j) 6,959 Minnesota--1.5% 5,860 Delano, Minnesota, Independent School District Number 879, GO, Series A, 5.875% due 2/01/2025 (f) 6,454 Sauk Rapids, Minnesota, Independent School District Number 047, GO, Series A (b): 3,735 5.65% due 2/01/2020 4,057 4,440 5.70% due 2/01/2021 4,834 Mississippi--1.3% 1,320 Harrison County, Mississippi, Wastewater Management District Revenue Refunding Bonds (Wastewater Treatment Facilities), Series A, 8.50% due 2/01/2013 (d) 1,681 10,000 Mississippi Hospital Equipment and Facilities Authority Revenue Bonds (Forrest County General Hospital Project), 6% due 1/01/2030 (f) 10,957 Missouri--2.3% Kansas City, Missouri, Airport Revenue Refunding and Improvement Bonds, Series A (b): 12,990 5.50% due 9/01/2013 13,611 9,000 5.50% due 9/01/2014 9,430 Nevada--6.2% Clark County, Nevada, IDR, AMT, Series A: 10,000 (Power Company Project), 6.70% due 6/01/2022 (d) 10,337 9,575 (Southwest Gas Corporation Project), 5.25% due 7/01/2034 (a) 9,967 40,000 Washoe County, Nevada, Water Facility Revenue Bonds (Sierra Pacific Power Company), AMT, 6.65% due 6/01/2017 (b) 41,957 New Jersey--11.1% 6,810 Cape May County, New Jersey, Industrial Pollution Control Financing Authority Revenue Refunding Bonds (Atlantic City Electric Company Project), Series A, 6.80% due 3/01/2021 (b) 8,833 Garden State Preservation Trust of New Jersey, Open Space and Farmland Preservation Revenue Bonds, Series A (f): 3,125 5.80% due 11/01/2021 3,615 8,310 5.80% due 11/01/2022 9,620 4,340 5.80% due 11/01/2023 5,024 Face Amount Municipal Bonds Value New Jersey (concluded) $16,500 Garden State Preservation Trust of New Jersey, Revenue Bonds, Series B, 5.17%** due 11/01/2024 (f) $ 6,993 New Jersey EDA, Motor Vehicle Surcharge Revenue Bonds, Series A (b): 5,000 5% due 7/01/2027 5,247 23,000 5.25% due 7/01/2033 24,627 New Jersey State Transportation Trust Fund Authority, Transportation System Revenue Bonds, Series D: 10,000 5% due 6/15/2018 (a) 10,675 21,100 5% due 6/15/2019 (f) 22,491 13,500 New Jersey State Turnpike Authority, Turnpike Revenue Bonds, Series C, 5% due 1/01/2030 (f) 14,138 New York--12.6% 10,000 Metropolitan Transportation Authority, New York, Revenue Bonds, Series B, 5% due 11/15/2030 (a) 10,532 New York City, New York, GO: 11,500 Series C, 5.625% due 3/15/2018 (i) 12,590 21,000 Series I, 6% due 4/15/2007 (f) 21,881 5,155 New York City, New York, GO, Refunding, Series G, 5.75% due 2/01/2006 (f) 5,243 New York City, New York, Sales Tax Asset Receivable Corporation Revenue Bonds (a): 6,965 DRIVERS, Series 1133Z, 6.674% due 10/15/2012 (j) 8,105 5,000 Series A, 5% due 10/15/2029 5,265 13,650 Series A, 5% due 10/15/2032 14,342 3,665 New York State Dormitory Authority, Non-State Supported Debt, Revenue Refunding Bonds (School Districts Bond Financing Program), Series B, 5% due 10/01/2025 (b) 3,885 9,190 New York State Dormitory Authority Revenue Bonds (School Districts Financing Program), Series D, 5.25% due 10/01/2023 (b) 9,891 9,110 New York State Urban Development Corporation, Personal Income Tax Revenue Bonds (State Facilities), Series A-1, 5.25% due 3/15/2034 (d) 9,740 5 Niagara Falls, New York, GO, Public Improvement, 6.90% due 3/01/2024 (b) 5 22,500 Tobacco Settlement Financing Corporation of New York Revenue Bonds, Series A-1, 5.25% due 6/01/2022 (a) 24,095 North Carolina--0.4% 3,370 North Carolina HFA, Home Ownership Revenue Bonds, AMT, Series 14-A, 5.35% due 1/01/2022 (a) 3,491 North Dakota--0.3% 3,080 North Dakota State, HFA, Revenue Bonds (Housing Finance Program), Series C, 5.30% due 7/01/2022 (a) 3,173 Oklahoma--0.7% Oklahoma State Industries Authority, Health System Revenue Refunding Bonds (Integris Obligated Group), Series A (b): 2,680 6.25% due 8/15/2009 (g) 2,950 3,705 6.25% due 8/15/2016 4,062 Oregon--1.4% 8,700 Oregon State Department, Administrative Services, COP, Series A, 6.25% due 5/01/2010 (a)(g) 9,749 3,865 Port of Portland, Oregon, Airport Revenue Refunding Bonds (Portland International Airport), AMT, Series 7-B, 7.10% due 1/01/2012 (b)(g) 4,512 MERRILL LYNCH MUNICIPAL BOND FUND, INC. DECEMBER 31, 2005 Schedule of Investments (concluded) Insured Portfolio (In Thousands) Face Amount Municipal Bonds Value Pennsylvania--2.9% $ 9,330 Lehigh County, Pennsylvania, IDA, PCR, Refunding (Pennsylvania Power and Light Utilities Corporation Project), 4.75% due 2/15/2027 (d) $ 9,510 5,000 Pennsylvania HFA, S/F Revenue Bonds, AMT, Series 72A, 5.25% due 4/01/2021 (b) 5,131 2,035 Pennsylvania State Higher Educational Facilities Authority, Revenue Bonds (Slippery Rock University Foundation, Inc.), Series A, 5% due 7/01/2019 (i) 2,165 6,000 Philadelphia, Pennsylvania, Gas Works Revenue Bonds, 12th Series B, 7% due 5/15/2020 (b)(h) 7,226 4,420 Philadelphia, Pennsylvania, Redevelopment Authority Revenue Bonds (Neighborhood Transformation), Series A, 5.50% due 4/15/2020 (d) 4,780 Rhode Island--0.8% 6,815 Rhode Island State Economic Development Corporation, Airport Revenue Bonds, Series B, 6% due 7/01/2010 (d)(g) 7,608 Texas--4.9% 17,975 Dallas-Fort Worth, Texas, International Airport Revenue Bonds, DRIVERS, AMT, Series 202, 8.135% due 11/01/2028 (d)(j) 20,572 El Paso, Texas, Water and Sewer Revenue Refunding and Improvement Bonds, Series A (f): 195 6% due 3/01/2018 218 205 6% due 3/01/2019 229 Harris County, Texas, Revenue Refunding Bonds, DRIVERS (f)(j): 10,500 Series 1111, 6.661% due 8/15/2009 11,521 7,025 Series 1172-Z, 6.672% due 8/15/2009 7,676 3,500 Houston, Texas, Water Conveyance System Contract, COP, Series J, 6.25% due 12/15/2013 (a) 4,040 Texas State Department of Housing and Community Affairs, S/F Mortgage Revenue Bonds, AMT, Series A (b)(e): 2,085 5.45% due 9/01/2023 2,170 2,725 5.50% due 3/01/2026 2,823 Utah--1.7% 9,535 Utah Transit Authority, Sales Tax and Transportation Revenue Bonds (Salt Lake County Light Rail Transit Project), 5.375% due 12/15/2007 (f)(g) 9,954 Utah Water Finance Agency Revenue Bonds (Pooled Loan Financing Program), Series A (a): 2,515 5.75% due 10/01/2015 2,749 3,770 6% due 10/01/2020 4,149 Face Amount Municipal Bonds Value Washington--0.8% $ 7,224 Chelan County, Washington, Public Utility District Number 001, Consolidated Revenue Bonds (Chelan Hydro System), AMT, Series A, 5.45% due 7/01/2037 (a) $ 7,688 West Virginia--1.2% 12,250 Pleasants County, West Virginia, PCR, Refunding (Potomac-Pleasants), Series C, 6.15% due 5/01/2015 (a) 12,401 Wisconsin--1.3% 9,000 Superior, Wisconsin, Limited Obligation Revenue Refunding Bonds (Midwest Energy Resources), Series E, 6.90% due 8/01/2021 (d) 11,751 1,075 Wisconsin State, GO, AMT, Series B, 6.50% due 5/01/2025 (b) 1,078 Puerto Rico--2.6% 1,750 Puerto Rico Commonwealth Highway and Transportation Authority, Transportation Revenue Bonds, Series G, 5.25% due 7/01/2017 (d) 1,911 Puerto Rico Electric Power Authority, Power Revenue Bonds, Series RR: 8,200 5% due 7/01/2027 (i) 8,637 14,400 5% due 7/01/2028 (c) 15,122 Total Municipal Bonds (Cost--$916,492)--96.3% 962,283 Shares Held Mutual Funds 300 BlackRock California Insured Municipal 2008 Term Trust, Inc. 4,593 810 BlackRock Insured Municipal 2008 Term Trust, Inc. 12,393 237 BlackRock Insured Municipal Term Trust, Inc. 2,454 Total Mutual Funds (Cost--$21,469)--1.9% 19,440 Short-Term Securities 38 Merrill Lynch Institutional Tax-Exempt Fund (k) 38 Total Short-Term Securities (Cost--$38)--0.0% 38 Total Investments (Cost--$937,999*)--98.2% 981,761 Other Assets Less Liabilities--1.8% 18,059 ---------- Net Assets--100.0% $ 999,820 ========== * The cost and unrealized appreciation (depreciation) of investments as of December 31, 2005, as computed for federal income tax purposes, were as follows: Aggregate cost $ 937,873 =============== Gross unrealized appreciation $ 47,554 Gross unrealized depreciation (3,666) --------------- Net unrealized appreciation $ 43,888 =============== ** Represents a zero coupon bond; the interest rate shown reflects the effective yield at the time of purchase. (a) AMBAC Insured. (b) MBIA Insured. (c) CIFG Insured. (d) FGIC Insured. (e) FNMA/GNMA Collateralized. (f) FSA Insured. (g) Prerefunded. (h) Escrowed to maturity. (i) XL Capital Insured. (j) The rate disclosed is that currently in effect. This rate changes periodically and inversely based upon prevailing market rates. (k) Investments in companies considered to be an affiliate of the Fund, for purposes of Section 2(a)(3) of the Investment Company Act of 1940, were as follows: Net Dividend Affiliate Activity Income Merrill Lynch Institutional Tax-Exempt Fund (10,979) $170 See Notes to Financial Statements. MERRILL LYNCH MUNICIPAL BOND FUND, INC. DECEMBER 31, 2005 Schedule of Investments National Portfolio (In Thousands) Face Amount Municipal Bonds Value Alabama--0.8% $ 3,820 Alabama Incentives Financing Authority, Special Obligation Revenue Refunding Bonds, Series A, 6% due 10/01/2029 (c) $ 4,203 500 Mobile, Alabama, Industrial Development Board, Environmental Improvement Revenue Refunding Bonds (International Paper Company Project), AMT, Series A, 6.35% due 5/15/2016 528 2,500 Selma, Alabama, IDB, Environmental Improvement Revenue Refunding Bonds (International Paper Company Project), AMT, Series A, 6.70% due 2/01/2018 2,696 3,400 Tuscaloosa, Alabama, Special Care Facilities Financing Authority, Residential Care Facility Revenue Bonds (Capstone Village, Inc. Project) Series A, 5.875% due 8/01/2036 3,408 Alaska--0.4% 1,150 Alaska State Housing Financial Corporation, General Mortgage Revenue Refunding, Series A, 6% due 6/01/2027 (f) 1,191 3,860 Anchorage, Alaska, School, GO, Series B, 5.875% due 12/01/2010 (e)(j) 4,277 Arizona--2.5% 4,000 Arizona Health Facilities Authority Revenue Bonds (Catholic Healthcare West), Series A, 6.625% due 7/01/2020 4,471 Maricopa County, Arizona, Hospital Revenue Refunding Bonds (Sun Health Corporation): 730 6.125% due 4/01/2007 (j) 768 270 6.125% due 4/01/2018 281 3,600 Maricopa County, Arizona, IDA, Education Revenue Bonds (Arizona Charter Schools Project 1), Series A, 6.75% due 7/01/2029 3,623 1,625 Maricopa County, Arizona, IDA, Health Facilities Revenue Refunding Bonds (Catholic Healthcare West Project), Series A, 5% due 7/01/2021 1,651 1,000 Maricopa County, Arizona, IDA, M/F Housing Revenue Bonds (Metro Gardens--Mesa Ridge Project), Series A, 5.65% due 7/01/2019 (f) 1,031 1,000 Maricopa County, Arizona, Pollution Control Corporation, PCR, Refunding (Public Service Company of New Mexico Project), Series A, 6.30% due 12/01/2026 1,049 Peoria, Arizona, Improvement District No. 8401, Special Assessment Bonds No. 8802: 430 7.20% due 1/01/2010 442 510 7.20% due 1/01/2013 524 Peoria, Arizona, Improvement District, Special Assessment Bonds No. 8801: 190 7.30% due 1/01/2009 195 395 7.30% due 1/01/2011 406 2,330 Phoenix, Arizona, Civic Improvement Corporation, Municipal Facilities, Excise Tax Revenue Bonds, 5.75% due 7/01/2016 (e) 2,556 5,000 Phoenix, Arizona, IDA, Airport Facility, Revenue Refunding Bonds (America West Airlines Inc. Project), AMT, 6.30% due 4/01/2023 4,055 Face Amount Municipal Bonds Value Arizona (concluded) $ 432 Prescott Valley, Arizona, Improvement District, Special Assessment Bonds (Sewer Collection System Roadway Repair), 7.90% due 1/01/2012 $ 449 3,515 Tucson, Arizona, IDA, Senior Living Facilities Revenue Bonds (Christian Care Tucson Inc. Project), Series A, 6.125% due 7/01/2024 (m) 3,833 3,180 University of Arizona, COP, Refunding, Series A, 5.50% due 6/01/2018 (c) 3,464 1,000 University of Arizona, COP (University of Arizona Parking and Student Housing), 5.75% due 6/01/2009 (c)(j) 1,076 Vistancia Community Facilities District, Arizona, GO: 3,000 6.75% due 7/15/2022 3,221 2,125 5.75% due 7/15/2024 2,159 Arkansas--0.1% 40 Arkansas State Development Finance Authority, S/F Mortgage Revenue Bonds (Mortgage-Backed Securities Program), Series H, 6.15% due 7/01/2016 (i) 41 250 Arkansas State Student Loan Authority Revenue Bonds, AMT, Sub-Series B, 7.25% due 6/01/2009 267 200 Jonesboro, Arkansas, Residential Housing and Health Care Facilities Board, Hospital Revenue Refunding Bonds (Saint Bernards Regional Medical Center), Series B, 5.90% due 7/01/2016 (c) 206 250 North Little Rock, Arkansas, Health Facilities Board, Health Care Revenue Bonds (Baptist Health), 5.50% due 7/01/2016 260 500 Pine Bluff, Arkansas, Environmental Improvement Revenue Refunding Bonds (International Paper Company Project), AMT, Series A, 6.70% due 8/01/2020 540 250 University of Central Arkansas, Housing System Revenue Bonds, 6.50% due 1/01/2031 (h) 279 California--13.7% 2,500 Agua Caliente Band of Cahuilla Indians, California, Casino Revenue Bonds, 6% due 7/01/2018 2,692 8,840 Alameda County, California, COP (Financing Project), 6% due 9/01/2006 (f)(j) 9,169 California Rural Home Mortgage Finance Authority, S/F Mortgage Revenue Bonds (Mortgage-Backed Securities Program), AMT, Class 5 (i)(l): 160 Series C, 6.75% due 3/01/2029 161 100 Series D, 6.70% due 5/01/2029 100 205 California Rural Home Mortgage Finance Authority, S/F Mortgage Revenue Refunding Bonds (Mortgage- Backed Securities Program), AMT, Series A-2, 7% due 9/01/2029 (i)(l) 206 7,500 California State Department of Water Resources, Power Supply Revenue Bonds, Series A, 5.75% due 5/01/2012 (j) 8,478 5,000 California State, GO, 5.25% due 4/01/2029 5,298 2,000 California State, GO, Refunding, 5.75% due 5/01/2030 2,169 14,100 California State, Various Purpose, GO, 5.50% due 11/01/2033 15,422 MERRILL LYNCH MUNICIPAL BOND FUND, INC. DECEMBER 31, 2005 Schedule of Investments (continued) National Portfolio (In Thousands) Face Amount Municipal Bonds Value California (continued) $ 8,450 California State, Various Purpose, GO, Refunding, 5% due 12/01/2031 (f) $ 8,797 9,880 California Statewide Communities Development Authority, Health Facility Revenue Bonds (Memorial Health Services), Series A, 6% due 10/01/2023 10,942 2,880 Capistrano, California, Unified School District, Community Facility District, Special Tax Bonds (No. 90-2 Talega), 6% due 9/01/2032 3,037 Chula Vista, California, Community Facilities District, Special Tax Bonds (No 06-1, Eastlake Woods Area), Series A: 1,080 6.05% due 9/01/2020 1,166 2,965 6.15% due 9/01/2026 3,188 Contra Costa County, California, Special Tax Bonds (Community Facilities District Number 2001-01): 1,585 6% due 9/01/2026 1,681 1,200 6.10% due 9/01/2031 1,267 3,100 Elk Grove, California, Poppy Ridge Community Facilities Number 3 Special Tax, Series 1, 6% due 9/01/2008 (j) 3,321 3,230 Fullerton, California, Joint Union High School District, GO (Election of 2002), Series B, 5% due 8/01/2027 (e) 3,409 7,530 Los Angeles, California, Wastewater System Revenue Refunding Bonds, Series A, 5% due 6/01/2030 (f) 7,911 12,730 Los Angeles County, California, Metropolitan Transportation Authority, Sales Tax Revenue Refunding Bonds, Proposition A, First Tier Senior-Series A, 5% due 7/01/2035 (c) 13,348 9,100 Los Angeles County, California, Sanitation Districts Financing Authority, Revenue Refunding Bonds (Capital Projects--District Number 14), Sub-Series B, 5% due 10/01/2034 (e) 9,551 2,740 Pomona, California, Public Financing Authority Revenue Refunding Bonds (Merged Redevelopment Project), Series A1, 5.75% due 2/01/2034 2,822 1,100 Poway, California, Unified School District, Special Tax Bonds (Community District No. 6), Series A, 6.05% due 9/01/2025 1,161 2,695 Riverside, California, Improvement Bond Act of 1915, Special Assessment (Riverwalk Assessment District), 6.375% due 9/02/2026 2,890 Roseville, California, Special Tax (Stoneridge Community Facilities Number 1): 1,250 6.20% due 9/01/2021 1,350 1,125 6% due 9/01/2025 1,198 2,500 6.30% due 9/01/2031 2,692 Sacramento, California, Special Tax (North Natomas Community Facilities): 2,200 Series 01-03, 6% due 9/01/2028 2,328 2,270 Series 4-C, 6% due 9/01/2028 2,435 20,075 Sacramento County, California, Sanitation District Financing Authority, Revenue Bonds, Series A, 5% due 12/01/2035 (c) 21,030 5,000 San Diego, California, Community College District, GO (Election of 2002), 5% due 5/01/2030 (h) 5,251 10,000 San Diego, California, Public Facilities Financing Authority, Subordinated Water Revenue Refunding Bonds, 5% due 8/01/2032 (f) 10,361 Face Amount Municipal Bonds Value California (concluded) $11,520 San Diego, California, Unified School District, GO (Election of 1998), Series F, 5% due 7/01/2028 (h) $ 12,081 San Francisco California, City and County Redevelopment Agency Revenue Bonds (Community Facilities District Number 6-Mission): 5,000 6% due 8/01/2021 5,263 2,500 GO, Series A, 6% due 8/01/2025 2,624 1,075 San Francisco, California, Uptown Parking Corporation, Parking Revenue Bonds (Union Square), 6% due 7/01/2020 (f) 1,204 3,300 San Jose, California, Unified School District, Santa Clara County, GO (Election of 2002), Series B, 5% due 8/01/2026 (e) 3,488 Santa Margarita, California, Water District, Special Tax Refunding Bonds (Community Facilities District No. 99), Series 1: 3,680 6.20% due 9/01/2020 3,924 2,990 6.25% due 9/01/2029 3,164 Colorado--2.4% 500 Boulder County, Colorado, Hospital Development Revenue Bonds (Longmont United Hospital Project), 6% due 12/01/2030 (m) 543 465 Colorado HFA, Revenue Bonds (S/F Program), Series B-3, 6.55% due 10/01/2016 473 Colorado HFA, Revenue Refunding Bonds (S/F Program): 440 AMT, Senior Series A-2, 7.50% due 4/01/2031 463 160 AMT, Senior Series B-2, 7.10% due 4/01/2017 162 1,095 AMT, Senior Series B-2, 7.25% due 10/01/2031 1,142 65 AMT, Senior Series B-3, 6.80% due 11/01/2028 66 510 AMT, Senior Series C-2, 7.25% due 10/01/2031 (b) 522 150 Senior Series A-3, 7.35% due 10/01/2030 158 675 Senior Series C-3, 6.75% due 10/01/2021 (b) 688 175 Senior Series C-3, 7.15% due 10/01/2030 (b) 179 10,000 Colorado Health Facilities Authority, Retirement Facilities Revenue Bonds (Liberty Heights Project), 4.60%* due 7/15/2022 (a) 4,660 2,500 Colorado Health Facilities Authority, Revenue Refunding Bonds (Catholic Health Initiatives), 5.50% due 9/01/2017 2,658 550 Colorado Water Resource and Power Development Authority, Small Water Resource Revenue Bonds, Series A, 5.80% due 11/01/2020 (e) 601 Elk Valley, Colorado, Public Improvement Revenue Bonds (Public Improvement Fee): 7,560 Series A, 7.35% due 9/01/2031 8,030 1,200 Series B, 7% due 9/01/2031 1,231 3,685 Larimer County, Colorado, Poudre School District Number R-1, GO, 6% due 12/15/2010 (e)(j) 4,107 7,700 Plaza Metropolitan District No. 1, Colorado, Tax Allocation Revenue Bonds (Public Improvement Fees), 8% due 12/01/2025 8,489 Connecticut--2.1% 4,000 Bridgeport, Connecticut, Senior Living Facilities Revenue Bonds (3030 Park Retirement Community Project), 7.25% due 4/01/2035 3,397 1,000 Connecticut State Development Authority, Governmental Lease Revenue Bonds, 6.60% due 6/15/2014 (f) 1,013 MERRILL LYNCH MUNICIPAL BOND FUND, INC. DECEMBER 31, 2005 Schedule of Investments (continued) National Portfolio (In Thousands) Face Amount Municipal Bonds Value Connecticut (concluded) $ 1,250 Connecticut State Development Authority, Water Facility Revenue Bonds (Bridgeport Hydraulic Company), AMT, 6.15% due 4/01/2035 (c) $ 1,313 1,200 Connecticut State HFA Revenue Refunding Bonds (Housing Mortgage Finance Program), Series C-1, 6.30% due 11/15/2017 1,230 Connecticut State Health and Educational Facilities Authority Revenue Bonds: 1,000 (Bridgeport Hospital), Series A, 6.625% due 7/01/2018 (f) 1,016 1,500 (Waterbury Hospital Issue), Series C, 5.75% due 7/01/2020 (m) 1,597 1,000 (Westover School), Series A, 5.70% due 7/01/2030 (m) 1,069 Connecticut State Health and Educational Facilities Authority, Revenue Refunding Bonds: 5,025 DRIVERS, Series 215, 9.162% due 6/01/2030 (m)(n) 6,104 1,885 (Eastern Connecticut Health Network), Series A, 6.50% due 7/01/2010 (j)(m) 2,133 115 (Eastern Connecticut Health Network), Series A, 6.50% due 7/01/2030 (m) 127 640 (Sacred Heart University), 6.625% due 7/01/2026 (m) 663 5,710 (University of Hartford), Series E, 5.50% due 7/01/2022 (m) 6,213 1,000 (Yale-New Haven Hospital Issue), Series H, 5.70% due 7/01/2025 (f) 1,031 775 Connecticut State Higher Education Supplemental Loan Authority, Revenue Bonds (Family Education Loan Program), AMT, Series A, 5.50% due 11/15/2020 (f) 780 1,000 Connecticut State Regional Learning Educational Service Center Revenue Bonds (Office/Education Center Facility), 7.75% due 2/01/2006 (j) 1,023 860 Waterbury, Connecticut, GO, 6% due 2/01/2009 (j)(m) 934 Delaware--0.1% 1,685 New Castle County, Delaware, PCR (General Motors Corporation Project), VRDN, 8% due 10/01/2008 (g) 1,685 District of Columbia--0.4% 5,000 District of Columbia, GO, Refunding, DRIVERS, Series 214, 8.155% due 6/01/2026 (f)(n) 5,568 Florida--6.4% 2,000 Anthem Park Community Development District, Florida, Capital Improvement Revenue Bonds, 5.80% due 5/01/2036 2,031 1,685 Ballantrae, Florida, Community Development District, Capital Improvement Revenue Bonds, 6% due 5/01/2035 1,756 1,870 Beacon Tradeport Community, Florida, Development District, Special Assessment Revenue Refunding Bonds (Commercial Project), Series A, 5.25% due 5/01/2016 (m) 1,996 2,500 CFM Community Development District, Florida, Capital Improvement Revenue Bonds, Series B, 5.875% due 5/01/2014 2,577 Face Amount Municipal Bonds Value Florida (continued) $ 2,725 Duval County, Florida, School Board, COP, 5.75% due 7/01/2017 (h) $ 2,920 1,500 East Homestead Community Development District, Florida, Special Assessment Revenue Bonds, 5.45% due 5/01/2036 1,514 Fiddlers Creek, Florida, Community Development District Number 2, Special Assessment Revenue Bonds: 5,350 Series A, 6.375% due 5/01/2035 5,679 1,250 Series B, 5.75% due 5/01/2013 1,302 10,000 Gainesville, Florida, Utilities System Revenue Refunding Bonds, Series A, 5% due 10/01/2035 (h) 10,471 500 Heritage Isles Community Development District, Florida, Special Assessment Revenue Refunding Bonds, 5.90% due 11/01/2006 505 5,000 Hillsborough County, Florida, IDA, Exempt Facilities Revenue Bonds (National Gypsum Company), AMT, Series A, 7.125% due 4/01/2030 5,566 7,000 Lee County, Florida, Airport Revenue Bonds, RIB, AMT, Series 580X, 8.18% due 10/01/2029 (h)(n) 8,246 1,200 Lexington Oaks, Florida, Community Development District, Special Assessment Revenue Bonds, Series A, 6.70% due 5/01/2033 1,288 1,040 Mediterra, Florida, South Community Development District, Capital Improvement Revenue Bonds, 6.85% due 5/01/2031 1,119 2,500 Middle Village Community Development District, Florida, Special Assessment Bonds, Series A, 6% due 5/01/2035 2,608 6,095 Midtown Miami, Florida, Community Development District, Special Assessment Revenue Bonds, Series A, 6.25% due 5/01/2037 6,485 2,110 Old Palm Community Development District, Florida, Special Assessment Bonds (Palm Beach Gardens), Series B, 5.375% due 5/01/2014 2,153 Orange County, Florida, HFA, M/F Housing Revenue Bonds: 3,500 (Loma Vista Project), Series G, 5.50% due 3/01/2032 3,526 2,375 Series A, 6.40% due 1/01/2031 (f) 2,476 75 Orange County, Florida, HFA, Mortgage Revenue Bonds, AMT, Series A, 8.375% due 3/01/2021 (b)(d) 75 1,000 Orange County, Florida, Health Facilities Authority, Hospital Revenue Bonds (Orlando Regional Healthcare), 5.70% due 7/01/2026 1,010 5 Panther Trace, Florida, Community Development District, Special Assessment Revenue Bonds, Series B, 6.50% due 5/01/2009 5 5,000 Panther Trace, Florida, Community Development District II, Special Assessment Revenue Bonds, Series A, 5.60% due 5/01/2035 5,073 Park Place Community Development District, Florida, Special Assessment Revenue Bonds: 1,000 6.75% due 5/01/2032 1,066 2,500 6.375% due 5/01/2034 2,624 2,000 Saint Lucie, Florida, West Services District, Utility Revenue Refunding Bonds, Senior Lien, 6% due 10/01/2022 (f) 2,235 MERRILL LYNCH MUNICIPAL BOND FUND, INC. DECEMBER 31, 2005 Schedule of Investments (continued) National Portfolio (In Thousands) Face Amount Municipal Bonds Value Florida (concluded) $ 2,875 Somerset Community Development District, Florida, Capital Improvement Revenue Bonds, 5% due 5/01/2015 $ 2,877 870 Sterling Hill, Florida, Community Development District, Capital Improvement Revenue Refunding Bonds, Series B, 5.50% due 11/01/2010 875 470 Stoneybrook West, Florida, Community Development District, Special Assessment Revenue Bonds, Series B, 6.45% due 5/01/2010 472 2,185 Tuscany Reserve Community Development District, Florida, Capital Improvement Revenue Bonds, Series B, 5.25% due 5/01/2016 2,221 340 Verandah West, Florida, Community Development District, Capital Improvement Revenue Bonds, Series B, 5.25% due 5/01/2008 340 915 Vista Lakes Community, Florida, Development District, Capital Improvement Revenue Bonds, Series B, 5.80% due 5/01/2008 922 2,060 Watergrass Community Development District, Florida, Special Assessment Revenue Bonds, Series B, 4.875% due 11/01/2010 2,064 6,000 West Villages Improvement District, Florida, Special Assessment Revenue Refunding Bonds (Unit of Development Number 2), 5.80% due 5/01/2036 6,074 Georgia--1.9% 5,000 Atlanta, Georgia, Tax Allocation Bonds (Atlantic Station Project), 7.90% due 12/01/2024 5,426 Brunswick & Glynn County, Georgia, Development Authority, First Mortgage Revenue Bonds (Coastal Community Retirement Corporation Project), Series A: 2,285 7.125% due 1/01/2025 2,320 3,305 7.25% due 1/01/2035 3,355 5,210 College Park, Georgia, Business and IDA Revenue Bonds (Civic Center Project), 5.75% due 9/01/2010 (c)(j) 5,810 1,940 Fulton County, Georgia, Development Authority, PCR (General Motors Corporation), Refunding, VRDN, 8% due 4/01/2010 (g) 1,940 3,450 Fulton County, Georgia, Development Authority Revenue Bonds (Morehouse College Project), 5.875% due 12/01/2030 (c) 3,802 2,250 Fulton County, Georgia, Residential Care Facilities, Revenue Refunding Bonds (Canterbury Court Project), Series A, 6% due 2/15/2022 2,288 1,500 Milledgeville-Baldwin County, Georgia, Development Authority Revenue Bonds (Georgia College and State University Foundation), 6% due 9/01/2033 1,626 Hawaii--0.3% Kuakini, Hawaii, Health System, Special Purpose Revenue Bonds Series A: 1,410 6.30% due 7/01/2022 1,523 3,000 6.375% due 7/01/2032 3,232 Illinois--8.6% 1,000 Bolingbrook, Illinois, Special Services Area Number 1, Special Tax Bonds (Forest City Project), 5.9%* due 9/01/2007 918 10,620 Chicago, Illinois, Board of Education, GO, DRIVERS, Series 199, 7.654% due 12/01/2020 (c)(n) 11,995 Face Amount Municipal Bonds Value Illinois (concluded) $12,400 Chicago, Illinois, O'Hare International Airport, General Revenue Bonds, Third Lien, Series A, 5% due 1/01/2029 (f) $ 12,915 26,800 Chicago, Illinois, O'Hare International Airport Revenue Bonds, 3rd Lien, AMT, Series B-2, 6% due 1/01/2029 (k) 29,896 6,915 Chicago, Illinois, O'Hare International Airport, Special Facility Revenue Refunding Bonds (American Airlines Inc. Project), 8.20% due 12/01/2024 6,541 2,265 Chicago, Illinois, Park District, GO, Refunding, Series B, 5.75% due 1/01/2015 (e) 2,484 230 Chicago, Illinois, Park District, Limited Tax, GO, Series A, 5.75% due 1/01/2016 (e) 251 470 Chicago, Illinois, S/F Mortgage Revenue Bonds, AMT, Series A, 7.15% due 9/01/2031 (i)(l) 476 2,000 Chicago, Illinois, Special Assessment Bonds (Lake Shore East), 6.75% due 12/01/2032 2,171 3,210 Cicero, Illinois, GO, Refunding (Corporate Purpose), 6% due 12/01/2028 (f) 3,540 7,000 Decatur, Illinois, GO, Refunding, 6% due 3/01/2008 (e)(j) 7,396 10,000 Hodgkins, Illinois, Environmental Improvement Revenue Bonds (Metro Biosolids Management LLC Project), AMT, 6% due 11/01/2023 10,572 Illinois Development Finance Authority Revenue Bonds: 3,140 (Community Rehabilitation Providers Facilities), Series A, 6.50% due 7/01/2022 3,423 660 Series B, 6.40% due 9/01/2031 (h) 686 Illinois State Finance Authority Revenue Bonds: 1,750 (Friendship Village of Schaumburg), Series A, 5.625% due 2/15/2037 1,731 2,155 (Landing At Plymouth Place Project), Series A, 6% due 5/15/2037 2,163 Illinois State, GO, 1st Series (f): 8,890 5.75% due 12/01/2015 9,739 3,745 5.75% due 12/01/2016 4,094 4,000 5.75% due 12/01/2017 4,364 3,000 Illinois State, Sales Tax Revenue Bonds, 6% due 6/15/2020 3,283 2,000 Lake County, Illinois, Forest Preservation District, GO (Land Acquisition and Development), 5.75% due 12/15/2016 2,194 625 Naperville, Illinois, IDR (General Motors Corporation), Refunding, VRDN, 8% due 12/01/2012 (g) 625 1,585 Village of Wheeling, Illinois, Revenue Bonds (North Milwaukee/Lake--Cook Tax Increment Financing (TIF) Redevelopment Project), 6% due 1/01/2025 1,555 Iowa--0.6% 1,000 Iowa City, Iowa, Sewer Revenue Bonds, 5.75% due 7/01/2021 (f) 1,012 6,780 Iowa Finance Authority, Health Care Facilities, Revenue Refunding Bonds (Care Initiatives Project), 9.25% due 7/01/2025 8,149 Kansas--0.3% 1,970 Sedgwick and Shawnee Counties, Kansas, S/F Revenue Bonds, AMT, Series A-1, 6.95% due 6/01/2029 (d) 2,018 2,500 Wichita, Kansas, Hospital Facilities Revenue Refunding and Improvement Bonds, Series III, 6.25% due 11/15/2019 2,743 MERRILL LYNCH MUNICIPAL BOND FUND, INC. DECEMBER 31, 2005 Schedule of Investments (continued) National Portfolio (In Thousands) Face Amount Municipal Bonds Value Lousiana--1.7% $ 715 Louisiana HFA, S/F Mortgage Revenue Bonds, AMT, Series D-2, 5.80% due 6/01/2020 (i) $ 728 9,500 Louisiana Local Government, Environmental Facilities, Community Development Authority Revenue Bonds (Capital Projects and Equipment Acquisition), Series A, 6.30% due 7/01/2030 (c) 10,464 10,000 Louisiana State, Gas and Fuels Tax Revenue Bonds, Series A, 5% due 5/01/2035 (e) 10,354 1,330 Louisiana State, HFA, Single Family Revenue Refunding Bonds (Home Ownership Program), Series B-2, AMT, 6.20% due 12/01/2029 (b)(i) 1,352 2,000 Rapides Finance Authority, Louisiana, Environmental Improvement Revenue Bonds (International Paper Company Project), AMT, Series A, 6.55% due 11/15/2023 2,121 Maine--1.1% 8,635 Maine Finance Authority, Solid Waste Recycling Facilities Revenue Bonds (Great Northern Paper Project-Bowater), AMT, 7.75% due 10/01/2022 8,774 6,045 Maine State Housing Authority, Mortgage Purpose Revenue Bonds, DRIVERS, AMT, Series 170, 8.13% due 11/15/2028 (n) 6,469 Maryland--0.4% 500 Anne Arundel County, Maryland, Special Obligation Revenue Bonds (Arundel Mills Project), 7.10% due 7/01/2009 (j) 568 1,000 Maryland State Community Development Administration, Department of Housing and Community Development, Housing Revenue Bonds, AMT, Series B, 6.15% due 1/01/2021 1,050 1,165 Maryland State Community Development Administration, Department of Housing and Community Development, Residential Revenue Refunding Bonds, Series A, 5.60% due 3/01/2017 (b) 1,198 1,000 Maryland State Community Development Administration, Department of Housing and Community Development Revenue Bonds (Waters Landing II Apartments), AMT, Series A, 5.875% due 8/01/2033 1,053 125 Maryland State Economic Development Corporation Revenue Bonds (Health and Mental Hygiene Program), Series A, 7.125% due 3/01/2006 126 1,000 Maryland State Energy Financing Administration, Solid Waste Disposal Revenue Bonds, Limited Obligation (Wheelabrator Water Projects), AMT, 6.45% due 12/01/2016 1,037 Massachusetts--0.7% 375 Massachusetts Educational Financing Authority, Education Loan Revenue Refunding Bonds, AMT, Issue E, 5.85% due 7/01/2014 (c) 377 1,000 Massachusetts State Development Finance Agency, Revenue Refunding Bonds (Eastern Nazarene College), 5.625% due 4/01/2029 1,002 4,850 Massachusetts State Health and Educational Facilities Authority Revenue Bonds (Medical Center of Central Massachusetts), CARS, Series B, 9.64% due 6/23/2022 (c)(n) 5,447 Face Amount Municipal Bonds Value Massachusetts (concluded) $ 1,000 Massachusetts State Industrial Finance Agency, Higher Education Revenue Refunding Bonds (Hampshire College Project), 5.625% due 10/01/2007 (j) $ 1,057 130 Massachusetts State Water Pollution Abatement Trust, Water Abatement Revenue Bonds, Series A, 6.375% due 2/01/2015 130 1,600 Montachusett, Massachusetts, Regional Vocational Technical School District, GO, 5.95% due 1/15/2020 (f) 1,757 Michigan--1.7% 7,500 Delta County, Michigan, Economic Development Corporation, Environmental Improvement Revenue Refunding Bonds (Mead Westvaco--Escanaba), Series A, 6.25% due 4/15/2012 (j) 8,600 500 Dickinson County, Michigan, Economic Development Corporation, Environmental Improvement Revenue Refunding Bonds (International Paper Company Project), Series A, 5.75% due 6/01/2016 526 1,000 Eastern Michigan University Revenue Refunding Bonds, 6% due 6/01/2024 (c) 1,103 3,000 Flint, Michigan, Hospital Building Authority, Revenue Refunding Bonds (Hurley Medical Center), 6% due 7/01/2020 3,106 4,250 Hartland, Michigan, Consolidated School District, GO, Refunding, RIB, Series 1204, 6.48% due 5/01/2029 (n) 4,574 3,325 Macomb County, Michigan, Hospital Finance Authority, Hospital Revenue Bonds (Mount Clemens General Hospital), Series B, 5.875% due 11/15/2034 3,375 1,500 Michigan State Hospital Finance Authority, Revenue Refunding Bonds (Mercy-Mount Clemens), Series A, 6% due 5/15/2014 (f) 1,622 2,500 Michigan State Strategic Fund, PCR, Refunding (General Motors Corp.), 6.20% due 9/01/2020 1,923 Minnesota--1.1% 765 Anoka County, Minnesota, Solid Waste Disposal Revenue Bonds (Natural Rural Utilities), AMT, Series A, 6.95% due 12/01/2008 774 1,000 Eden Prairie, Minnesota, M/F Housing Revenue Bonds (Rolling Hills Project), Series A, 6.15% due 8/20/2031 (d) 1,087 Minneapolis and Saint Paul, Minnesota, Metropolitan Airports Commission, Airport Revenue Bonds, AMT, Sub-Series D (e): 470 5.75% due 1/01/2012 509 470 5.75% due 1/01/2014 507 2,060 5.75% due 1/01/2015 2,210 635 Minneapolis, Minnesota, Community Development Agency, Supported Development Revenue Bonds (Common Bond Fund), AMT, Series 2, 6.20% due 6/01/2017 649 Minneapolis, Minnesota, Health Care System Revenue Bonds (Allina Health System), Series A: 1,500 5.70% due 11/15/2022 1,616 2,665 5.75% due 11/15/2032 2,850 1,110 Ramsey County, Minnesota, Housing and Redevelopment Authority, M/F Housing Revenue Bonds (Hanover Townhouses Project), AMT, 6% due 7/01/2031 1,149 MERRILL LYNCH MUNICIPAL BOND FUND, INC. DECEMBER 31, 2005 Schedule of Investments (continued) National Portfolio (In Thousands) Face Amount Municipal Bonds Value Minnesota (concluded) $ 1,000 Saint Cloud, Minnesota, Health Care Revenue Refunding Bonds (Saint Cloud Hospital Obligation Group), Series A, 6.25% due 5/01/2020 (h) $ 1,107 1,000 Saint Francis, Minnesota, Independent School District No. 015, GO, Series A, 6.35% due 2/01/2013 (h) 1,003 1,500 Waconia, Minnesota, Health Care Facilities Revenue Bonds (Ridgeview Medical Center Project), Series A, 6.125% due 1/01/2029 (m) 1,617 Mississippi--0.1% 1,700 Warren County, Mississippi, Environmental Improvement Revenue Refunding Bonds (International Paper Company Project), AMT, Series B, 6.75% due 8/01/2021 1,849 Missouri--0.4% Fenton, Missouri, Tax Increment Revenue Refunding and Improvement Bonds (Gravois Bluffs): 350 6.75% due 10/01/2015 352 4,000 7% due 10/01/2021 4,291 1,500 Kansas City, Missouri, IDA, First Mortgage Health Facilities Revenue Bonds (Bishop Spencer Place), Series A, 6.50% due 1/01/2035 1,576 Montana--0.4% 6,000 Montana State Higher Education, Student Assistance Corporation, Student Loan Revenue Refunding Bonds, AMT, Sub-Series B, 6.40% due 12/01/2032 6,317 Nevada--2.0% 5,000 Clark County, Nevada, IDR (Power Company Project), AMT, Series A, 6.70% due 6/01/2022 (e) 5,168 1,550 Clark County, Nevada, Improvement District No. 142 Special Assessment, 6.375% due 8/01/2023 1,599 Elko, Nevada, GO (Airport Improvement), AMT, Series B (f): 165 6.10% due 10/01/2014 173 245 6.30% due 10/01/2019 258 320 6.75% due 10/01/2024 341 225 7% due 10/01/2029 240 2,925 Henderson, Nevada, Local Improvement Districts, Special Assessment, Series NO T-14, 5.80% due 3/01/2023 3,020 Las Vegas, Nevada, Local Improvement Bonds, Special Assessment, Special Improvement District Number 808, Summerlin: 1,755 5.875% due 6/01/2009 1,819 2,020 6.125% due 6/01/2012 2,096 2,255 6.25% due 6/01/2013 2,341 105 Nevada Housing Division, S/F Program, AMT, Senior Series E, 7.05% due 4/01/2027 (b) 105 1,960 Reno, Nevada, Special Assessment District Number 4 (Somerset Parkway), 6.625% due 12/01/2022 2,021 Sparks, Nevada, Redevelopment Agency, Tax Allocation Revenue Refunding Bonds, Series A (m): 3,110 6% due 1/15/2015 3,355 6,315 6% due 1/15/2023 6,799 New Hampshire--0.1% 1,750 New Hampshire Health and Education Facilities Authority, Revenue Refunding Bonds (Elliot Hospital), Series B, 5.60% due 10/01/2022 1,855 Face Amount Municipal Bonds Value New Jersey--5.2% $ 440 Camden County, New Jersey, Pollution Control Financing Authority, Solid Waste Resource Recovery, Revenue Refunding Bonds, AMT, Series B, 7.50% due 12/01/2009 $ 447 3,300 New Jersey EDA, Retirement Community Revenue Bonds (Cedar Crest Village Inc. Facility), Series A, 7.25% due 11/15/2031 3,581 11,000 New Jersey EDA, Revenue Bonds, RIB, Series 1187, 6.64% due 3/01/2024 (n) 12,517 New Jersey EDA, School Facilities Construction Revenue Bonds: 5,130 Series O, 5.125% due 3/01/2028 5,388 4,000 Series P, 5.125% due 9/01/2028 4,207 2,000 New Jersey EDA, Special Facility Revenue Bonds (Continental Airlines Inc. Project), AMT, 6.25% due 9/15/2029 1,860 3,680 New Jersey EDA, State Lease Revenue Bonds (State Office Buildings Projects), 6% due 6/15/2010 (c)(j) 4,065 New Jersey Health Care Facilities Financing Authority Revenue Bonds: 2,740 (Pascack Valley Hospital Association), 6% due 7/01/2013 2,675 3,130 (South Jersey Hospital), 6% due 7/01/2026 3,361 2,250 New Jersey Health Care Facilities Financing Authority, Revenue Refunding Bonds (Capital Health System Inc.), Series A, 5.75% due 7/01/2023 2,413 1,090 New Jersey State Housing and Mortgage Finance Agency, M/F Housing Revenue Refunding Bonds, Series B, 6.25% due 11/01/2026 (h) 1,150 New Jersey State Turnpike Authority, Turnpike Revenue Refunding Bonds (f): 10,000 DRIVERS, Series 155, 7.661% due 1/01/2018 (a)(n) 11,551 7,025 Series A, 5.75% due 1/01/2010 (j) 7,635 2,975 Series A, 5.75% due 1/01/2018 3,206 9,500 Tobacco Settlement Financing Corporation of New Jersey, Asset-Backed Revenue Bonds, 7% due 6/01/2041 10,829 New Mexico--0.6% 8,000 Farmington, New Mexico, PCR, Refunding (Public Service Company of New Mexico--San Juan), Series B, 6.30% due 12/01/2016 8,336 130 New Mexico Mortgage Finance Authority, Revenue Refunding Bonds, Mortgage-Backed Securities, Series F, 7% due 1/01/2026 (i) 136 250 Santa Fe County, New Mexico, Correctional System Revenue Bonds, 6% due 2/01/2027 (h) 297 New York--8.4% 9,500 Metropolitan Transportation Authority, New York, Commuter Facilities, Service Contract Revenue Refunding Bonds, Series 8, 5.50% due 7/01/2013 (h)(j) 10,651 12,000 Metropolitan Transportation Authority, New York, Revenue Bonds, Series B, 5% due 11/15/2035 (f) 12,571 10,000 Metropolitan Transportation Authority, New York, Transit Facilities Revenue Bonds, Series A, 5.625% due 7/01/2007 (f)(j) 10,490 MERRILL LYNCH MUNICIPAL BOND FUND, INC. DECEMBER 31, 2005 Schedule of Investments (continued) National Portfolio (In Thousands) Face Amount Municipal Bonds Value New York (concluded) $ 3,230 New York City, New York, City IDA, Civic Facility Revenue Bonds (Special Needs Facilities Pooled Program), Series C-1, 6% due 7/01/2012 $ 3,346 4,050 New York City, New York, City IDA, Special Facility Revenue Bonds (British Airways Plc Project), AMT, 7.625% due 12/01/2032 4,371 New York City, New York, City Municipal Water Finance Authority, Water and Sewer System Revenue Bonds, Series B (j): 3,500 5.75% due 6/15/2006 (f) 3,574 10,000 5.875% due 6/15/2006 (h) 10,218 6,500 New York City, New York, City Municipal Water Finance Authority, Water and Sewer System, Revenue Refunding Bonds, Series B, 5.75% due 6/15/2026 (f) 6,638 New York City, New York, GO, Refunding: 5,870 Series A, 6% due 5/15/2010 (j) 6,536 2,205 Series A, 6.25% due 5/15/2010 (j)(k) 2,476 730 Series A, 6% due 5/15/2021 (k) 807 4,000 Series B, 8.25% due 6/01/2006 (a)(k) 4,081 4,000 Series C, 5.875% due 08/01/2006 (e)(j) 4,120 25 Series H, 6% due 8/01/2007 (j)(k) 26 975 Series H, 6% due 8/01/2017 (k) 1,025 New York City, New York, GO, Series B (f): 6,600 5.875% due 8/01/2010 (j) 7,341 1,340 5.875% due 8/01/2015 1,480 New York State Dormitory Authority Revenue Refunding Bonds: 3,165 (Concord Nursing Home Inc.), 6.25% due 7/01/2016 3,413 2,500 (Concord Nursing Home Inc.), 6.50% due 7/01/2029 2,712 3,000 (Mount Sinai Health), Series A, 6.50% due 7/01/2016 3,234 3,950 (Mount Sinai Health), Series A, 6.50% due 7/01/2025 4,203 3,000 (State University Educational Facilities), Series A, 7.50% due 5/15/2013 3,693 1,360 New York State Environmental Facilities Corporation, State Clean Water and Drinking Revenue Bonds (Revolving Funds), Series B, 5.875% due 1/15/2019 1,481 2,285 Oneida County, New York, IDA Revenue Bonds (Civic Facility-Faxton Hospital), Series C, 6.625% due 1/01/2015 (m) 2,527 95 Suffolk County, New York, IDA, Civic Facility Revenue Bonds (Special Needs Facilities Pooled Program), Series D-1, 6% due 7/01/2012 98 705 Westchester County, New York, IDA, Civic Facilities Revenue Bonds (Special Needs Facilities Pooled Program), Series E-1, 6% due 7/01/2012 729 8,095 Westchester County, New York, IDA, Continuing Care Retirement, Mortgage Revenue Bonds (Kendal on Hudson Project), Series A, 6.50% due 1/01/2034 8,647 Face Amount Municipal Bonds Value North Carolina--2.8% $ 920 Brunswick County, North Carolina, COP, 6% due 6/01/2010 (h)(j) $ 1,024 1,500 Haywood County, North Carolina, Industrial Facilities and Pollution Control Financing Authority Revenue Bonds (Champion International Corporation Project), AMT, 6.25% due 9/01/2025 1,532 North Carolina Eastern Municipal Power Agency, Power System Revenue Bonds: 1,500 Series B, 5.875% due 1/01/2021 (f)(j) 1,568 4,000 Series D, 6.75% due 1/01/2026 4,403 4,440 North Carolina Eastern Municipal Power Agency, Power System Revenue Refunding Bonds, Series D, 6.70% due 1/01/2019 (o) 4,896 125 North Carolina HFA, S/F Revenue Bonds, Series W, 6.50% due 3/01/2018 125 2,500 North Carolina Medical Care Commission, Health Care Facilities, First Mortgage Revenue Bonds (Presbyterian Homes Project), 6.875% due 10/01/2021 2,676 2,000 North Carolina Medical Care Commission, Health Care Housing Revenue Bonds (The ARC of North Carolina Projects), Series A, 5.80% due 10/01/2034 2,066 4,000 North Carolina Medical Care Commission, Mortgage Revenue Refunding Bonds (Morehead Memorial Hospital Project), 5% due 11/01/2026 (b)(h) 4,182 North Carolina Medical Care Commission, Retirement Facilities, First Mortgage Revenue Bonds: 1,625 (Forest at Duke Project), 6.375% due 9/01/2032 1,721 2,500 (Givens Estates Project), Series A, 6.50% due 7/01/2032 2,678 North Carolina Municipal Power Agency Number 1, Catawba Electric Revenue Refunding Bonds, Series B: 500 6.375% due 1/01/2013 548 1,080 6.375% due 1/01/2013 (o) 1,185 5,000 6.50% due 1/01/2010 5,476 2,500 6.50% due 1/01/2020 (o) 2,738 1,175 North Carolina State Educational Assistance Authority Revenue Bonds (Guaranteed Student Loan), AMT, Sub-Lien, Series C, 6.35% due 7/01/2016 1,209 Piedmont Triad Airport Authority, North Carolina, Airport Revenue Refunding Bonds, Series A (h)(j): 1,000 6% due 7/01/2009 1,096 1,000 6.375% due 7/01/2009 1,108 Ohio--0.4% 420 Ohio HFA, Mortgage Revenue Bonds, AMT, Series A-1, 6.15% due 3/01/2029 (d) 429 1,470 Port of Greater Cincinnati Development Authority, Ohio, Special Assessment Revenue Bonds (Cooperative Public Parking Infrastructure Project), 6.40% due 2/15/2034 1,582 3,005 Toledo-Lucas County, Ohio, Lodging Tax Revenue Refunding Bonds (Convention Center Project), 5.70% due 10/01/2015 (f) 3,118 Oregon--0.4% Forest Grove, Oregon, Campus Improvement Revenue Refunding Bonds (Pacific University) (j)(m): 250 6% due 5/01/2010 276 250 6.20% due 5/01/2010 278 MERRILL LYNCH MUNICIPAL BOND FUND, INC. DECEMBER 31, 2005 Schedule of Investments (continued) National Portfolio (In Thousands) Face Amount Municipal Bonds Value Oregon (concluded) Oregon State Housing and Community Services Department, Mortgage Revenue Refunding Bonds (S/F Mortgage Program) Series A: $ 75 6.40% due 7/01/2018 $ 76 50 AMT, 6.20% due 7/01/2027 52 500 Portland, Oregon, M/F Housing Authority Revenue Bonds (Lovejoy Station Apartments Project), AMT, 5.90% due 7/01/2023 (f) 523 Portland, Oregon, Urban Renewal and Redevelopment Revenue Refunding Bonds (c): 1,000 (Downtown Waterfront), Series A, 5.75% due 6/15/2018 1,096 3,190 (South Park Blocks), Series A, 5.75% due 6/15/2018 3,497 Pennsylvania--2.7% 3,640 Allegheny County, Pennsylvania, IDA, Enviromental Improvement Revenue Refunding Bonds, 5.50% due 11/01/2016 3,683 2,220 Allegheny County, Pennsylvania, Sanitation Authority, Sewer Revenue Bonds, 5.75% due 12/01/2010 (f)(j) 2,450 1,760 Bucks County, Pennsylvania, IDA, Retirement Community Revenue Bonds (Ann's Choice Inc.), Series A, 6.125% due 1/01/2025 1,824 4,000 Pennsylvania State Higher Educational Facilities Authority Revenue Bonds (University of Pennsylvania Medical Center Health System), Series A, 6% due 1/15/2031 4,343 1,265 Philadelphia, Pennsylvania, Authority for IDR, Commercial Development, 7.75% due 12/01/2017 1,280 18,105 Philadelphia, Pennsylvania, Redevelopment Authority Revenue Bonds, ROLS, Series RR-II-432X, 6.967% due 10/15/2010 (e)(n) 20,437 5,000 Sayre, Pennsylvania, Health Care Facilities Authority, Revenue Refunding Bonds (Guthrie Healthcare System), Series A, 5.875% due 12/01/2031 5,358 Rhode Island--0.6% 6,815 Rhode Island State Economic Development Corporation, Airport Revenue Bonds, Series B, 6% due 7/01/2010 (e)(j) 7,608 1,000 Rhode Island State Economic Development Corporation Revenue Bonds (Providence Place Mall), 6.125% due 7/01/2020 (m) 1,115 South Carolina--1.3% Medical University Hospital Authority, South Carolina, Hospital Facilities Revenue Refunding Bonds (j): 2,450 6.50% due 8/15/2012 2,858 5,400 Series A, 6.375% due 8/15/2012 6,261 Piedmont Municipal Power Agency, South Carolina, Electric Revenue Refunding Bonds (e): 1,745 6.75% due 1/01/2019 2,177 1,255 6.75% due 1/01/2019 (a) 1,599 5,000 South Carolina Jobs EDA, Residential Care Facilities Revenue Bonds (South Carolina Episcopal--Still Hopes Residence Project), Series A, 6.375% due 5/15/2032 5,212 Face Amount Municipal Bonds Value South Dakota--0.4% $ 3,750 Pierre, South Dakota, School District Number 32-2, GO, 5.75% due 8/01/2010 (h)(j) $ 4,112 1,800 South Dakota Housing Development Authority, Homeownership Revenue Bonds, AMT, Series C, 5.375% due 5/01/2018 1,856 Tennessee--2.0% Chattanooga, Tennessee, Industrial Development Board, Lease Rent Revenue Bonds (Southside Redevelopment Corporation) (c): 4,485 5.75% due 10/01/2017 4,884 3,740 5.75% due 10/01/2018 4,073 1,000 Johnson City, Tennessee, Health and Educational Facilities Board, Retirement Facility Revenue Bonds (Appalachian Christian Village Project), Series A, 6.25% due 2/15/2032 1,024 4,950 McMinn County, Tennessee, IDB, Solid Waste Revenue Bonds (Recycling Facility-Calhoun Newsprint), AMT, 7.40% due 12/01/2022 5,004 5,000 Metropolitan Government of Nashville and Davidson County, Tennessee, GO, 5.875% due 5/15/2026 5,093 7,300 Shelby County, Tennessee, Health, Educational and Housing Facility Board, Hospital Revenue Refunding Bonds (Methodist Healthcare), 6.50% due 9/01/2012 (j) 8,522 Texas--12.3% Austin, Texas, Convention Center Revenue Bonds (Convention Enterprises Inc.), First Tier, Series A: 5,300 6.60% due 1/01/2021 5,620 2,300 6.70% due 1/01/2028 2,462 10,630 Austin, Texas, Revenue Bonds (Town Lake Community Events Center Venue), 6.20% due 11/15/2009 (e)(j) 11,682 Bexar County, Texas, Health Facilities Development Corporation Revenue Refunding Bonds (Army Retirement Residence Project): 600 6.125% due 7/01/2022 645 1,750 6.30% due 7/01/2032 1,876 2,280 Brazos River Authority, Texas, PCR, Refunding (Texas Utility Company), AMT, Series A, 7.70% due 4/01/2033 2,677 4,250 Brazos River Authority, Texas, Revenue Refunding Bonds (Reliant Energy Inc. Project), Series B, 7.75% due 12/01/2018 4,662 3,700 Brazos River, Texas, Harbor Navigation District, Brazoria County Environmental Revenue Refunding Bonds (Dow Chemical Company Project), AMT, Series A-7, 6.625% due 5/15/2033 4,113 885 Central Texas Housing Finance Corporation, S/F Mortgage Revenue Bonds (GNMA Mortgage Program), AMT, 8.20% due 6/28/2017 (b)(d) 908 3,620 Dallas-Fort Worth, Texas, International Airport Facility Improvement Corporation, Revenue Bonds (Learjet Inc.), AMT, Series A-1, 6.15% due 1/01/2016 3,687 18,250 Dallas-Fort Worth, Texas, International Airport Revenue Bonds, DRIVERS, AMT, Series 201, 8.135% due 11/01/2024 (e)(n) 20,887 1,260 Fort Bend County, Texas, Municipal Utility District Number 23, GO, 6.625% due 9/01/2007 (j)(m) 1,329 MERRILL LYNCH MUNICIPAL BOND FUND, INC. DECEMBER 31, 2005 Schedule of Investments (continued) National Portfolio (In Thousands) Face Amount Municipal Bonds Value Texas (concluded) Gregg County, Texas, Health Facilities Development Corporation, Hospital Revenue Bonds (Good Shepherd Medical Center Project) (m): $ 1,000 6.875% due 10/01/2020 $ 1,126 3,500 6.375% due 10/01/2025 3,865 2,465 Gulf Coast, Texas, Waste Disposal Authority Revenue Refunding Bonds (International Paper Company), AMT, Series A, 6.10% due 8/01/2024 2,620 3,000 Houston, Texas, Airport System, Special Facilities Revenue Bonds (Continental Airlines Terminal Improvement), AMT, Series B, 6.125% due 7/15/2027 2,673 10,000 Houston, Texas, Utility System Revenue Refunding Bonds, DRIVERS, Series 1076, 6.422% due 5/15/2012 (f)(n) 11,041 4,000 Kerrville, Texas, Health Facilities Development Corporation, Hospital Revenue Bonds (Sid Peterson Memorial Hospital Project), 5.25% due 8/15/2021 4,159 8,080 Matagorda County, Texas, Navigation District Number 1, Revenue Refunding Bonds (Reliant Energy Inc.), Series C, 8% due 5/01/2029 8,778 7,350 Matagorda County, Texas, Port of Bay City Authority Revenue Bonds (Hoechst Celanese Corp. Project), AMT, 6.50% due 5/01/2026 7,453 4,825 Port Corpus Christi, Texas, Individual Development Corporation, Environmental Facilities Revenue Bonds (Citgo Petroleum Corporation Project), AMT, 8.25% due 11/01/2031 5,096 1,000 Red River, Texas, Education Finance Revenue Bonds (Saint Mark's School-Texas Project), 6% due 8/15/2019 1,076 5,750 Sabine River Authority, Texas, PCR, Refunding (TXU Electric Company Project/TXU Energy Company LLC), Series C, 5.20% due 5/01/2028 5,785 1,265 South Plains, Texas, Housing Finance Corporation, S/F Mortgage Revenue Bonds, AMT, Series A, 7.30% due 9/01/2031 (i) 1,270 Southeast Texas, Housing Finance Corporation Revenue Bonds, AMT (d)(l): 90 Series A, 8% due 11/01/2025 93 180 Series B, 8.50% due 11/01/2025 186 Texas State Public Finance Authority, Building Revenue Bonds (h)(j): 2,100 (General Services Commission Project), Series A, 6% due 2/01/2010 2,302 1,000 (State Preservation Project), Series B, 6% due 8/01/2009 1,086 45,000 Texas State Turnpike Authority, Central Texas Turnpike System Revenue Bonds, First Tier, Series A, 5.75% due 8/15/2038 (c) 49,514 4,930 Upper Trinity Regional Water District, Texas, Water Revenue Bonds (Regional Treated Water Supply System), Series A, 6% due 8/01/2010 (e)(j) 5,449 Webster, Texas, GO, COP, Series A (h): 1,500 6% due 3/01/2010 (j) 1,646 805 6% due 3/01/2021 876 Utah--0.1% 960 Utah State HFA, S/F Mortgage Revenue Refunding Bonds, AMT, Series C, Class III, 5.50% due 1/01/2018 983 Face Amount Municipal Bonds Value Virginia--0.6% $ 2,425 Chesterfield County, Virginia, IDA, PCR, Refunding (Virginia Electric and Power Company), Series B, 5.875% due 6/01/2017 $ 2,647 Norfolk, Virginia, Redevelopment and Housing Authority, First Mortgage Revenue Bonds (Retirement Community), Series A: 500 6% due 1/01/2025 516 1,100 6.125% due 1/01/2035 1,135 3,825 Pocahontas Parkway Association, Virginia, Toll Road Revenue Bonds, Senior-Series A, 5.50% due 8/15/2028 3,946 Washington--1.6% 3,000 Port of Seattle, Washington, Special Facilities Revenue Bonds, Series A, 6% due 3/01/2010 (f)(j) 3,324 3,010 Seattle, Washington, Drain and Wastewater Utility Revenue Bonds, 5.75% due 11/01/2022 (f) 3,266 Seattle, Washington, Housing Authority Revenue Bonds: 2,750 (Newholly Project), AMT, 6.25% due 12/01/2035 2,800 4,800 (Replacement Housing Project), 6.125% due 12/01/2032 4,806 7,750 Tacoma, Washington, Electric System Revenue Refunding Bonds, Series A, 5.75% due 1/01/2011 (h)(j) 8,605 Wisconsin--0.7% 2,725 Wisconsin State, GO, AMT, Series B, 6.20% due 11/01/2026 (f) 2,737 Wisconsin State Health and Educational Facilities Authority Revenue Bonds (Synergyhealth Inc.): 3,250 6% due 11/15/2023 3,515 3,700 6% due 11/15/2032 3,972 Wyoming--0.6% 8,400 Sweetwater County, Wyoming, PCR, Refunding (Idaho Power Company Project), Series A, 6.05% due 7/15/2026 (f) 8,685 Guam--0.0% 115 Guam Housing Corporation, S/F Mortgage Revenue Bonds, AMT, Series A, 5.75% due 9/01/2031 (l) 128 Puerto Rico--4.0% 8,045 Puerto Rico Commonwealth Highway and Transportation Authority, Transportation Revenue Bonds, 5.75% due 7/01/2022 8,797 Puerto Rico Commonwealth Infrastructure Financing Authority, Special Tax and Capital Appreciation Revenue Bonds, Series A: 30,000 4.64%* due 7/01/2032 (e) 8,654 11,785 4.67%* due 7/01/2036 (c) 2,768 785 Puerto Rico Commonwealth, Public Improvement, GO, Refunding, 5.70% due 7/01/2020 (f) 853 15,000 Puerto Rico Electric Power Authority, Power Revenue Bonds, Series NN, 5.125% due 7/01/2029 15,532 2,000 Puerto Rico Industrial, Tourist, Educational, Medical and Environmental Control Facilities Revenue Bonds (Ascension Health), RIB, Series 377, 8.44% due 11/15/2030 (n) 2,398 18,100 Puerto Rico Municipal Finance Agency, GO, Series A, 5% due 8/01/2030 (h) 19,072 MERRILL LYNCH MUNICIPAL BOND FUND, INC. DECEMBER 31, 2005 Schedule of Investments (concluded) National Portfolio (In Thousands) Face Amount Municipal Bonds Value U.S. Virgin Islands--0.6% $ 8,000 Virgin Islands Government Refinery Facilities, Revenue Refunding Bonds (Hovensa Coker Project), AMT, 6.50% due 7/01/2021 $ 9,062 Total Municipal Bonds (Cost--$1,301,559)--95.6% 1,372,666 Shares Held Short-Term Securities Value 16,868 Merrill Lynch Institutional Tax-Exempt Fund** $ 16,868 Total Short-Term Securities (Cost--$16,868)--1.2% 16,868 Total Investments (Cost--$1,318,427***)--96.8% 1,389,534 Other Assets Less Liabilities--3.2% 46,321 ---------- Net Assets--100.0% $1,435,855 ========== * Represents a zero coupon bond; the interest rate shown reflects the effective yield at the time of purchase. ** Investments in companies considered to be an affiliate of the Fund, for purposes of Section 2(a)(3) of the Investment Company Act of 1940, were as follows: Net Dividend Affiliate Activity Income Merrill Lynch Institutional Tax-Exempt Fund 14,945 $212 *** The cost and unrealized appreciation (depreciation) of investments as of December 31, 2005, as computed for federal income tax purposes, were as follows: Aggregate cost $ 1,318,235 =============== Gross unrealized appreciation $ 74,253 Gross unrealized depreciation (2,954) --------------- Net unrealized appreciation $ 71,299 =============== (a) Escrowed to maturity. (b) FHA Insured. (c) AMBAC Insured. (d) GNMA Collateralized. (e) FGIC Insured. (f) MBIA Insured. (g) Security may have a maturity of more than one year at time of issuance, but has variable rate and demand features that qualify it as a short-term security. The rate disclosed is that currently in effect. This rate changes periodically based upon prevailing market rates. (h) FSA Insured. (i) FNMA/GNMA Collateralized. (j) Prerefunded. (k) XL Capital Insured. (l) FHLMC Collateralized. (m) Radian Insured. (n) The rate disclosed is that currently in effect. This rate changes periodically and inversely based upon prevailing market rates. (o) ACA Insured. See Notes to Financial Statements. MERRILL LYNCH MUNICIPAL BOND FUND, INC. DECEMBER 31, 2005 Statements of Assets and Liabilities
Short-Term Insured National As of December 31, 2005 Portfolio Portfolio Portfolio Assets Investments in unaffiliated securities, at value* $ 367,620,543 $ 981,723,086 $ 1,372,666,190 Investments in affiliated securities, at value** 22,588,781 37,530 16,868,125 Cash 66,483 105,691 49,401 Receivables: Securities sold 15,938,991 4,349,000 25,719,480 Interest 5,609,204 15,438,062 22,593,637 Capital shares sold 171,266 134,535 3,014,977 Prepaid expenses and other assets 40,301 779,563 1,300,725 --------------- --------------- --------------- Total assets 412,035,569 1,002,567,467 1,442,212,535 --------------- --------------- --------------- Liabilities Payables: Securities purchased 25,157,030 -- 1,126,704 Capital shares redeemed 1,271,554 1,352,180 1,571,555 Dividends to shareholders 191,855 782,612 1,280,016 Investment adviser 99,414 288,733 537,064 Distributor 44,300 139,992 251,896 Other affiliates 41,513 97,414 211,766 Accrued expenses and other liabilities 32,202 86,275 1,378,803 --------------- --------------- --------------- Total liabilities 26,837,868 2,747,206 6,357,804 --------------- --------------- --------------- Net Assets Net assets $ 385,197,701 $ 999,820,261 $ 1,435,854,731 =============== =============== =============== Net Assets Consist of Undistributed investment income--net 484,005 1,197,312 909,779 Accumulated realized capital gains (losses)--net (6,495,438) 2,385,630 (58,378,730) Unrealized appreciation/depreciation--net (1,547,457) 43,761,792 71,107,075 --------------- --------------- --------------- Total accumulated earnings (losses)--net (7,558,890) 47,344,734 13,638,124 --------------- --------------- --------------- Class A Common Stock, $.10 par value++ 1,187,781 2,317,256 2,454,184 Class B Common Stock, $.10 par value++++ 302,017 998,707 1,509,282 Class C Common Stock, $.10 par value++++++ 749,056 803,793 1,159,850 Class I Common Stock, $.10 par value++++++++ 1,640,320 8,609,208 8,531,192 Paid-in capital in excess of par 388,877,417 939,746,563 1,408,562,099 --------------- --------------- --------------- Net Assets $ 385,197,701 $ 999,820,261 $ 1,435,854,731 =============== =============== ===============
MERRILL LYNCH MUNICIPAL BOND FUND, INC. DECEMBER 31, 2005 Statements of Assets and Liabilities (concluded)
Short-Term Insured National As of December 31, 2005 Portfolio Portfolio Portfolio Net Asset Value Class A: Net assets $ 118,111,297 $ 181,973,786 $ 258,175,647 =============== =============== =============== Shares outstanding 11,877,814 23,172,558 24,541,836 =============== =============== =============== Net asset value and redemption price per share $ 9.94 $ 7.85 $ 10.52 =============== =============== =============== Class B: Net assets $ 30,008,403 $ 78,398,936 $ 158,641,270 =============== =============== =============== Shares outstanding 3,020,170 9,987,073 15,092,822 =============== =============== =============== Net asset value and redemption price per share $ 9.94 $ 7.85 $ 10.51 =============== =============== =============== Class C: Net assets $ 74,109,543 $ 63,116,009 $ 121,975,051 =============== =============== =============== Shares outstanding 7,490,562 8,037,930 11,598,498 =============== =============== =============== Net asset value and redemption price per share $ 9.89 $ 7.85 $ 10.52 =============== =============== =============== Class I: Net assets $ 162,968,458 $ 676,331,530 $ 897,062,763 =============== =============== =============== Shares outstanding 16,403,195 86,092,079 85,311,922 =============== =============== =============== Net asset value and redemption price per share $ 9.94 $ 7.86 $ 10.52 =============== =============== =============== * Identified cost $ 369,168,000 $ 937,961,294 $ 1,301,559,115 =============== =============== =============== ** Identified cost for affiliated securities $ 22,588,781 $ 37,530 $ 16,868,125 =============== =============== =============== ++ Authorized shares--Class A 150,000,000 500,000,000 375,000,000 =============== =============== =============== ++++ Authorized shares--Class B 150,000,000 375,000,000 375,000,000 =============== =============== =============== ++++++ Authorized shares--Class C 150,000,000 375,000,000 375,000,000 =============== =============== =============== ++++++++ Authorized shares--Class I 150,000,000 500,000,000 375,000,000 =============== =============== =============== See Notes to Financial Statements.
MERRILL LYNCH MUNICIPAL BOND FUND, INC. DECEMBER 31, 2005 Statements of Operations
Short-Term Insured National For the Six Months Ended December 31, 2005 Portfolio Portfolio Portfolio Investment Income Interest $ 5,902,280 $ 24,520,295 $ 39,599,128 Dividends* 415,467 675,786 212,082 Other -- 44,865 -- --------------- --------------- --------------- Total income 6,317,747 25,240,946 39,811,210 --------------- --------------- --------------- Expenses Investment advisory fees 724,665 1,893,171 3,470,700 Account maintenance and distribution fees--Class B 60,423 322,571 638,285 Account maintenance and distribution fees--Class C 148,015 259,357 466,876 Account maintenance fees--Class A 66,603 230,209 317,101 Accounting services 77,558 158,447 217,783 Transfer agent fees--Class I 31,833 118,760 264,069 Transfer agent fees--Class A 23,555 31,186 73,263 Custodian fees 18,549 30,857 45,141 Registration fees 28,130 25,125 30,600 Transfer agent fees--Class B 7,502 18,007 56,702 Professional fees 19,744 28,845 33,004 Printing and shareholder reports 11,438 25,120 35,212 Transfer agent fees--Class C 18,389 13,406 39,333 Pricing services 7,329 12,288 29,940 Directors' fees and expenses 4,784 10,300 14,419 Other 12,367 18,388 20,196 --------------- --------------- --------------- Total expenses before waiver 1,260,884 3,196,037 5,752,624 Waiver of expenses (32,703) (14,051) (16,361) --------------- --------------- --------------- Total expenses after waiver 1,228,181 3,181,986 5,736,263 --------------- --------------- --------------- Investment income--net 5,089,566 22,058,960 34,074,947 --------------- --------------- --------------- Realized & Unrealized Gain (Loss)--Net Realized gain (loss) on: Investments--net (1,413,930) 5,767,936 7,901,279 Forward interest rate swaps--net -- 167,456 -- --------------- --------------- --------------- Total realized gain (loss)--net (1,413,930) 5,935,392 7,901,279 --------------- --------------- --------------- Change in unrealized appreciation/depreciation on: Investments--net (1,183,264) (21,343,996) (27,597,843) Forward interest rate swaps--net -- 296,964 -- --------------- --------------- --------------- Total unrealized appreciation/depreciation--net (1,183,264) (21,047,032) (27,597,843) --------------- --------------- --------------- Total realized and unrealized loss--net (2,597,194) (15,111,640) (19,696,564) --------------- --------------- --------------- Net Increase in Net Assets Resulting from Operations $ 2,492,372 $ 6,947,320 $ 14,378,383 =============== =============== =============== * Dividends from affiliates $ 415,467 $ 169,597 $ 212,082 =============== =============== =============== See Notes to Financial Statements.
MERRILL LYNCH MUNICIPAL BOND FUND, INC. DECEMBER 31, 2005 Statements of Changes in Net Assets Short-Term Portfolio
For the Six For the Months Ended Year Ended December 31, June 30, Increase (Decrease) in Net Assets: 2005 2005 Operations Investment income--net $ 5,089,566 $ 10,048,780 Realized loss--net (1,413,930) (3,447,006) Change in unrealized depreciation--net (1,183,264) 505,798 --------------- --------------- Net increase in net assets resulting from operations 2,492,372 7,107,572 --------------- --------------- Dividends to Shareholders Investment income--net: Class A (1,588,508) (3,411,719) Class B (366,919) (770,673) Class C (899,039) (1,822,838) Class I (2,234,837) (4,042,560) --------------- --------------- Net decrease in net assets resulting from dividends to shareholders (5,089,303) (10,047,790) --------------- --------------- Capital Share Transactions Net decrease in net assets derived from capital share transactions (71,726,707) (233,513,320) --------------- --------------- Net Assets Total decrease in net assets (74,323,638) (236,453,538) Beginning of period 459,521,339 695,974,877 --------------- --------------- End of period* $ 385,197,701 $ 459,521,339 =============== =============== * Undistributed investment income--net $ 484,005 $ 483,742 =============== =============== See Notes to Financial Statements.
MERRILL LYNCH MUNICIPAL BOND FUND, INC. DECEMBER 31, 2005 Statements of Changes in Net Assets (continued) Insured Portfolio
For the Six For the Months Ended Year Ended December 31, June 30, Increase (Decrease) in Net Assets: 2005 2005 Operations Investment income--net $ 22,058,960 $ 47,460,598 Realized gain--net 5,935,392 16,055,264 Change in unrealized appreciation/depreciation--net (21,047,032) 25,687,582 --------------- --------------- Net increase in net assets resulting from operations 6,947,320 89,203,444 --------------- --------------- Dividends to Shareholders Investment income--net: Class A (3,831,153) (7,853,231) Class B (1,571,814) (3,953,506) Class C (1,168,311) (2,393,785) Class I (15,475,118) (33,236,480) Realized gain--net Class A (682,505) -- Class B (295,881) -- Class C (235,289) -- Class I (2,535,229) -- --------------- --------------- Net decrease in net assets resulting from dividends to shareholders (25,795,300) (47,437,002) --------------- --------------- Capital Share Transactions Net decrease in net assets derived from capital share transactions (26,718,652) (86,014,174) --------------- --------------- Net Assets Total decrease in net assets (45,566,632) (44,247,732) Beginning of period 1,045,386,893 1,089,634,625 --------------- --------------- End of period* $ 999,820,261 $ 1,045,386,893 =============== =============== * Undistributed investment income--net $ 1,197,312 $ 1,184,748 =============== =============== See Notes to Financial Statements.
MERRILL LYNCH MUNICIPAL BOND FUND, INC. DECEMBER 31, 2005 Statements of Changes in Net Assets (concluded) National Portfolio
For the Six For the Months Ended Year Ended December 31, June 30, Increase (Decrease) in Net Assets: 2005 2005 Operations Investment income--net $ 34,074,947 $ 68,690,786 Realized gain--net 7,901,279 11,191,578 Change in unrealized appreciation--net (27,597,843) 39,336,379 --------------- --------------- Net increase in net assets resulting from operations 14,378,383 119,218,743 --------------- --------------- Dividends to Shareholders Investment income--net: Class A (5,869,166) (10,680,106) Class B (3,504,714) (8,386,163) Class C (2,373,879) (3,829,101) Class I (22,290,202) (45,655,416) --------------- --------------- Net decrease in net assets resulting from dividends to shareholders (34,037,961) (68,550,786) --------------- --------------- Capital Share Transactions Net increase (decrease) in net assets derived from capital share transactions 12,712,925 (15,324,652) --------------- --------------- Net Assets Total increase (decrease) in net assets (6,946,653) 35,343,305 Beginning of period 1,442,801,384 1,407,458,079 --------------- --------------- End of period* $ 1,435,854,731 $ 1,442,801,384 =============== =============== * Undistributed investment income--net $ 909,779 $ 872,793 =============== =============== See Notes to Financial Statements.
MERRILL LYNCH MUNICIPAL BOND FUND, INC. DECEMBER 31, 2005 Financial Highlights Short-Term Portfolio
Class A For the Six Months Ended The following per share data and ratios have been derived December 31, For the Year Ended June 30, from information provided in the financial statements. 2005 2005 2004 2003 2002 Per Share Operating Performance Net asset value, beginning of period $ 10.00 $ 10.06 $ 10.18 $ 10.14 $ 10.06 ---------- ---------- ---------- ---------- ---------- Investment income--net .12++ .18++ .17++ .24++ .32 Realized and unrealized gain (loss)--net (.06) (.06) (.12) .04 .08 ---------- ---------- ---------- ---------- ---------- Total from investment operations .06 .12 .05 .28 .40 ---------- ---------- ---------- ---------- ---------- Less dividends from investment income--net (.12) (.18) (.17) (.24) (.32) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 9.94 $ 10.00 $ 10.06 $ 10.18 $ 10.14 ========== ========== ========== ========== ========== Total Investment Return** Based on net asset value per share .60%+++ 1.20% .50% 2.77% 3.99% ========== ========== ========== ========== ========== Ratios to Average Net Assets Expenses, net of waiver .54%* .53% .52% .52% .56% ========== ========== ========== ========== ========== Expenses .55%* .54% .53% .53% .56% ========== ========== ========== ========== ========== Investment income--net 2.39%* 1.76% 1.68% 2.31% 3.13% ========== ========== ========== ========== ========== Supplemental Data Net assets, end of period (in thousands) $ 118,111 $ 141,172 $ 244,741 $ 248,454 $ 140,744 ========== ========== ========== ========== ========== Portfolio turnover 46.84% 87.42% 69.08% 44.61% 74.74% ========== ========== ========== ========== ========== * Annualized. ** Total investment returns exclude the effects of sales charges. ++ Based on average shares outstanding. +++ Aggregate total investment return. See Notes to Financial Statements.
MERRILL LYNCH MUNICIPAL BOND FUND, INC. DECEMBER 31, 2005 Financial Highlights (continued) Short-Term Portfolio
Class B For the Six Months Ended The following per share data and ratios have been derived December 31, For the Year Ended June 30, from information provided in the financial statements. 2005 2005 2004 2003 2002 Per Share Operating Performance Net asset value, beginning of period $ 10.00 $ 10.05 $ 10.17 $ 10.13 $ 10.06 ---------- ---------- ---------- ---------- ---------- Investment income--net .11++ .15++ .14++ .21++ .29 Realized and unrealized gain (loss)--net (.06) (.05) (.12) .04 .07 ---------- ---------- ---------- ---------- ---------- Total from investment operations .05 .10 .02 .25 .36 ---------- ---------- ---------- ---------- ---------- Less dividends from investment income--net (.11) (.15) (.14) (.21) (.29) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 9.94 $ 10.00 $ 10.05 $ 10.17 $ 10.13 ========== ========== ========== ========== ========== Total Investment Return** Based on net asset value per share .47%+++ 1.04% .24% 2.51% 3.62% ========== ========== ========== ========== ========== Ratios to Average Net Assets Expenses, net of waiver .80%* .79% .77% .78% .82% ========== ========== ========== ========== ========== Expenses .81%* .80% .78% .79% .82% ========== ========== ========== ========== ========== Investment income--net 2.13%* 1.50% 1.43% 2.10% 2.87% ========== ========== ========== ========== ========== Supplemental Data Net assets, end of period (in thousands) $ 30,008 $ 38,565 $ 63,135 $ 83,886 $ 81,967 ========== ========== ========== ========== ========== Portfolio turnover 46.84% 87.42% 69.08% 44.61% 74.74% ========== ========== ========== ========== ========== * Annualized. ** Total investment returns exclude the effects of sales charges. ++ Based on average shares outstanding. +++ Aggregate total investment return. See Notes to Financial Statements.
MERRILL LYNCH MUNICIPAL BOND FUND, INC. DECEMBER 31, 2005 Financial Highlights (continued) Short-Term Portfolio
Class C For the Six Months Ended The following per share data and ratios have been derived December 31, For the Year Ended June 30, from information provided in the financial statements. 2005 2005 2004 2003 2002 Per Share Operating Performance Net asset value, beginning of period $ 9.95 $ 10.01 $ 10.13 $ 10.09 $ 10.01 ---------- ---------- ---------- ---------- ---------- Investment income--net .11++ .15++ .14++ .19++ .29 Realized and unrealized gain (loss)--net (.06) (.06) (.12) .06 .08 ---------- ---------- ---------- ---------- ---------- Total from investment operations .05 .09 .02 .25 .37 ---------- ---------- ---------- ---------- ---------- Less dividends from investment income--net (.11) (.15) (.14) (.21) (.29) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 9.89 $ 9.95 $ 10.01 $ 10.13 $ 10.09 ========== ========== ========== ========== ========== Total Investment Return** Based on net asset value per share .47%+++ .94% .23% 2.52% 3.72% ========== ========== ========== ========== ========== Ratios to Average Net Assets Expenses, net of waiver .80%* .79% .77% .78% .82% ========== ========== ========== ========== ========== Expenses .81%* .80% .78% .79% .82% ========== ========== ========== ========== ========== Investment income--net 2.13%* 1.51% 1.42% 1.92% 2.91% ========== ========== ========== ========== ========== Supplemental Data Net assets, end of period (in thousands) $ 74,110 $ 92,907 $ 144,656 $ 135,782 $ 1,596 ========== ========== ========== ========== ========== Portfolio turnover 46.84% 87.42% 69.08% 44.61% 74.74% ========== ========== ========== ========== ========== * Annualized. ** Total investment returns exclude the effects of sales charges. ++ Based on average shares outstanding. +++ Aggregate total investment return. See Notes to Financial Statements.
MERRILL LYNCH MUNICIPAL BOND FUND, INC. DECEMBER 31, 2005 Financial Highlights (continued) Short-Term Portfolio
Class I For the Six Months Ended The following per share data and ratios have been derived December 31, For the Year Ended June 30, from information provided in the financial statements. 2005 2005 2004 2003 2002 Per Share Operating Performance Net asset value, beginning of period $ 9.99 $ 10.05 $ 10.17 $ 10.13 $ 10.05 ---------- ---------- ---------- ---------- ---------- Investment income--net .13++ .19++ .18++ .27++ .34 Realized and unrealized gain (loss)--net (.05) (.06) (.12) .02 .08 ---------- ---------- ---------- ---------- ---------- Total from investment operations .08 .13 .06 .29 .42 ---------- ---------- ---------- ---------- ---------- Less dividends from investment income--net (.13) (.19) (.18) (.25) (.34) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 9.94 $ 9.99 $ 10.05 $ 10.17 $ 10.13 ========== ========== ========== ========== ========== Total Investment Return** Based on net asset value per share .75%+++ 1.30% .59% 2.87% 4.10% ========== ========== ========== ========== ========== Ratios to Average Net Assets Expenses, net of waiver .44%* .43% .42% .42% .46% ========== ========== ========== ========== ========== Expenses .45%* .44% .43% .43% .46% ========== ========== ========== ========== ========== Investment income--net 2.49%* 1.88% 1.78% 2.44% 3.30% ========== ========== ========== ========== ========== Supplemental Data Net assets, end of period (in thousands) $ 162,968 $ 186,877 $ 243,443 $ 251,137 $ 204,936 ========== ========== ========== ========== ========== Portfolio turnover 46.84% 87.42% 69.08% 44.61% 74.74% ========== ========== ========== ========== ========== * Annualized. ** Total investment returns exclude the effects of sales charges. Effective December 28, 2005, Class I Shares are no longer subject to any front-end sales charge. ++ Based on average shares outstanding. +++ Aggregate total investment return. See Notes to Financial Statements.
MERRILL LYNCH MUNICIPAL BOND FUND, INC. DECEMBER 31, 2005 Financial Highlights (continued) Insured Portfolio
Class A For the Six Months Ended The following per share data and ratios have been derived December 31, For the Year Ended June 30, from information provided in the financial statements. 2005 2005 2004 2003 2002 Per Share Operating Performance Net asset value, beginning of period $ 8.00 $ 7.70 $ 8.07 $ 7.79 $ 7.69 ---------- ---------- ---------- ---------- ---------- Investment income--net .17++++ .34++++ .38++++ .39++++ .39 Realized and unrealized gain (loss)--net (.12) .30 (.37) .28 .10 ---------- ---------- ---------- ---------- ---------- Total from investment operations .05 .64 .01 .67 .49 ---------- ---------- ---------- ---------- ---------- Less dividends and distributions: Investment income--net (.17) (.34) (.38) (.39) (.39) Realized gain--net (.03) -- -- -- --++ ---------- ---------- ---------- ---------- ---------- Total dividends and distributions (.20) (.34) (.38) (.39) (.39) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 7.85 $ 8.00 $ 7.70 $ 8.07 $ 7.79 ========== ========== ========== ========== ========== Total Investment Return** Based on net asset value per share .58%+++ 8.47% .10% 8.77% 6.63% ========== ========== ========== ========== ========== Ratios to Average Net Assets Expenses, net of waiver .71%* .71% .71% .71% .72% ========== ========== ========== ========== ========== Expenses .71%* .71% .71% .71% .72% ========== ========== ========== ========== ========== Investment income--net 4.16%* 4.33% 4.79% 4.88% 5.10% ========== ========== ========== ========== ========== Supplemental Data Net assets, end of period (in thousands) $ 181,974 $ 182,216 $ 183,007 $ 187,805 $ 161,110 ========== ========== ========== ========== ========== Portfolio turnover 28.38% 55.00% 49.27% 38.17% 32.78% ========== ========== ========== ========== ========== * Annualized. ** Total investment returns exclude the effects of sales charges. ++ Amount is less than $(.01) per share. ++++ Based on average shares outstanding. +++ Aggregate total investment return. See Notes to Financial Statements.
MERRILL LYNCH MUNICIPAL BOND FUND, INC. DECEMBER 31, 2005 Financial Highlights (continued) Insured Portfolio
Class B For the Six Months Ended The following per share data and ratios have been derived December 31, For the Year Ended June 30, from information provided in the financial statements. 2005 2005 2004 2003 2002 Per Share Operating Performance Net asset value, beginning of period $ 7.99 $ 7.69 $ 8.07 $ 7.79 $ 7.68 ---------- ---------- ---------- ---------- ---------- Investment income--net .15++++ .30++++ .34++++ .35++++ .36 Realized and unrealized gain (loss)--net (.11) .30 (.38) .28 .11 ---------- ---------- ---------- ---------- ---------- Total from investment operations .04 .60 (.04) .63 .47 ---------- ---------- ---------- ---------- ---------- Less dividends and distributions: Investment income--net (.15) (.30) (.34) (.35) (.36) Realized gain--net (.03) -- -- -- --++ ---------- ---------- ---------- ---------- ---------- Total dividends and distributions (.18) (.30) (.34) (.35) (.36) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 7.85 $ 7.99 $ 7.69 $ 8.07 $ 7.79 ========== ========== ========== ========== ========== Total Investment Return** Based on net asset value per share .45%+++ 7.93% (.53%) 8.21% 6.23% ========== ========== ========== ========== ========== Ratios to Average Net Assets Expenses, net of waiver 1.21%* 1.21% 1.21% 1.22% 1.23% ========== ========== ========== ========== ========== Expenses 1.22%* 1.22% 1.22% 1.22% 1.23% ========== ========== ========== ========== ========== Investment income--net 3.66%* 3.83% 4.29% 4.38% 4.58% ========== ========== ========== ========== ========== Supplemental Data Net assets, end of period (in thousands) $ 78,399 $ 91,355 $ 111,524 $ 160,177 $ 182,241 ========== ========== ========== ========== ========== Portfolio turnover 28.38% 55.00% 49.27% 38.17% 32.78% ========== ========== ========== ========== ========== * Annualized. ** Total investment returns exclude the effects of sales charges. ++ Amount is less than $(.01) per share. ++++ Based on average shares outstanding. +++ Aggregate total investment return. See Notes to Financial Statements.
MERRILL LYNCH MUNICIPAL BOND FUND, INC. DECEMBER 31, 2005 Financial Highlights (continued) Insured Portfolio
Class C For the Six Months Ended The following per share data and ratios have been derived December 31, For the Year Ended June 30, from information provided in the financial statements. 2005 2005 2004 2003 2002 Per Share Operating Performance Net asset value, beginning of period $ 8.00 $ 7.69 $ 8.07 $ 7.79 $ 7.68 ---------- ---------- ---------- ---------- ---------- Investment income--net .14++++ .30++++ .33++++ .34++++ .35 Realized and unrealized gain (loss)--net (.12) .31 (.38) .28 .11 ---------- ---------- ---------- ---------- ---------- Total from investment operations .02 .61 (.05) .62 .46 ---------- ---------- ---------- ---------- ---------- Less dividends and distributions: Investment income--net (.14) (.30) (.33) (.34) (.35) Realized gain--net (.03) -- -- -- --++ ---------- ---------- ---------- ---------- ---------- Total dividends and distributions (.17) (.30) (.33) (.34) (.35) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 7.85 $ 8.00 $ 7.69 $ 8.07 $ 7.79 ========== ========== ========== ========== ========== Total Investment Return** Based on net asset value per share .30%+++ 8.01% (.58%) 8.16% 6.18% ========== ========== ========== ========== ========== Ratios to Average Net Assets Expenses, net of waiver 1.26%* 1.26% 1.26% 1.27% 1.28% ========== ========== ========== ========== ========== Expenses 1.27%* 1.27% 1.27% 1.27% 1.28% ========== ========== ========== ========== ========== Investment income--net 3.61%* 3.77% 4.23% 4.31% 4.56% ========== ========== ========== ========== ========== Supplemental Data Net assets, end of period (in thousands) $ 63,116 $ 64,682 $ 61,794 $ 66,089 $ 34,541 ========== ========== ========== ========== ========== Portfolio turnover 28.38% 55.00% 49.27% 38.17% 32.78% ========== ========== ========== ========== ========== * Annualized. ** Total investment returns exclude the effects of sales charges. ++ Amount is less than $(.01) per share. ++++ Based on average shares outstanding. +++ Aggregate total investment return. See Notes to Financial Statements.
MERRILL LYNCH MUNICIPAL BOND FUND, INC. DECEMBER 31, 2005 Financial Highlights (continued) Insured Portfolio
Class I For the Six Months Ended The following per share data and ratios have been derived December 31, For the Year Ended June 30, from information provided in the financial statements. 2005 2005 2004 2003 2002 Per Share Operating Performance Net asset value, beginning of period $ 8.00 $ 7.70 $ 8.07 $ 7.80 $ 7.69 ---------- ---------- ---------- ---------- ---------- Investment income--net .18++++ .36++++ .40++++ .41++++ .41 Realized and unrealized gain (loss)--net (.11) .30 (.37) .27 .11 ---------- ---------- ---------- ---------- ---------- Total from investment operations .07 .66 .03 .68 .52 ---------- ---------- ---------- ---------- ---------- Less dividends and distributions: Investment income--net (.18) (.36) (.40) (.41) (.41) Realized gain--net (.03) -- -- -- --++ ---------- ---------- ---------- ---------- ---------- Total dividends and distributions (.21) (.36) (.40) (.41) (.41) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 7.86 $ 8.00 $ 7.70 $ 8.07 $ 7.80 ========== ========== ========== ========== ========== Total Investment Return** Based on net asset value per share .83%+++ 8.74% .35% 8.88% 7.03% ========== ========== ========== ========== ========== Ratios to Average Net Assets Expenses, net of waiver .46%* .46% .46% .46% .47% ========== ========== ========== ========== ========== Expenses .46%* .46% .46% .46% .47% ========== ========== ========== ========== ========== Investment income--net 4.41%* 4.58% 5.04% 5.13% 5.35% ========== ========== ========== ========== ========== Supplemental Data Net assets, end of period (in thousands) $ 676,332 $ 707,134 $ 733,310 $ 855,757 $ 878,018 ========== ========== ========== ========== ========== Portfolio turnover 28.38% 55.00% 49.27% 38.17% 32.78% ========== ========== ========== ========== ========== * Annualized. ** Total investment returns exclude the effects of sales charges. Effective December 28, 2005, Class I Shares are no longer subject to any front-end sales charge. ++ Amount is less than $(.01) per share. ++++ Based on average shares outstanding. +++ Aggregate total investment return. See Notes to Financial Statements.
MERRILL LYNCH MUNICIPAL BOND FUND, INC. DECEMBER 31, 2005 Financial Highlights (continued) National Portfolio
Class A For the Six Months Ended The following per share data and ratios have been derived December 31, For the Year Ended June 30, from information provided in the financial statements. 2005 2005 2004 2003 2002 Per Share Operating Performance Net asset value, beginning of period $ 10.67 $ 10.29 $ 10.54 $ 10.27 $ 10.15 ---------- ---------- ---------- ---------- ---------- Investment income--net .25+++ .50+++ .52+++ .53+++ .53 Realized and unrealized gain (loss)--net (.15) .38 (.25) .27 .12 ---------- ---------- ---------- ---------- ---------- Total from investment operations .10 .88 .27 .80 .65 ---------- ---------- ---------- ---------- ---------- Less dividends and distributions: Investment income--net (.25) (.50) (.52) (.53) (.53) Realized gain--net -- -- -- -- --++ ---------- ---------- ---------- ---------- ---------- Total dividends and distributions (.25) (.50) (.52) (.53) (.53) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 10.52 $ 10.67 $ 10.29 $ 10.54 $ 10.27 ========== ========== ========== ========== ========== Total Investment Return** Based on net asset value per share .92%++++ 8.73% 2.62% 7.98% 6.72% ========== ========== ========== ========== ========== Ratios to Average Net Assets Expenses, net of waiver .84%* .84% .85% .84% .87% ========== ========== ========== ========== ========== Expenses .84%* .85% .85% .84% .87% ========== ========== ========== ========== ========== Investment income--net 4.63%* 4.76% 4.97% 5.10% 5.30% ========== ========== ========== ========== ========== Supplemental Data Net assets, end of period (in thousands) $ 258,176 $ 248,231 $ 207,376 $ 200,108 $ 137,225 ========== ========== ========== ========== ========== Portfolio turnover 34.64% 35.28% 22.46% 37.75% 35.75% ========== ========== ========== ========== ========== * Annualized. ** Total investment returns exclude the effects of sales charges. ++ Amount is less than $(.01) per share. ++++ Aggregate total investment return. +++ Based on average shares outstanding. See Notes to Financial Statements.
MERRILL LYNCH MUNICIPAL BOND FUND, INC. DECEMBER 31, 2005 Financial Highlights (continued) National Portfolio
Class B For the Six Months Ended The following per share data and ratios have been derived December 31, For the Year Ended June 30, from information provided in the financial statements. 2005 2005 2004 2003 2002 Per Share Operating Performance Net asset value, beginning of period $ 10.66 $ 10.28 $ 10.53 $ 10.26 $ 10.14 ---------- ---------- ---------- ---------- ---------- Investment income--net .22+++ .45+++ .47+++ .48+++ .53 Realized and unrealized gain (loss)--net (.15) .38 (.26) .27 .12 ---------- ---------- ---------- ---------- ---------- Total from investment operations .07 .83 .21 .75 .65 ---------- ---------- ---------- ---------- ---------- Less dividends and distributions: Investment income--net (.22) (.45) (.46) (.48) (.53) Realized gain--net -- -- -- -- --++ ---------- ---------- ---------- ---------- ---------- Total dividends and distributions (.22) (.45) (.46) (.48) (.53) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 10.51 $ 10.66 $ 10.28 $ 10.53 $ 10.26 ========== ========== ========== ========== ========== Total Investment Return** Based on net asset value per share .66%++++ 8.18% 2.10% 7.43% 6.18% ========== ========== ========== ========== ========== Ratios to Average Net Assets Expenses, net of waiver 1.35%* 1.35% 1.35% 1.34% 1.38% ========== ========== ========== ========== ========== Expenses 1.35%* 1.36% 1.36% 1.35% 1.38% ========== ========== ========== ========== ========== Investment income--net 4.12%* 4.27% 4.47% 4.59% 4.80% ========== ========== ========== ========== ========== Supplemental Data Net assets, end of period (in thousands) $ 158,641 $ 177,553 $ 217,814 $ 321,477 $ 295,827 ========== ========== ========== ========== ========== Portfolio turnover 34.64% 35.28% 22.46% 37.75% 35.75% ========== ========== ========== ========== ========== * Annualized. ** Total investment returns exclude the effects of sales charges. ++ Amount is less than $(.01) per share. ++++ Aggregate total investment return. +++ Based on average shares outstanding. See Notes to Financial Statements.
MERRILL LYNCH MUNICIPAL BOND FUND, INC. DECEMBER 31, 2005 Financial Highlights (continued) National Portfolio
Class C For the Six Months Ended The following per share data and ratios have been derived December 31, For the Year Ended June 30, from information provided in the financial statements. 2005 2005 2004 2003 2002 Per Share Operating Performance Net asset value, beginning of period $ 10.66 $ 10.29 $ 10.54 $ 10.26 $ 10.14 ---------- ---------- ---------- ---------- ---------- Investment income--net .22+++ .44+++ .46+++ .47+++ .53 Realized and unrealized gain (loss)--net (.14) .37 (.25) .28 .12 ---------- ---------- ---------- ---------- ---------- Total from investment operations .08 .81 .21 .75 .65 ---------- ---------- ---------- ---------- ---------- Less dividends and distributions: Investment income--net (.22) (.44) (.46) (.47) (.53) Realized gain--net -- -- -- -- --++ ---------- ---------- ---------- ---------- ---------- Total dividends and distributions (.22) (.44) (.46) (.47) (.53) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 10.52 $ 10.66 $ 10.29 $ 10.54 $ 10.26 ========== ========== ========== ========== ========== Total Investment Return** Based on net asset value per share .73%++++ 8.02% 2.05% 7.48% 6.13% ========== ========== ========== ========== ========== Ratios to Average Net Assets Expenses, net of waiver 1.40%* 1.40% 1.40% 1.39% 1.43% ========== ========== ========== ========== ========== Expenses 1.40%* 1.41% 1.41% 1.40% 1.43% ========== ========== ========== ========== ========== Investment income--net 4.07%* 4.20% 4.42% 4.54% 4.76% ========== ========== ========== ========== ========== Supplemental Data Net assets, end of period (in thousands) $ 121,975 $ 107,893 $ 74,849 $ 77,906 $ 52,822 ========== ========== ========== ========== ========== Portfolio turnover 34.64% 35.28% 22.46% 37.75% 35.75% ========== ========== ========== ========== ========== * Annualized. ** Total investment returns exclude the effects of sales charges. ++ Amount is less than $(.01) per share. ++++ Aggregate total investment return. +++ Based on average shares outstanding. See Notes to Financial Statements.
MERRILL LYNCH MUNICIPAL BOND FUND, INC. DECEMBER 31, 2005 Financial Highlights (concluded) National Portfolio
Class I For the Six Months Ended The following per share data and ratios have been derived December 31, For the Year Ended June 30, from information provided in the financial statements. 2005 2005 2004 2003 2002 Per Share Operating Performance Net asset value, beginning of period $ 10.66 $ 10.29 $ 10.54 $ 10.26 $ 10.14 ---------- ---------- ---------- ---------- ---------- Investment income--net .26+++ .53+++ .55+++ .56+++ .62 Realized and unrealized gain (loss)--net (.14) .37 (.25) .28 .12 ---------- ---------- ---------- ---------- ---------- Total from investment operations .12 .90 .30 .84 .74 ---------- ---------- ---------- ---------- ---------- Less dividends and distributions: Investment income--net (.26) (.53) (.55) (.56) (.62) Realized gain--net -- -- -- -- --++ ---------- ---------- ---------- ---------- ---------- Total dividends and distributions (.26) (.53) (.55) (.56) (.62) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 10.52 $ 10.66 $ 10.29 $ 10.54 $ 10.26 ========== ========== ========== ========== ========== Total Investment Return** Based on net asset value per share 1.14%++++ 8.89% 2.88% 8.34% 6.98% ========== ========== ========== ========== ========== Ratios to Average Net Assets Expenses, net of waiver .59%* .59% .60% .59% .62% ========== ========== ========== ========== ========== Expenses .59%* .60% .60% .59% .62% ========== ========== ========== ========== ========== Investment income--net 4.88%* 5.02% 5.23% 5.35% 5.55% ========== ========== ========== ========== ========== Supplemental Data Net assets, end of period (in thousands) $ 897,063 $ 909,125 $ 907,419 $ 624,192 $ 626,935 ========== ========== ========== ========== ========== Portfolio turnover 34.64% 35.28% 22.46% 37.75% 35.75% ========== ========== ========== ========== ========== * Annualized. ** Total investment returns exclude the effects of sales charges. Effective December 28, 2005, Class I Shares are no longer subject to any front-end sales charge. ++ Amount is less than $(.01) per share. ++++ Aggregate total investment return. +++ Based on average shares outstanding. See Notes to Financial Statements.
MERRILL LYNCH MUNICIPAL BOND FUND, INC. DECEMBER 31, 2005 Notes to Financial Statements 1. Significant Accounting Policies: Merrill Lynch Municipal Bond Fund, Inc. ("the Fund") (consisting of Merrill Lynch Short-Term Portfolio, Merrill Lynch Insured Portfolio and Merrill Lynch National Portfolio) is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. The Fund's financial statements are prepared in conformity with U.S. generally accepted accounting principles, which may require the use of management accruals and estimates. Actual results may differ from these estimates. These unaudited financial statements reflect all adjustments, which are, in the opinion of management, necessary to present a fair statement of the results for the interim period. All such adjustments are of a normal, recurring nature. The Fund's Portfolios offer multiple classes of shares. Effective December 28, 2005, Class I Shares are no longer subject to any front-end sales charge. Class A Shares are sold with a front-end sales charge. Shares of Class B and Class C may be subject to a contingent deferred sales charge. Class I Shares are sold only to certain retirement plans and investment programs and existing Class I shareholders. All classes of shares have identical voting, dividend, liquidation and other rights and the same terms and conditions, except that Class A, Class B and Class C Shares bear certain expenses related to the account maintenance of such shares, and Class B and Class C Shares also bear certain expenses related to the distribution of such shares. Each class has exclusive voting rights with respect to matters relating to its account maintenance and distribution expenditures (except that Class B shareholders may vote on certain changes to the Class A distribution plan). Income, expenses (other than expenses attributable to a specific class) and realized and unrealized gains and losses are allocated daily to each class based on its relative net assets. The following is a summary of significant accounting policies followed by the Fund. (a) Valuation of investments--Municipal bonds are traded primarily in the over- the-counter ("OTC") markets and are valued at the last available bid price in the OTC market or on the basis of values as obtained by a pricing service. Pricing services use valuation matrixes that incorporate both dealer-supplied valuations and valuation models. The procedures of the pricing service and its valuations are reviewed by the officers of the Fund under the general direction of the Board of Directors. Such valuations and procedures are reviewed periodically by the Board of Directors of the Fund. Financial futures contracts and options thereon, which are traded on exchanges, are valued at their closing prices as of the close of such exchanges. Options written or purchased are valued at the last sale price in the case of exchange-traded options. In the case of options traded in the OTC market, valuation is the last asked price (options written) or the last bid price (options purchased). Swap agreements are valued based upon quoted fair valuations received daily by the Fund from a pricing service. Short-term investments with a remaining maturity of 60 days or less are valued at amortized cost which approximates market value, under which method the investment is valued at cost and any premium or discount is amortized on a straight line basis to maturity. Investments in open-end investment companies are valued at their net asset value each business day. Securities and other assets for which market quotations are not readily available are valued at fair value as determined in good faith by or under the direction of the Board of Directors of the Fund. (b) Derivative financial instruments--The Fund may engage in various portfolio investment strategies both to increase the return of the Fund and to hedge, or protect its exposure to interest rate movements and movements in the securities markets. Losses may arise due to changes in the value of the contract or if the counterparty does not perform under the contract. * Financial futures contracts--The Fund may purchase or sell financial futures contracts and options on such futures contracts. Futures contracts are contracts for delayed delivery of securities at a specific future date and at a specific price or yield. Upon entering into a contract, the Portfolios deposit and maintain as collateral such initial margin as required by the exchange on which the transaction is effected. Pursuant to the contract, the Portfolios agree to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as variation margin and are recorded by the Portfolios as unrealized gains or losses. When the contract is closed, the Portfolios record a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. MERRILL LYNCH MUNICIPAL BOND FUND, INC. DECEMBER 31, 2005 Notes to Financial Statements (continued) * Forward interest rate swaps--The Fund may enter into forward interest rate swaps. In a forward interest rate swap, the Fund and the counterparty agree to pay or receive interest on a specified notional contract amount, commencing on a specified future effective date, unless terminated earlier. The value of the agreement is determined by quoted fair values received daily by the Fund from the counterparty. When the agreement is closed, the Fund records a realized gain or loss in an amount equal to the value of the agreement. (c) Income taxes--It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no federal income tax provision is required. (d) Security transactions and investment income--Security transactions are recorded on the dates the transactions are entered into (the trade dates). Realized gains and losses on security transactions are determined on the identified cost basis. Dividend income is recorded on the ex-dividend dates. Interest income is recognized on the accrual basis. The Portfolios amortize all premiums and discounts on debt securities. (e) Prepaid registration fees--Prepaid registration fees are charged to expense as the related shares are issued. (f) Dividends and distributions--Dividends from net investment income are declared daily and paid monthly. Distributions of capital gains are recorded on the ex-dividend dates. (g) Expenses--Certain expenses have been allocated to the individual Portfolios in the Fund on a pro rata basis based upon the respective aggregate net asset value of each Portfolio included in the Fund. (h) Insurance--Insured Portfolio: Where bonds in the Portfolio have not been insured pursuant to policies obtained by the issuer, the Fund has obtained insurance with respect to the payment of interest and principal of each bond. Such insurance is valid as long as the bonds are held by the Portfolio. 2. Investment Advisory Agreement and Transactions with Affiliates: The Fund has entered into an Investment Advisory Agreement with Fund Asset Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc. ("PSI"), an indirect, wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the limited partner. The Fund has also entered into a Distribution Agreement and Distribution Plan with FAM Distributors, Inc. ("FAMD" or the "Distributor"), which is a wholly-owned subsidiary of Merrill Lynch Group, Inc. FAM is responsible for the management of the Fund's portfolios and provides the necessary personnel, facilities, equipment and certain other services necessary to the operation of the Fund. For such services, FAM receives at the end of each month a fee with respect to each Portfolio at the annual rates set forth below which are based upon the average daily value of the Fund's net assets. Rate of Advisory Fee Aggregate of Average Daily Net Assets of the Three Short-Term Insured National Combined Portfolios Portfolio Portfolio Portfolio Not exceeding $250 million .40 % .40 % .50 % In excess of $250 million but not exceeding $400 million .375 .375 .475 In excess of $400 million but not exceeding $550 million .35 .375 .475 In excess of $550 million but not exceeding $1.5 billion .325 .375 .475 In excess of $1.5 billion .325 .35 .475 FAM has agreed to waive its advisory fee for each Portfolio by the amount of advisory fee each Portfolio pays to FAM indirectly through each Portfolio's investment in the Merrill Lynch Institutional Tax-Exempt Fund. For the six months ended December 31, 2005, FAM waived Short-Term Portfolio, Insured Portfolio and National Portfolio in the amounts of $32,703, $14,051 and $16,361, respectively. MERRILL LYNCH MUNICIPAL BOND FUND, INC. DECEMBER 31, 2005 Notes to Financial Statements (continued) Pursuant to the Distribution Plans adopted by the Fund in accordance with Rule 12b-1 under the Investment Company Act of 1940, the Fund pays the Distributor ongoing account maintenance and distribution fees. The fees are accrued daily and paid monthly at annual rates based upon the average daily net assets of the shares as follows: Account Maintenance Fees Class A Class B Class C Short-Term Portfolio .10% .15% .15% Insured Portfolio .25% .25% .25% National Portfolio .25% .25% .25% Distribution Fees Class A Class B Class C Short-Term Portfolio -- .20% .20% Insured Portfolio -- .50% .55% National Portfolio -- .50% .55% Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), an affiliate of FAM, also provides account maintenance and distribution services to the Fund. The ongoing account maintenance fee compensates the Distributor and MLPF&S for providing account maintenance services to Class A, Class B and Class C shareholders. The ongoing distribution fee compensates the Distributor and MLPF&S for providing shareholder and distribution-related services to Class B and Class C shareholders. For the six months ended December 31, 2005, FAMD earned underwriting discounts and direct commissions and MLPF&S earned dealer concessions on sales of the Fund's Class A and Class I Shares follows: FAMD MLPF&S Class A Class I Class A Class I Short-Term Portfolio $ 288 $ 1,176 $ 4,514 $15,729 Insured Portfolio $ 2,355 $ 5,869 $21,740 $26,228 National Portfolio $11,034 $12,430 $90,581 $36,212 For the six months ended December 31, 2005, MLPF&S received contingent deferred sales charges of $111,207 relating to transactions in Class B Shares, amounting to $25,807, $37,397 and $48,003 in the Short-Term, Insured and National Portfolios, respectively, and $22,885 relating to transactions in Class C Shares, amounting to $6,170, $2,682 and $14,033 in the Short-Term, Insured and National Portfolios, respectively. For the six months ended December 31, 2005, the Fund reimbursed FAM $4,704, $11,339 and $16,354 in the Short-Term, Insured and National Portfolios, respectively, for certain accounting services. Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of ML & Co., is the Fund's transfer agent. Certain officers and/or directors of the Fund are officers and/or directors of FAM, PSI, FAMD, FDS, and/or ML & Co. 3. Investments: Purchases and sales of investments, excluding short-term securities, for the six months ended December 31, 2005 were as follows: Purchases Sales Short-Term Portfolio $173,771,367 $187,177,703 Insured Portfolio $286,809,680 $332,713,882 National Portfolio $483,409,689 $499,172,066 4. Capital Share Transactions: Net increase (decrease) in net assets derived from capital share transactions for the six months ended December 31, 2005 and the year ended June 30, 2005 were $(71,726,707) and $(233,513,320), respectively, for the Short-Term Portfolio; $(26,718,652) and $(86,014,174), respectively, for the Insured Portfolio; and $12,712,925 and $(15,324,652), respectively, for the National Portfolio. MERRILL LYNCH MUNICIPAL BOND FUND, INC. DECEMBER 31, 2005 Notes to Financial Statements (continued) Transactions in capital shares for each class were as follows: Short-Term Portfolio Class A Shares for the Six Months Ended Dollar December 31, 2005 Shares Amount Shares sold 520,843 $ 5,190,604 Automatic conversion of shares 61,086 608,531 Shares issued to shareholders in reinvestment of dividends 77,070 767,566 --------------- ---------------- Total issued 658,999 6,566,701 Shares redeemed (2,894,305) (28,825,008) --------------- ---------------- Net decrease (2,235,306) $ (22,258,307) =============== ================ Class A Shares for the Year Dollar Ended June 30, 2005 Shares Amount Shares sold 3,374,057 $ 33,962,460 Automatic conversion of shares 146,594 1,473,218 Shares issued to shareholders in reinvestment of dividends 184,448 1,850,964 --------------- ---------------- Total issued 3,705,099 37,286,642 Shares redeemed (13,930,419) (139,907,342) --------------- ---------------- Net decrease (10,225,320) $ (102,620,700) =============== ================ Class B Shares for the Six Months Ended Dollar December 31, 2005 Shares Amount Shares sold 22,995 $ 229,069 Shares issued to shareholders in reinvestment of dividends 23,278 231,683 --------------- ---------------- Total issued 46,273 460,752 --------------- ---------------- Automatic conversion of shares (61,139) (608,531) Shares redeemed (823,355) (8,198,989) --------------- ---------------- Total redeemed (884,494) (8,807,520) --------------- ---------------- Net decrease (838,221) $ (8,346,768) =============== ================ Class B Shares for the Year Dollar Ended June 30, 2005 Shares Amount Shares sold 269,378 $ 2,707,532 Shares issued to shareholders in reinvestment of dividends 48,450 485,847 --------------- ---------------- Total issued 317,828 3,193,379 --------------- ---------------- Automatic conversion of shares (146,687) (1,473,218) Shares redeemed (2,595,792) (26,034,176) --------------- ---------------- Total redeemed (2,742,479) (27,507,394) --------------- ---------------- Net decrease (2,424,651) $ (24,314,015) =============== ================ Class C Shares for the Six Months Ended Dollar December 31, 2005 Shares Amount Shares sold 378,955 $ 3,753,873 Shares issued to shareholders in reinvestment of dividends 59,188 586,490 --------------- ---------------- Total issued 438,143 4,340,363 Shares redeemed (2,283,011) (22,625,576) --------------- ---------------- Net decrease (1,844,868) $ (18,285,213) =============== ================ Class C Shares for the Year Dollar Ended June 30, 2005 Shares Amount Shares sold 1,680,127 $ 16,793,553 Shares issued to shareholders in reinvestment of dividends 117,775 1,175,754 --------------- ---------------- Total issued 1,797,902 17,969,307 Shares redeemed (6,920,737) (69,093,002) --------------- ---------------- Net decrease (5,122,835) $ (51,123,695) =============== ================ Class I Shares for the Six Months Ended Dollar December 31, 2005 Shares Amount Shares sold 570,817 $ 5,681,028 Shares issued to shareholders in reinvestment of dividends 134,486 1,337,973 --------------- ---------------- Total issued 705,303 7,019,001 Shares redeemed (3,000,695) (29,855,420) --------------- ---------------- Net decrease (2,295,392) $ (22,836,419) =============== ================ Class I Shares for the Year Dollar Ended June 30, 2005 Shares Amount Shares sold 2,389,803 $ 23,968,954 Shares issued to shareholders in reinvestment of dividends 246,614 2,472,327 --------------- ---------------- Total issued 2,636,417 26,441,281 Shares redeemed (8,166,900) (81,896,191) --------------- ---------------- Net decrease (5,530,483) $ (55,454,910) =============== ================ MERRILL LYNCH MUNICIPAL BOND FUND, INC. DECEMBER 31, 2005 Notes to Financial Statements (continued) Insured Portfolio Class A Shares for the Six Months Ended Dollar December 31, 2005 Shares Amount Shares sold 830,281 $ 6,527,115 Automatic conversion of shares 495,572 3,897,514 Shares issued to shareholders in reinvestment of dividends and distributions 284,074 2,236,739 --------------- ---------------- Total issued 1,609,927 12,661,368 Shares redeemed (1,220,269) (9,615,588) --------------- ---------------- Net increase 389,658 $ 3,045,780 =============== ================ Class A Shares for the Year Dollar Ended June 30, 2005 Shares Amount Shares sold 1,066,208 $ 8,437,549 Automatic conversion of shares 1,094,647 8,649,488 Shares issued to shareholders in reinvestment of dividends 495,949 3,921,138 --------------- ---------------- Total issued 2,656,804 21,008,175 Shares redeemed (3,656,199) (28,860,424) --------------- ---------------- Net decrease (999,395) $ (7,852,249) =============== ================ Class B Shares for the Six Months Ended Dollar December 31, 2005 Shares Amount Shares sold 136,255 $ 1,071,314 Shares issued to shareholders in reinvestment of dividends and distributions 103,785 817,109 --------------- ---------------- Total issued 240,040 1,888,423 --------------- ---------------- Automatic conversion of shares (495,739) (3,897,514) Shares redeemed (1,183,804) (9,326,774) --------------- ---------------- Total redeemed (1,679,543) (13,224,288) --------------- ---------------- Net decrease (1,439,503) $ (11,335,865) =============== ================ Class B Shares for the Year Dollar Ended June 30, 2005 Shares Amount Shares sold 283,542 $ 2,237,673 Shares issued to shareholders in reinvestment of dividends 218,648 1,727,424 --------------- ---------------- Total issued 502,190 3,965,097 --------------- ---------------- Automatic conversion of shares (1,094,676) (8,649,488) Shares redeemed (2,479,128) (19,581,853) --------------- ---------------- Total redeemed (3,573,804) (28,231,341) --------------- ---------------- Net decrease (3,071,614) $ (24,266,244) =============== ================ Class C Shares for the Six Months Ended Dollar December 31, 2005 Shares Amount Shares sold 658,635 $ 5,190,112 Shares issued to shareholders in reinvestment of dividends and distributions 92,466 727,957 --------------- ---------------- Total issued 751,101 5,918,069 Shares redeemed (801,207) (6,305,043) --------------- ---------------- Net decrease (50,106) $ (386,974) =============== ================ Class C Shares for the Year Dollar Ended June 30, 2005 Shares Amount Shares sold 1,281,216 $ 10,135,537 Shares issued to shareholders in reinvestment of dividends 162,591 1,285,374 --------------- ---------------- Total issued 1,443,807 11,420,911 Shares redeemed (1,386,798) (10,955,958) --------------- ---------------- Net increase 57,009 $ 464,953 =============== ================ Class I Shares for the Six Months Ended Dollar December 31, 2005 Shares Amount Shares sold 678,097 $ 5,344,334 Shares issued to shareholders in reinvestment of dividends and distributions 981,884 7,737,254 --------------- ---------------- Total issued 1,659,981 13,081,588 Shares redeemed (3,949,732) (31,123,181) --------------- ---------------- Net decrease (2,289,751) $ (18,041,593) =============== ================ Class I Shares for the Year Dollar Ended June 30, 2005 Shares Amount Shares sold 1,160,854 $ 9,184,822 Shares issued to shareholders in reinvestment of dividends 1,785,849 14,124,090 --------------- ---------------- Total issued 2,946,703 23,308,912 Shares redeemed (9,826,814) (77,669,546) --------------- ---------------- Net decrease (6,880,111) $ (54,360,634) =============== ================ MERRILL LYNCH MUNICIPAL BOND FUND, INC. DECEMBER 31, 2005 Notes to Financial Statements (continued) National Portfolio Class A Shares for the Six Months Ended Dollar December 31, 2005 Shares Amount Shares sold 2,084,645 $ 21,928,919 Automatic conversion of shares 702,557 7,404,545 Shares issued to shareholders in reinvestment of dividends 265,875 2,802,862 --------------- ---------------- Total issued 3,053,077 32,136,326 Shares redeemed (1,785,367) (18,825,360) --------------- ---------------- Net increase 1,267,710 $ 13,310,966 =============== ================ Class A Shares for the Year Dollar Ended June 30, 2005 Shares Amount Shares sold 5,528,841 $ 58,067,896 Automatic conversion of shares 1,765,411 18,581,047 Shares issued to shareholders in reinvestment of dividends 477,278 5,031,328 --------------- ---------------- Total issued 7,771,530 81,680,271 Shares redeemed (4,647,158) (48,641,136) --------------- ---------------- Net increase 3,124,372 $ 33,039,135 =============== ================ Class B Shares for the Six Months Ended Dollar December 31, 2005 Shares Amount Shares sold 338,265 $ 3,564,029 Shares issued to shareholders in reinvestment of dividends 138,416 1,458,385 --------------- ---------------- Total issued 476,681 5,022,414 --------------- ---------------- Automatic conversion of shares (703,000) (7,404,545) Shares redeemed (1,342,209) (14,135,929) --------------- ---------------- Total redeemed (2,045,209) (21,540,474) --------------- ---------------- Net decrease (1,568,528) $ (16,518,060) =============== ================ National Portfolio Class B Shares for the Year Dollar Ended June 30, 2005 Shares Amount Shares sold 628,757 $ 6,605,915 Shares issued to shareholders in reinvestment of dividends 330,341 3,477,776 --------------- ---------------- Total issued 959,098 10,083,691 --------------- ---------------- Automatic conversion of shares (1,766,807) (18,581,047) Shares redeemed (3,712,735) (39,022,894) --------------- ---------------- Total redeemed (5,479,542) (57,603,941) --------------- ---------------- Net decrease (4,520,444) $ (47,520,250) =============== ================ Class C Shares for the Six Months Ended Dollar December 31, 2005 Shares Amount Shares sold 2,011,032 $ 21,181,065 Shares issued to shareholders in reinvestment of dividends 141,742 1,493,780 --------------- ---------------- Total issued 2,152,774 22,674,845 Shares redeemed (673,661) (7,088,937) --------------- ---------------- Net increase 1,479,113 $ 15,585,908 =============== ================ Class C Shares for the Year Dollar Ended June 30, 2005 Shares Amount Shares sold 4,140,886 $ 43,609,428 Shares issued to shareholders in reinvestment of dividends 217,764 2,295,644 --------------- ---------------- Total issued 4,358,650 45,905,072 Shares redeemed (1,514,374) (15,959,537) --------------- ---------------- Net increase 2,844,276 $ 29,945,535 =============== ================ Class I Shares for the Six Months Ended Dollar December 31, 2005 Shares Amount Shares sold 2,406,512 $ 25,291,838 Shares issued to shareholders in reinvestment of dividends 1,381,510 14,562,620 --------------- ---------------- Total issued 3,788,022 39,854,458 Shares redeemed (3,754,626) (39,520,347) --------------- ---------------- Net increase 33,396 $ 334,111 =============== ================ Class I Shares for the Year Dollar Ended June 30, 2005 Shares Amount Shares sold 2,524,187 $ 26,563,911 Shares issued to shareholders in reinvestment of dividends 2,816,177 29,669,505 --------------- ---------------- Total issued 5,340,364 56,233,416 Shares redeemed (8,272,425) (87,022,488) --------------- ---------------- Net decrease (2,932,061) $ (30,789,072) =============== ================ MERRILL LYNCH MUNICIPAL BOND FUND, INC. DECEMBER 31, 2005 Notes to Financial Statements (concluded) 5. Short-Term Borrowings: The Fund, on behalf of the Portfolios, along with certain other funds managed by FAM and its affiliates, is a party to a $500,000,000 credit agreement with a group of lenders. The Fund may borrow under the credit agreement to fund shareholder redemptions and for other lawful purposes other than for leverage. The Fund may borrow up to the maximum amount allowable under the Fund's current prospectus and statement of additional information, subject to various other legal, regulatory or contractual limits. The Fund pays a commitment fee of .07% per annum based on the Fund's pro rata share of the unused portion of the credit agreement. Amounts borrowed under the credit agreement bear interest at a rate equal to, at each Fund's election, the federal funds rate plus .50% or a base rate as defined in the credit agreement. The Fund did not borrow under the credit agreement during the six months ended December 31, 2005. On November 23, 2005 the credit agreement was renewed for one year under substantially the same terms. 6. Capital Loss Carryforward: At June 30, 2005, the Short-Term Portfolio had a net capital loss carryforward of approximately $1,978,680, of which $119,413 expires in 2008, $426,094 expires in 2009, $331,374 expires in 2012 and $1,101,799 expires in 2013; the National Portfolio had a net capital loss carryforward of approximately $63,982,664, of which $5,081,800 expires in 2006, $18,502,015 expires in 2007, $10,488,608 expires in 2008, $26,931,578 expires in 2009, $444,566 expires in 2010, $942,957 expires in 2011 and $1,591,140 expires in 2012. These amounts will be available to offset like amounts of any future taxable gains. MERRILL LYNCH MUNICIPAL BOND FUND, INC. DECEMBER 31, 2005 Disclosure of Investment Advisory Agreement Activities and Composition of the Board of Directors All but one member of the Board of Directors is an independent director whose only affiliation with Fund Asset Management, L.P. (the "Investment Adviser") or other Merrill Lynch affiliates is as a director of the Fund and certain other funds advised by the Investment Adviser or its affiliates. The Chairman of the Board is also an independent director. New director nominees are chosen as nominees by a Nominating Committee comprised of independent directors. All independent directors also are members of the Board's Audit Committee and the independent directors meet in executive session at each in-person Board meeting. The Board and the Audit Committee meet in person for at least two days each quarter and conduct other in-person and telephone meetings throughout the year, some of which are formal Board meetings, and some of which are informational meetings. The independent counsel to the independent directors attends all in-person Board and Audit Committee meetings and other meetings at the independent directors' request. Investment Advisory Agreement--Matters Considered by the Board Every year, the Board considers approval of the investment advisory agreement (the "Investment Advisory Agreement") the Fund has entered into on behalf of its three portfolios, the Insured Portfolio, the National Portfolio, and the Short-Term Portfolio (each, a "Portfolio," and collectively, the "Portfolios"). The Board assesses the nature, scope and quality of the services provided to each Portfolio by the personnel of the Investment Adviser and its affiliates, including administrative services, shareholder services, oversight of fund accounting, marketing services and assistance in meeting legal and regulatory requirements. The Board also receives and assesses information regarding the services provided to each Portfolio by certain unaffiliated service providers. At various times throughout the year, the Board also considers a range of information in connection with its oversight of the services provided by the Investment Adviser and its affiliates. Among the matters considered are: (a) fees (in addition to management fees) paid to the Investment Adviser and its affiliates by each Portfolio, such as transfer agency fees and fees for marketing and distribution; (b) Portfolio operating expenses paid to third parties; (c) the resources devoted to and compliance reports relating to each Portfolio's investment objective, policies and restrictions, and its compliance with its Code of Ethics and compliance policies and procedures; and (d) the nature, cost and character of non-investment management services provided by the Investment Adviser and its affiliates. The Board believes that the Investment Adviser is one of the most experienced global asset management firms and considers the overall services provided by the Investment Adviser to be of high quality. The Board also believes that the Investment Adviser is financially sound and well managed and notes that the Investment Adviser is affiliated with one of America's largest financial firms. The Board works closely with the Investment Adviser in overseeing the Investment Adviser's efforts to achieve good performance. As part of this effort, the Board discusses portfolio manager effectiveness and, when performance is not satisfactory, discusses with the Investment Adviser taking steps such as changing investment personnel. Annual Consideration of Approval by the Board of Directors In the period prior to the Board meeting to consider renewal of the Investment Advisory Agreement, the Board requests and receives materials specifically relating to the Fund's Investment Advisory Agreement. These materials are prepared separately with respect to each Portfolio, and include (a) information compiled by Lipper Inc. ("Lipper") on the fees and expenses and the investment performance of each Portfolio as compared to a comparable group of funds as classified by Lipper; (b) sales and redemption information for each Portfolio; (c) a discussion by each Portfolio's portfolio management team of investment strategies used by each Portfolio during its most recent fiscal year; and (d) information on the profitability to the Investment Adviser and its affiliates of the Investment Advisory Agreement and other relationships with each Portfolio. The Board also considers other matters it deems important to the approval process such as payments made to the Investment Adviser or its affiliates relating to the distribution of Portfolio shares, services related to the valuation and pricing of each Portfolio's portfolio holdings, allocation of each Portfolio's portfolio transactions, each Portfolio's portfolio turnover statistics, and direct and indirect benefits to the Investment Adviser and its affiliates from their relationship with each Portfolio. Certain Specific Renewal Data In connection with the most recent renewal of the Fund's Investment Advisory Agreement which occurred in November 2005, the independent directors' and Boards' review included the following: MERRILL LYNCH MUNICIPAL BOND FUND, INC. DECEMBER 31, 2005 Disclosure of Investment Advisory Agreement (continued) Services Provided by the Investment Adviser--The Board reviewed the nature, extent and quality of services provided by the Investment Adviser, including the investment advisory services and the resulting performance of each Portfolio. The Board focused primarily on the Investment Adviser's investment advisory services and each Portfolio's investment performance, having concluded that the other services provided to each Portfolio by the Investment Adviser were satisfactory. The Board compared each Portfolio's performance - both including and excluding the effects of the Portfolio's fees and expenses - to the performance of a comparable group of funds, and the performance of a relevant index or combination of indexes. While the Board reviews performance data at least quarterly, consistent with the Investment Adviser's investment goals, the Board attaches more importance to performance over relatively long periods of time, typically three to five years. The Board considered each Portfolio's total return performance within the comparable group after fees and expenses as of August 31, 2005 as reflected in the following table. Quintile Quintile Quintile 1 year 3 years 5 years Insured Portfolio 1st 1st 1st National Portfolio 2nd 1st 1st Short-Term Portfolio 4th N/A N/A The Board noted that the universe of funds the Short-Term Portfolio was compared to was very small, and for the three-year and five-year periods, the Portfolio was ranked last among three comparable funds. The Board also considered each Fund's performance based on annualized yields, and noted that the Insured Portfolio's annualized yield was in the first quintile for each of the past five years; the annualized yield on the National Portfolio was in the first quintile for the past three years, and in the second quintile for the prior two years; and yields on the Short-Term Portfolio ranged from the third quintile to the fifth quintile over the past five years. Considering these factors, the Board concluded that the nature and quality of these services supported the continuation of the Fund's Investment Advisory Agreement. The Investment Adviser's Personnel and Investment Process--The Board reviews at least annually each Portfolio's investment objectives and strategies. The Board discusses with senior management of the Investment Adviser responsible for investment operations and the senior management of the Investment Adviser's municipal investing group the strategies being used to achieve the stated objectives. Among other things, the Board considers the size, education and experience of the Investment Adviser's investment staff, its use of technology, and the Investment Adviser's approach to training and retaining portfolio managers and other research, advisory and management personnel. The Board also reviews the Investment Adviser's compensation policies and practices with respect to each Portfolio's portfolio managers. The Board also considered the experience of each Portfolio's portfolio manager and noted that: (i) Mr. DiMella, the portfolio manager of the Insured Portfolio, has over thirteen years' experience investing in municipal securities; (ii) Mr. O'Connor, the portfolio manager of the National Portfolio, has over twenty-one years' experience investing in municipal securities; and (iii) Mr. Hayes, the portfolio manager of the Short-Term Portfolio, has over twenty-two years experience investing in municipal securities. The Board concluded that the Investment Adviser and its investment staff and each Portfolio's manager have extensive experience in analyzing and managing the types of investments used by the Portfolio and that each Portfolio benefits from that expertise. Management Fees and Other Expenses--The Board reviews each Portfolio's contractual management fee rate and actual management fee rate as a percentage of total assets at common asset levels - the actual rate includes advisory and administrative service fees and the effects of any fee waivers - compared to the other funds in its Lipper category. It also compares each Portfolio's total expenses to those of other comparable funds. The Board did not consider the services provided to and the fees charged by the Investment Adviser to other types of clients with similar investment mandates because the Investment Adviser advised the Board that it had no comparable investment mandates from its clients. The Board noted that, with respect to each of the Insured Portfolio and the Short-Term Portfolio, the contractual and actual management fee rates and the actual total expenses were below the median fees and expenses charged by comparable funds as determined by Lipper. With respect to the National Portfolio, the Board noted that the contractual management fee rate was slightly above, the actual management fee rate was below, and the total expenses were equal to, the median management fees and total expenses charged by comparable funds as determined by Lipper. The Board has concluded that each Portfolio's management fee and fee rate and overall expense ratio are acceptable compared to those of other comparable funds. MERRILL LYNCH MUNICIPAL BOND FUND, INC. DECEMBER 31, 2005 Disclosure of Investment Advisory Agreement (concluded) Profitability--The Board considers the cost of the services provided to each Portfolio by the Investment Adviser, and the Investment Adviser's and its affiliates' profits relating to the management of each Portfolio and the MLIM/FAM-advised funds. As part of its analysis, the Board reviewed the Investment Adviser's methodology in allocating its costs to the management of each Portfolio and concluded that there was a reasonable basis for the allocation. The Board also considered federal court decisions discussing an investment adviser's profitability and profitability levels considered to be reasonable in those decisions. The Board believes the Investment Adviser's profits are acceptable in relation to the nature and quality of services provided and given the level of fees and expenses overall. Economies of Scale--The Board considered the extent to which economies of scale might be realized as the assets of each Portfolio increase and whether there should be changes in the management fee rate or structure in order to enable each Portfolio to participate in these economies of scale. The Board noted that the Fund's management fee schedule includes breakpoints that reduce the management fee rate as the aggregate assets of the three portfolios that comprise the Fund increase above certain levels and that, at its current asset size, the Fund's management fee rate and total operating expenses benefit from the breakpoint schedule. Conclusion After the independent directors deliberated in executive session, the entire Board, including all of the independent directors, approved the renewal of the existing Investment Advisory Agreement for the Fund, relating to each Portfolio, concluding that the advisory fee was reasonable in relation to the services provided and that a contract renewal was in the best interests of each Portfolio's shareholders. Availability of Quarterly Schedule of Investments The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission ("SEC") for the first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q are available on the SEC's Web site at http://www.sec.gov. The Fund's Forms N-Q may also be reviewed and copied at the SEC's Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. Electronic Delivery The Fund offers electronic delivery of communications to its shareholders. In order to receive this service, you must register your account and provide us with e-mail information. To sign up for this service, simply access this Web site at http://www.icsdelivery.com/live and follow the instructions. When you visit this site, you will obtain a personal identification number (PIN). You will need this PIN should you wish to update your e-mail address, choose to discontinue this service and/or make any other changes to the service. This service is not available for certain retirement accounts at this time. MERRILL LYNCH MUNICIPAL BOND FUND, INC. DECEMBER 31, 2005 Item 2 - Code of Ethics - Not Applicable to this semi-annual report Item 3 - Audit Committee Financial Expert - Not Applicable to this semi- annual report Item 4 - Principal Accountant Fees and Services - Not Applicable to this semi-annual report Item 5 - Audit Committee of Listed Registrants - Not Applicable Item 6 - Schedule of Investments - Not Applicable Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies - Not Applicable Item 8 - Portfolio Managers of Closed-End Management Investment Companies - Not Applicable Item 9 - Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers - Not Applicable Item 10 - Submission of Matters to a Vote of Security Holders - Not Applicable Item 11 - Controls and Procedures 11(a) - The registrant's certifying officers have reasonably designed such disclosure controls and procedures to ensure material information relating to the registrant is made known to us by others particularly during the period in which this report is being prepared. The registrant's certifying officers have determined that the registrant's disclosure controls and procedures are effective based on our evaluation of these controls and procedures as of a date within 90 days prior to the filing date of this report. 11(b) - There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR 270.30a-3(d)) that occurred during the last fiscal half- year of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 12 - Exhibits attached hereto 12(a)(1) - Code of Ethics - Not Applicable to this semi-annual report 12(a)(2) - Certifications - Attached hereto 12(a)(3) - Not Applicable 12(b) - Certifications - Attached hereto Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Merrill Lynch Municipal Bond Fund, Inc. By: /s/ Robert C. Doll, Jr. ----------------------------- Robert C. Doll, Jr., Chief Executive Officer of Merrill Lynch Municipal Bond Fund, Inc. Date: February 21, 2006 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ Robert C. Doll, Jr. ----------------------------- Robert C. Doll, Jr., Chief Executive Officer of Merrill Lynch Municipal Bond Fund, Inc. Date: February 21, 2006 By: /s/ Donald C. Burke ----------------------------- Donald C. Burke, Chief Financial Officer of Merrill Lynch Municipal Bond Fund, Inc. Date: February 21, 2006