-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G7OdGglpTVCwcOvDvd/qKL9XpxCMcR6AhwiTMi2xJryqkJQM5ySJ/xnTJhlilz5n CTDJemst+9LLvKBBlc6yrw== 0000900092-06-000420.txt : 20060906 0000900092-06-000420.hdr.sgml : 20060906 20060906151105 ACCESSION NUMBER: 0000900092-06-000420 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20060630 FILED AS OF DATE: 20060906 DATE AS OF CHANGE: 20060906 EFFECTIVENESS DATE: 20060906 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MERRILL LYNCH MUNICIPAL BOND FUND INC CENTRAL INDEX KEY: 0000225635 IRS NUMBER: 132896246 STATE OF INCORPORATION: NJ FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-02688 FILM NUMBER: 061076504 BUSINESS ADDRESS: STREET 1: 800 SCUDDERS MILL RD CITY: PLAINSBORO STATE: NJ ZIP: 08536 BUSINESS PHONE: 6092822026 FORMER COMPANY: FORMER CONFORMED NAME: ONE LIBERTY MUNICIPAL BOND FUND INC DATE OF NAME CHANGE: 19780622 0000225635 S000002332 BlackRock Municipal Insured Fund C000006110 Investor A C000006111 Investor B C000006112 Investor C1 C000006113 Institutional C000038032 Investor C 0000225635 S000002334 BlackRock National Municipal Fund C000006118 Investor A C000006119 Investor B C000006120 Investor C1 C000006121 Institutional C000038033 Investor C 0000225635 S000002335 BlackRock Short-Term Municipal Fund C000006122 Investor A1 C000006123 Investor B C000006124 Investor C C000006125 Institutional C000038034 Investor A C000038035 BlackRock C000038044 Service N-CSR 1 ml7410.txt MERRILL LYNCH MUNICIPAL BOND FUND UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR 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 - 06/30/06 Item 1 - Report to Stockholders Annual Report June 30, 2006 Merrill Lynch Municipal Bond Fund, Inc. (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 By now, you have probably heard of the important changes unfolding at Merrill Lynch Investment Managers ("MLIM"). We have been communicating with shareholders, via letters like this and in a detailed proxy mailing, about MLIM's impending union with another highly regarded investment manager - BlackRock, Inc. ("BlackRock"). This transaction marks the next chapter in MLIM's growth story and, we believe, will be a benefit to our investors. MLIM, a division of Merrill Lynch with over $583 billion in assets under management, is a leading investment manager offering more than 100 investment strategies in vehicles ranging from mutual funds to institutional portfolios. BlackRock, with $464.1 billion in assets under management, is one of the largest publicly traded investment management firms in the United States managing assets on behalf of institutional and individual investors worldwide through a variety of equity, fixed income, liquidity and alternative investment products. At the completion of the transaction, which is expected by the end of third quarter 2006, the resultant firm will be a top-10 investment manager worldwide with over $1 trillion in assets under management.* The combined company, to be known as BlackRock, will provide a wide selection of high-quality investment solutions across a range of asset classes and investment styles. The organization will have over 4,500 employees in 18 countries and a major presence in key markets worldwide. MLIM and BlackRock possess complementary capabilities that together create a well-rounded organization uniting some of the finest money managers in the industry. The firms share similar values and beliefs - each strives for excellence in all areas, and both make investment performance their single most important mission. As such, our combination only reinforces our commitment to shareholders. Most of MLIM's investment products - including mutual funds, separately managed accounts, annuities and variable insurance funds - eventually will carry the "BlackRock" name. This will be reflected in newspaper and online information sources beginning in October. Your account statements will reflect the BlackRock name beginning with the October month-end reporting period. Unless otherwise communicated via a proxy statement, your funds will maintain the same investment objectives that they do today. Importantly, the MLIM/ BlackRock union will not affect your brokerage account or your relationship with your financial advisor. If you are a client of Merrill Lynch, you will remain a client of Merrill Lynch. As always, we thank you for entrusting us with your investment assets. We look forward to continuing to serve your investment needs with even greater strength and scale as the new BlackRock. Sincerely, (Robert C. Doll, Jr.) Robert C. Doll, Jr. President and Chief Investment Officer Merrill Lynch Investment Managers * $1.047 trillion in assets under management as of June 30, 2006. Data, including assets under management, are as of June 30, 2006. MERRILL LYNCH MUNICIPAL BOND FUND, INC. JUNE 30, 2006 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 Announcement to Shareholders 8 Performance Data 9 Portfolio Information 14 Disclosure of Expenses 15 Schedule of Investments--Short-Term Portfolio 17 Schedule of Investments--Insured Portfolio 19 Schedule of Investments--National Portfolio 22 Financial Statements 32 Financial Highlights 38 Notes to Financial Statements 44 Report of Independent Registered Public Accounting Firm 51 Important Tax Information 51 Disclosure of New Investment Advisory Agreement 52 Officers and Directors 57 MERRILL LYNCH MUNICIPAL BOND FUND, INC. JUNE 30, 2006 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 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. Walter C. O'Connor Senior Portfolio Manager CFA (R) and Chartered Financial Analyst (R) are trademarks owned by the CFA Institute. MERRILL LYNCH MUNICIPAL BOND FUND, INC. JUNE 30, 2006 A Discussion With Your Funds' Portfolio Managers Municipal bond market fundamentals appear positive going forward, and we expect the combination of high credit quality and fairly neutral interest rate positioning to serve the Portfolios well. Describe the recent market environment relative to municipal bonds. Long-term bond yields rose sharply during the 12-month period, with much of the increase occurring in the final three months. Bond prices, which move opposite of yields, declined as investors focused on solid economic growth, both globally and in the United States, and renewed inflationary pressures deriving from rising commodity prices. The Federal Reserve Board (the Fed) increased short-term interest rates at each of its meetings during the year, bringing the federal funds target rate to 5.25% at period-end. The yield curve continued to flatten as short-term interest rates rose more than longer-term rates. Over the past 12 months, 30-year U.S. Treasury bond yields rose 100 basis points (1.00%) to 5.19% and 10-year U.S. Treasury note yields rose 121 basis points to 5.15%, the highest level since May 2002. At the short end, two-year Treasury yields rose 150 basis points to 5.16%. While municipal bond yields also rose in recent months, the market's strong technical position provided significant price support and allowed municipal bond prices to decline much less than taxable bond prices. As measured by Municipal Market Data, yields on AAA-rated issues maturing in 30 years rose 37 basis points to 4.63%, while yields on AAA-rated issues maturing in 10 years rose 69 basis points to 4.14%. Two-year, AAA-rated issues saw their yields rise 110 basis points to 3.73%. The municipal market has been supported by increased retail investor demand and declining supply. Year-to-date, over $179 billion in new long-term tax- exempt bonds was underwritten, a decline of 14% compared to the first half of 2005 and the lowest initial semi-annual volume in the past four years. The decline largely has been the result of a 52% drop in refunding activity so far this year. Rising bond yields have made the refinancing of existing higher- couponed debt less attractive, as the potential savings have rapidly diminished. In addition, the improved fiscal conditions of many state and local governments have resulted in lower borrowing trends, as many new municipal capital projects have been financed from existing budget surpluses. At the same time, municipal bond fund flows have remained positive. As reported by the Investment Company Institute, open-end tax-exempt bond funds received net new cash inflows of more than $6.2 billion in the first five months of 2006, compared to $1.4 billion during the same period in 2005. Looking ahead, the fundamentals for the municipal market appear positive. Demand is expected to be sustained as investors receive cash flow from coupon income and the proceeds of bond maturities and calls. In addition, new issuance should be manageable. The favorable supply/demand dynamic, coupled with attractive yields relative to comparable U.S. Treasury bonds, should continue to support the municipal market in the coming months. Short-Term Portfolio How did the Portfolio perform during the period in light of the existing market conditions? For the 12-month period ended June 30, 2006, Short-Term Portfolio's Class A, Class B, Class C and Class I Shares had total returns of +1.47%, +1.11%, +1.21% and +1.57%, 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 9 - 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 +0.95% and +0.89%. The Portfolio's comparable Lipper category of Short Municipal Debt Funds posted an average return of +1.96% for the 12-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.) As mentioned earlier, the Fed continued to tighten monetary policy during the year by raising the federal funds rate 25 basis points at each of its meetings, as it had done since June 2004 when the target interest rate stood at 1.00%. The last interest rate increase on June 29 brought the funds rate to 5.25%, which has exacerbated the flat yield curve environment. Since the Fed's actions have had the most impact on the short end of the yield curve, where the Portfolio operates, we continued to maintain a defensive investment stance for most of the 12-month period in an effort to cushion the Portfolio's underlying value. Specifically, we kept the portfolio's average maturity shorter than that of our peer group, as we sought to avoid locking in to longer maturities as the Fed continued to raise interest rates. The Portfolio's cash reserves also were generally kept higher than they would be in a more stable rate environment. Although the Portfolio's net asset value fell due to the impact of the Fed tightening, the fall was minimized through our investment approach. MERRILL LYNCH MUNICIPAL BOND FUND, INC. JUNE 30, 2006 A Discussion With Your Funds' Portfolio Managers (continued) What changes were made to the Portfolio during the period? The most significant change reflected our decision to maintain a higher cash position in the rising interest rate environment. Rates on cash equivalent securities change at either daily or weekly intervals to reflect current yields, thereby providing the Portfolio with principal protection in rising rate markets. At times when cash equivalent yields were expected to fall due to high demand in the market, we drew down cash to purchase bonds with very short maturities, thus enhancing the yield of the Portfolio. However, any market strength was generally viewed as a selling opportunity and provided us with a means to sell at temporarily inflated prices and reestablish our cash position. The Portfolio continues to be heavily weighted in securities rated AA or better, which tend to outperform lower-rated issues in periods of rising interest rates. How would you characterize the Portfolio's position at the close of the period? We continue to maintain a high-quality Portfolio that we believe is well positioned for the prevailing environment. This includes a healthy cash position, which provides us with the means to take advantage of higher yields once the end of the Fed's tightening cycle becomes evident. We will continue to assess the economic data in an effort to gauge the strength of the overall economy and the inflation picture in the United States. The Fed has indicated it is "data-dependent" in determining monetary policy, and we believe these will be key components in the central bank's decision on when to pause in its interest rate-hiking cycle. Should the cycle appear to be drawing to a close, we will reduce our cash position and extend the Portfolio's duration to a neutral posture. Given the recent outlook, we expect that this change may come in the third quarter. 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 12-month period ended June 30, 2006, Insured Portfolio's Class A, Class B, Class C and Class I Shares had total returns of +0.44%, +0.05%, -0.12% and +0.82%, 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 9 - 13 of this report to shareholders.) For the same period, the broad-market Lehman Brothers Municipal Bond Index returned +0.89%. Notably, the index measures the performance of insured and uninsured municipal bonds throughout the nation, while the Portfolio focuses on higher-quality insured issues. The Portfolio outperformed its comparable Lipper category of Insured Municipal Debt Funds, which had an average return of -0.08% for the 12-month period. (Funds in this Lipper category invest primarily in municipal debt issues insured as to timely payment.) For the most part, we attribute the Portfolio's relative outperformance to our yield curve positioning and our strategy of favoring refundable issues. We were overweight in bonds with maturities greater than 20 years for most of the period, which helped the Portfolio's relative performance as interest rates on bonds with maturities greater than 20 years increased at a slower rate than bonds with shorter maturities (that is, the municipal yield curve flattened). In addition, the Portfolio benefited from the advance refunding of several large holdings during the period. When municipal bonds are advance refunded, or refinanced ahead of their maturity dates, their prices generally increase sharply. What changes were made to the Portfolio during the period? Throughout the period, we continued to focus on securities that we felt represented the best relative value in the insured municipal marketplace. With yield spreads at relatively narrow levels, we increased our exposure to municipal bonds from high-tax states in which demand for tax-exempt securities is strong, such as New Jersey, California and Massachusetts. We believe bonds issued in these states should outperform when spreads widen in the future. MERRILL LYNCH MUNICIPAL BOND FUND, INC. JUNE 30, 2006 In addition, we increased our exposure to bonds insured by newer entrants to the municipal insurance arena, such as XLCA and CIFG. We were able to book some incremental yield on these securities because of their insurers' short histories, but we expect their spreads to narrow over time as the insurers establish a track record in the market. We believe this will ultimately generate positive relative performance for the Fund. 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 are also looking to shift our yield-curve strategy to a more neutral positioning because of the possibility that the curve's trend toward flattening may be nearing its conclusion. We continue to emphasize the Portfolio's competitive yield versus its peers, as well as the preservation of net asset value. 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 12-month period ended June 30, 2006, National Portfolio's Class A, Class B, Class C and Class I Shares had total returns of +1.77%, +1.25%, +1.20% and +2.02%, 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 9 - 13 of this report to shareholders.) For the same period, the Portfolio's benchmark, the Lehman Brothers Municipal Bond Index, returned +0.89% and the Lipper General Municipal Debt Funds category had an average return of +0.71%. (Funds in this Lipper category invest primarily in municipal debt issues in the top four credit-rating categories.) The Portfolio's significant outperformance versus the benchmark and its Lipper group average is attributable to a number of factors. First, we have consistently focused on a strategy that maximizes the Portfolio's current yield. This means distributions to shareholders are regularly near the top of the Lipper group and, over time, serve to enhance total return. Over the past 12 months, we also saw a continued tightening of credit spreads, which allowed lower-quality, higher-yielding credits to outperform higher-quality issues of comparable maturity. As such, a portion of the Portfolio's higher-yielding credits experienced above-average price appreciation. Lastly, we maintained a below-market duration (a measure of sensitivity to interest rates) in order to protect the Portfolio's underlying value in the rising interest rate environment of the past year. What changes were made to the Portfolio during the period? In a period of Fed tightening and rising long-term interest rates, our strategy over the 12 months was aimed at protecting the Portfolio's net asset value and delivering as high a current return as possible given the Portfolio's relatively conservative credit parameters. Municipal issuers, meanwhile, have been refinancing their existing, higher-couponed debt as interest rates have fallen over the past several years. While some of the Portfolio's higher- couponed bonds were called during the period as a result of this refinancing boom, we were rewarded for our patient approach to reinvesting the proceeds. In keeping with our overall strategy, we allowed call proceeds to build as cash reserves during periods when interest rates were inopportune, and then recommitted the funds whenever rates rose to more advantageous levels. This approach helped to maintain our current income distribution, while also protecting the Portfolio's net asset value. Toward the end of the period, as 10-year Treasury issues and the federal funds rate both approached 5.25%, rates on the long end of the municipal yield curve moved higher. We viewed this as an opportunity to begin purchasing longer- dated bonds in pursuit of a more neutral duration posture. Although issuance of new municipal bonds declined year-over-year, we were still able to accomplish our restructuring efforts through the new-issue market as well as significant growth in the secondary market that resulted due to selling by insurance companies and trading accounts. How would you characterize the Portfolio's position at the close of the period? Interest rates rose during the past 12 months and restored better valuation at the long end of the fixed income markets. We used this opportunity to achieve a fully invested position and a neutral duration stance by period-end. New purchases have been concentrated in higher-grade securities, reflecting our ongoing commitment to a high-quality portfolio and also the fact that credit spreads are at historically tight levels. The tight spreads mean there is little yield advantage to be realized from investment in lower-quality issues and, therefore, we are not inclined to take on the additional risk. MERRILL LYNCH MUNICIPAL BOND FUND, INC. JUNE 30, 2006 A Discussion With Your Funds' Portfolio Managers (concluded) Going forward, should we see any additional rise in long-term rates, we will look to take on a more aggressive duration position and increase our use of inverse floaters in an effort to augment the Portfolio's yield. To make such moves, however, we would need to see a higher average coupon than is currently available in the market. In the meantime, we continue our efforts to protect the Portfolio's value while also providing our shareholders with an above- average yield. Walter C. O'Connor, CFA Vice President and Senior Portfolio Manager July 21, 2006 Announcement to Shareholders On February 15, 2006, BlackRock, Inc. ("BlackRock") and Merrill Lynch & Co., Inc. ("Merrill Lynch") entered into an agreement to contribute Merrill Lynch's investment management business, Merrill Lynch Investment Managers, L.P. and certain affiliates (including Fund Asset Management, L.P. and Merrill Lynch Investment Managers International Limited), to BlackRock to create a new independent company ("New BlackRock") that will be one of the world's largest asset management firms with over $1 trillion in assets under management (based on combined assets under management as of June 30, 2006) (the "Transaction"). The Transaction is expected to close at the end of the third quarter of 2006, at which time the new company will operate under the BlackRock name. The Fund's Board of Directors has approved a new investment advisory agreement with BlackRock Advisors, Inc. or its successor on substantially the same terms and for the same advisory fee as the current investment advisory agreement with the Investment Adviser. If the new agreement is approved by the Fund's shareholders, BlackRock Advisors, Inc. or its successor is expected to become the investment adviser of the Fund upon the closing of the Transaction. MERRILL LYNCH MUNICIPAL BOND FUND, INC. JUNE 30, 2006 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. JUNE 30, 2006 Performance Data (continued) Recent Performance Results*
6-Month 12-Month 10-Year Standardized As of June 30, 2006 Total Return Total Return Total Return 30-day Yield Short-Term Portfolio Class A Shares +0.87% +1.47% +35.45% 3.13% Short-Term Portfolio Class B Shares +0.63 +1.11 +31.88 2.91 Short-Term Portfolio Class C Shares +0.73 +1.21 +31.68 2.90 Short-Term Portfolio Class I Shares +0.81 +1.57 +36.66 3.26 Insured Portfolio Class A Shares -0.14 +0.44 +64.41 3.42 Insured Portfolio Class B Shares -0.39 +0.05 +56.29 3.05 Insured Portfolio Class C Shares -0.42 -0.12 +55.51 3.00 Insured Portfolio Class I Shares -0.02 +0.82 +68.75 3.81 National Portfolio Class A Shares +0.84 +1.77 +71.27 3.80 National Portfolio Class B Shares +0.59 +1.25 +62.80 3.45 National Portfolio Class C Shares +0.47 +1.20 +62.00 3.40 National Portfolio Class I Shares +0.87 +2.02 +75.56 4.22 Lehman Brothers 3-Year General Obligation Bond Index++ +0.53 +0.95 +48.93 -- Lehman Brothers Municipal Bond Index++++ +0.28 +0.89 +75.57 -- * 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. JUNE 30, 2006 Performance Data (continued) Short-Term Portfolio Total Return Based on a $10,000 Investment A line graph illustrating the growth of a $10,000 investment in Short-Term Portfolio++ Class A, Class B, Class C and Class I Shares* compared to a similar investment in the Lehman Brothers Municipal Bond Index++++ and Lehman Brothers 3-Year General Obligation Bond Index++++++. Values illustrated are as follows: Short-Term Portfolio++ Class A Shares* Date Value June 1996 $ 9,900.00 June 1997 $10,335.00 June 1998 $10,765.00 June 1999 $11,117.00 June 2000 $11,471.00 June 2001 $12,156.00 June 2002 $12,643.00 June 2003 $12,993.00 June 2004 $13,058.00 June 2005 $13,215.00 June 2006 $13,409.00 Short-Term Portfolio++ Class B Shares* Date Value June 1996 $10,000.00 June 1997 $10,413.00 June 1998 $10,818.00 June 1999 $11,143.00 June 2000 $11,468.00 June 2001 $12,122.00 June 2002 $12,563.00 June 2003 $12,878.00 June 2004 $12,909.00 June 2005 $13,043.00 June 2006 $13,188.00 Short-Term Portfolio++ Class C Shares* Date Value June 1996 $10,000.00 June 1997 $10,411.00 June 1998 $10,815.00 June 1999 $11,128.00 June 2000 $11,451.00 June 2001 $12,093.00 June 2002 $12,544.00 June 2003 $12,860.00 June 2004 $12,890.00 June 2005 $13,011.00 June 2006 $13,168.00 Short-Term Portfolio++ Class I Shares* Date Value June 1996 $10,000.00 June 1997 $10,440.00 June 1998 $10,884.00 June 1999 $11,252.00 June 2000 $11,621.00 June 2001 $12,328.00 June 2002 $12,834.00 June 2003 $13,203.00 June 2004 $13,281.00 June 2005 $13,454.00 June 2006 $13,666.00 Lehman Brothers Municipal Bond Index++++ Date Value June 1996 $10,000.00 June 1997 $10,825.00 June 1998 $11,762.00 June 1999 $12,087.00 June 2000 $12,480.00 June 2001 $13,726.00 June 2002 $14,675.00 June 2003 $15,958.00 June 2004 $16,079.00 June 2005 $17,403.00 June 2006 $17,557.00 Lehman Brothers 3-Year General Obligation Bond Index++++++ Date Value June 1996 $10,000.00 June 1997 $10,530.00 June 1998 $11,095.00 June 1999 $11,504.00 June 2000 $11,925.00 June 2001 $12,838.00 June 2002 $13,619.00 June 2003 $14,294.00 June 2004 $14,382.00 June 2005 $14,753.00 June 2006 $14,893.00 * Assuming maximum sales charge, transaction costs and other operating expenses, including advisory fees. ++ Short-Term Portfolio invests primarily in investment grade municipal bonds (bonds rated Baa or better) with a maximum maturity not to exceed 4 years. ++++ This unmanaged Index consists of revenue bonds, prerefunded bonds, general obligation bonds and insured bonds, all of which mature within 30 years. ++++++ This unmanaged Index consists of state and local government obligation bonds that mature in 3 - 4 years, rated Baa or better. Past performance is not indicative of future results. Average Annual Total Return Return Without Return With Sales Charge Sales Charge** Class A Shares* One Year Ended 6/30/06 +1.47% +0.46% Five Years Ended 6/30/06 +1.98 +1.78 Ten Years Ended 6/30/06 +3.08 +2.98 Return Return Without CDSC With CDSC++++++ Class B Shares++ One Year Ended 6/30/06 +1.11% +0.12% Five Years Ended 6/30/06 +1.70 +1.70 Ten Years Ended 6/30/06 +2.81 +2.81 Return Return Without CDSC With CDSC++++++ Class C Shares++++ One Year Ended 6/30/06 +1.21% +0.22% Five Years Ended 6/30/06 +1.72 +1.72 Ten Years Ended 6/30/06 +2.79 +2.79 Class I Shares Return One Year Ended 6/30/06 +1.57% Five Years Ended 6/30/06 +2.08 Ten Years Ended 6/30/06 +3.17 * Maximum sales charge is 1%. ** Assuming maximum sales charge. ++ Maximum contingent deferred sales charge is 1% and is reduced to 0% after three years. ++++ Maximum contingent deferred sales charge is 1% and is reduced to 0% after one year. ++++++ Assuming payment of applicable contingent deferred sales charge. MERRILL LYNCH MUNICIPAL BOND FUND, INC. JUNE 30, 2006 Performance Data (continued) Insured Portfolio Total Return Based on a $10,000 Investment A line graph illustrating the growth of a $10,000 investment in Insured Portfolio++ Class A, Class B, Class C and Class I Shares* compared to a similar investment in the Lehman Brothers Municipal Bond Index++++. Values illustrated are as follows: Insured Portfolio++ Class A Shares* Date Value June 1996 $ 9,600.00 June 1997 $10,316.00 June 1998 $11,105.00 June 1999 $11,263.00 June 2000 $11,368.00 June 2001 $12,477.00 June 2002 $13,306.00 June 2003 $14,472.00 June 2004 $14,488.00 June 2005 $15,715.00 June 2006 $15,784.00 Insured Portfolio++ Class B Shares* Date Value June 1996 $10,000.00 June 1997 $10,678.00 June 1998 $11,451.00 June 1999 $11,541.00 June 2000 $11,604.00 June 2001 $12,655.00 June 2002 $13,445.00 June 2003 $14,550.00 June 2004 $14,473.00 June 2005 $15,621.00 June 2006 $15,629.00 Insured Portfolio++ Class C Shares* Date Value June 1996 $10,000.00 June 1997 $10,686.00 June 1998 $11,439.00 June 1999 $11,524.00 June 2000 $11,581.00 June 2001 $12,624.00 June 2002 $13,405.00 June 2003 $14,499.00 June 2004 $14,415.00 June 2005 $15,570.00 June 2006 $15,551.00 Insured Portfolio++ Class I Shares* Date Value June 1996 $10,000.00 June 1997 $10,772.00 June 1998 $11,639.00 June 1999 $11,821.00 June 2000 $11,960.00 June 2001 $13,159.00 June 2002 $14,087.00 June 2003 $15,338.00 June 2004 $15,392.00 June 2005 $16,738.00 June 2006 $16,875.00 Lehman Brothers Municipal Bond Index++++ Date Value June 1996 $10,000.00 June 1997 $10,825.00 June 1998 $11,762.00 June 1999 $12,087.00 June 2000 $12,480.00 June 2001 $13,726.00 June 2002 $14,675.00 June 2003 $15,958.00 June 2004 $16,079.00 June 2005 $17,403.00 June 2006 $17,557.00 * Assuming maximum sales charge, transaction costs and other operating expenses, including advisory fees. ++ Insured Portfolio invests primarily in long-term, investment grade municipal bonds (bonds rated Baa or better) covered by portfolio insurance guaranteeing the timely payment of principal at maturity and interest. ++++ This unmanaged Index consists of revenue bonds, prerefunded bonds, general obligation bonds and insured bonds, all of which mature within 30 years. Past performance is not indicative of future results. Average Annual Total Return Return Without Return With Sales Charge Sales Charge** Class A Shares* One Year Ended 6/30/06 +0.44% -3.58% Five Years Ended 6/30/06 +4.81 +3.96 Ten Years Ended 6/30/06 +5.10 +4.67 Return Return Without CDSC With CDSC++++++ Class B Shares++ One Year Ended 6/30/06 +0.05% -3.79% Five Years Ended 6/30/06 +4.31 +3.97 Ten Years Ended 6/30/06 +4.57 +4.57 Return Return Without CDSC With CDSC++++++ Class C Shares++++ One Year Ended 6/30/06 -0.12% -1.08% Five Years Ended 6/30/06 +4.26 +4.26 Ten Years Ended 6/30/06 +4.51 +4.51 Class I Shares Return One Year Ended 6/30/06 +0.82% Five Years Ended 6/30/06 +5.10 Ten Years Ended 6/30/06 +5.37 * Maximum sales charge is 4%. ** Assuming maximum sales charge. ++ Maximum contingent deferred sales charge is 4% and is reduced to 0% after six years. ++++ Maximum contingent deferred sales charge is 1% and is reduced to 0% after one year. ++++++ Assuming payment of applicable contingent deferred sales charge. MERRILL LYNCH MUNICIPAL BOND FUND, INC. JUNE 30, 2006 Performance Data (concluded) National Portfolio Total Return Based on a $10,000 Investment A line graph illustrating the growth of a $10,000 investment in National Portfolio++ Class A, Class B, Class C and Class I Shares* compared to a similar investment in the Lehman Brothers Municipal Bond Index++++. Values illustrated are as follows: National Portfolio++ Class A Shares* Date Value June 1996 $ 9,600.00 June 1997 $10,423.00 June 1998 $11,255.00 June 1999 $11,371.00 June 2000 $11,416.00 June 2001 $12,564.00 June 2002 $13,410.00 June 2003 $14,480.00 June 2004 $14,860.00 June 2005 $16,157.00 June 2006 $16,442.00 National Portfolio++ Class B Shares* Date Value June 1996 $10,000.00 June 1997 $10,792.00 June 1998 $11,606.00 June 1999 $11,666.00 June 2000 $11,652.00 June 2001 $12,760.00 June 2002 $13,550.00 June 2003 $14,557.00 June 2004 $14,864.00 June 2005 $16,079.00 June 2006 $16,280.00 National Portfolio++ Class C Shares* Date Value June 1996 $10,000.00 June 1997 $10,797.00 June 1998 $11,606.00 June 1999 $11,660.00 June 2000 $11,641.00 June 2001 $12,729.00 June 2002 $13,510.00 June 2003 $14,521.00 June 2004 $14,820.00 June 2005 $16,008.00 June 2006 $16,200.00 National Portfolio++ Class I Shares* Date Value June 1996 $10,000.00 June 1997 $10,884.00 June 1998 $11,794.00 June 1999 $11,945.00 June 2000 $12,010.00 June 2001 $13,252.00 June 2002 $14,179.00 June 2003 $15,361.00 June 2004 $15,803.00 June 2005 $17,208.00 June 2006 $17,556.00 Lehman Brothers Municipal Bond Index++++ Date Value June 1996 $10,000.00 June 1997 $10,825.00 June 1998 $11,762.00 June 1999 $12,087.00 June 2000 $12,480.00 June 2001 $13,726.00 June 2002 $14,675.00 June 2003 $15,958.00 June 2004 $16,079.00 June 2005 $17,403.00 June 2006 $17,557.00 * Assuming maximum sales charge, transaction costs and other operating expenses, including advisory fees. ++ National Portfolio invests primarily in long-term municipal bonds rated in any rating category. ++++ This unmanaged Index consists of revenue bonds, prerefunded bonds, general obligation bonds and insured bonds, all of which mature within 30 years. Past performance is not indicative of future results. Average Annual Total Return Return Without Return With Sales Charge Sales Charge** Class A Shares* One Year Ended 6/30/06 +1.77% -2.30% Five Years Ended 6/30/06 +5.53 +4.67 Ten Years Ended 6/30/06 +5.53 +5.10 Return Return Without CDSC With CDSC++++++ Class B Shares++ One Year Ended 6/30/06 +1.25% -2.64% Five Years Ended 6/30/06 +4.99 +4.66 Ten Years Ended 6/30/06 +4.99 +4.99 Return Return Without CDSC With CDSC++++++ Class C Shares++++ One Year Ended 6/30/06 +1.20% +0.23% Five Years Ended 6/30/06 +4.94 +4.94 Ten Years Ended 6/30/06 +4.94 +4.94 Class I Shares Return One Year Ended 6/30/06 +2.02% Five Years Ended 6/30/06 +5.79 Ten Years Ended 6/30/06 +5.79 * Maximum sales charge is 4%. ** Assuming maximum sales charge. ++ Maximum contingent deferred sales charge is 4% and is reduced to 0% after six years. ++++ Maximum contingent deferred sales charge is 1% and is reduced to 0% after one year. ++++++ Assuming payment of applicable contingent deferred sales charge. MERRILL LYNCH MUNICIPAL BOND FUND, INC. JUNE 30, 2006 Portfolio Information as of June 30, 2006 Distribution by Market Sector Percent of Total Short-Term Portfolio Investments Other Revenue Bonds 50.3% General Obligation & Tax Revenue Bonds 34.9 Prerefunded Bonds 14.8 Percent of Total Insured Portfolio Investments Other Revenue Bonds 54.8% General Obligation & Tax Revenue Bonds 32.7 Prerefunded Bonds 12.5 Percent of Total National Portfolio Investments Other Revenue Bonds 67.9% General Obligation & Tax Revenue Bonds 20.3 Prerefunded Bonds 11.8 MERRILL LYNCH MUNICIPAL BOND FUND, INC. JUNE 30, 2006 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 January 1, 2006 and held through June 30, 2006) 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 January 1, 2006 January 1, June 30, to June 30, 2006 2006 2006 Actual Class A $1,000 $1,008.70 $2.69 Class B $1,000 $1,006.30 $3.98 Class C $1,000 $1,007.30 $3.98 Class I $1,000 $1,008.10 $2.19 Hypothetical (5% annual return before expenses)** Class A $1,000 $1,022.12 $2.71 Class B $1,000 $1,020.83 $4.01 Class C $1,000 $1,020.83 $4.01 Class I $1,000 $1,022.62 $2.21 * For each class of the Fund, 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 181/365 (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. JUNE 30, 2006 Disclosure of Expenses (concluded) Insured Portfolio
Expenses Paid Beginning Ending During the Period* Account Value Account Value January 1, 2006 January 1, June 30, to June 30, 2006 2006 2006 Actual Class A $1,000 $ 998.60 $3.47 Class B $1,000 $ 996.10 $5.99 Class C $1,000 $ 995.80 $6.24 Class I $1,000 $ 999.80 $2.23 Hypothetical (5% annual return before expenses)** Class A $1,000 $1,021.33 $3.51 Class B $1,000 $1,018.80 $6.06 Class C $1,000 $1,018.55 $6.31 Class I $1,000 $1,022.57 $2.26 * For each class of the Fund, expenses are equal to the annualized expense ratio for the class (.70% for Class A, 1.21% for Class B, 1.26% for Class C and .45% for Class I), multiplied by the average account value over the period, multiplied by 181/365 (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 January 1, 2006 January 1, June 30, to June 30, 2006 2006 2006 Actual Class A $1,000 $1,008.40 $4.13 Class B $1,000 $1,005.90 $6.66 Class C $1,000 $1,004.70 $6.91 Class I $1,000 $1,008.70 $2.89 Hypothetical (5% annual return before expenses)** Class A $1,000 $1,020.68 $4.16 Class B $1,000 $1,018.16 $6.71 Class C $1,000 $1,017.91 $6.95 Class I $1,000 $1,021.92 $2.91 * For each class of the Fund, expenses are equal to the annualized expense ratio for the class (.83% for Class A, 1.34% for Class B, 1.39% for Class C and .58% for Class I), multiplied by the average account value over the period, multiplied by 181/365 (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. JUNE 30, 2006 Schedule of Investments Short-Term Portfolio (In Thousands) Face Amount Municipal Bonds Value Alaska--1.5% $ 5,000 Alaska State Housing Financing Corporation, Collateralized Revenue Bonds (Veterans Mortgage Program), AMT, 3.43% due 12/01/2006 (f) $ 4,990 Arkansas--3.0% 10,000 Arkansas State, Federal Highway Grant Anticipation and Tax Revenue Bonds, GO, Series A, 5.25% due 8/01/2007 10,156 California--1.1% 3,650 Contra Costa County, California, M/F Housing Revenue Bonds (Pleasant Hill--Bart Transit), AMT, Series A, 3.95% due 12/05/2007 3,641 Colorado--2.2% 7,500 Colorado State, General Fund Revenue Bonds, RAN, 4.50% due 6/27/2007 7,553 Connecticut--2.1% 6,925 Connecticut State, Special Tax Obligation, Revenue Refunding Bonds (Transportation Infrastructure), Series B, 5% due 10/01/2007 (g) 7,027 Georgia--2.6% Georgia Municipal Electric Authority, Power Revenue Refunding Bonds, Series DD (i): 220 7% due 1/01/2008 (d) 230 6,005 7% due 1/01/2008 6,272 2,000 Georgia State, GO, Series B, 6.25% due 4/01/2008 2,081 Illinois--4.8% 12,500 Chicago, Illinois, O'Hare International Airport, Revenue Refunding Bonds, Third Lien, Series A, 5% due 1/01/2008 (i) 12,690 3,275 Illinois State, GO, First Series, 5.50% due 8/01/2007 3,333 Indiana--3.0% 10,000 Indiana Health Facilities Financing Authority, Subordinate Credit Group Revenue Bonds (Ascension Health), Series A, 5% due 5/01/2008 10,178 Iowa--1.2% 4,000 Iowa Finance Authority, State Revolving Fund, Revenue Refunding Bonds, 5% due 8/01/2008 4,094 Kansas--1.7% 5,380 Kansas State Department of Transportation, Highway Revenue Bonds, 5.75% due 9/01/2009 (a) 5,674 Face Amount Municipal Bonds Value Louisiana--3.7% $ 4,200 Louisiana HFA, S/F Mortgage Revenue Bonds, VRDN, AMT, 3.87% due 11/28/2008 (b) $ 4,200 8,400 Louisiana HFA, S/F Mortgage Revenue Refunding Bonds, VRDN, AMT, 4.844% due 4/30/2007 (b) 8,400 Massachusetts--6.2% 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 (i) 12,136 8,505 Massachusetts State, Consolidated Loan, GO, Series C, 5% due 5/01/2008 (l) 8,676 Michigan--0.9% 3,000 Michigan State, GO, Series A, 4.50% due 9/29/2006 3,005 Minnesota--5.1% 2,500 Lakeville, Minnesota, Independent School District Number 194, GO, Refunding, Series B, 4% due 2/01/2007 (j) 2,504 7,000 Minnesota Public Facilities Authority, Water, PCR, Refunding, Series C, 5% due 3/01/2008 7,132 7,385 Minnesota State, GO, Refunding, 5% due 8/01/2007 7,484 Missouri--1.2% 3,980 Kansas City, Missouri, Passenger Facility Charge Revenue Bonds, AMT, 5% due 4/01/2007 (c) 4,013 Nebraska--4.5% 14,730 Nebraska Public Power District, General Revenue Refunding Bonds, Series A, 5.25% due 1/01/2008 (a)(i) 15,176 Nevada--0.7% 2,430 Nevada State, Capital Improvement, GO, Refunding, Series A, 5% due 2/01/2009 2,495 New Jersey--4.3% New Jersey State Educational Facilities Authority, Revenue Refunding Bonds (Higher Education Trust Fund), Sub-Series A-1: 4,000 5% due 9/01/2007 4,052 5,000 5% due 9/01/2008 5,111 5,000 New Jersey State Transportation Trust Fund Authority, Transportation System Revenue Bonds, Series A, 5.125% due 12/15/2006 (a)(i) 5,130 New Mexico--1.7% 5,685 New Mexico State, Severance Tax Bonds, Series A, 5% due 7/01/2008 (i) 5,811 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) BAN Bond Anticipation Notes 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 Board IDR Industrial Development Revenue Bond M/F Multi-Family PCR Pollution Control Revenue Bonds RAN Revenue Anticipation Notes RIB Residual Interest Bonds S/F Single-Family VRDN Variable Rate Demand Notes MERRILL LYNCH MUNICIPAL BOND FUND, INC. JUNE 30, 2006 Schedule of Investments (concluded) Short-Term Portfolio (In Thousands) Face Amount Municipal Bonds Value New York--4.6% $11,025 Metropolitan Transportation Authority, New York, Commuter Facilities Revenue Bonds, Series C-1, 5.30% due 7/01/2009 (a)(e) $ 11,484 3,910 New York City, New York, GO, Series J, 5% due 3/01/2008 3,980 North Carolina--5.5% 7,725 North Carolina Eastern Municipal Power Agency, Power System Revenue Bonds, Series B, 5.875% due 1/01/2007 (a)(i) 7,958 10,500 North Carolina State, Public Improvements, GO, Series A, 5% due 3/01/2007 10,589 Oklahoma--1.0% 3,300 Tulsa, Oklahoma, Public Facilities Authority, Capital Improvement Revenue Bonds, Series A, 4.375% due 6/01/2008 (c) 3,332 Pennsylvania--1.6% 5,415 Pennsylvania State, GO, Refunding, Second Series, 5% due 7/01/2006 5,415 Tennessee--4.4% 9,725 Shelby County, Tennessee, Public Improvement and Schools, GO, Series A, 5% due 3/01/2008 (g) 9,906 5,000 Tennessee State Local Development Authority Revenue Bonds (Student Loan Programs), BAN, Series A, 5% due 5/17/2007 5,052 Texas--13.8% 4,500 El Paso, Texas, GO, 5.75% due 8/15/2007 (a)(g) 4,596 14,000 Matagorda County, Texas, Navigation District Number 1, PCR (Central Power and Light Company), Refunding, Series A, 4.55% due 11/01/2006 14,018 4,920 San Antonio, Texas, Electric and Gas Revenue Refunding Bonds, 5.25% due 2/01/2007 4,961 2,500 San Antonio, Texas, Electric and Gas System, Junior Lien Revenue Bonds, 3.55% due 12/01/2007 2,488 7,995 Texas State Public Finance Authority, GO, Refunding, Series A, 5.25% due 10/01/2007 8,133 5,455 Texas State Transportation Commission, First Tier Revenue Bonds, 5% due 4/01/2008 5,559 Face Amount Municipal Bonds Value Texas (concluded) $ 6,490 University of Texas, Financing System Revenue Refunding Bonds, Series D, 5% due 8/15/2007 $ 6,574 Virginia--1.7% 5,560 Virginia State Public Building Authority, Public Facilities Revenue Bonds, Series B, 5% due 8/01/2008 5,686 Washington--4.1% Energy Northwest, Washington, Electric Revenue Refunding Bonds (Columbia Generating Station), Series A: 445 5.25% due 7/01/2008 457 6,055 5.25% due 7/01/2008 (d) 6,212 6,810 Washington State, GO, Series A, 5% due 7/01/2008 (e) 6,960 Wisconsin--2.9% 2,635 Wisconsin State, GO, Series E, 4.50% due 5/01/2008 2,664 6,890 Wisconsin State, Transportation Revenue Bonds, Series B, 4.50% due 7/01/2009 (c) 7,006 Puerto Rico--2.1% 7,000 Government Development Bank of Puerto Rico Revenue Bonds, TECP, 5% due 10/10/2006 7,000 Total Municipal Bonds (Cost--$315,566)--93.2% 313,274 Shares Held Short-Term Securities 24,644 Merrill Lynch Institutional Tax-Exempt Fund, 3.72% (h)(k) 24,644 Total Short-Term Securities (Cost--$24,644)--7.3% 24,644 Total Investments (Cost--$340,210*)--100.5% 337,918 Liabilities in Excess of Other Assets--(0.5%) (1,655) ---------- Net Assets--100.0% $ 336,263 ========== * The cost and unrealized appreciation (depreciation) of investments as of June 30, 2006, as computed for federal income tax purposes, were as follows: Aggregate cost $ 340,210 =============== Gross unrealized appreciation $ 2 Gross unrealized depreciation (2,294) --------------- Net unrealized depreciation $ (2,292) =============== (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) Escrowed to maturity. (e) FGIC Insured. (f) FNMA/GNMA Collateralized. (g) FSA Insured. (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 24,640 $768 (i) MBIA Insured. (j) XL Capital Insured. (k) Represents the current yield as of 6/30/2006. (l) CIFG Insured. See Notes to Financial Statements. MERRILL LYNCH MUNICIPAL BOND FUND, INC. JUNE 30, 2006 Schedule of Investments Insured Portfolio (In Thousands) Face Amount Municipal Bonds Value Alabama--2.3% $ 3,020 Alabama Water Pollution Control Authority Revenue Bonds, 5.75% due 8/15/2018 (a) $ 3,213 10,000 Lauderdale County and Florence, Alabama, Health Care Authority Revenue Refunding Bonds (Coffee Health Group), Series A, 6% due 7/01/2029 (b) 10,826 7,000 University of Alabama, University Revenue Bonds (Birmingham), 6% due 10/01/2009 (d)(g) 7,442 Arkansas--0.5% 5,000 University of Arkansas, University Revenue Bonds (Various Facilities-Fayetteville Campus), 5% due 12/01/2027 (d) 5,090 California--18.4% 10,680 California Pollution Control Financing Authority, PCR, Refunding, DRIVERS, AMT, Series 878Z, 6.387% due 12/01/2009 (b)(j) 11,726 2,075 California State Department of Veteran Affairs, Home Purpose Revenue Refunding Bonds, Series A, 5.35% due 12/01/2027 (a) 2,171 East Side Union High School District, California, Santa Clara County, GO (Election of 2002), Series D (i): 2,795 5% due 8/01/2017 2,939 3,480 5% due 8/01/2022 3,590 5,170 Fresno, California, Unified School District, GO (Election of 2001), Series D, 5% due 8/01/2027 (b) 5,306 5,000 Golden State Tobacco Securitization Corporation of California, Tobacco Settlement Revenue Bonds, Series B, 5.50% due 6/01/2013 (d)(g) 5,419 5,000 Los Angeles, California, GO, Series A, 5% due 9/01/2019 (b) 5,171 Los Angeles, California, Unified School District, GO: 24,465 (Election of 1997), Series F, 5% due 1/01/2028 (d) 25,001 13,780 Series A, 5% due 1/01/2028 (b) 14,082 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) 6,935 8,965 Modesto, California, Schools Infrastructure Financing Agency, Special Tax Bonds, 5.50% due 9/01/2036 (a) 9,528 12,040 Mount Diablo, California, Unified School District, GO (Election of 2002), 5% due 7/01/2027 (d) 12,297 6,440 Palm Springs, California, Financing Authority, Lease Revenue Refunding Bonds (Convention Center Project), Series A, 5.50% due 11/01/2035 (b) 6,918 11,685 Rialto, California, Unified School District, GO, Series A, 6.24% due 6/01/2025 (d)(l) 4,582 5,000 Roseville, California, Joint Union High School District, GO (Election of 2004), Series A, 5% due 8/01/2029 (d) 5,110 5,075 Sacramento, California, Unified School District, GO (Election of 1999), Series B, 5% due 7/01/2026 (d) 5,175 San Diego, California, Unified School District, GO (Election of 1998), Series G (f): 3,000 5% due 7/01/2028 3,072 4,645 5% due 7/01/2029 4,757 3,495 San Diego County, California, COP (Edgemoor Project and Regional System), Refunding, 5% due 2/01/2027 (a) 3,558 3,700 San Jose, California, GO (Libraries, Parks and Public Safety Projects), 5% due 9/01/2030 (b) 3,776 10,055 Sequoia, California, Unified High School District, GO, Refunding, Series B, 5.50% due 7/01/2035 (f) 10,858 Face Amount Municipal Bonds Value California (concluded) $ 2,755 Tahoe Truckee, California, Unified School District, GO (School Facilities Improvement District Number 2), Series A, 5.25% due 8/01/2029 (b) $ 2,871 Tustin, California, Unified School District, Senior Lien Special Tax Bonds (Community Facilities District Number 97-1), Series A (f): 7,980 5% due 9/01/2032 8,089 9,330 5% due 9/01/2038 9,438 Colorado--2.7% 19,250 Aurora, Colorado, COP, 6% due 12/01/2010 (a)(g) 20,789 4,000 Logan County, Colorado, Justice Center Finance Corporation, COP, 5.50% due 12/01/2020 (b) 4,256 Florida--0.8% 5,500 Miami-Dade County, Florida, Water and Sewer System Revenue Bonds, 5.25% due 10/01/2026 (d) 5,619 1,955 West Coast Regional Water Supply Authority, Florida, Capital Improvement Revenue Bonds, 10.40% due 10/01/2010 (a)(g) 2,189 Georgia--3.8% Georgia Municipal Electric Authority, Power Revenue Refunding Bonds (a): 20,000 Series EE, 7% due 1/01/2025 25,760 90 Series Y, 6.40% due 1/01/2011 (g) 99 490 Series Y, 6.40% due 1/01/2013 (h) 544 8,420 Series Y, 6.40% due 1/01/2013 9,295 Illinois--2.3% 8,845 Chicago, Illinois, O'Hare International Airport Revenue Bonds, DRIVERS, AMT, Series 845-Z, 7.666% due 1/01/2012 (b)(i)(j) 10,486 6,800 Illinois State, GO, 5.75% due 9/01/2006 (b)(g) 6,957 3,500 Kendall and Kane Counties, Illinois, Community School District Number 115 (Yorkville), GO, Refunding, 5.25% due 1/01/2026 (f) 3,679 Kansas--0.6% 5,145 Manhattan, Kansas, Hospital Revenue Bonds (Mercy Health Center), 5.50% due 8/15/2020 (f) 5,445 Louisiana--1.1% 2,500 Louisiana State Citizens Property Insurance Corporation, Assessment Revenue Bonds, Series B, 5% due 6/01/2022 (a) 2,573 2,990 Louisiana State, Gas and Fuels Tax Revenue Bonds, Series A, 5% due 5/01/2030 (d) 3,041 5,000 New Orleans, Louisiana, GO (Public Improvements), 5.25% due 12/01/2029 (a) 5,161 Maryland--1.8% 10,820 Baltimore, Maryland, Convention Center Hotel Revenue Bonds, RIB, Series 1252X, 6.27% due 9/01/2039 (i)(j) 11,630 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) 5,518 Massachusetts--5.0% 4,000 Massachusetts State, HFA, Rental Housing Mortgage Revenue Bonds, AMT, Series C, 5.60% due 1/01/2045 (f) 4,163 18,740 Massachusetts State School Building Authority, Dedicated Sales Tax Revenue Bonds, Series A, 5% due 8/15/2030 (f) 19,152 MERRILL LYNCH MUNICIPAL BOND FUND, INC. JUNE 30, 2006 Schedule of Investments (continued) Insured Portfolio (In Thousands) Face Amount Municipal Bonds Value Massachusetts (concluded) $22,250 Massachusetts State Special Obligation Dedicated Tax Revenue Bonds, 5.25% due 1/01/2014 (d)(g) $ 23,799 Michigan--0.7% 6,170 Michigan State Strategic Fund, Limited Obligation Revenue Refunding Bonds, DRIVERS, AMT, Series 858Z, 6.667% due 12/01/2011 (i)(j) 6,758 Minnesota--1.6% 5,860 Delano, Minnesota, Independent School District Number 879, GO, Series A, 5.875% due 2/01/2025 (f) 6,308 Sauk Rapids, Minnesota, Independent School District Number 047, GO, Series A (b): 3,735 5.65% due 2/01/2020 3,998 4,440 5.70% due 2/01/2021 4,762 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) 1,625 10,000 Mississippi Hospital Equipment and Facilities Authority Revenue Bonds (Forrest County General Hospital Project), 6% due 1/01/2030 (f) 10,708 Missouri--2.4% Kansas City, Missouri, Airport Revenue Refunding and Improvement Bonds, Series A (b): 12,990 5.50% due 9/01/2013 13,398 9,000 5.50% due 9/01/2014 9,282 Nevada--5.6% 10,690 Clark County, Nevada, School District, GO, Series D, 5% due 6/15/2017 (b) 11,147 40,000 Washoe County, Nevada, Water Facility Revenue Bonds (Sierra Pacific Power Company), AMT, 6.65% due 6/01/2017 (b) 41,212 New Jersey--10.8% 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) 8,451 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 3,486 8,310 5.80% due 11/01/2022 9,272 4,340 5.80% due 11/01/2023 4,846 New Jersey EDA, Motor Vehicle Surcharge Revenue Bonds, Series A (b): 5,000 5% due 7/01/2027 5,116 23,000 5.25% due 7/01/2033 24,007 New Jersey State Transportation Trust Fund Authority, Transportation System Revenue Bonds, Series D: 5,760 5% due 6/15/2015 (a)(g) 6,123 9,570 5% due 6/15/2015 (f)(g) 10,173 4,240 5% due 6/15/2018 (a) 4,404 11,530 5% due 6/15/2019 (f) 11,942 13,500 New Jersey State Turnpike Authority, Turnpike Revenue Bonds, Series C, 5% due 1/01/2030 (f) 13,819 Face Amount Municipal Bonds Value New Mexico--1.2% $10,400 New Mexico Finance Authority, Senior Lien, State Transportation Revenue Bonds, Series A, 5.125% due 6/15/2018 (b) $ 10,959 New York--14.6% New York City, New York, GO: 11,500 Series C, 5.625% due 3/15/2018 (i) 12,317 10,000 Series E, 5% due 11/01/2017 (f) 10,457 18,000 Series I, 6% due 4/15/2012 (f) 18,460 145 New York City, New York, GO, Refunding, Series G, 5.75% due 2/01/2017 (f) 147 New York City, New York, Sales Tax Asset Receivable Corporation Revenue Bonds: 6,965 DRIVERS, Series 1133Z, 6.208% due 10/15/2012 (a)(j) 7,730 16,905 Series A, 5% due 10/15/2020 (b) 17,602 15,650 Series A, 5% due 10/15/2032 (a) 16,033 9,190 New York State Dormitory Authority Revenue Bonds (School Districts Financing Program), Series D, 5.25% due 10/01/2023 (b) 9,682 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) 9,475 5 Niagara Falls, New York, GO, Public Improvement, 6.90% due 3/01/2024 (b) 5 Tobacco Settlement Financing Corporation of New York Revenue Bonds: 22,500 Series A-1, 5.25% due 6/01/2022 (a) 23,563 10,755 Series C-1, 5.50% due 6/01/2020 (d) 11,494 North Carolina--0.3% 3,120 North Carolina HFA, Home Ownership Revenue Bonds, AMT, Series 14-A, 5.35% due 1/01/2022 (a) 3,189 North Dakota--0.3% 2,880 North Dakota State HFA, Revenue Bonds (Housing Finance Program), Series C, 5.30% due 7/01/2022 (a) 2,929 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) 2,879 3,705 6.25% due 8/15/2016 3,969 Oregon--1.5% 8,700 Oregon State Department, Administrative Services, COP, Series A, 6.25% due 5/01/2010 (a)(g) 9,489 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) 4,394 Pennsylvania--2.6% 5,765 Philadelphia, Pennsylvania, Gas Works Revenue Bonds, 12th Series B, 7% due 5/15/2020 (b)(h) 6,789 4,420 Philadelphia, Pennsylvania, Redevelopment Authority Revenue Bonds (Neighborhood Transformation), Series A, 5.50% due 4/15/2020 (d) 4,703 12,010 Pittsburgh, Pennsylvania, GO, Series C, 5.25% due 9/01/2018 (f) 12,809 Rhode Island--0.8% 6,815 Rhode Island State Economic Development Corporation, Airport Revenue Bonds, Series B, 6% due 7/01/2010 (d)(g) 7,391 MERRILL LYNCH MUNICIPAL BOND FUND, INC. JUNE 30, 2006 Schedule of Investments (concluded) Insured Portfolio (In Thousands) Face Amount Municipal Bonds Value Texas--5.0% $17,975 Dallas-Fort Worth, Texas, International Airport Revenue Bonds, DRIVERS, AMT, Series 202, 7.672% due 11/01/2028 (d)(j) $ 19,853 Harris County, Texas, Revenue Refunding Bonds, DRIVERS (f)(j): 10,500 Series 1111, 6.197% due 8/15/2009 11,174 7,025 Series 1172-Z, 6.208% due 8/15/2009 7,454 3,500 Houston, Texas, Water Conveyance System Contract, COP, Series J, 6.25% due 12/15/2013 (a) 3,934 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 2,139 2,725 5.50% due 3/01/2026 2,790 Utah--1.8% 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) 9,836 Utah Water Finance Agency Revenue Bonds (Pooled Loan Financing Program), Series A (a): 2,515 5.75% due 10/01/2015 2,683 3,770 6% due 10/01/2020 4,054 Washington--0.8% 7,225 Chelan County, Washington, Public Utility District Number 001, Consolidated Revenue Bonds (Chelan Hydro System), AMT, Series A, 5.45% due 7/01/2037 (a) 7,481 West Virginia--1.3% 12,250 Pleasants County, West Virginia, PCR, Refunding (Potomac-Pleasants), Series C, 6.15% due 5/01/2015 (a) 12,301 Face Amount Municipal Bonds Value Wisconsin--1.3% $ 9,000 Superior, Wisconsin, Limited Obligation Revenue Refunding Bonds (Midwest Energy Resources), Series E, 6.90% due 8/01/2021 (d) $ 11,249 670 Wisconsin State, GO, AMT, Series B, 6.50% due 5/01/2025 (b) 671 Puerto Rico--2.7% Puerto Rico Electric Power Authority, Power Revenue Bonds, Series RR: 10,150 5% due 7/01/2027 (i) 10,416 14,400 5% due 7/01/2028 (c) 14,757 Total Municipal Bonds (Cost--$883,619)--96.6% 907,190 Shares Held Mutual Funds 300 BlackRock California Insured Municipal 2008 Term Trust, Inc. 4,572 810 BlackRock Insured Municipal 2008 Term Trust, Inc. 12,280 205 BlackRock Insured Municipal Term Trust, Inc. 1,923 Total Mutual Funds (Cost--$21,126)--2.0% 18,775 Short-Term Securities 1,730 Merrill Lynch Institutional Tax-Exempt Fund, 5.22% (k)(m) 1,730 Total Short-Term Securities (Cost--$1,730)--0.2% 1,730 Total Investments (Cost--$906,475*)--98.8% 927,695 Other Assets Less Liabilities--1.2% 11,598 ---------- Net Assets--100.0% $ 939,293 ========== * The cost and unrealized appreciation (depreciation) of investments as of June 30, 2006, as computed for federal income tax purposes, were as follows: Aggregate cost $ 906,473 =============== Gross unrealized appreciation $ 30,662 Gross unrealized depreciation (9,440) --------------- Net unrealized appreciation $ 21,222 =============== (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 (9,287) $280 (l) Represents a zero coupon bond; the interest rate shown reflects the effective yield at the time of purchase. (m) Represents the current yield as of 6/30/2006. See Notes to Financial Statements. MERRILL LYNCH MUNICIPAL BOND FUND, INC. JUNE 30, 2006 Schedule of Investments National Portfolio (In Thousands) Face Amount Municipal Bonds Value Alabama--0.7% $ 3,820 Alabama Incentives Financing Authority, Special Obligation Revenue Refunding Bonds, Series A, 6% due 10/01/2029 (c) $ 4,113 500 Mobile, Alabama, Industrial Development Board, Environmental Improvement Revenue Refunding Bonds (International Paper Company Project), AMT, Series A, 6.35% due 5/15/2016 532 2,500 Selma, Alabama, IDB, Environmental Improvement Revenue Refunding Bonds (International Paper Company Project), AMT, Series A, 6.70% due 2/01/2018 2,687 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 3,428 Alaska--0.4% 1,150 Alaska State Housing Financial Corporation, General Mortgage Revenue Refunding, Series A, 6% due 6/01/2027 (f) 1,176 3,860 Anchorage, Alaska, School, GO, Series B, 5.875% due 12/01/2010 (e)(j) 4,158 Arizona--5.4% 4,000 Arizona Health Facilities Authority Revenue Bonds (Catholic Healthcare West), Series A, 6.625% due 7/01/2020 4,400 Maricopa County, Arizona, Hospital Revenue Refunding Bonds (Sun Health Corporation): 730 6.125% due 4/01/2007 (j) 756 270 6.125% due 4/01/2018 278 3,100 Maricopa County, Arizona, IDA, Education Revenue Bonds (Arizona Charter Schools Project 1), Series A, 6.75% due 7/01/2029 3,068 1,625 Maricopa County, Arizona, IDA, Health Facilities Revenue Refunding Bonds (Catholic Healthcare West Project), Series A, 5% due 7/01/2021 1,625 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 1,033 Peoria, Arizona, Improvement District Number 8401, Special Assessment Bonds Number 8802: 430 7.20% due 1/01/2010 440 510 7.20% due 1/01/2013 522 Peoria, Arizona, Improvement District, Special Assessment Bonds Number 8801: 190 7.30% due 1/01/2009 195 395 7.30% due 1/01/2011 405 7,500 Phoenix, Arizona, Civic Improvement Corporation, Excise Tax Revenue Bonds (Civic Plaza Expansion Project), Sub-Series A, 5% due 7/01/2030 (e) 7,675 2,330 Phoenix, Arizona, Civic Improvement Corporation, Municipal Facilities, Excise Tax Revenue Bonds, 5.75% due 7/01/2016 (e) 2,499 4,575 Phoenix, Arizona, IDA, Airport Facility, Revenue Refunding Bonds (America West Airlines Inc. Project), AMT, 6.30% due 4/01/2023 4,511 500 Pinal County, Arizona, IDA, Wastewater Revenue Bonds (San Manuel Facilities Project), AMT, 6.25% due 6/01/2026 531 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 $ 447 35,000 Salt River Project, Arizona, Agriculture Improvement and Power District, Electric System Revenue Bonds, Series A, 5% due 1/01/2037 35,797 3,515 Tucson, Arizona, IDA, Senior Living Facilities Revenue Bonds (Christian Care Tucson Inc. Project), Series A, 6.125% due 7/01/2024 (m) 3,774 3,180 University of Arizona, COP, Refunding, Series A, 5.50% due 6/01/2018 (c) 3,391 1,000 University of Arizona, COP (University of Arizona Parking and Student Housing), 5.75% due 6/01/2009 (c)(j) 1,051 Vistancia Community Facilities District, Arizona, GO: 3,000 6.75% due 7/15/2022 3,196 2,125 5.75% due 7/15/2024 2,156 Arkansas--0.5% 30 Arkansas State Development Finance Authority, S/F Mortgage Revenue Bonds (Mortgage- Backed Securities Program), Series H, 6.15% due 7/01/2016 (i) 31 250 Arkansas State Student Loan Authority Revenue Bonds, AMT, Sub-Series B, 7.25% due 6/01/2009 262 200 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) 204 250 North Little Rock, Arkansas, Health Facilities Board, Health Care Revenue Bonds (Baptist Health), 5.50% due 7/01/2016 257 500 Pine Bluff, Arkansas, Environmental Improvement Revenue Refunding Bonds (International Paper Company Project), AMT, Series A, 6.70% due 8/01/2020 535 4,940 University of Arkansas, University Revenue Bonds (Various Facilities-UAMS Campus), 5% due 3/01/2030 (e) 5,062 250 University of Central Arkansas, Housing System Revenue Bonds, 6.50% due 1/01/2010 (h)(j) 275 California--14.0% 2,500 Agua Caliente Band of Cahuilla Indians, California, Casino Revenue Bonds, 6% due 7/01/2018 2,697 8,840 Alameda County, California, COP (Financing Project), 6% due 9/01/2006 (f)(j) 9,047 19,200 Bay Area Toll Authority, California, Toll Bridge Revenue Refunding Bonds (San Francisco Bay Area), Series F, 5% due 4/01/2031 19,600 9,065 California Pollution Control Financing Authority, Solid Waste Disposal Revenue Refunding Bonds (Waste Management Inc. Project), AMT, Series A, 5% due 1/01/2022 9,017 40 California Rural Home Mortgage Finance Authority, S/F Mortgage Revenue Bonds (Mortgage-Backed Securities Program), AMT, Series D, Class 5, 6.70% due 5/01/2029 (i)(l) 41 155 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) 157 MERRILL LYNCH MUNICIPAL BOND FUND, INC. JUNE 30, 2006 Schedule of Investments (continued) National Portfolio (In Thousands) Face Amount Municipal Bonds Value California (continued) $ 5,000 California State, GO, 5.25% due 4/01/2029 $ 5,180 405 California State, GO, Refunding, 5.75% due 5/01/2030 431 California State, Various Purpose, GO: 10,000 5.25% due 11/01/2027 10,369 14,100 5.50% due 11/01/2033 14,969 9,880 California Statewide Communities Development Authority, Health Facility Revenue Bonds (Memorial Health Services), Series A, 6% due 10/01/2023 10,646 Chula Vista, California, Community Facilities District, Special Tax Bonds (Number 06-1, Eastlake Woods Area), Series A: 1,080 6.05% due 9/01/2020 1,150 2,965 6.15% due 9/01/2026 3,142 Contra Costa County, California, Special Tax Bonds, (Community Facilities District Number 2001-01): 1,585 6% due 9/01/2026 1,664 1,200 6.10% due 9/01/2031 1,261 3,100 Elk Grove, California, Poppy Ridge Community Facilities Number 3 Special Tax, Series 1, 6% due 9/01/2008 (j) 3,246 10,000 Fremont, California, Unified School District, Alameda County, GO (Election of 2002), Series B, 5% due 8/01/2028 (h) 10,242 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) 13,017 2,740 Pomona, California, Public Financing Authority Revenue Refunding Bonds (Merged Redevelopment Project), Series A1, 5.75% due 2/01/2034 2,842 Poway, California, Unified School District, Special Tax Bonds: 1,100 (Community District Number 6), Series A, 6.05% due 9/01/2025 1,143 1,320 (Community District Number 14), 5.25% due 9/01/2036 1,298 2,695 Riverside, California, Improvement Bond Act of 1915, Special Assessment (Riverwalk Assessment District), 6.375% due 9/02/2026 2,864 Roseville, California, Special Tax (Stoneridge Community Facilities Number 1): 1,250 6.20% due 9/01/2021 1,332 1,125 6% due 9/01/2025 1,193 2,500 6.30% due 9/01/2031 2,683 Sacramento, California, Special Tax (North Natomas Community Facilities): 2,200 Series 01-03, 6% due 9/01/2028 2,298 2,270 Series 4-C, 6% due 9/01/2028 2,397 20,075 Sacramento County, California, Sanitation District Financing Authority, Revenue Bonds, Series A, 5% due 12/01/2035 (c) 20,503 5,000 San Diego, California, Community College District, GO (Election of 2002), 5% due 5/01/2030 (h) 5,111 10,000 San Diego, California, Public Facilities Financing Authority, Subordinated Water Revenue Refunding Bonds, 5% due 8/01/2032 (f) 10,136 5,400 San Diego, California, Unified Port District, Revenue Refunding Bonds, AMT, Series A, 5.25% due 9/01/2019 (f) 5,651 11,520 San Diego, California, Unified School District, GO (Election of 1998), Series F, 5% due 7/01/2028 (h) 11,771 Face Amount Municipal Bonds Value California (concluded) San Francisco, California, City and County Redevelopment Agency Revenue Bonds (Community Facilities District Number 6-Mission): $ 5,000 6% due 8/01/2021 $ 5,199 2,500 GO, Series A, 6% due 8/01/2025 2,596 1,075 San Francisco, California, Uptown Parking Corporation, Parking Revenue Bonds (Union Square), 6% due 7/01/2020 (f) 1,178 Santa Margarita, California, Water District, Special Tax Refunding Bonds, (Community Facilities District Number 99), Series 1: 3,680 6.20% due 9/01/2020 3,921 2,990 6.25% due 9/01/2029 3,186 Colorado--2.9% 11,590 Arkansas River Power Authority, Colorado, Power Improvement Revenue Bonds, 5.25% due 10/01/2032 (k) 12,103 500 Boulder County, Colorado, Hospital Development Revenue Bonds (Longmont United Hospital Project), 6% due 12/01/2010 (j)(m) 539 410 Colorado HFA, Revenue Bonds (S/F Program), Series B-3, 6.55% due 10/01/2016 413 Colorado HFA Revenue Refunding Bonds (S/F Program): 400 AMT, Senior Series A-2, 7.50% due 4/01/2031 412 140 AMT, Senior Series B-2, 7.10% due 4/01/2017 144 950 AMT, Senior Series B-2, 7.25% due 10/01/2031 973 50 AMT, Senior Series B-3, 6.80% due 11/01/2028 51 400 AMT, Senior Series C-2, 7.25% due 10/01/2031 (b) 419 130 Senior Series A-3, 7.35% due 10/01/2030 135 570 Senior Series C-3, 6.75% due 10/01/2021 (b) 573 145 Senior Series C-3, 7.15% due 10/01/2030 (b) 146 2,500 Colorado Health Facilities Authority, Revenue Refunding Bonds (Catholic Health Initiatives), 5.50% due 9/01/2017 2,620 550 Colorado Water Resource and Power Development Authority, Small Water Resource Revenue Bonds, Series A, 5.80% due 11/01/2020 (e) 588 Elk Valley, Colorado, Public Improvement Revenue Bonds (Public Improvement Fee): 7,560 Series A, 7.35% due 9/01/2031 7,966 1,200 Series B, 7% due 9/01/2031 1,223 3,685 Larimer County, Colorado, Poudre School District Number R-1, GO, 6% due 12/15/2010 (e)(j) 3,990 Plaza Metropolitan District Number 1, Colorado, Tax Allocation Revenue Bonds (Public Improvement Fees): 7,700 8% due 12/01/2025 8,407 1,910 8.125% due 12/01/2025 1,904 Connecticut--1.9% 4,000 Bridgeport, Connecticut, Senior Living Facilities Revenue Bonds (3030 Park Retirement Community Project), 7.25% due 4/01/2035 3,356 1,000 Connecticut State Development Authority, Governmental Lease Revenue Bonds, 6.60% due 6/15/2014 (f) 1,002 1,250 Connecticut State Development Authority, Water Facility Revenue Bonds (Bridgeport Hydraulic Company), AMT, 6.15% due 4/01/2035 (c) 1,294 MERRILL LYNCH MUNICIPAL BOND FUND, INC. JUNE 30, 2006 Schedule of Investments (continued) National Portfolio (In Thousands) Face Amount Municipal Bonds Value Connecticut (concluded) $ 1,200 Connecticut State, HFA, Revenue Refunding Bonds (Housing Mortgage Finance Program), Series C-1, 6.30% due 11/15/2017 $ 1,227 Connecticut State Health and Educational Facilities Authority Revenue Bonds: 1,000 (Bridgeport Hospital), Series A, 6.625% due 7/01/2018 (f) 1,003 1,500 (Waterbury Hospital Issue), Series C, 5.75% due 7/01/2020 (m) 1,573 1,000 (Westover School), Series A, 5.70% due 7/01/2030 (m) 1,055 Connecticut State Health and Educational Facilities Authority Revenue Refunding Bonds (m): 5,025 DRIVERS, Series 215, 8.698% due 6/01/2030 (n) 5,911 1,885 (Eastern Connecticut Health Network), Series A, 6.50% due 7/01/2010 (j) 2,075 115 (Eastern Connecticut Health Network), Series A, 6.50% due 7/01/2030 125 640 (Sacred Heart University), 6.625% due 7/01/2026 654 5,710 (University of Hartford), Series E, 5.50% due 7/01/2022 6,074 680 Connecticut State Higher Education Supplemental Loan Authority, Revenue Bonds (Family Education Loan Program), AMT, Series A, 5.50% due 11/15/2020 (f) 684 860 Waterbury, Connecticut, GO, 6% due 2/01/2009 (j)(m) 912 Delaware--0.1% 1,685 New Castle County, Delaware, PCR (General Motors Corporation Project), VRDN, 7.875% due 10/01/2008 (g) 1,685 District of Columbia--0.6% 3,000 District of Columbia, COP, 5.25% due 1/01/2017 (e) 3,184 5,000 District of Columbia, GO, Refunding, DRIVERS, VRDN, Series 214, 7.691% due 6/01/2026 (f)(g)(n) 5,392 Florida--10.5% 2,000 Anthem Park Community Development District, Florida, Capital Improvement Revenue Bonds, 5.80% due 5/01/2036 2,037 1,670 Ballantrae, Florida, Community Development District, Capital Improvement Revenue Bonds, 6% due 5/01/2035 1,727 4,440 Baywinds Community Development District, Florida, Special Assessment Bonds, Series B, 4.90% due 5/01/2012 4,440 1,825 Beacon Tradeport Community, Florida, Development District, Special Assessment Revenue Refunding Bonds (Commercial Project), Series A, 5.25% due 5/01/2016 (m) 1,924 2,500 CFM Community Development District, Florida, Capital Improvement Revenue Bonds, Series B, 5.875% due 5/01/2014 2,559 2,725 Duval County, Florida, School Board, COP, 5.75% due 7/01/2017 (h) 2,858 East Homestead Community Development District, Florida, Special Assessment Revenue Bonds: 1,000 5.375% due 5/01/2036 979 1,500 5.45% due 5/01/2036 1,493 1,500 Series B, 5% due 5/01/2011 1,500 Face Amount Municipal Bonds Value Florida (continued) Fiddlers Creek, Florida, Community Development District Number 2, Special Assessment Revenue Bonds: $ 5,350 Series A, 6.375% due 5/01/2035 $ 5,632 1,250 Series B, 5.75% due 5/01/2013 1,293 20,000 Gainesville, Florida, Utilities System Revenue Refunding Bonds, Series A, 5% due 10/01/2035 (h) 20,414 7,000 Halifax Hospital Medical Center, Florida, Hospital Revenue Refunding and Improvement Bonds, Series A, 5.25% due 6/01/2026 7,091 400 Heritage Isles Community Development District, Florida, Special Assessment Revenue Refunding Bonds, 5.90% due 11/01/2006 402 5,000 Hillsborough County, Florida, IDA, Exempt Facilities Revenue Bonds (National Gypsum Company), AMT, Series A, 7.125% due 4/01/2030 5,487 7,000 Lee County, Florida, Airport Revenue Bonds, RIB, AMT, Series 580X, 7.73% due 10/01/2029 (h)(n) 8,015 1,200 Lexington Oaks, Florida, Community Development District, Special Assessment Revenue Bonds, Series A, 6.70% due 5/01/2033 1,277 1,030 Mediterra, Florida, South Community Development District, Capital Improvement Revenue Bonds, 6.85% due 5/01/2031 1,098 2,500 Middle Village Community Development District, Florida, Special Assessment Bonds, Series A, 6% due 5/01/2035 2,589 6,625 Midtown Miami, Florida, Community Development District, Special Assessment Revenue Bonds, Series A, 6.25% due 5/01/2037 7,138 1,990 Old Palm Community Development District, Florida, Special Assessment Bonds (Palm Beach Gardens), Series B, 5.375% due 5/01/2014 2,017 3,500 Orange County, Florida, HFA, M/F Housing Revenue Bonds (Loma Vista Project), Series G, 5.50% due 3/01/2032 3,551 1,000 Orange County, Florida, Health Facilities Authority, Hospital Revenue Bonds (Orlando Regional Healthcare), 5.70% due 7/01/2026 989 Panther Trace Community Development District II, Florida, Special Assessment Revenue Bonds: 5,000 5.125% due 11/01/2013 4,988 5,000 Series A, 5.60% due 5/01/2035 5,041 Park Place Community Development District, Florida, Special Assessment Revenue Bonds: 1,000 6.75% due 5/01/2032 1,058 2,405 6.375% due 5/01/2034 2,505 10,000 Peace River/Manasota Regional Water Supply Authority, Florida, Utility System Revenue Bonds, Series A, 5% due 10/01/2035 (h) 10,207 20,115 Port St. Lucie, Florida, Utility Revenue Bonds, 5.125% due 9/01/2036 (f) 20,782 2,000 Saint Lucie, Florida, West Services District, Utility Revenue Refunding Bonds, Senior Lien, 6% due 10/01/2022 (f) 2,185 2,875 Somerset Community Development District, Florida, Capital Improvement Revenue Bonds, 5% due 5/01/2015 2,859 645 Sterling Hill, Florida, Community Development District, Capital Improvement Revenue Refunding Bonds, Series B, 5.50% due 11/01/2010 648 MERRILL LYNCH MUNICIPAL BOND FUND, INC. JUNE 30, 2006 Schedule of Investments (continued) National Portfolio (In Thousands) Face Amount Municipal Bonds Value Florida (concluded) $ 380 Stoneybrook West, Florida, Community Development District, Special Assessment Revenue Bonds, Series B, 6.45% due 5/01/2010 $ 382 1,275 Tern Bay Community Development District, Florida, Capital Improvement Revenue Refunding Bonds, Series B, 5% due 5/01/2015 1,267 2,185 Tuscany Reserve Community Development District, Florida, Capital Improvement Revenue Bonds, Series B, 5.25% due 5/01/2016 2,204 3,520 University of South Florida Financing Corporation, COP (Master Lease Program), Refunding, Series A, 5.375% due 7/01/2022 (c) 3,751 15 Verandah West, Florida, Community Development District, Capital Improvement Revenue Bonds, Series B, 5.25% due 5/01/2008 15 2,060 Watergrass Community Development District, Florida, Special Assessment Revenue Bonds, Series B, 4.875% due 11/01/2010 2,051 6,000 West Villages Improvement District, Florida, Special Assessment Revenue Refunding Bonds (Unit of Development Number 2), 5.80% due 5/01/2036 6,098 Georgia--1.8% 5,000 Atlanta, Georgia, Tax Allocation Bonds (Atlantic Station Project), 7.90% due 12/01/2024 5,505 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 2,239 3,304 7.25% due 1/01/2035 3,230 5,210 College Park, Georgia, Business and IDA Revenue Bonds (Civic Center Project), 5.75% due 9/01/2010 (c)(j) 5,658 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) 3,724 2,250 Fulton County, Georgia, Residential Care Facilities, Revenue Refunding Bonds (Canterbury Court Project), Series A, 6% due 2/15/2022 2,276 1,500 Milledgeville-Baldwin County, Georgia, Development Authority Revenue Bonds (Georgia College and State University Foundation), 6% due 9/01/2033 1,598 Illinois--7.6% 1,000 Bolingbrook, Illinois, Special Services Area Number 1, Special Tax Bonds (Forest City Project), 5.90% due 9/01/2007 (p) 931 10,620 Chicago, Illinois, Board of Education, GO, DRIVERS, Series 199, 7.191% due 12/01/2020 (c)(n) 11,590 26,800 Chicago, Illinois, O'Hare International Airport Revenue Bonds, Third Lien, AMT, Series B-2, 6% due 1/01/2029 (k) 29,265 6,915 Chicago, Illinois, O'Hare International Airport, Special Facility Revenue Refunding Bonds (American Airlines Inc. Project), 8.20% due 12/01/2024 7,122 350 Chicago, Illinois, Park District, GO, Refunding, Series B, 5.75% due 1/01/2015 (e) 374 230 Chicago, Illinois, Park District, Limited Tax, GO, Series A, 5.75% due 1/01/2016 (e) 246 Face Amount Municipal Bonds Value Illinois (concluded) $ 395 Chicago, Illinois, S/F Mortgage Revenue Bonds, AMT, Series A, 7.15% due 9/01/2031 (i)(l) $ 405 2,000 Chicago, Illinois, Special Assessment Bonds (Lake Shore East), 6.75% due 12/01/2032 2,136 3,210 Cicero, Illinois, GO, Refunding (Corporate Purpose), 6% due 12/01/2028 (f) 3,463 7,000 Decatur, Illinois, GO, Refunding, 6% due 3/01/2008 (e)(j) 7,243 10,000 Hodgkins, Illinois, Environmental Improvement Revenue Bonds (Metro Biosolids Management LLC Project), AMT, 6% due 11/01/2023 10,447 Illinois Development Finance Authority Revenue Bonds: 3,140 (Community Rehabilitation Providers Facilities), Series A, 6.50% due 7/01/2022 3,351 660 Series B, 6.40% due 9/01/2031 (h) 676 Illinois State Finance Authority Revenue Bonds, Series A: 1,750 (Friendship Village of Schaumburg), 5.625% due 2/15/2037 1,753 2,155 (Landing At Plymouth Place Project), 6% due 5/15/2037 2,201 Illinois State, GO, 1st Series (f): 8,890 5.75% due 12/01/2015 9,500 3,745 5.75% due 12/01/2016 3,999 4,000 5.75% due 12/01/2017 4,264 3,000 Illinois State, Sales Tax Revenue Bonds, 6% due 6/15/2020 3,205 3,000 Illinois State, Sales Tax Revenue Refunding Bonds, Series Q, 6% due 6/15/2009 3,097 2,000 Lake County, Illinois, Forest Preservation District, GO (Land Acquisition and Development), 5.75% due 12/15/2016 2,146 625 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 1,517 Iowa--0.6% 1,000 Iowa City, Iowa, Sewer Revenue Bonds, 5.75% due 7/01/2021 (f) 1,001 6,780 Iowa Finance Authority, Health Care Facilities, Revenue Refunding Bonds (Care Initiatives Project), 9.25% due 7/01/2025 8,031 Kansas--0.4% 1,000 Kansas State Development Financing Authority, Revenue Bonds (Department of Administration-- Comprehensive Transportation Program), Series A, 5% due 11/01/2025 (e) 1,033 1,740 Sedgwick and Shawnee Counties, Kansas, S/F Revenue Bonds, AMT, Series A-1, 6.95% due 6/01/2029 (d) 1,801 2,500 Wichita, Kansas, Hospital Facilities Revenue Refunding and Improvement Bonds, Series III, 6.25% due 11/15/2019 2,705 Louisiana--1.0% 485 Louisiana HFA, S/F Mortgage Revenue Bonds, AMT, Series D-2, 5.80% due 6/01/2020 (i) 490 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) 10,656 MERRILL LYNCH MUNICIPAL BOND FUND, INC. JUNE 30, 2006 Schedule of Investments (continued) National Portfolio (In Thousands) Face Amount Municipal Bonds Value Louisiana (concluded) $ 955 Louisiana State, HFA, S/F Revenue Refunding Bonds (Home Ownership Program), Series B-2, AMT, 6.20% due 12/01/2029 (b)(i) $ 973 2,000 Rapides Finance Authority, Louisiana, Environmental Improvement Revenue Bonds (International Paper Company Project), AMT, Series A, 6.55% due 11/15/2023 2,123 Maine--0.7% 8,635 Maine Finance Authority, Solid Waste Recycling Facilities Revenue Bonds (Great Northern Paper Project-Bowater), AMT, 7.75% due 10/01/2022 8,658 1,595 Maine State Housing Authority, Mortgage Purpose Revenue Bonds, DRIVERS, AMT, Series 170, 7.667% due 11/15/2028 (n) 1,674 Maryland--0.3% 500 Anne Arundel County, Maryland, Special Obligation Revenue Bonds (Arundel Mills Project), 7.10% due 7/01/2009 (j) 553 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 1,036 355 Maryland State Community Development Administration, Department of Housing and Community Development, Residential Revenue Refunding Bonds, Series A, 5.60% due 3/01/2017 (b) 363 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 1,038 1,000 Maryland State Energy Financing Administration, Solid Waste Disposal Revenue Bonds, Limited Obligation (Wheelabrator Water Projects), AMT, 6.45% due 12/01/2016 1,027 Massachusetts--0.6% 320 Massachusetts Educational Financing Authority, Education Loan Revenue Refunding Bonds, AMT, Issue E, 5.85% due 7/01/2014 (c) 323 4,450 Massachusetts State Health and Educational Facilities Authority Revenue Bonds (Medical Center of Central Massachusetts), CARS, Series B, 8.06% due 6/23/2022 (c)(n) 4,838 1,000 Massachusetts State Industrial Finance Agency, Higher Education Revenue Refunding Bonds (Hampshire College Project), 5.625% due 10/01/2007 (j) 1,040 130 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) 1,717 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) 8,351 Face Amount Municipal Bonds Value Michigan (concluded) $ 500 Dickinson County, Michigan, Economic Development Corporation, Environmental Improvement Revenue Refunding Bonds (International Paper Company Project), Series A, 5.75% due 6/01/2016 $ 529 Eastern Michigan University, General Revenue Refunding Bonds (c): 585 6% due 6/01/2010 (j) 633 415 6% due 6/01/2024 448 3,000 Flint, Michigan, Hospital Building Authority, Revenue Refunding Bonds (Hurley Medical Center), 6% due 7/01/2020 3,130 6,750 Hartland, Michigan, Consolidated School District, GO, Refunding, RIB, Series 1204, 6.02% due 5/01/2029 (n) 7,014 3,325 Macomb County, Michigan, Hospital Finance Authority, Hospital Revenue Bonds (Mount Clemens General Hospital), Series B, 5.875% due 11/15/2034 3,494 1,500 Michigan State Hospital Finance Authority, Revenue Refunding Bonds (Mercy-Mount Clemens), Series A, 6% due 5/15/2014 (f) 1,587 Minnesota--0.9% 765 Anoka County, Minnesota, Solid Waste Disposal Revenue Bonds (Natural Rural Utilities), AMT, Series A, 6.95% due 12/01/2008 772 1,000 Eden Prairie, Minnesota, M/F Housing Revenue Bonds (Rolling Hills Project), Series A, 6.15% due 8/20/2031 (d) 1,075 Minneapolis and Saint Paul, Minnesota, Metropolitan Airports Commission, Airport Revenue Bonds, AMT, Sub-Series D (e): 470 5.75% due 1/01/2012 497 470 5.75% due 1/01/2014 496 2,060 5.75% due 1/01/2015 2,178 575 Minneapolis, Minnesota, Community Development Agency, Supported Development Revenue Bonds (Common Bond Fund), AMT, Series 2, 6.20% due 6/01/2017 582 Minneapolis, Minnesota, Health Care System Revenue Bonds (Allina Health System), Series A: 1,500 5.70% due 11/15/2022 1,580 2,665 5.75% due 11/15/2032 2,804 1,110 Ramsey County, Minnesota, Housing and Redevelopment Authority, M/F Housing Revenue Bonds (Hanover Townhouses Project), AMT, 6% due 7/01/2031 1,134 1,000 Saint Cloud, Minnesota, Health Care Revenue Refunding Bonds (Saint Cloud Hospital Obligation Group), Series A, 6.25% due 5/01/2020 (h) 1,086 1,500 Waconia, Minnesota, Health Care Facilities Revenue Bonds (Ridgeview Medical Center Project), Series A, 6.125% due 1/01/2029 (m) 1,593 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 1,823 MERRILL LYNCH MUNICIPAL BOND FUND, INC. JUNE 30, 2006 Schedule of Investments (continued) National Portfolio (In Thousands) Face Amount Municipal Bonds Value Missouri--0.2% $ 1,000 Fenton, Missouri, Tax Increment Revenue Refunding and Improvement Bonds (Gravois Bluffs Redevelopment Project), 5% due 4/01/2014 $ 1,024 1,500 Kansas City, Missouri, IDA, First Mortgage Health Facilities Revenue Bonds (Bishop Spencer Place), Series A, 6.50% due 1/01/2035 1,562 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 6,282 Nevada--1.9% 3,500 Clark County, Nevada, Airport Revenue Bonds (Jet Aviation Fuel Tax), AMT, Series C, 5.375% due 7/01/2020 (c) 3,631 1,550 Clark County, Nevada, Improvement District Number 142, Special Assessment Bonds, 6.375% due 8/01/2023 1,599 Elko, Nevada, GO (Airport Improvement), AMT, Series B (f): 165 6.10% due 10/01/2014 170 245 6.30% due 10/01/2019 254 320 6.75% due 10/01/2024 334 225 7% due 10/01/2029 236 2,845 Henderson, Nevada, Local Improvement Districts, Special Assessment, Series NO T-14, 5.80% due 3/01/2023 2,936 Las Vegas, Nevada, Local Improvement Bonds, Special Assessment, Special Improvement District Number 808, Summerlin: 1,750 5.875% due 6/01/2009 1,811 2,010 6.125% due 6/01/2012 2,083 2,245 6.25% due 6/01/2013 2,328 55 Nevada Housing Division, S/F Program, AMT, Senior Series E, 7.05% due 4/01/2027 (b) 55 1,960 Reno, Nevada, Special Assessment District Number 4 (Somerset Parkway), 6.625% due 12/01/2022 2,022 Sparks, Nevada, Redevelopment Agency, Tax Allocation Revenue Refunding Bonds, Series A (m): 3,110 6% due 1/15/2015 3,304 6,315 6% due 1/15/2023 6,697 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 1,827 New Jersey--4.1% 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 446 3,300 New Jersey EDA, Retirement Community Revenue Bonds (Cedar Crest Village Inc. Facility), Series A, 7.25% due 11/15/2031 3,561 11,000 New Jersey EDA, Revenue Bonds, RIB, Series 1187, 6.18% due 3/01/2024 (n) 12,011 3,680 New Jersey EDA, State Lease Revenue Bonds (State Office Buildings Projects), 6% due 6/15/2010 (c)(j) 3,957 Face Amount Municipal Bonds Value New Jersey (concluded) $ 3,130 New Jersey Health Care Facilities Financing Authority Revenue Bonds (South Jersey Hospital), 6% due 7/01/2026 $ 3,287 2,250 New Jersey Health Care Facilities Financing Authority, Revenue Refunding Bonds (Capital Health System Inc.), Series A, 5.75% due 7/01/2023 2,355 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) 1,135 New Jersey State Turnpike Authority, Turnpike Revenue Refunding Bonds (f): 10,000 DRIVERS, VRDN, Series 155, 7.197% due 1/01/2018 (a)(n) 11,107 7,025 Series A, 5.75% due 1/01/2010 (j) 7,447 2,975 Series A, 5.75% due 1/01/2018 3,140 9,500 Tobacco Settlement Financing Corporation of New Jersey, Asset-Backed Revenue Bonds, 7% due 6/01/2041 10,771 New Mexico--0.9% 8,000 Farmington, New Mexico, PCR, Refunding (Public Service Company of New Mexico--San Juan Project), Series B, 6.30% due 12/01/2016 8,221 110 New Mexico Mortgage Finance Authority Revenue Refunding Bonds, Mortgage-Backed Securities, Series F, 7% due 1/01/2026 (i) 113 4,260 New Mexico Mortgage Financing Authority, S/F Mortgage Program Revenue Bonds, AMT, Series D, 6.15% due 7/01/2035 (i)(l) 4,498 250 Santa Fe County, New Mexico, Correctional System Revenue Bonds, 6% due 2/01/2027 (h) 285 New York--6.8% 4,500 Metropolitan Transportation Authority, New York, Commuter Facilities, Service Contract Revenue Refunding Bonds, Series 8, 5.50% due 7/01/2013 (h)(j) 4,903 10,000 Metropolitan Transportation Authority, New York, Transit Facilities Revenue Bonds, Series A, 5.625% due 7/01/2007 (f)(j) 10,329 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 3,320 4,050 New York City, New York, City IDA, Special Facility Revenue Bonds (British Airways Plc Project), AMT, 7.625% due 12/01/2032 4,551 New York City, New York, GO, Refunding: 6,540 Series A, 6% due 5/15/2010 (j) 7,094 2,205 Series A, 6.25% due 5/15/2010 (j)(k) 2,411 60 Series A, 6% due 5/15/2021 (k) 65 4,000 Series C, 5.875% due 2/01/2016 (e) 4,066 675 Series H, 6% due 8/01/2007 (j)(k) 698 325 Series H, 6% due 8/01/2017 (k) 336 New York City, New York, GO, Series B (f): 6,600 5.875% due 8/01/2010 (j) 7,152 1,340 5.875% due 8/01/2015 1,445 19,000 New York City, New York, Sales Tax Asset Receivable Corporation Revenue Bonds, Series A, 5% due 10/15/2032 (c) 19,465 MERRILL LYNCH MUNICIPAL BOND FUND, INC. JUNE 30, 2006 Schedule of Investments (continued) National Portfolio (In Thousands) Face Amount Municipal Bonds Value New York (concluded) New York State Dormitory Authority, Revenue Refunding Bonds: $ 2,945 (Concord Nursing Home Inc.), 6.25% due 7/01/2016 $ 3,119 2,500 (Concord Nursing Home Inc.), 6.50% due 7/01/2029 2,661 3,000 (Mount Sinai Health), Series A, 6.50% due 7/01/2016 3,214 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 3,563 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 1,448 2,285 Oneida County, New York, IDA Revenue Bonds (Civic Facility-Faxton Hospital), Series C, 6.625% due 1/01/2015 (m) 2,470 3,000 Port Authority of New York and New Jersey, Consolidated Revenue Bonds, AMT, Thirty-Seventh Series, 5.50% due 7/15/2018 (h) 3,205 95 Suffolk County, New York, IDA, Civic Facility Revenue Bonds (Special Needs Facilities Pooled Program), Series D-1, 6% due 7/01/2012 97 705 Westchester County, New York, IDA, Civic Facilities Revenue Bonds (Special Needs Facilities Pooled Program), Series E-1, 6% due 7/01/2012 723 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 8,561 North Carolina--2.9% 920 Brunswick County, North Carolina, COP, 6% due 6/01/2010 (h)(j) 997 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 1,524 North Carolina Eastern Municipal Power Agency, Power System Revenue Bonds: 1,500 Series B, 5.875% due 1/01/2007 (f)(j) 1,545 4,000 Series D, 6.75% due 1/01/2026 4,328 4,440 North Carolina Eastern Municipal Power Agency, Power System Revenue Refunding Bonds, Series D, 6.70% due 1/01/2019 (o) 4,812 4,840 North Carolina HFA, Home Ownership Revenue Bonds, AMT, Series 9-A, 5.80% due 1/01/2020 5,021 45 North Carolina HFA, S/F Revenue Bonds, Series W, 6.50% due 3/01/2018 45 North Carolina Medical Care Commission, Health Care Facilities, First Mortgage Revenue Bonds (Presbyterian Homes Project): 2,500 6.875% due 10/01/2021 2,650 3,000 5.50% due 10/01/2031 2,988 North Carolina Medical Care Commission, Retirement Facilities, First Mortgage Revenue Bonds: 1,625 (Forest at Duke Project), 6.375% due 9/01/2032 1,690 2,500 (Givens Estates Project), Series A, 6.50% due 7/01/2032 2,660 Face Amount Municipal Bonds Value North Carolina (concluded) North Carolina Municipal Power Agency Number 1, Catawba Electric Revenue Refunding Bonds, Series B: $ 500 6.375% due 1/01/2013 $ 536 1,080 6.375% due 1/01/2013 (o) 1,160 5,000 6.50% due 1/01/2020 5,394 2,500 6.50% due 1/01/2020 (o) 2,697 1,175 North Carolina State Educational Assistance Authority Revenue Bonds (Guaranteed Student Loan), AMT, Sub-Lien, Series C, 6.35% due 7/01/2016 1,200 Piedmont Triad Airport Authority, North Carolina, Airport Revenue Refunding Bonds, Series A (h)(j): 1,000 6% due 7/01/2009 1,068 1,000 6.375% due 7/01/2009 1,079 Ohio--0.4% 365 Ohio HFA, Mortgage Revenue Bonds, AMT, Series A-1, 6.15% due 3/01/2029 (d) 374 1,470 Port of Greater Cincinnati Development Authority, Ohio, Special Assessment Revenue Bonds (Cooperative Public Parking Infrastructure Project), 6.40% due 2/15/2034 1,567 3,005 Toledo-Lucas County, Ohio, Lodging Tax Revenue Refunding Bonds (Convention Center Project), 5.70% due 10/01/2015 (f) 3,077 Oregon--0.4% Forest Grove, Oregon, Campus Improvement Revenue Refunding Bonds (Pacific University) (j)(m): 250 6% due 5/01/2010 268 250 6.20% due 5/01/2010 270 Oregon State Housing and Community Services Department, Mortgage Revenue Refunding Bonds (S/F Mortgage Program), Series A: 60 6.40% due 7/01/2018 60 45 AMT, 6.20% due 7/01/2027 46 500 Portland, Oregon, M/F Housing Authority Revenue Bonds (Lovejoy Station Apartments Project), AMT, 5.90% due 7/01/2023 (f) 516 Portland, Oregon, Urban Renewal and Redevelopment Revenue Refunding Bonds, Series A (c): 1,000 (Downtown Waterfront), 5.75% due 6/15/2018 1,072 3,190 (South Park Blocks), 5.75% due 6/15/2018 3,420 Pennsylvania--2.7% 3,640 Allegheny County, Pennsylvania, IDA, Environmental Improvement Revenue Refunding Bonds, 5.50% due 11/01/2016 3,758 2,220 Allegheny County, Pennsylvania, Sanitation Authority, Sewer Revenue Bonds, 5.75% due 12/01/2010 (f)(j) 2,386 1,760 Bucks County, Pennsylvania, IDA, Retirement Community Revenue Bonds (Ann's Choice Inc.), Series A, 6.125% due 1/01/2025 1,817 4,000 Pennsylvania State Higher Educational Facilities Authority Revenue Bonds (University of Pennsylvania Medical Center Health System), Series A, 6% due 1/15/2031 4,307 1,265 Philadelphia, Pennsylvania, Authority for IDR, Commercial Development, 7.75% due 12/01/2017 1,278 MERRILL LYNCH MUNICIPAL BOND FUND, INC. JUNE 30, 2006 Schedule of Investments (continued) National Portfolio (In Thousands) Face Amount Municipal Bonds Value Pennsylvania (concluded) $18,105 Philadelphia, Pennsylvania, Redevelopment Authority Revenue Bonds, ROLS, Series RR-II-432X, 6.507% due 10/15/2010 (e)(n) $ 19,710 5,000 Sayre, Pennsylvania, Health Care Facilities Authority, Revenue Refunding Bonds (Guthrie Healthcare System), Series A, 5.875% due 12/01/2031 5,291 Rhode Island--0.6% 6,815 Rhode Island State Economic Development Corporation, Airport Revenue Bonds, Series B, 6% due 7/01/2010 (e)(j) 7,391 1,000 Rhode Island State Economic Development Corporation Revenue Bonds (Providence Place Mall), 6.125% due 7/01/2020 (m) 1,090 South Carolina--1.7% Medical University Hospital Authority, South Carolina, Hospital Facilities Revenue Refunding Bonds (j): 2,450 6.50% due 8/15/2012 2,778 5,400 Series A, 6.375% due 8/15/2012 6,086 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 5,110 10,608 South Carolina State Ports Authority, Ports Revenue Bonds, RIB, AMT, Series 1390X, 6.34% due 7/01/2026 (h)(n) 11,082 South Dakota--0.4% 3,750 Pierre, South Dakota, School District Number 32-2, GO, 5.75% due 8/01/2010 (h)(j) 4,005 1,740 South Dakota Housing Development Authority, Homeownership Revenue Bonds, AMT, Series C, 5.375% due 5/01/2018 1,770 Tennessee--1.6% Chattanooga, Tennessee, IDB, Lease Rent Revenue Bonds (Southside Redevelopment Corporation) (c): 4,485 5.75% due 10/01/2017 4,772 3,740 5.75% due 10/01/2018 3,979 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 1,025 4,950 McMinn County, Tennessee, IDB, Solid Waste Revenue Bonds (Recycling Facility-Calhoun Newsprint), AMT, 7.40% due 12/01/2022 5,023 7,300 Shelby County, Tennessee, Health, Educational and Housing Facility Board, Hospital Revenue Refunding Bonds (Methodist Healthcare), 6.50% due 9/01/2012 (j) 8,282 Texas--13.2% Austin, Texas, Convention Center Revenue Bonds (Convention Enterprises Inc.), First Tier, Series A: 5,300 6.60% due 1/01/2021 5,566 2,300 6.70% due 1/01/2028 2,437 10,630 Austin, Texas, Revenue Bonds (Town Lake Community Events Center Venue), 6.20% due 11/15/2009 (e)(j) 11,387 Face Amount Municipal Bonds Value Texas (continued) Bexar County, Texas, Health Facilities Development Corporation Revenue Refunding Bonds (Army Retirement Residence Project): $ 600 6.125% due 7/01/2022 $ 631 1,750 6.30% due 7/01/2032 1,842 2,280 Brazos River Authority, Texas, PCR, Refunding (Texas Utility Company), AMT, Series A, 7.70% due 4/01/2033 2,647 4,250 Brazos River Authority, Texas, Revenue Refunding Bonds (Reliant Energy Inc. Project), Series B, 7.75% due 12/01/2018 4,548 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 4,126 885 Central Texas Housing Finance Corporation, S/F Mortgage Revenue Bonds (GNMA Mortgage Program), AMT, 8.20% due 6/28/2017 (b)(d) 892 8,110 Cypress-Fairbanks, Texas, Independent School District, GO, 5.25% due 2/15/2027 8,465 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 3,668 18,250 Dallas-Fort Worth, Texas, International Airport Revenue Bonds, DRIVERS, AMT, Series 201, 7.672% due 11/01/2024 (e)(n) 20,157 1,260 Fort Bend County, Texas, Municipal Utility District Number 23, GO, 6.625% due 9/01/2007 (j)(m) 1,301 Gregg County, Texas, Health Facilities Development Corporation, Hospital Revenue Bonds (Good Shepherd Medical Center Project) (m): 1,000 6.875% due 10/01/2020 1,105 3,500 6.375% due 10/01/2025 3,801 5,465 Gulf Coast, Texas, Waste Disposal Authority Revenue Refunding Bonds (International Paper Company), AMT, Series A, 6.10% due 8/01/2024 5,812 9,430 Houston, Texas, Airport System Revenue Refunding Bonds, RIB, Series 1382X, 6.41% due 7/01/2018 (e)(n) 9,760 10,000 Houston, Texas, Utility System Revenue Refunding Bonds, DRIVERS, Series 1076, 5.958% due 5/15/2012 (f)(n) 10,517 4,000 Kerrville, Texas, Health Facilities Development Corporation, Hospital Revenue Bonds (Sid Peterson Memorial Hospital Project), 5.25% due 8/15/2021 4,035 8,080 Matagorda County, Texas, Navigation District Number 1, Revenue Refunding Bonds (Reliant Energy Inc.), Series C, 8% due 5/01/2029 8,638 7,350 Matagorda County, Texas, Port of Bay City Authority Revenue Bonds (Hoechst Celanese Corp. Project), AMT, 6.50% due 5/01/2026 7,519 4,825 Port Corpus Christi, Texas, Individual Development Corporation, Environmental Facilities Revenue Bonds (Citgo Petroleum Corporation Project), AMT, 8.25% due 11/01/2031 5,027 MERRILL LYNCH MUNICIPAL BOND FUND, INC. JUNE 30, 2006 Schedule of Investments (continued) National Portfolio (In Thousands) Face Amount Municipal Bonds Value Texas (concluded) $ 1,000 Red River, Texas, Education Finance Revenue Bonds (Saint Mark's School-Texas Project), 6% due 8/15/2019 $ 1,060 1,095 South Plains, Texas, Housing Finance Corporation, S/F Mortgage Revenue Bonds, AMT, Series A, 7.30% due 9/01/2031 (i) 1,099 Southeast Texas Housing Finance Corporation, Revenue Bonds, AMT (d)(l): 85 Series A, 8% due 11/01/2025 86 155 Series B, 8.50% due 11/01/2025 157 Tarrant County, Texas, Cultural Education Facilities Financing Corporation, Retirement Facilities Revenue Refunding Bonds (Northwest Senior Housing-- Edgemere Project), Series A: 2,200 6% due 11/15/2026 2,304 3,000 6% due 11/15/2036 3,098 Texas State Public Finance Authority, Building Revenue Bonds (h)(j): 2,100 (General Services Commission Project), Series A, 6% due 2/01/2010 2,244 1,000 (State Preservation Project), Series B, 6% due 8/01/2009 1,060 45,000 Texas State Turnpike Authority, Central Texas Turnpike System Revenue Bonds, First Tier, Series A, 5.75% due 8/15/2038 (c) 48,564 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) 5,307 Webster, Texas, GO, COP, Series A (h): 1,500 6% due 3/01/2010 (j) 1,605 805 6% due 3/01/2021 858 Utah--0.1% 880 Utah State, HFA, S/F Mortgage Revenue Refunding Bonds, AMT, Series C, Class III, 5.50% due 1/01/2018 893 Virginia--0.6% 2,425 Chesterfield County, Virginia, IDA, PCR, Refunding (Virginia Electric and Power Company), Series B, 5.875% due 6/01/2017 2,608 Norfolk, Virginia, Redevelopment and Housing Authority, First Mortgage Revenue Bonds (Retirement Community), Series A: 500 6% due 1/01/2025 513 1,100 6.125% due 1/01/2035 1,125 3,825 Pocahontas Parkway Association, Virginia, Toll Road Revenue Bonds, Senior-Series A, 5.50% due 8/15/2008 (j) 4,014 Face Amount Municipal Bonds Value Washington--1.5% $ 3,000 Port of Seattle, Washington, Special Facilities Revenue Bonds, Series A, 6% due 3/01/2010 (f)(j) $ 3,236 3,010 Seattle, Washington, Drain and Wastewater Utility Revenue Bonds, 5.75% due 11/01/2022 (f) 3,195 Seattle, Washington, Housing Authority Revenue Bonds: 2,750 (Newholly Project), AMT, 6.25% due 12/01/2035 2,795 4,800 (Replacement Housing Project), 6.125% due 12/01/2032 4,852 7,750 Tacoma, Washington, Electric System Revenue Refunding Bonds, Series A, 5.75% due 1/01/2011 (h)(j) 8,385 Wisconsin--0.7% 1,000 Wisconsin Housing and Economic Development Authority, Home Ownership Revenue Bonds, AMT, Series C, 6% due 9/01/2036 1,059 1,960 Wisconsin State, GO, AMT, Series B, 6.20% due 11/01/2026 (f) 1,982 Wisconsin State Health and Educational Facilities Authority Revenue Bonds (Synergyhealth Inc.): 3,250 6% due 11/15/2023 3,460 3,700 6% due 11/15/2032 3,925 Wyoming--0.6% 8,400 Sweetwater County, Wyoming, PCR, Refunding (Idaho Power Company Project), Series A, 6.05% due 7/15/2026 (f) 8,581 Guam--0.0% 115 Guam Housing Corporation, S/F Mortgage Revenue Bonds, AMT, Series A, 5.75% due 9/01/2031 (l) 125 Puerto Rico--2.4% 8,045 Puerto Rico Commonwealth Highway and Transportation Authority, Transportation Revenue Bonds, 5.75% due 7/01/2022 8,544 30,000 Puerto Rico Commonwealth Infrastructure Financing Authority, Special Tax and Capital Appreciation Revenue Bonds, Series A, 4.64% due 7/01/2032 (e)(p) 8,313 785 Puerto Rico Commonwealth, Public Improvement, GO, Refunding, 5.70% due 7/01/2020 (f) 835 15,000 Puerto Rico Electric Power Authority, Power Revenue Bonds, Series NN, 5.125% due 7/01/2029 15,225 2,000 Puerto Rico Industrial, Tourist, Educational, Medical and Environmental Control Facilities Revenue Bonds (Ascension Health), RIB, Series 377, 8% due 11/15/2030 (n) 2,328 MERRILL LYNCH MUNICIPAL BOND FUND, INC. JUNE 30, 2006 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 $ 8,936 Total Municipal Bonds (Cost--$1,367,296)--97.5% 1,412,597 Shares Held Short-Term Securities Value 53,524 Merrill Lynch Institutional Tax-Exempt Fund, 3.72% (q)(r) $ 53,524 Total Short-Term Securities (Cost--$53,524)--3.7% 53,524 Total Investments (Cost--$1,420,820*)--101.2% 1,466,121 Liabilities in Excess of Other Assets--(1.2%) (17,700) ---------- Net Assets--100.0% $1,448,421 ========== * The cost and unrealized appreciation (depreciation) of investments as of June 30, 2006, as computed for federal income tax purposes, were as follows: Aggregate cost $ 1,420,686 =============== Gross unrealized appreciation $ 53,242 Gross unrealized depreciation (7,807) --------------- Net unrealized appreciation $ 45,435 =============== (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. (p) Represents a zero coupon bond; the interest rate shown reflects the effective yield at the time of purchase. (q) Represents the current yield as of 6/30/2006. (r) 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 51,601 $958 See Notes to Financial Statements. MERRILL LYNCH MUNICIPAL BOND FUND, INC. JUNE 30, 2006 Statements of Assets and Liabilities
Short-Term Insured National As of June 30, 2006 Portfolio Portfolio Portfolio Assets Investments in unaffiliated securities, at value* $ 313,274,165 $ 925,964,993 $ 1,412,597,547 Investments in affiliated securities, at value** 24,643,702 1,730,187 53,523,712 Cash 1,487,065 116,946 17,042 Receivables: Securities sold 1,845 200,000 15,723,925 Interest 5,473,260 14,951,628 23,409,393 Capital shares sold 17,650 1,093,986 6,507,769 Dividends -- 79,204 -- Prepaid expenses and other assets 44,313 784,731 75,693 --------------- --------------- --------------- Total assets 344,942,000 944,921,675 1,511,855,081 --------------- --------------- --------------- Liabilities Payables: Securities purchased 7,550,775 2,592,714 59,498,838 Capital shares redeemed 663,536 1,396,044 1,053,023 Dividends to shareholders 263,135 1,069,216 1,831,670 Investment adviser 83,694 266,001 519,880 Distributor 36,157 126,068 247,205 Other affiliates 13,039 30,841 70,351 Accrued expenses and other liabilities 68,475 147,535 212,991 --------------- --------------- --------------- Total liabilities 8,678,811 5,628,419 63,433,958 --------------- --------------- --------------- Net Assets Net assets $ 336,263,189 $ 939,293,256 $ 1,448,421,123 =============== =============== =============== Net Assets Consist of Undistributed investment income--net 484,004 1,209,976 946,947 Accumulated realized capital gains (losses)--net (7,674,452) 3,713,414 (48,606,905) Unrealized appreciation/depreciation--net (2,292,136) 21,220,388 45,301,474 --------------- --------------- --------------- Total accumulated earnings (losses)--net (9,482,584) 26,143,778 (2,358,484) --------------- --------------- --------------- Class A Common Stock, $.10 par value++ 1,003,847 2,239,872 2,737,851 Class B Common Stock, $.10 par value++++ 240,493 865,614 1,295,487 Class C Common Stock, $.10 par value++++++ 648,984 794,670 1,345,637 Class I Common Stock, $.10 par value++++++++ 1,511,078 8,323,342 8,599,072 Paid-in capital in excess of par 342,341,371 900,925,980 1,436,801,560 --------------- --------------- --------------- Net Assets $ 336,263,189 $ 939,293,256 $ 1,448,421,123 =============== =============== ===============
MERRILL LYNCH MUNICIPAL BOND FUND, INC. JUNE 30, 2006 Statements of Assets and Liabilities (concluded)
Short-Term Insured National As of June 30, 2006 Portfolio Portfolio Portfolio Net Asset Value Class A: Net assets $ 99,293,080 $ 172,082,773 $ 283,813,966 =============== =============== =============== Shares outstanding 10,038,473 22,398,724 27,378,514 =============== =============== =============== Net asset value and redemption price per share $ 9.89 $ 7.68 $ 10.37 =============== =============== =============== Class B: Net assets $ 23,769,145 $ 66,477,437 $ 134,177,061 =============== =============== =============== Shares outstanding 2,404,927 8,656,137 12,954,871 =============== =============== =============== Net asset value and redemption price per share $ 9.88 $ 7.68 $ 10.36 =============== =============== =============== Class C: Net assets $ 63,867,991 $ 61,046,215 $ 139,446,596 =============== =============== =============== Shares outstanding 6,489,837 7,946,703 13,456,368 =============== =============== =============== Net asset value and redemption price per share $ 9.84 $ 7.68 $ 10.36 =============== =============== =============== Class I: Net assets $ 149,332,973 $ 639,686,831 $ 890,983,500 =============== =============== =============== Shares outstanding 15,110,784 83,233,423 85,990,721 =============== =============== =============== Net asset value and redemption price per share $ 9.88 $ 7.69 $ 10.36 =============== =============== =============== * Identified cost $ 315,566,301 $ 904,744,605 $ 1,367,296,073 =============== =============== =============== ** Identified cost for affiliated securities $ 24,643,702 $ 1,730,187 $ 53,523,712 =============== =============== =============== ++ 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. JUNE 30, 2006 Statements of Operations
Short-Term Insured National For the Year Ended June 30, 2006 Portfolio Portfolio Portfolio Investment Income Interest $ 11,460,839 $ 47,295,129 $ 77,504,312 Dividends* 767,668 1,287,310 958,049 Other -- 88,524 -- --------------- --------------- --------------- Total income 12,228,507 48,670,963 78,462,361 --------------- --------------- --------------- Expenses Investment advisory fees 1,326,737 3,666,253 6,872,089 Account maintenance and distribution fees--Class B 106,713 593,490 1,182,588 Account maintenance and distribution fees--Class C 267,585 507,578 985,685 Account maintenance fees--Class A 120,784 454,456 645,823 Accounting services 136,494 296,614 408,496 Transfer agent fees--Class I 60,614 219,323 140,091 Transfer agent fees--Class A 43,693 58,722 489,694 Custodian fees 34,997 59,696 87,169 Registration fees 52,964 50,958 58,792 Transfer agent fees--Class B 13,614 32,008 100,126 Professional fees 39,409 59,514 73,647 Printing and shareholder reports 18,566 44,668 61,897 Transfer agent fees--Class C 34,193 25,234 78,363 Pricing services 11,552 22,435 55,698 Directors' fees and expenses 9,713 20,718 28,283 Other 23,069 35,190 39,806 --------------- --------------- --------------- Total expenses before waiver 2,300,697 6,146,857 11,308,247 Waiver of expenses (54,478) (21,069) (63,071) --------------- --------------- --------------- Total expenses after waiver 2,246,219 6,125,788 11,245,176 --------------- --------------- --------------- Investment income--net 9,982,288 42,545,175 67,217,185 --------------- --------------- --------------- Realized & Unrealized Gain (Loss)--Net Realized gain (loss) on: Investments--net (2,592,944) 6,488,312 12,459,289 Forward interest rate swaps--net -- 774,863 -- --------------- --------------- --------------- Total realized gain (loss)--net (2,592,944) 7,263,175 12,459,289 --------------- --------------- --------------- Change in unrealized appreciation/depreciation on: Investments--net (1,927,943) (43,885,400) (53,403,444) Forward interest rate swaps--net -- 296,964 -- --------------- --------------- --------------- Total change in unrealized depreciation--net (1,927,943) (43,588,436) (53,403,444) --------------- --------------- --------------- Total realized and unrealized loss--net (4,520,887) (36,325,261) (40,944,155) --------------- --------------- --------------- Net Increase in Net Assets Resulting from Operations $ 5,461,401 $ 6,219,914 $ 26,273,030 =============== =============== =============== * Dividends from affiliates $ 767,668 $ 280,283 $ 958,049 =============== =============== =============== See Notes to Financial Statements.
MERRILL LYNCH MUNICIPAL BOND FUND, INC. JUNE 30, 2006 Statements of Changes in Net Assets Short-Term Portfolio
For the Year Ended June 30, Increase (Decrease) in Net Assets: 2006 2005 Operations Investment income--net $ 9,982,288 $ 10,048,780 Realized loss--net (2,592,944) (3,447,006) Change in unrealized depreciation--net (1,927,943) 505,798 --------------- --------------- Net increase in net assets resulting from operations 5,461,401 7,107,572 --------------- --------------- Dividends to Shareholders Investment income--net: Class A (3,080,084) (3,411,719) Class B (696,530) (770,673) Class C (1,751,261) (1,822,838) Class I (4,454,151) (4,042,560) --------------- --------------- Net decrease in net assets resulting from dividends to shareholders (9,982,026) (10,047,790) --------------- --------------- Capital Share Transactions Net decrease in net assets derived from capital share transactions (118,737,525) (233,513,320) --------------- --------------- Net Assets Total decrease in net assets (123,258,150) (236,453,538) Beginning of year 459,521,339 695,974,877 --------------- --------------- End of year* $ 336,263,189 $ 459,521,339 =============== =============== * Undistributed investment income--net $ 484,004 $ 483,742 =============== =============== See Notes to Financial Statements.
MERRILL LYNCH MUNICIPAL BOND FUND, INC. JUNE 30, 2006 Statements of Changes in Net Assets (continued) Insured Portfolio
For the Year Ended June 30, Increase (Decrease) in Net Assets: 2006 2005 Operations Investment income--net $ 42,545,175 $ 47,460,598 Realized gain--net 7,263,175 16,055,264 Change in unrealized appreciation/depreciation--net (43,588,436) 25,687,582 --------------- --------------- Net increase in net assets resulting from operations 6,219,914 89,203,444 --------------- --------------- Dividends & Distributions to Shareholders Investment income--net: Class A (7,533,857) (7,853,231) Class B (2,879,619) (3,953,506) Class C (2,276,067) (2,393,785) Class I (29,830,404) (33,236,480) Realized gain--net: Class A (682,505) -- Class B (295,880) -- Class C (235,289) -- Class I (2,535,229) -- --------------- --------------- Net decrease in net assets resulting from dividends and distributions to shareholders (46,268,850) (47,437,002) --------------- --------------- Capital Share Transactions Net decrease in net assets derived from capital share transactions (66,044,701) (86,014,174) --------------- --------------- Net Assets Total decrease in net assets (106,093,637) (44,247,732) Beginning of year 1,045,386,893 1,089,634,625 --------------- --------------- End of year* $ 939,293,256 $ 1,045,386,893 =============== =============== * Undistributed investment income--net $ 1,209,976 $ 1,184,748 =============== =============== See Notes to Financial Statements.
MERRILL LYNCH MUNICIPAL BOND FUND, INC. JUNE 30, 2006 Statements of Changes in Net Assets (concluded) National Portfolio
For the Year Ended June 30, Increase (Decrease) in Net Assets: 2006 2005 Operations Investment income--net $ 67,217,185 $ 68,690,786 Realized gain--net 12,459,289 11,191,578 Change in unrealized appreciation--net (53,403,444) 39,336,379 --------------- --------------- Net increase in net assets resulting from operations 26,273,030 119,218,743 --------------- --------------- Dividends to Shareholders Investment income--net: Class A (11,906,520) (10,680,106) Class B (6,469,017) (8,386,163) Class C (4,988,554) (3,829,101) Class I (43,778,940) (45,655,416) --------------- --------------- Net decrease in net assets resulting from dividends to shareholders (67,143,031) (68,550,786) --------------- --------------- Capital Share Transactions Net increase (decrease) in net assets derived from capital share transactions 46,489,740 (15,324,652) --------------- --------------- Net Assets Total increase in net assets 5,619,739 35,343,305 Beginning of year 1,442,801,384 1,407,458,079 --------------- --------------- End of year* $ 1,448,421,123 $ 1,442,801,384 =============== =============== * Undistributed investment income--net $ 946,947 $ 872,793 =============== =============== See Notes to Financial Statements.
MERRILL LYNCH MUNICIPAL BOND FUND, INC. JUNE 30, 2006 Financial Highlights Short-Term Portfolio
The following per share data Class A Class B and ratios have been derived from information provided in For the Year Ended June 30, For the Year Ended June 30, the financial statements. 2006 2005 2004 2003 2002 2006 2005 2004 2003 2002 Per Share Operating Performance Net asset value, beginning of year $ 10.00 $ 10.06 $ 10.18 $ 10.14 $ 10.06 $ 10.00 $ 10.05 $ 10.17 $ 10.13 $ 10.06 ---------------------------------------------- ---------------------------------------------- Investment income--net .26++ .18++ .17++ .24++ .32 .23++ .15++ .14++ .21++ .29 Realized and unrealized gain (loss)--net (.11) (.06) (.12) .04 .08 (.12) (.05) (.12) .04 .07 ---------------------------------------------- ---------------------------------------------- Total from investment operations .15 .12 .05 .28 .40 .11 .10 .02 .25 .36 ---------------------------------------------- ---------------------------------------------- Less dividends from investment income--net (.26) (.18) (.17) (.24) (.32) (.23) (.15) (.14) (.21) (.29) ---------------------------------------------- ---------------------------------------------- Net asset value, end of year $ 9.89 $ 10.00 $ 10.06 $ 10.18 $ 10.14 $ 9.88 $ 10.00 $ 10.05 $ 10.17 $ 10.13 ============================================== ============================================== Total Investment Return* Based on net asset value per share 1.47% 1.20% .50% 2.77% 3.99% 1.11% 1.04% .24% 2.51% 3.62% ============================================== ============================================== Ratios to Average Net Assets Expenses, net of waiver .54% .53% .52% .52% .56% .80% .79% .77% .78% .82% ============================================== ============================================== Expenses .55% .54% .53% .53% .56% .81% .80% .78% .79% .82% ============================================== ============================================== Investment income--net 2.55% 1.76% 1.68% 2.31% 3.13% 2.28% 1.50% 1.43% 2.10% 2.87% ============================================== ============================================== Supplemental Data Net assets, end of year (in thousands) $ 99,293 $141,172 $244,741 $248,454 $140,744 $ 23,769 $ 38,565 $ 63,135 $ 83,886 $ 81,967 ============================================== ============================================== Portfolio turnover 82.77% 87.42% 69.08% 44.61% 74.74% 82.77% 87.42% 69.08% 44.61% 74.74% ============================================== ============================================== * Total investment returns exclude the effects of sales charges. ++ Based on average shares outstanding. See Notes to Financial Statements.
MERRILL LYNCH MUNICIPAL BOND FUND, INC. JUNE 30, 2006 Financial Highlights (continued) Short-Term Portfolio
The following per share data Class C Class I and ratios have been derived from information provided in For the Year Ended June 30, For the Year Ended June 30, the financial statements. 2006 2005 2004 2003 2002 2006 2005 2004 2003 2002 Per Share Operating Performance Net asset value, beginning of year $ 9.95 $ 10.01 $ 10.13 $ 10.09 $ 10.01 $ 9.99 $ 10.05 $ 10.17 $ 10.13 $ 10.05 ---------------------------------------------- ---------------------------------------------- Investment income--net .23++ .15++ .14++ .19++ .29 .27++ .19++ .18++ .27++ .34 Realized and unrealized gain (loss)--net (.11) (.06) (.12) .06 .08 (.11) (.06) (.12) .02 .08 ---------------------------------------------- ---------------------------------------------- Total from investment operations .12 .09 .02 .25 .37 .16 .13 .06 .29 .42 ---------------------------------------------- ---------------------------------------------- Less dividends from investment income--net (.23) (.15) (.14) (.21) (.29) (.27) (.19) (.18) (.25) (.34) ---------------------------------------------- ---------------------------------------------- Net asset value, end of year $ 9.84 $ 9.95 $ 10.01 $ 10.13 $ 10.09 $ 9.88 $ 9.99 $ 10.05 $ 10.17 $ 10.13 ============================================== ============================================== Total Investment Return* Based on net asset value per share 1.21% .94% .23% 2.52% 3.72% 1.57% 1.30% .59% 2.87% 4.10% ============================================== ============================================== Ratios to Average Net Assets Expenses, net of waiver .80% .79% .77% .78% .82% .44% .43% .42% .42% .46% ============================================== ============================================== Expenses .81% .80% .78% .79% .82% .45% .44% .43% .43% .46% ============================================== ============================================== Investment income--net 2.29% 1.51% 1.42% 1.92% 2.91% 2.66% 1.88% 1.78% 2.44% 3.30% ============================================== ============================================== Supplemental Data Net assets, end of year (in thousands) $ 63,868 $ 92,907 $144,656 $135,782 $ 1,596 $149,333 $186,877 $243,443 $251,137 $204,936 ============================================== ============================================== Portfolio turnover 82.77% 87.42% 69.08% 44.61% 74.74% 82.77% 87.42% 69.08% 44.61% 74.74% ============================================== ============================================== * 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. See Notes to Financial Statements.
MERRILL LYNCH MUNICIPAL BOND FUND, INC. JUNE 30, 2006 Financial Highlights (continued) Insured Portfolio
The following per share data Class A Class B and ratios have been derived from information provided in For the Year Ended June 30, For the Year Ended June 30, the financial statements. 2006 2005 2004 2003 2002 2006 2005 2004 2003 2002 Per Share Operating Performance Net asset value, beginning of year $ 8.00 $ 7.70 $ 8.07 $ 7.79 $ 7.69 $ 7.99 $ 7.69 $ 8.07 $ 7.79 $ 7.68 ---------------------------------------------- ---------------------------------------------- Investment income--net .33++++ .34++++ .38++++ .39++++ .39 .29++++ .30++++ .34++++ .35++++ .36 Realized and unrealized gain (loss)--net (.29) .30 (.37) .28 .10 (.28) .30 (.38) .28 .11 ---------------------------------------------- ---------------------------------------------- Total from investment operations .04 .64 .01 .67 .49 .01 .60 (.04) .63 .47 ---------------------------------------------- ---------------------------------------------- Less dividends and distributions: Investment income--net (.33) (.34) (.38) (.39) (.39) (.29) (.30) (.34) (.35) (.36) Realized gain--net (.03) -- -- -- --++ (.03) -- -- -- --++ ---------------------------------------------- ---------------------------------------------- Total dividends and distributions (.36) (.34) (.38) (.39) (.39) (.32) (.30) (.34) (.35) (.36) ---------------------------------------------- ---------------------------------------------- Net asset value, end of year $ 7.68 $ 8.00 $ 7.70 $ 8.07 $ 7.79 $ 7.68 $ 7.99 $ 7.69 $ 8.07 $ 7.79 ============================================== ============================================== Total Investment Return* Based on net asset value per share .44% 8.47% .10% 8.77% 6.63% .05% 7.93% (.53%) 8.21% 6.23% ============================================== ============================================== Ratios to Average Net Assets Expenses, net of waiver .70% .71% .71% .71% .72% 1.21% 1.21% 1.21% 1.22% 1.23% ============================================== ============================================== Expenses .71% .71% .71% .71% .72% 1.21% 1.22% 1.22% 1.22% 1.23% ============================================== ============================================== Investment income--net 4.15% 4.33% 4.79% 4.88% 5.10% 3.64% 3.83% 4.29% 4.38% 4.58% ============================================== ============================================== Supplemental Data Net assets, end of year (in thousands) $ 172,083 $182,216 $183,007 $187,805 $161,110 $ 66,477 $ 91,355 $111,524 $160,177 $182,241 ============================================== ============================================== Portfolio turnover 48.96% 55.00% 49.27% 38.17% 32.78% 48.96% 55.00% 49.27% 38.17% 32.78% ============================================== ============================================== * Total investment returns exclude the effects of sales charges. ++ Amount is less than $(.01) per share. ++++ Based on average shares outstanding. See Notes to Financial Statements.
MERRILL LYNCH MUNICIPAL BOND FUND, INC. JUNE 30, 2006 Financial Highlights (continued) Insured Portfolio
The following per share data Class C Class I and ratios have been derived from information provided in For the Year Ended June 30, For the Year Ended June 30, the financial statements. 2006 2005 2004 2003 2002 2006 2005 2004 2003 2002 Per Share Operating Performance Net asset value, beginning of year $ 8.00 $ 7.69 $ 8.07 $ 7.79 $ 7.68 $ 8.00 $ 7.70 $ 8.07 $ 7.80 $ 7.69 ---------------------------------------------- ---------------------------------------------- Investment income--net .28++++ .30++++ .33++++ .34++++ .35 .35++++ .36++++ .40++++ .41++++ .41 Realized and unrealized gain (loss)--net (.29) .31 (.38) .28 .11 (.28) .30 (.37) .27 .11 ---------------------------------------------- ---------------------------------------------- Total from investment operations (.01) .61 (.05) .62 .46 .07 .66 .03 .68 .52 ---------------------------------------------- ---------------------------------------------- Less dividends and distributions: Investment income--net (.28) (.30) (.33) (.34) (.35) (.35) (.36) (.40) (.41) (.41) Realized gain--net (.03) -- -- -- --++ (.03) -- -- -- --++ ---------------------------------------------- ---------------------------------------------- Total dividends and distributions (.31) (.30) (.33) (.34) (.35) (.38) (.36) (.40) (.41) (.41) ---------------------------------------------- ---------------------------------------------- Net asset value, end of year $ 7.68 $ 8.00 $ 7.69 $ 8.07 $ 7.79 $ 7.69 $ 8.00 $ 7.70 $ 8.07 $ 7.80 ============================================== ============================================== Total Investment Return* Based on net asset value per share (.12%) 8.01% (.58%) 8.16% 6.18% .82% 8.74% .35% 8.88% 7.03% ============================================== ============================================== Ratios to Average Net Assets Expenses, net of waiver 1.26% 1.26% 1.26% 1.27% 1.28% .45% .46% .46% .46% .47% ============================================== ============================================== Expenses 1.26% 1.27% 1.27% 1.27% 1.28% .46% .46% .46% .46% .47% ============================================== ============================================== Investment income--net 3.59% 3.77% 4.23% 4.31% 4.56% 4.40% 4.58% 5.04% 5.13% 5.35% ============================================== ============================================== Supplemental Data Net assets, end of year (in thousands) $ 61,046 $ 64,682 $ 61,794 $ 66,089 $ 34,541 $639,687 $707,134 $733,310 $855,757 $878,018 ============================================== ============================================== Portfolio turnover 48.96% 55.00% 49.27% 38.17% 32.78% 48.96% 55.00% 49.27% 38.17% 32.78% ============================================== ============================================== * 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. See Notes to Financial Statements.
MERRILL LYNCH MUNICIPAL BOND FUND, INC. JUNE 30, 2006 Financial Highlights (continued) National Portfolio
The following per share data Class A Class B and ratios have been derived from information provided in For the Year Ended June 30, For the Year Ended June 30, the financial statements. 2006 2005 2004 2003 2002 2006 2005 2004 2003 2002 Per Share Operating Performance Net asset value, beginning of year $ 10.67 $ 10.29 $ 10.54 $ 10.27 $ 10.15 $ 10.66 $ 10.28 $ 10.53 $ 10.26 $ 10.14 ---------------------------------------------- ---------------------------------------------- Investment income--net .49+++ .50+++ .52+++ .53+++ .53 .43+++ .45+++ .47+++ .48+++ .53 Realized and unrealized gain (loss)--net (.30) .38 (.25) .27 .12 (.30) .38 (.26) .27 .12 ---------------------------------------------- ---------------------------------------------- Total from investment operations .19 .88 .27 .80 .65 .13 .83 .21 .75 .65 ---------------------------------------------- ---------------------------------------------- Less dividends and distributions: Investment income--net (.49) (.50) (.52) (.53) (.53) (.43) (.45) (.46) (.48) (.53) Realized gain--net -- -- -- -- --++ -- -- -- -- --++ ---------------------------------------------- ---------------------------------------------- Total dividends and distributions (.49) (.50) (.52) (.53) (.53) (.43) (.45) (.46) (.48) (.53) ---------------------------------------------- ---------------------------------------------- Net asset value, end of year $ 10.37 $ 10.67 $ 10.29 $ 10.54 $ 10.27 $ 10.36 $ 10.66 $ 10.28 $ 10.53 $ 10.26 ============================================== ============================================== Total Investment Return* Based on net asset value per share 1.77% 8.73% 2.62% 7.98% 6.72% 1.25% 8.18% 2.10% 7.43% 6.18% ============================================== ============================================== Ratios to Average Net Assets Expenses, net of waiver .83% .84% .85% .84% .87% 1.34% 1.35% 1.35% 1.34% 1.38% ============================================== ============================================== Expenses .84% .85% .85% .84% .87% 1.35% 1.36% 1.36% 1.35% 1.38% ============================================== ============================================== Investment income--net 4.61% 4.76% 4.97% 5.10% 5.30% 4.11% 4.27% 4.47% 4.59% 4.80% ============================================== ============================================== Supplemental Data Net assets, end of year (in thousands) $ 283,814 $248,231 $207,376 $200,108 $137,225 $134,177 $177,553 $217,814 $321,477 $295,827 ============================================== ============================================== Portfolio turnover 65.46% 35.28% 22.46% 37.75% 35.75% 65.46% 35.28% 22.46% 37.75% 35.75% ============================================== ============================================== * Total investment returns exclude the effects of sales charges. ++ Amount is less than $(.01) per share. +++ Based on average shares outstanding. See Notes to Financial Statements.
MERRILL LYNCH MUNICIPAL BOND FUND, INC. JUNE 30, 2006 Financial Highlights (concluded) National Portfolio
The following per share data Class C Class I and ratios have been derived from information provided in For the Year Ended June 30, For the Year Ended June 30, the financial statements. 2006 2005 2004 2003 2002 2006 2005 2004 2003 2002 Per Share Operating Performance Net asset value, beginning of year $ 10.66 $ 10.29 $ 10.54 $ 10.26 $ 10.14 $ 10.66 $ 10.29 $ 10.54 $ 10.26 $ 10.14 ---------------------------------------------- ---------------------------------------------- Investment income--net .43+++ .44+++ .46+++ .47+++ .53 .51+++ .53+++ .55+++ .56+++ .62 Realized and unrealized gain (loss)--net (.29) .37 (.25) .28 .12 (.30) .37 (.25) .28 .12 ---------------------------------------------- ---------------------------------------------- Total from investment operations .14 .81 .21 .75 .65 .21 .90 .30 .84 .74 ---------------------------------------------- ---------------------------------------------- Less dividends and distributions: Investment income--net (.44) (.44) (.46) (.47) (.53) (.51) (.53) (.55) (.56) (.62) Realized gain--net -- -- -- -- --++ -- -- -- -- --++ ---------------------------------------------- ---------------------------------------------- Total dividends and distributions (.44) (.44) (.46) (.47) (.53) (.51) (.53) (.55) (.56) (.62) ---------------------------------------------- ---------------------------------------------- Net asset value, end of year $ 10.36 $ 10.66 $ 10.29 $ 10.54 $ 10.26 $ 10.36 $ 10.66 $ 10.29 $ 10.54 $ 10.26 ============================================== ============================================== Total Investment Return* Based on net asset value per share 1.20% 8.02% 2.05% 7.48% 6.13% 2.02% 8.89% 2.88% 8.34% 6.98% ============================================== ============================================== Ratios to Average Net Assets Expenses, net of waiver 1.39% 1.40% 1.40% 1.39% 1.43% .58% .59% .60% .59% .62% ============================================== ============================================== Expenses 1.40% 1.41% 1.41% 1.40% 1.43% .59% .60% .60% .59% .62% ============================================== ============================================== Investment income--net 4.05% 4.20% 4.42% 4.54% 4.76% 4.87% 5.02% 5.23% 5.35% 5.55% ============================================== ============================================== Supplemental Data Net assets, end of year (in thousands) $ 139,447 $107,893 $ 74,849 $ 77,906 $ 52,822 $890,984 $909,125 $907,419 $624,192 $626,935 ============================================== ============================================== Portfolio turnover 65.46% 35.28% 22.46% 37.75% 35.75% 65.46% 35.28% 22.46% 37.75% 35.75% ============================================== ============================================== * 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. See Notes to Financial Statements.
MERRILL LYNCH MUNICIPAL BOND FUND, INC. JUNE 30, 2006 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. 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 eligible investors. 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. * 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. MERRILL LYNCH MUNICIPAL BOND FUND, INC. JUNE 30, 2006 Notes to Financial Statements (continued) (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. (i) Reclassification--U.S. generally accepted accounting principles require that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. Accordingly, during the current year, with respect to the National Portfolio, $5,213,815 has been reclassified between paid-in capital in excess of par and accumulated realized net capital losses as a result of a permanent difference attributable to expired capital loss carryforwards. This reclassification has no effect on net assets or net asset values per share. 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 year ended June 30, 2006, FAM waived Short-Term Portfolio, Insured Portfolio and National Portfolio in the amounts of $54,478, $21,069 and $63,071, respectively. 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% MERRILL LYNCH MUNICIPAL BOND FUND, INC. JUNE 30, 2006 Notes to Financial Statements (continued) 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 year ended June 30, 2006, 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 $ 674 $ 1,179 $ 8,156 $ 13,664 Insured Portfolio $ 6,382 $ 6,036 $ 54,940 $ 28,261 National Portfolio $ 24,853 $ 12,519 $ 196,084 $ 35,347 For the year ended June 30, 2006, MLPF&S received contingent deferred sales charges of $197,335 relating to transactions in Class B Shares, amounting to $36,726, $65,081 and $95,528 in the Short-Term, Insured and National Portfolios, respectively, and $39,046 relating to transactions in Class C Shares, amounting to $8,865, $4,633 and $25,548 in the Short-Term, Insured and National Portfolios, respectively. Furthermore, MLPF&S received contingent deferred sales charges relating to transactions subject to front-end sales charge waivers as follows: Class A Class I Short-Term Portfolio $ 8 -- National Portfolio $22,586 $58 In addition, MLPF&S received $642 and $1,775 in commissions on the execution of portfolio security transactions for the Insured Portfolio and National Portfolio, respectively, for the year ended June 30, 2006. For the year ended June 30, 2006, the Fund reimbursed FAM $8,751, $22,357 and $31,827 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. In February 2006, ML & Co. and BlackRock, Inc. entered into an agreement to contribute ML & Co.'s investment management business, including FAM, to the investment management business of BlackRock, Inc. The transaction is expected to close at the end of the third quarter of 2006. 3. Investments: Purchases and sales of investments, excluding short-term securities, for the year ended June 30, 2006 were as follows: Purchases Sales Short-Term Portfolio $287,270,083 $343,448,147 Insured Portfolio $483,371,701 $561,332,214 National Portfolio $954,193,667 $907,474,997 4. Capital Share Transactions: Net increase (decrease) in net assets derived from capital share transactions for the years ended June 30, 2006 and June 30, 2005 were $(118,737,525) and $(233,513,320), respectively, for the Short-Term Portfolio; $(66,044,701) and $(86,014,174), respectively, for the Insured Portfolio; and $46,489,740 and $(15,324,652), respectively, for the National Portfolio. Transactions in capital shares for each class were as follows: Short-Term Portfolio Class A Shares for the Year Dollar Ended June 30, 2006 Shares Amount Shares sold 821,123 $ 8,169,499 Automatic conversion of shares 145,897 1,206,454 Shares issued to shareholders in reinvestment of dividends 121,345 1,449,949 -------------- -------------- Total issued 1,088,365 10,825,902 Shares redeemed (5,163,012) (51,318,356) -------------- -------------- Net decrease (4,074,647) $ (40,492,454) ============== ============== MERRILL LYNCH MUNICIPAL BOND FUND, INC. JUNE 30, 2006 Notes to Financial Statements (continued) 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 Year Dollar Ended June 30, 2006 Shares Amount Shares sold 38,884 $ 386,427 Shares issued to shareholders in reinvestment of dividends 44,426 441,220 -------------- -------------- Total issued 83,310 827,647 -------------- -------------- Automatic conversion of shares (121,450) (1,206,454) Shares redeemed (1,415,324) (14,064,507) -------------- -------------- Total redeemed (1,536,774) (15,270,961) -------------- -------------- Net decrease (1,453,464) $ (14,443,314) ============== ============== 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 Year Dollar Ended June 30, 2006 Shares Amount Shares sold 611,352 $ 6,048,208 Shares issued to shareholders in reinvestment of dividends 115,698 1,143,935 -------------- -------------- Total issued 727,050 7,192,143 Shares redeemed (3,572,643) (35,353,144) -------------- -------------- Net decrease (2,845,593) $ (28,161,001) ============== ============== 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 Year Dollar Ended June 30, 2006 Shares Amount Shares sold 1,502,926 $ 14,921,923 Shares issued to shareholders in reinvestment of dividends 260,966 2,590,922 -------------- -------------- Total issued 1,763,892 17,512,845 Shares redeemed (5,351,695) (53,153,601) -------------- -------------- Net decrease (3,587,803) $ (35,640,756) ============== ============== 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) ============== ============== Insured Portfolio Class A Shares for the Year Dollar Ended June 30, 2006 Shares Amount Shares sold 1,348,298 $ 10,584,431 Automatic conversion of shares 981,047 7,688,689 Shares issued to shareholders in reinvestment of dividends and distributions 509,243 3,992,856 -------------- -------------- Total issued 2,838,588 22,265,976 Shares redeemed (3,222,764) (25,174,807) -------------- -------------- Net decrease (384,176) $ (2,908,831) ============== ============== 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) ============== ============== MERRILL LYNCH MUNICIPAL BOND FUND, INC. JUNE 30, 2006 Notes to Financial Statements (continued) Class B Shares for the Year Dollar Ended June 30, 2006 Shares Amount Shares sold 236,379 $ 1,852,684 Shares issued to shareholders in reinvestment of dividends and distributions 174,687 1,370,101 -------------- -------------- Total issued 411,066 3,222,785 --------------- --------------- Automatic conversion of shares (981,283) (7,688,689) Shares redeemed (2,200,222) (17,243,259) -------------- -------------- Total redeemed (3,181,505) (24,931,948) -------------- -------------- Net decrease (2,770,439) $ (21,709,163) ============== ============== 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 Year Dollar Ended June 30, 2006 Shares Amount Shares sold 1,343,228 $ 10,538,215 Shares issued to shareholders in reinvestment of dividends and distributions 162,002 1,270,193 -------------- -------------- Total issued 1,505,230 11,808,408 Shares redeemed (1,646,563) (12,894,237) -------------- -------------- Net decrease (141,333) $ (1,085,829) ============== ============== 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 Year Dollar Ended June 30, 2006 Shares Amount Shares sold 1,459,336 $ 11,434,123 Shares issued to shareholders in reinvestment of dividends and distributions 1,775,119 13,924,940 -------------- -------------- Total issued 3,234,455 25,359,063 Shares redeemed (8,382,862) (65,699,941) -------------- -------------- Net decrease (5,148,407) $ (40,340,878) ============== ============== 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) ============== ============== National Portfolio Class A Shares for the Year Dollar Ended June 30, 2006 Shares Amount Shares sold 5,809,040 $ 60,821,050 Automatic conversion of shares 1,794,525 18,842,536 Shares issued to shareholders in reinvestment of dividends 547,471 5,750,522 -------------- -------------- Total issued 8,151,036 85,414,108 Shares redeemed (4,046,647) (42,487,976) -------------- -------------- Net increase 4,104,389 $ 42,926,132 ============== ============== 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 ============== ============== MERRILL LYNCH MUNICIPAL BOND FUND, INC. JUNE 30, 2006 Notes to Financial Statements (continued) Class B Shares for the Year Dollar Ended June 30, 2006 Shares Amount Shares sold 738,406 $ 7,749,159 Shares issued to shareholders in reinvestment of dividends 254,982 2,677,936 -------------- -------------- Total issued 993,388 10,427,095 -------------- -------------- Automatic conversion of shares (1,796,012) (18,842,536) Shares redeemed (2,903,855) (30,484,753) -------------- -------------- Total redeemed (4,699,867) (49,327,289) -------------- -------------- Net decrease (3,706,479) $ (38,900,194) ============== ============== 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 Year Dollar Ended June 30, 2006 Shares Amount Shares sold 4,865,773 $ 51,061,570 Shares issued to shareholders in reinvestment of dividends 296,743 3,115,813 -------------- -------------- Total issued 5,162,516 54,177,383 -------------- -------------- Shares redeemed (1,825,533) (19,143,539) -------------- -------------- Net increase 3,336,983 $ 35,033,844 ============== ============== 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 Year Dollar Ended June 30, 2006 Shares Amount Shares sold 5,928,015 $ 62,151,396 Shares issued to shareholders in reinvestment of dividends 2,713,665 28,501,117 -------------- -------------- Total issued 8,641,680 90,652,513 Shares redeemed (7,929,485) (83,222,555) -------------- -------------- Net increase 712,195 $ 7,429,958 ============== ============== 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) ============== ============== 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, which expires November 2006. 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 year ended June 30, 2006. MERRILL LYNCH MUNICIPAL BOND FUND, INC. JUNE 30, 2006 Notes to Financial Statements (concluded) 6. Distributions to Shareholders: Short-Term Portfolio The tax character of distributions paid during the fiscal years ended June 30, 2006 and June 30, 2005 was as follows: 6/30/2006 6/30/2005 Distributions paid from: Tax-exempt income $ 9,982,026 $ 10,047,790 -------------- -------------- Total distributions $ 9,982,026 $ 10,047,790 ============== ============== As of June 30, 2006, the components of accumulated losses on a tax basis were as follows: Undistributed tax-exempt income--net $ 484,004 Undistributed long-term capital gains--net -- -------------- Total undistributed earnings--net 484,004 Capital loss carryforward (6,069,000)* Unrealized losses--net (3,897,588)** -------------- Total accumulated losses--net $ (9,482,584) ============== * On June 30, 2006, the Fund had a net capital loss carryforward of $6,069,000, of which $119,413 expires in 2008, $426,094 expires in 2009, $331,374 expires in 2012, $1,101,799 expires in 2013 and $4,090,320 expires in 2014. This amount will be available to offset like amounts of any future taxable gains. ** The difference between book-basis and tax-basis net unrealized gains is attributable primarily to the deferral of post-October capital losses for tax purposes. Insured Portfolio The tax character of distributions paid during the fiscal years ended June 30, 2006 and June 30, 2005 was as follows: 6/30/2006 6/30/2005 Distributions paid from: Tax-exempt income $ 42,519,947 $ 47,437,002 Net long-term capital gain 3,748,903 -- -------------- -------------- Total distributions $ 46,268,850 $ 47,437,002 ============== ============== As of June 30, 2006, the components of accumulated earnings on a tax basis were as follows: Undistributed tax-exempt income--net $ 1,071,111 Undistributed long-term capital gains--net 4,937,511 -------------- Total undistributed earnings--net 6,008,622 Capital loss carryforward -- Unrealized gains_net 20,135,156* -------------- Total accumulated earnings--net $ 26,143,778 ============== * The difference between book-basis and tax-basis net unrealized gains is attributable primarily to the tax deferral of losses on wash sales, the difference between book and tax amortization methods for premiums and discounts on fixed income securities and the tax deferral of losses on straddles. National Portfolio The tax character of distributions paid during the fiscal years ended June 30, 2006 and June 30, 2005 was as follows: 6/30/2006 6/30/2005 Distributions paid from: Tax-exempt income $ 67,143,031 $ 68,550,786 -------------- -------------- Total distributions $ 67,143,031 $ 68,550,786 ============== ============== As of June 30, 2006, the components of accumulated losses on a tax basis were as follows: Undistributed tax-exempt income--net $ 813,769 Undistributed long-term capital gains--net -- -------------- Total undistributed earnings--net 813,769 Capital loss carryforward (47,456,586)* Unrealized gains--net 44,284,333** -------------- Total accumulated losses--net $ (2,358,484) ============== * On June 30, 2006, the Fund had a net capital loss carryforward of $47,456,586, of which $18,431,171 expires in 2007, $26,046,752 expires in 2009, $444,566 expires in 2010, $942,957 expires in 2011 and $1,591,140 expires in 2012. This amount will be available to offset like amounts of any future taxable gains. ** The difference between book-basis and tax-basis net unrealized gains is attributable primarily to the tax deferral of losses on straddles and the difference between book and tax amortization methods for premiums and discounts on fixed income securities. 7. Plan of Reorganization: On May 12, 2006, the Board of Directors of Short-Term Portfolio of Merrill Lynch Municipal Bond Fund, Inc. (the "Portfolio") approved a plan of reorganization, subject to shareholder approval and certain other conditions, whereby the Portfolio will acquire substantially all of the assets and assume substantially all of the liabilities of BlackRock Ultra Short Municipal Portfolio in exchange for newly issued shares of the Portfolio. MERRILL LYNCH MUNICIPAL BOND FUND, INC. JUNE 30, 2006 Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors of Merrill Lynch Municipal Bond Fund, Inc.: We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of Merrill Lynch Municipal Bond Fund, Inc. (the "Funds") comprising the Short-Term, Insured and National Portfolios as of June 30, 2006, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Funds are not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds' internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of June 30, 2006, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the respective portfolios constituting the Merrill Lynch Municipal Bond Fund, Inc. as of June 30, 2006, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and their financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles. Deloitte & Touche LLP Princeton, New Jersey August 23, 2006 Important Tax Information (unaudited) All of the net investment income distributions paid monthly by Merrill Lynch Municipal Bond Fund, Inc. during the taxable year ended June 30, 2006 qualify as tax-exempt interest dividends for federal income tax purposes. Additionally, Insured Portfolio of Merrill Lynch Municipal Bond Fund, Inc. distributed long-term capital gains of $.029443 per share to shareholders of record on December 19, 2005. MERRILL LYNCH MUNICIPAL BOND FUND, INC. JUNE 30, 2006 Disclosure of New Investment Advisory Agreement New BlackRock Investment Advisory Agreement - Matters Considered by the Board In connection with the Transaction between Merrill Lynch and BlackRock, the Fund's Board of Directors considered a new investment advisory agreement (the "New Investment Advisory Agreement") between the Fund on behalf of each Portfolio and BlackRock Advisors, Inc. or its successor ("BlackRock Advisors"). If the New Investment Advisory Agreement is approved by each Portfolio's shareholders, it will become effective upon the closing of the Transaction, which is expected in the third quarter of 2006. The Board discussed the New Investment Advisory Agreement at telephonic and in-person meetings held during April and May 2006. The Board, including the independent directors, approved the New Investment Advisory Agreement at a meeting held on May 12, 2006. The Board also approved the issuance of new classes of shares and new distribution arrangements with respect to these new share classes, including higher distribution fees for certain new share classes, to take effect after the closing of the Transaction. The Board also approved revised front-end sales charge schedules with respect to certain classes of shares of the Fund. To assist the Board in its consideration of the New Investment Advisory Agreement, BlackRock provided materials and information about BlackRock, including its financial condition and asset management capabilities and organization, and Merrill Lynch provided materials and information about the Transaction. The independent directors, through their independent legal counsel, also requested and received additional information from Merrill Lynch and BlackRock in connection with their consideration of the New Investment Advisory Agreement. The additional information was provided in advance of the May 12, 2006 meeting. In addition, the independent directors consulted with their counsel and Fund counsel on numerous occasions, discussing, among other things, the legal standards and certain other considerations relevant to the directors' deliberations. At the Board meetings, the directors discussed with Merrill Lynch management and certain BlackRock representatives the Transaction, its strategic rationale and BlackRock's general plans and intentions regarding each Portfolio. At these Board meetings, representatives of Merrill Lynch and BlackRock made presentations to and responded to questions from the Board. The directors also inquired about the plans for and anticipated roles and responsibilities of certain employees and officers of the Investment Adviser and certain affiliates being transferred to BlackRock in connection with the Transaction. The independent directors of the Board also conferred separately and with their counsel about the Transaction and other matters related to the Transaction, including a proposed reorganization in which Short-Term Portfolio would acquire the assets and liabilities of BlackRock UltraShort Municipal Portfolio, a portfolio of BlackRock Funds, on a number of occasions, including in connection with the April and May 2006 meetings. After the presentations and after reviewing the written materials provided, the independent directors met in executive sessions with their counsel to consider the New Investment Advisory Agreement. In connection with the Board's review of the New Investment Advisory Agreement, Merrill Lynch and/or BlackRock advised the directors about a variety of matters. The advice included the following, among other matters: * that there is not expected to be any diminution in the nature, quality and extent of services provided to each Portfolio and its shareholders by BlackRock Advisors, including compliance services; * that operation of New BlackRock as an independent investment management firm will enhance its ability to attract and retain talented professionals; * that each Portfolio should benefit from having access to BlackRock's state of the art technology and risk management analytic tools, including investment tools, provided under the BlackRock Solutions (R) brand name; * that BlackRock has no present intention to alter any applicable expense waivers or reimbursements currently in effect and, while it reserves the right to do so in the future, it would seek the approval of the Board before making any changes; * that BlackRock and Merrill Lynch will enter into an agreement, for an initial three-year period and automatically renewable from year to year thereafter, in connection with the Transaction under which Merrill Lynch- affiliated broker-dealers will continue to offer the Portfolios as investment products; * that BlackRock Advisors will have substantially the same access to the Merrill Lynch sales force when distributing shares of the Fund as is currently provided to the Investment Adviser and that other arrangements between the Investment Adviser and Merrill Lynch sales channels will be preserved; MERRILL LYNCH MUNICIPAL BOND FUND, INC. JUNE 30, 2006 * that the Fund will have access to BlackRock's network of third party brokers, retirement plan platforms and registered investment advisers; * that in connection with the Transaction, Merrill Lynch and BlackRock have agreed to conduct, and use reasonable best efforts to cause their respective affiliates to conduct, their respective businesses in compliance with the conditions of Section 15(f) of the Investment Company Act of 1940 (the "1940 Act") in relation to any public funds advised by BlackRock or the Investment Adviser (or its affiliates), respectively; and * that Merrill Lynch and BlackRock would derive benefits from the Transaction and that, as a result, they have a different financial interest in the matters that were being considered than do Fund shareholders. The directors considered the information provided by Merrill Lynch and BlackRock above, and, among other factors, the following: * the potential benefits to Fund shareholders from being part of a combined fund family with BlackRock-sponsored funds, including possible economies of scale and access to investment opportunities; * the potential for expanding distribution of Fund shares through improved access to third party distribution; * the reputation, financial strength and resources of BlackRock and its investment advisory subsidiaries and the anticipated financial strength and resources of New BlackRock; * the compliance policies and procedures of BlackRock Advisors; * the terms and conditions of the New Investment Advisory Agreement, including the fact that the schedule of each Portfolio's total advisory fees will not increase by virtue of the New Investment Advisory Agreement, but will remain the same; * that in November 2005, the Board performed, on behalf of each Portfolio, a full annual review of the investment advisory agreement currently in effect for the Fund (the "Current Investment Advisory Agreement") as required by the 1940 Act and has determined that the Investment Adviser has the capabilities, resources and personnel necessary to provide the advisory and administrative services currently provided to each Portfolio; and that the advisory and/or management fees paid by each Portfolio, taking into account any applicable agreed-upon fee waivers and breakpoints, represent reasonable compensation to the Investment Adviser in light of the services provided, the costs to the Investment Adviser of providing those services, economies of scale, the fees and other expenses paid by similar funds (including information provided by Lipper Inc. ["Lipper"]), and such other matters as the directors have considered relevant in the exercise of their reasonable judgment; and * that Merrill Lynch agreed to pay all expenses of the Fund in connection with the Board's consideration of the New Investment Advisory Agreement and related agreements and all costs of shareholder approval of the New Investment Advisory Agreement and as a result no Portfolio would bear any costs in obtaining shareholder approval of the New Investment Advisory Agreement. Certain of these considerations are discussed in more detail below. In its review of the New Investment Advisory Agreement, the Board assessed the nature, scope and quality of the services to be provided to each Portfolio by the personnel of BlackRock Advisors and its affiliates, including administrative services, shareholder services, oversight of fund accounting, marketing services and assistance in meeting legal and regulatory requirements. In its review of the New Investment Advisory Agreement, the Board also considered a range of information in connection with its oversight of the services to be provided by BlackRock Advisors and its affiliates. Among the matters considered for each Portfolio were: (a) fees (in addition to management fees) to be paid to BlackRock Advisors and its affiliates by the Portfolio; (b) operating expenses paid to third parties; (c) the resources devoted to and compliance reports relating to the Portfolio's investment objective, policies and restrictions, and its compliance with its Code of Ethics and BlackRock Advisors' compliance policies and procedures; and (d) the nature, cost and character of non- investment management services to be provided by BlackRock Advisors and its affiliates. MERRILL LYNCH MUNICIPAL BOND FUND, INC. JUNE 30, 2006 Disclosure of New Investment Advisory Agreement (continued) In the period prior to the Board meetings to consider renewal of the Current Investment Advisory Agreement, the Board had requested and received materials specifically relating to the agreement. These materials were prepared separately for each Portfolio, and included (a) information compiled by Lipper on the fees and expenses and the investment performance of the Portfolio as compared to a comparable group of funds as classified by Lipper; (b) a discussion by the Portfolio's portfolio management team on investment strategies used by the Portfolio during its most recent fiscal year; (c) information on the profitability to the Investment Adviser of the Current Investment Advisory Agreement and other payments received by the Investment Adviser and its affiliates from the Fund/Portfolio; and (d) information provided by the Investment Adviser concerning services related to the valuation and pricing of portfolio holdings, portfolio turnover statistics, and direct and indirect benefits to the Investment Adviser and its affiliates from their relationship with the Fund and the Portfolio. In their deliberations, the directors considered information received in connection with their most recent continuation of the Current Investment Advisory Agreement, in addition to information provided by BlackRock and BlackRock Advisors in connection with their evaluation of the terms and conditions of the New Investment Advisory Agreement. The directors did not identify any particular information that was all-important or controlling, and each director attributed different weights to the various factors. The directors, including a majority of the independent directors, concluded that the terms of the New Investment Advisory Agreement are appropriate, that the fees to be paid are reasonable in light of the services to be provided to each Portfolio, and that the New Investment Advisory Agreement should be approved and recommended to shareholders. Nature, Quality and Extent of Services Provided--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, as well as the nature, quality and extent of services expected to be provided by BlackRock Advisors. The Board focused primarily on the Investment Adviser's investment advisory services and each Portfolio's investment performance, but also considered certain areas in which both the Investment Adviser and each Portfolio receive services as part of the Merrill Lynch complex. The Board compared each Portfolio's performance - both including and excluding the effects of fees and expenses - to the performance of a comparable group of mutual 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. In evaluating the nature, quality and extent of the services to be provided by BlackRock Advisors under the New Investment Advisory Agreement, the directors considered, among other things, the expected impact of the Transaction on the operations, facilities, organization and personnel of New BlackRock and how it would affect each Portfolio; the ability of BlackRock Advisors to perform its duties after the Transaction; and any anticipated changes to the current investment and other practices of the Portfolio. The directors considered the fact that it was being proposed that Short-Term Portfolio acquire the assets and liabilities of BlackRock UltraShort Municipal Portfolio, a portfolio of BlackRock Funds, as part of a reorganization. The directors were given information with respect to the potential benefits to each Portfolio and its shareholders from having access to BlackRock's state of the art technology and risk management analytic tools, including the investment tools provided under the BlackRock Solutions brand name. The directors were advised that, as a result of Merrill Lynch's equity interest in BlackRock after the Transaction, the Fund will continue to be subject to restrictions concerning certain transactions involving Merrill Lynch affiliates (for example, transactions with a Merrill Lynch broker-dealer acting as principal) absent revised or new regulatory relief. The directors were advised that a revision of existing regulatory relief with respect to these restrictions was being sought from the Securities and Exchange Commission and were advised of the possibility of receipt of such revised regulatory relief. There can be no assurance that such relief will be obtained. Based on their review of the materials provided and the assurances they had received from the management of Merrill Lynch and of BlackRock, the directors determined that the nature and quality of services to be provided to each Portfolio under the New Investment Advisory Agreement were expected to be as good or better than that provided under the Current Investment Advisory Agreement. It was noted, however, that it is expected that there will be changes in personnel following the Transaction and the combination of the operations of the Investment Adviser and its affiliates with those of BlackRock. The directors noted that if current portfolio managers or other personnel cease to be available, the Board would consider all available options, which could include seeking the investment advisory or other services of BlackRock affiliates. Accordingly, the directors concluded that, overall, they were satisfied at the present time with assurances from BlackRock and BlackRock Advisors as to the expected nature, extent and quality of the services to be provided to each Portfolio under the New Investment Advisory Agreement. MERRILL LYNCH MUNICIPAL BOND FUND, INC. JUNE 30, 2006 Costs of Services Provided and Profitability--It was noted that, in conjunction with the recent review of the Current Investment Advisory Agreement, the directors had received, among other things, a report from Lipper comparing each Portfolio's fees, expenses and performance to those of a peer group selected by Lipper, and information as to the fees charged by the Investment Adviser or its affiliates to other registered investment company clients for investment management services. The Board reviewed 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 fees and the effects of any fee waivers - compared to the other funds in its Lipper category. They also compared each Portfolio's total expenses to those of other comparable funds. The information showed that each Portfolio had fees and expenses within the range of fees and expenses of comparable funds. The Board considered the services to be provided by and the fees to be charged by BlackRock Advisors to other funds with similar investment mandates and noted that the fees charged by BlackRock Advisors in those cases, including fee waivers and expense reimbursements, were generally comparable to those being charged to each Portfolio. The Board also noted that, as a general matter, according to the information provided by BlackRock, fees charged to institutional clients were lower than the fees charged to each Portfolio, but BlackRock Advisors provided less extensive services to such clients. The Board concluded that each Portfolio's management fee and fee rate and overall expense ratio are reasonable compared to those of other comparable funds. In evaluating the costs of the services to be provided by BlackRock Advisors under the New Investment Advisory Agreement, the directors considered, among other things, whether advisory fees or other expenses would change as a result of the Transaction. Based on their review of the materials provided and the fact that the New Investment Advisory Agreement is substantially similar to the Current Investment Advisory Agreement in all material respects, including the rate of compensation, the directors determined that the Transaction should not increase the total fees payable, including any fee waivers and expense reimbursements, for advisory and administrative services. The directors noted that it was not possible to predict how the Transaction would affect BlackRock Advisors' profitability from its relationship with the Fund and each Portfolio. The directors discussed with BlackRock Advisors its general methodology to be used in determining its profitability with respect to its relationship with the Fund and each Portfolio. The directors noted that they expect to receive profitability information from BlackRock Advisors on at least an annual basis and thus be in a position to evaluate whether any adjustments in each Portfolio's fees and/or fee breakpoints would be appropriate. Fees and 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 the Fund/Portfolio to participate in these economies of scale. The Board determined that changes were not currently necessary and that the Fund/Portfolios appropriately participated in these economies of scale. In reviewing the Transaction, the directors considered, among other things, whether advisory fees or other expenses would change as a result of the Transaction. Based on the fact that the New Investment Advisory Agreement is substantially similar to the Current Investment Advisory Agreement in all material respects, including the rate of compensation, the directors determined that as a result of the Transaction, each Portfolio's total advisory fees would be no higher than its fees under the Current Investment Advisory Agreement. The directors noted that in conjunction with their most recent deliberations concerning the Current Investment Advisory Agreement, the directors had determined that the total fees for advisory and administrative services for each Portfolio were reasonable in light of the services provided. It was noted that in conjunction with the recent review of the Current Investment Advisory Agreement, the directors had received, among other things, a report from Lipper comparing each Portfolio's fees, expenses and performance to those of a peer group selected by Lipper, and information as to the fees charged by the Investment Adviser to other registered investment company clients for investment management services. The directors concluded that, because the rates for advisory fees for each Portfolio would be no higher than its current fee rates, the proposed management fee structure, including any fee waivers, was reasonable and that no additional changes were currently necessary. MERRILL LYNCH MUNICIPAL BOND FUND, INC. JUNE 30, 2006 Disclosure of New Investment Advisory Agreement (continued) Fall-Out Benefits--In evaluating the fall-out benefits to be received by BlackRock Advisors under the New Investment Advisory Agreement, the directors considered whether the Transaction would have an impact on the fall-out benefits received by the Investment Adviser by virtue of the Current Investment Advisory Agreement. Based on their review of the materials provided, including materials received in connection with their most recent approval or continuance of the Current Investment Advisory Agreement, and their discussions with management of the Investment Adviser and BlackRock, the directors determined that those benefits could include increased ability for BlackRock to distribute shares of its funds and other investment products. The directors noted that any such benefits were difficult to quantify with certainty at this time, and indicated that they would continue to evaluate them going forward. Investment Performance--The directors considered investment performance for each Portfolio. The directors compared each Portfolio's performance - both including and excluding the effects of fees and expenses - to the performance of a comparable group of mutual funds, and the performance of a relevant index or combination of indexes. The comparative information received from Lipper showed each Portfolio's performance at various levels within the range of performance of comparable funds over different time periods. While the Board reviews performance data at least quarterly, consistent with the Investment Adviser's investment goals, the Board attaches more importance over relatively long periods of time, typically three to five years. The directors believed each Portfolio's performance was satisfactory. Also, the directors took into account the investment performance of funds currently advised by BlackRock Advisors. The Board considered comparative information from Lipper which showed that the performance of the funds advised by BlackRock Advisors was within the range of performance of comparable funds over different time periods. The Board noted BlackRock's considerable investment management experience and capabilities, but was unable to predict what effect, if any, consummation of the Transaction would have on the future performance of each Portfolio. Conclusion--After the independent directors of the Fund deliberated in executive session, the entire Board, including the independent directors, approved the New Investment Advisory Agreement, concluding that for each Portfolio the advisory fee rate was reasonable in relation to the services provided and that the New Investment Advisory Agreement was in the best interests of the shareholders. In approving the New Investment Advisory Agreement, the Board noted that it anticipated reviewing the continuance of the agreement in advance of the expiration of the initial two-year period. Contingent BlackRock Subadvisory Agreement--Matters Considered by the Board At the telephonic and in-person meetings held during April and May 2006 at which the Board of Directors discussed and approved the New Investment Advisory Agreement, the Board, including the independent directors, also discussed and approved a contingent subadvisory agreement (the "Contingent Subadvisory Agreement") between the Investment Adviser and BlackRock Advisors (the "BlackRock Subadviser"). The Contingent Subadvisory Agreement is intended to ensure that each Portfolio operate with efficient portfolio management services until the closing of the Transaction, in the event that the Board deems it necessary and in the best interests of the Fund and its shareholders that the BlackRock Subadviser assist in managing the operations of a Portfolio during the interim period until the closing of the Transaction. If shareholders approve the Contingent Subadvisory Agreement, it will take effect only upon recommendation from the Investment Adviser and upon subsequent approval of the Board in the period up to the closing of the Transaction. The effectiveness of the Contingent Subadvisory Agreement, therefore, would be contingent on further Board approval after shareholders approve it. Pursuant to the Contingent Subadvisory Agreement, the BlackRock Subadviser would receive a monthly fee from the Investment Adviser equal to 50% of the advisory fee received by the Investment Adviser or any Portfolio. The Investment Adviser would pay the BlackRock Subadviser out of its own resources. There would be no increase in any Portfolio's expenses as a result of the Contingent Subadvisory Agreement. In making its approval at the May in-person meeting, the Board considered the Contingent Subadvisory Agreement in conjunction with the New Investment Advisory Agreement and reviewed the same information and factors discussed above, and came to the same conclusions. The Board also considered in conjunction with the Contingent Subadvisory Agreement the necessity of ensuring that each Portfolio operates with effective management services until the closing of the Transaction. In reviewing the subadvisory fee rate provided in the Contingent Subadvisory Agreement, the Board took note of the fact that both the Investment MERRILL LYNCH MUNICIPAL BOND FUND, INC. JUNE 30, 2006 Disclosure of New Investment Advisory Agreement (concluded) Adviser and the BlackRock Subadviser would have significant responsibilities under their respective advisory agreements. The Investment Adviser would remain responsible for oversight of a Portfolio's operations and administration and the BlackRock Subadviser would provide advisory services to the Portfolio under the Contingent Subadvisory Agreement. The Board also took into account the expected short duration of the term of any Contingent Subadvisory Agreement and the fact that no Portfolio's total advisory fees would increase as a result of the Contingent Subadvisory Agreement. Under all of the circumstances, the Board concluded that it was a reasonable allocation of fees for the BlackRock Subadviser to receive 50% of the advisory fee paid by each Portfolio to the Investment Adviser. After the independent directors deliberated in executive session, the entire Board, including the independent directors, approved the Contingent Subadvisory Agreement, concluding that the advisory fee was reasonable in relation to the services provided and that the Contingent Subadvisory Agreement was in the best interests of shareholders. Officers and Directors
Number of Portfolios in Other Public Position(s) Length of Fund Complex Directorships Held with Time Overseen by Held by Name, Address & Age Fund Served Principal Occupation(s) During Past 5 Years Director Director Interested Director Robert C. Doll, Jr.* President 2005 to President of the MLIM/FAM-advised funds 131 Funds None P.O. Box 9011 and present since 2005; President and Chief Investment 178 Portfolios Princeton, Director Officer of MLIM and FAM since 2001; Co-Head NJ 08543-9011 (Americas Region) thereof from 2000 to 2001 Age: 51 and Senior Vice President from 1999 to 2001; President and Director of Princeton Services, Inc. ("Princeton Services") since 2001; President of Princeton Administrators, L.P. ("Princeton Administrators") since 2001; Chief Investment Officer of OppenheimerFunds, Inc. in 1999 and Executive Vice President thereof from 1991 to 1999. * Mr. Doll is a director, trustee or member of an advisory board of certain other investment companies for which MLIM or FAM acts as investment adviser. Mr. Doll is an "interested person," as defined in the Investment Company Act, of the Fund based on his positions with MLIM, FAM, Princeton Services and Princeton Administrators. Directors serve until their resignation, removal or death, or until December 31 of the year in which they turn 72. As Fund President, Mr. Doll serves at the pleasure of the Board of Directors.
MERRILL LYNCH MUNICIPAL BOND FUND, INC. JUNE 30, 2006 Officers and Directors (continued)
Number of Portfolios in Other Public Position(s) Length of Fund Complex Directorships Held with Time Overseen by Held by Name, Address & Age Fund Served Principal Occupation(s) During Past 5 Years Director Director Independent Directors* Ronald W. Forbes** Director 1997 to Professor Emeritus of Finance, School of 49 Funds None P.O. Box 9095 present Business, State University of New York at 51 Portfolios Princeton, Albany since 2000 and Professor thereof NJ 08543-9095 from 1989 to 2000; International Consultant, Age: 65 Urban Institute, Washington D.C. from 1995 to 1999. Cynthia A. Montgomery Director 1994 to Professor, Harvard Business School since 49 Funds Newell P.O. Box 9095 present 1989; Associate Professor, J.L. Kellogg 51 Portfolios Rubbermaid, Inc. Princeton, Graduate School of Management, Northwestern (manufacturing) NJ 08543-9095 University from 1985 to 1989; Associate Age: 53 Professor, Graduate School of Business Administration, University of Michigan from 1979 to 1985; Director, Harvard Business School Publishing since 2005; Director, McLean Hospital since 2005. Jean Margo Reid Director 2004 to Self-employed consultant since 2001; 49 Funds None P.O. Box 9095 present Counsel of Alliance Capital Management 51 Portfolios Princeton, (investment adviser) in 2000; General NJ 08543-9095 Counsel, Director and Secretary of Sanford Age: 60 C. Bernstein & Co., Inc. (investment adviser/broker-dealer) from 1997 to 2000; Secretary, Sanford C. Bernstein Fund, Inc. from 1994 to 2000; Director and Secretary of SCB, Inc. since 1998; Director and Secretary of SCB Partners, Inc. since 2000; and Director of Covenant House from 2001 to 2004. Roscoe S. Suddarth Director 2000 to President, Middle East Institute, from 49 Funds None P.O. Box 9095 present 1995 to 2001; Foreign Service Officer, 51 Portfolios Princeton, United States Foreign Service, from 1961 NJ 08543-9095 to 1995 and Career Minister from 1989 to Age: 70 1995; Deputy Inspector General, U.S. Department of State, from 1991 to 1994; U.S. Ambassador to the Hashemite Kingdom of Jordan from 1987 to 1990. Richard R. West Director 1981 to Professor of Finance from 1984 to 1995, 49 Funds Bowne & Co., P.O. Box 9095 present Dean from 1984 to 1993 and since 1995 51 Portfolios Inc. (financial Princeton, Dean Emeritus of New York University's printers); NJ 08543-9095 Leonard N. Stern School of Business Vornado Realty Age: 68 Administration. Trust (real estate company); Alexander's, Inc. (real estate company) Edward D. Zinbarg Director 2000 to Self-employed financial consultant 49 Funds None P.O. Box 9095 present since 1994; Executive Vice President of 51 Portfolios Princeton, the Prudential Insurance Company of America NJ 08543-9095 from 1988 to 1994; Former Director of Age: 71 Prudential Reinsurance Company and former Trustee of the Prudential Foundation. * Directors serve until their resignation, removal or death, or until December 31 of the year in which they turn 72. ** Chairman of the Board of Directors and the Audit Committee.
MERRILL LYNCH MUNICIPAL BOND FUND, INC. JUNE 30, 2006 Officers and Directors (concluded)
Position(s) Length of Held with Time Name, Address & Age Fund Served Principal Occupation(s) During Past 5 Years Fund Officers* Donald C. Burke Vice 1993 to Managing Director of MLIM and FAM since 2006 and Treasurer thereof since P.O. Box 9011 President present 1999; First Vice President of MLIM and FAM from 1997 to 2005; Senior Vice Princeton, and and President and Treasurer of Princeton Services since 1999 and Director since NJ 08543-9011 Treasurer 1999 to 2004; Vice President of FAM Distributors, Inc. ("FAMD") since 1999 and Age: 46 present Director since 2004; Vice President of MLIM and FAM from 1990 to 1997; Director of Taxation of MLIM from 1990 to 2001; Vice President, Treasurer and Secretary of the IQ Funds since 2004. Kenneth A. Jacob Senior 2002 to Managing Director (Municipal Tax-Exempt Fund Management) of MLIM since 2000; P.O. Box 9011 Vice present Director of MLIM from 1997 to 2000. Princeton, President NJ 08543-9011 Age: 55 John M. Loffredo Senior 2002 to Managing Director (Municipal Tax-Exempt Fund Management) of MLIM since 2000; P.O. Box 9011 Vice present Director of MLIM from 1997 to 2000. Princeton, President NJ 08543-9011 Age: 42 Robert A. DiMella Vice 1999 to Managing Director (Municipal Tax-Exempt Fund Management) of MLIM since 2004; P.O. Box 9011 President present Director of MLIM from 2002 to 2004; Vice President of MLIM from 1996 to Princeton, 2001. NJ 08543-9011 Age: 39 Peter J. Hayes Vice 1996 to Managing Director (Municipal Tax-Exempt Fund Management) of MLIM since 2000; P.O. Box 9011 President present Director of MLIM from 1997 to 2000; Vice President of MLIM from 1988 to Princeton, 1997. NJ 08543-9011 Age: 47 Walter C. O'Connor Vice 1996 to Managing Director (Municipal Tax-Exempt Fund Management) of MLIM since 2003; P.O. Box 9011 President present Director of MLIM from 2000 to 2003; Vice President of MLIM from 1993 to Princeton, 2000. NJ 08543-9011 Age: 44 Jeffrey Hiller Chief 2004 to Chief Compliance Officer of the MLIM/FAM-advised funds and First Vice P.O. Box 9011 Compliance present President and Chief Compliance Officer of MLIM (Americas Region) since 2004; Princeton, Officer Chief Compliance Officer of the IQ Funds since 2004; Global Director of NJ 08543-9011 Compliance at Morgan Stanley Investment Management from 2002 to 2004; Age: 54 Managing Director and Global Director of Compliance at Citigroup Asset Management from 2000 to 2002; Chief Compliance Officer at Soros Fund Management in 2000; Chief Compliance Officer at Prudential Financial from 1995 to 2000; Senior Counsel in the Securities and Exchange Commission's Division of Enforcement in Washington, D.C. from 1990 to 1995. Alice A. Pellegrino Secretary 2004 to Director (Legal Advisory) of MLIM since 2002; Vice President of MLIM from P.O. Box 9011 present 1999 to 2002; Attorney associated with MLIM since 1997; Secretary of MLIM, Princeton, FAM, FAMD and Princeton Services since 2004. NJ 08543-9011 Age: 46 * Officers of the Fund serve at the pleasure of the Board of Directors.
Further information about the Fund's Officers and Directors is available in the Fund's Statement of Additional Information, which can be obtained without charge by calling 1-800-637-3863. 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 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. MERRILL LYNCH MUNICIPAL BOND FUND, INC. JUNE 30, 2006 Item 2 - Code of Ethics - The registrant has adopted a code of ethics, as of the end of the period covered by this report, that applies to the registrant's principal executive officer, principal financial officer and principal accounting officer, or persons performing similar functions. A copy of the code of ethics is available without charge upon request by calling toll-free 1-800-MER-FUND (1-800-637-3863). Item 3 - Audit Committee Financial Expert - The registrant's board of directors has determined that (i) the registrant has the following audit committee financial experts serving on its audit committee and (ii) each audit committee financial expert is independent: (1) Ronald W. Forbes, (2) Richard R. West, and (3) Edward D. Zinbarg. Item 4 - Principal Accountant Fees and Services Short Term Portfolio of Merrill Lynch Municipal Bond Fund, Inc. (formerly Limited Maturity Portfolio) (a) Audit Fees - Fiscal Year Ending June 30, 2006 - $27,500 Fiscal Year Ending June 30, 2005 - $27,000 (b) Audit-Related Fees - Fiscal Year Ending June 30, 2006 - $15,400 Fiscal Year Ending June 30, 2005 - $0 The nature of the services include assurance and related services reasonably related to the performance of the audit of financial statements not included in Audit Fees. (c) Tax Fees - Fiscal Year Ending June 30, 2006 - $6,000 Fiscal Year Ending June 30, 2005 - $5,700 The nature of the services include tax compliance, tax advice and tax planning. (d) All Other Fees - Fiscal Year Ending June 30, 2006 - $0 Fiscal Year Ending June 30, 2005 - $0 National Portfolio of Merrill Lynch Municipal Bond Fund, Inc. (a) Audit Fees - Fiscal Year Ending June 30, 2006 - $31,600 Fiscal Year Ending June 30, 2005 - $35,700 (b) Audit-Related Fees - Fiscal Year Ending June 30, 2006 - $0 Fiscal Year Ending June 30, 2005 - $10,500 The nature of the services include assurance and related services reasonably related to the performance of the audit of financial statements not included in Audit Fees. (c) Tax Fees - Fiscal Year Ending June 30, 2006 - $6,000 Fiscal Year Ending June 30, 2005 - $5,700 The nature of the services include tax compliance, tax advice and tax planning. (d) All Other Fees - Fiscal Year Ending June 30, 2006 - $0 Fiscal Year Ending June 30, 2005 - $0 Insured Portfolio of Merrill Lynch Municipal Bond Fund, Inc. (a) Audit Fees - Fiscal Year Ending June 30, 2006 - $31,600 Fiscal Year Ending June 30, 2005 - $31,000 (b) Audit-Related Fees - Fiscal Year Ending June 30, 2006 - $0 Fiscal Year Ending June 30, 2005 - $0 (c) Tax Fees - Fiscal Year Ending June 30, 2006 - $6,000 Fiscal Year Ending June 30, 2005 - $5,700 The nature of the services include tax compliance, tax advice and tax planning. (d) All Other Fees - Fiscal Year Ending June 30, 2006 - $0 Fiscal Year Ending June 30, 2005 - $0 (e)(1) The registrant's audit committee (the "Committee") has adopted policies and procedures with regard to the pre-approval of services. Audit, audit-related and tax compliance services provided to the registrant on an annual basis require specific pre-approval by the Committee. The Committee also must approve other non-audit services provided to the registrant and those non-audit services provided to the registrant's affiliated service providers that relate directly to the operations and the financial reporting of the registrant. Certain of these non-audit services that the Committee believes are a) consistent with the SEC's auditor independence rules and b) routine and recurring services that will not impair the independence of the independent accountants may be approved by the Committee without consideration on a specific case-by-case basis ("general pre-approval"). However, such services will only be deemed pre-approved provided that any individual project does not exceed $5,000 attributable to the registrant or $50,000 for all of the registrants the Committee oversees. Any proposed services exceeding the pre-approved cost levels will require specific pre- approval by the Committee, as will any other services not subject to general pre-approval (e.g., unanticipated but permissible services). The Committee is informed of each service approved subject to general pre-approval at the next regularly scheduled in-person board meeting. (e)(2) 0% (f) Not Applicable (g) Fiscal Year Ending June 30, 2006 - $2,909,800 Fiscal Year Ending June 30, 2005 - $8,181,305 (h) The registrant's audit committee has considered and determined that the provision of non-audit services that were rendered to the registrant's investment adviser and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre- approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant's independence. Regulation S-X Rule 2-01(c)(7)(ii) - $1,227,000, 0% 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 second 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 - See Item 2 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: August 23, 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: August 23, 2006 By: /s/ Donald C. Burke ---------------------------- Donald C. Burke, Chief Financial Officer of Merrill Lynch Municipal Bond Fund, Inc. Date: August 23, 2006 EX-99.CERT 2 section302.txt SECTION 302 EX-99. CERT CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Robert C. Doll, Jr., Chief Executive Officer of Merrill Lynch Municipal Bond Fund, Inc., certify that: 1. I have reviewed this report on Form N-CSR of Merrill Lynch Municipal Bond Fund, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter 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; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 23, 2006 /s/ Robert C. Doll, Jr. ------------------------ Robert C. Doll, Jr., Chief Executive Officer of Merrill Lynch Municipal Bond Fund, Inc. EX-99. CERT CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Donald C. Burke, Chief Financial Officer of Merrill Lynch Municipal Bond Fund, Inc., certify that: 1. I have reviewed this report on Form N-CSR of Merrill Lynch Municipal Bond Fund, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter 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; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 23, 2006 /s/ Donald C. Burke -------------------- Donald C. Burke, Chief Financial Officer of Merrill Lynch Municipal Bond Fund, Inc. EX-99.1350CERT 3 section906.txt SECTION 906 Exhibit 99.1350CERT Certification Pursuant to Section 906 of the Sarbanes Oxley Act I, Robert C. Doll, Jr., Chief Executive Officer of Merrill Lynch Municipal Bond Fund, Inc. (the "Fund"), certify that: 1. The N-CSR of the Fund (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Fund. Dated: August 23, 2006 /s/ Robert C. Doll, Jr. ------------------------ Robert C. Doll, Jr., Chief Executive Officer of Merrill Lynch Municipal Bond Fund, Inc. A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Merrill Lynch Municipal Bond Fund, Inc. and will be retained by Merrill Lynch Municipal Bond Fund, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. Exhibit 99.1350CERT Certification Pursuant to Section 906 of the Sarbanes Oxley Act I, Donald C. Burke, Chief Financial Officer of Merrill Lynch Municipal Bond Fund, Inc. (the "Fund"), certify that: 1. The N-CSR of the Fund (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Fund. Dated: August 23, 2006 /s/ Donald C. Burke -------------------- Donald C. Burke, Chief Financial Officer of Merrill Lynch Municipal Bond Fund, Inc. A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Merrill Lynch Municipal Bond Fund, Inc. and will be retained by Merrill Lynch Municipal Bond Fund, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----