EX-99.17L 25 dex9917l.txt A/R TO SHAREHOLDERS OF THE REGISTRANT, 6/30/01 EXHIBIT 17(L) (BULL LOGO) Merrill Lynch Investment Managers Annual Report June 30, 2001 Merrill Lynch Municipal Bond Fund, Inc. www.mlim.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. Merrill Lynch Municipal Bond Fund, Inc. Box 9011 Princeton, NJ 08543-9011 Page 1 MERRILL LYNCH MUNICIPAL BOND FUND, INC. Officers and Directors Terry K. Glenn, President and Director Ronald W. Forbes, Director Cynthia A. Montgomery, Director Charles C. Reilly, Director Kevin A. Ryan, Director Roscoe S. Suddarth, Director Richard R. West, Director Edward D. Zinbarg, Director Vincent R. Giordano, Senior Vice President Robert A. DiMella, Vice President Peter J. Hayes, Vice President Kenneth A. Jacob, Vice President Walter C. O'Connor, Vice President Donald C. Burke, Vice President and Treasurer Alice A. Pellegrino, Secretary Custodian The Bank of New York 90 Washington Street, 12th Floor New York, NY 10286 Transfer Agent Financial Data Services, Inc. 4800 Deer Lake Drive East Jacksonville, FL 32246-6484 (800) 637-3863 Page 2 Merrill Lynch Municipal Bond Fund, Inc., June 30, 2001 DEAR SHAREHOLDER The Municipal Market Environment During the six-month period ended June 30, 2001, among considerable weekly volatility, long-term fixed-income bond yields generally moved higher. So far in 2001, investors have generally focused on the actions taken by the Federal Reserve Board to reverse the ongoing US economic slowdown. US economic growth fell into the 1%-2% range in 2001 after expanding at more than 5% during the first half of 2000. In mid-December 2000, the Federal Reserve Board announced that economic conditions warranted the cessation of the series of short-term interest rate increases initiated in February 2000. Citing declining consumer confidence and weakening industrial production, the Federal Reserve Board at each of the meetings in January, February and March of this year lowered short- term interest rates in an effort to promote stronger US economic growth. Given continued weak equity markets, investors focused on the declining supply of US Treasury securities and forecasts of sizeable Federal budget surpluses. This positive economic environment fostered a significant decline in US Treasury bond yields. By late March 2001, US Treasury bond yields declined approximately 20 basis points (0.20%) to 5.25%. Despite additional actions by the Federal Reserve Board in April, May and June, fixed-income securities were unable to maintain their earlier market gains. Recovering US stock markets, especially the NASDAQ, caused many investors to reallocate assets out of US Treasury securities to equities. Additionally, many investors believed that the 275 basis point decline in short-term interest rates engineered by the Federal Reserve Board over the last six months would eventually rekindle a strong US economy with concomitant inflationary pressures. In recent months, recovering equity markets, renewed inflationary fears, and the expectation that the US economy will resume strong growth in late 2001 put consistent pressures on fixed-income issues. By the end of June 2001, long-term US Treasury bond yields rose to 5.75%, an increase of approximately 30 basis points over the last six months. During the last six months, tax-exempt bond yields also reacted to the Federal Reserve Board actions and equity market volatility. However, this reaction was muted in both intensity and degree. In early 2001, municipal bond yields traded in a narrow range supported by a strong US Treasury market and continued investor demand. As it became apparent that any proposed changes in the Federal tax system were unlikely to have any immediate, material impact on existing Federal tax brackets, tax-exempt bond yields responded by moving higher in early 2001. By late March 2001, long-term uninsured revenue bond yields, as measured by the Bond Buyer Revenue Bond Index, approached 5.40%, a decline of approximately 10 basis points from the end of December 2000. Similar to the US Treasury market, tax-exempt bond yields were pushed higher during the remainder of the period by equity market improvement in April, as well as the possibility that the Federal Reserve Board was close to the end of its current interest rate easing cycle. At the end of June 2001, long-term municipal bond yields rose to approximately 5.50%, although during the past six months, they rose approximately five basis points. The recent relative outperformance of the tax-exempt bond market was particularly impressive given the dramatic increase in long-term municipal bond issuance during the June 2001 quarter. Historically, low municipal bond yields have continued to allow municipalities to refund outstanding, high-couponed debt. Also, as yields rose in early April, tax-exempt issuers rushed to issue new financing, fearing higher yields in the coming months. During the past six months, almost $135 billion in long-term tax-exempt bonds was issued, an increase of more than 40% compared to the same period a year ago. During the three-month period ended June 30, 2001, tax-exempt bond issuance was particularly heavy, with more than $75 billion in long-term municipal bonds underwritten, an increase of more than 45% compared to the same three-month period a year ago. Historically, June has been a period of weak investor demand for tax-exempt products as investors are often forced to liquidate bond positions to meet Federal and state tax payments. In recent months, there was no appreciable selling by retail accounts. It has been noted that, thus far in 2001, new net cash inflows into municipal bond mutual funds have reached $4 billion compared to new net cash outflows of more than $13 billion for the same period a year ago. This suggests that the positive technical structure of the municipal market has remained intact. Also, the months of June and July tend to be periods of strong retail demand in response to the larger-coupon income payments and proceeds from bond maturities these months generate. Additionally, short-term tax-exempt interest rates are poised to move lower. Seasonal tax pressures have kept short-term municipal rates artificially high, although not as high as in recent years. As these pressures abate, short-term interest rates are likely to decline below 3%. As short-term interest rates decline, investors have tended to extend maturities to take advantage of the steep municipal yield curve. We believe all of these factors should enhance the tax-exempt market's technical position in the coming months. Looking forward, the municipal market's direction appears uncertain. Should the US economy materially weaken into late summer, the Federal Reserve Board may be forced to ease monetary policy to a greater extent than investors currently expect. The prospect of two or three additional interest rate easings may push fixed-income bond yields, including municipal bond yields, lower. However, should the cumulative 275 basis point reduction in short-term interest rates by the Federal Reserve Board and the economic stimulus expected to be produced by recent Federal tax reform combine to restore consumer confidence and economic activity, tax-exempt bond yields may not decline further. Given the strong technical position of the municipal bond market, we believe the tax-exempt market is poised to continue to outperform its taxable counterpart in the coming months. Fiscal Year in Review Insured Portfolio For the year ended June 30, 2001, Insured Portfolio's Class A, Class B, Class C and Class D Shares had total returns of +10.01%, +9.04%, +8.99% and +9.74%, respectively. (Fund results do not reflect sales charges and would be lower if sales charges were included.) In managing the Insured Portfolio, we seek to provide a balanced performance, focusing on achieving a high current yield with a competitive total return. While maintaining very low cash reserves for most of the fiscal year ended June 30, 2001, we concentrated on purchasing premium coupons in the 10-year - 20-year range. The 15-year portion of the municipal yield curve provided above-average risk-adjusted returns, while capturing greater than 90% of the yield further out on the curve. Our strategy enabled the Portfolio to maintain a very competitive yield with a more neutral interest rate position. In addition, we increased the Portfolio's exposure to insured inverse floater securities. With the Federal Reserve Board lowering short-term interest rates, investments in both inverse floaters and intermediate maturity bonds enabled the Portfolio to achieve a high current yield with competitive total returns. The municipal market environment for the 12-month period ended June 30, 2001 required us to manage the portfolio in two distinct rate trends, each lasting approximately six months. At mid-June 2000, 10-year Treasury securities yielded 6%. Our strategy at that time was to be more aggressive with the Portfolio, as we owned longer duration, discounted securities that offered potential for capital appreciation as interest rates later declined. While the Portfolio was fully invested at this stage, performance resulted more from a generous accrual and current yield than an overly aggressive market position. We stressed higher credit quality in the middle of last year, and therefore avoided any negative situations involving declining credit concerns. As 2000 ended, interest rates declined (nearly 5% for 10-year US Treasury bonds) and the Portfolio assumed a more defensive structure. Longer-maturity holdings were sold with proceeds reinvested in serial maturities or prerefunded bonds, which can offer more price protection should interest rates start to rise again. Since the beginning of 2001, interest rates trended upward and our defensive strategy helped cushion the decline in net asset valuation. Cash equivalent reserves were kept low in order to maintain competitive returns, and our exposure to inverse floater product was increased to take advantage of an extremely favorable technical position in the short end of the tax-exempt market, resulting from aggressive Federal Reserve Board easings. At mid-year 2001, interest rates were in the center of the recent fiscal year trading range. Page 3 Merrill Lynch Municipal Bond Fund, Inc., June 30, 2001 We expect our strategy going forward to be to remain focused on achieving performance results through a more defensive structure, with more attention to the current yield portion of the total return equation. We also expect to continue to maintain a higher degree of credit quality since we believe that focusing on assets in the top rating categories should shield the Portfolio from most credit deterioration associated with the current economic slowdown. National Portfolio During the fiscal year ended June 30, 2001, National Portfolio's Class A, Class B, Class C and Class D Shares had total returns of +10.32%, +9.49%, +9.33% and +10.04%, respectively, by emphasizing current yield and credit quality. (Fund results do not reflect sales charges and would be lower if sales charges were included.) The period was characterized by reduced price volatility that provided few real trading opportunities, with a slight trend toward higher municipal yields. We generally maintained moderate to minimal cash equivalent reserves in the Portfolio in order to keep a competitive current yield. Credit quality remained a priority, as it enabled the Portfolio to avoid any credit- related underperformance during a period when a slowing economy led to some credit quality deterioration and defaults. Supply and demand technicals have been supportive of bond prices, during which time a relatively large calendar of new issues was absorbed by strong retail and institutional interest. The municipal market environment for the 12-month period ended June 30, 2001 required us to manage the Portfolio in two distinct rate trends, each lasting approximately six months. At mid-June 2000, 10-year Treasury securities yielded 6%. Our strategy at that time was to be more aggressive with the Portfolio, as we owned longer duration, discounted securities that offered potential for capital appreciation as interest rates later declined. While the Portfolio was fully invested at this stage, performance resulted more from a generous accrual and current yield than an overly aggressive market position. We stressed higher credit quality in the middle of last year, and therefore avoided any negative situations involving declining credit concerns. As 2000 ended, interest rates declined (nearly 5% for 10-year US Treasury bonds) and the Portfolio assumed a more defensive structure. Longer-maturity holdings were sold with proceeds reinvested in serial maturities or prerefunded bonds, which can offer more price protection should interest rates start to rise again. Since the beginning of 2001, interest rates trended upward and our defensive strategy helped cushion the decline in net asset valuation. Cash equivalent reserves were kept low in order to maintain competitive returns, and our exposure to inverse floater product was increased to take advantage of an extremely favorable technical position in the short end of the tax-exempt market, resulting from aggressive Federal Reserve Board easings. At June 2001, interest rates were in the center of the recent fiscal year trading range. We expect our strategy going forward to be to remain focused on achieving performance results through a more defensive structure, with more attention to the current yield portion of the total return equation. We also expect to continue to maintain a higher degree of credit quality since we believe that focusing on assets in the top rating categories should shield the Portfolio from most credit deterioration associated with the current economic slowdown. Limited Maturity Portfolio For the year ended June 30, 2001, the Limited Maturity Portfolio's Class A, Class B, Class C and Class D Shares had total returns of +6.07%, +5.69%, +5.59% and +5.96%, respectively. (Fund results shown do not reflect sales charges and would be lower if sales charges were included.) Limited Maturity Portfolio kept a fully invested stance for most of the fiscal year ended June 30, 2001, as we expected that a weakening economy and falling equity markets would cause the Federal Reserve Board to ease monetary policy. Low cash reserves and an average portfolio maturity close to the maximum allowed by the prospectus benefited performance, since the Fund's short-term nature is directly affected by Federal Reserve Board policy. However, because of the continued shareholder redemptions, we maintained a higher credit quality on average than our peer group in an effort to maintain liquidity. With continued evidence of a weak economic environment and additional easing by the Federal Reserve Board, we maintained our relatively aggressive investment position for the Limited Maturity Portfolio during the second half of the fiscal year. The Portfolio's average maturity was kept between 1.6 years - 1.8 years with minimal cash reserves. The average credit quality continued to be AA1 in order to seek to provide insulation against any net asset value volatility and for liquidity in meeting shareholder redemptions. This aggressive investment position enhanced the Fund's performance, since the short-term portion of the yield curve benefited most from the Federal Reserve Board's reduction of interest rates. In Conclusion We appreciate your ongoing interest in Merrill Lynch Municipal Bond Fund, Inc., and we look forward to serving your investment needs in the months and years to come. Sincerely, (Terry K. Glenn) Terry K. Glenn President and Director (Vincent R. Giordano) Vincent R. Giordano Senior Vice President (Robert DiMella) Robert DiMella Vice President and Portfolio Manager Insured Portfolio (Walter O'Connor) Walter O'Connor Vice President and Portfolio Manager National Portfolio (Peter Hayes) Peter Hayes Vice President and Portfolio Manager Limited Maturity Portfolio August 15, 2001 Page 4 Merrill Lynch Municipal Bond Fund, Inc., June 30, 2001 PERFORMANCE DATA About Fund Performance Investors are able to purchase shares of the Fund through the Merrill Lynch Select Pricing(SM) System, which offers four pricing alternatives: * Class A Shares incur a maximum initial sales charge (front-end load) of 4% and bear no ongoing distribution or account maintenance fees for Insured and National Portfolios. Limited Maturity Portfolio incurs a maximum initial sales charge (front-end load) of 1% and bears no ongoing distribution or account maintenance fees. * Class B Shares are subject to a maximum contingent deferred sales charge of 4% if redeemed during the first year, decreasing 1% each year thereafter to 0% after the fourth year for Insured and National Portfolios. Limited Maturity Portfolio is subject to a maximum contingent deferred sales charge of 1% if redeemed within one year of purchase. In addition, Insured and National Portfolios are subject to a distribution fee of 0.50% and an account maintenance fee of 0.25%. Limited Maturity Portfolio is subject to a distribution fee of 0.20% and an account maintenance fee of 0.15%. All three classes of shares automatically convert to Class D Shares after approximately 10 years. (There is no initial sales charge for automatic share conversions.) * Class C Shares are subject to a distribution fee of 0.55% and an account maintenance fee of 0.25% for Insured and National Portfolios. Limited Maturity Portfolio is subject to a distribution fee of 0.20% and an account maintenance fee of 0.15%. In addition, Class C Shares for all three Portfolios are subject to a 1% contingent deferred sales charge if redeemed within one year of purchase. * Class D Shares incur a maximum initial sales charge of 4% and an account maintenance fee of 0.25% (but no distribution fee) for Insured and National Portfolios. Limited Maturity Portfolio incurs a maximum initial sales charge of 1% and an account maintenance fee of 0.10% (but no distribution fee). None of the past results shown should be considered a representation of future performance. 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 the "Recent Performance Results" and "Average Annual Total Return" tables assume reinvestment of all dividends and capital gains distributions at net asset value on the payable date. Investment return and principal value of shares will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Dividends paid to each class of shares will vary because of the different levels of account maintenance, distribution and transfer agency fees applicable to each class, which are deducted from the income available to be paid to shareholders. Insured Portfolio's Class A and Class B Shares Total Return Based on a $10,000 Investment A Line graphic illustrating the growth of a $10,000 investment in ML Municipal Bond Fund Insured Portfolio Class A and Class B Shares* compared with a similar investment in the Lehman Brothers Municipal Bond Index++++. Beginning and ending values are: 6/91 6/01 ML Municipal Bond Fund-- Insured Portfolio--Class A Shares* 10,000 18,048 ML Municipal Bond Fund-- Insured Portfolio--Class B Shares* 10,000 17,414 Lehman Brothers Municipal Bond Index++++ 10,000 19,967 *Assuming maximum sales charge, transaction costs and other operating expenses, including advisory fees. ++The 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. Insured Portfolio's Class A and Class B Shares Average Annual Total Return % Return Without % Return With Class A Shares* Sales Charge Sales Charge** One Year Ended 6/30/01 +10.01% +5.61% Five Years Ended 6/30/01 + 5.65 +4.79 Ten Years Ended 6/30/01 + 6.52 +6.08 *Maximum sales charge is 4%. **Assuming maximum sales charge. % Return % Return Class B Shares* Without CDSC With CDSC** One Year Ended 6/30/01 +9.04% +5.04% Five Years Ended 6/30/01 +4.82 +4.82 Ten Years Ended 6/30/01 +5.70 +5.70 *Maximum contingent deferred sales charge is 4% and is reduced to 0% after 4 years. **Assuming payment of applicable contingent deferred sales charge. Insured Portfolio's Class C and Class D Shares Total Return Based on a $10,000 Investment A Line graphic illustrating the growth of a $10,000 investment in ML Municipal Bond Fund Insured Portfolio Class C and Class D Shares* compared with a similar investment in the Lehman Brothers Municipal Bond Index++++. Beginning and ending values are : 10/21/94** 6/01 ML Municipal Bond Fund-- Insured Portfolio--Class C Shares* 10,000 14,378 ML Municipal Bond Fund-- Insured Portfolio--Class D Shares* 10,000 14,349 Lehman Brothers Municipal Bond Index++++ 10,000 16,107 *Assuming maximum sales charge, transaction costs and other operating expenses, including advisory fees. **Commencement of operations. ++The 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. The starting date for the Index is from 10/31/94. Insured Portfolio's Class C and Class D Shares Average Annual Total Return % Return % Return Class C Shares* Without CDSC With CDSC** One Year Ended 6/30/01 +8.99% +7.99% Five Years Ended 6/30/01 +4.77 +4.77 Inception (10/21/94) through 6/30/01 +5.58 +5.58 *Maximum contingent deferred sales charge is 1% and is reduced to 0% after 1 year. **Assuming payment of applicable contingent deferred sales charge. % Return Without % Return With Class D Shares* Sales Charge Sales Charge** One Year Ended 6/30/01 +9.74% +5.35% Five Years Ended 6/30/01 +5.39 +4.53 Inception (10/21/94) through 6/30/01 +6.19 +5.54 *Maximum sales charge is 4%. **Assuming maximum sales charge. Page 5 Merrill Lynch Municipal Bond Fund, Inc., June 30, 2001 PERFORMANCE DATA (continued) National Portfolio's Class A and Class B Shares Total Return Based on a $10,000 Investment A Line graphic illustrating the growth of a $10,000 investment in ML Municipal Bond Fund National Portfolio Class A and Class B Shares* compared with a similar investment in the Lehman Brothers Municipal Bond Index++++. Beginning and ending values are: 6/91 6/01 ML Municipal Bond Fund-- National Portfolio--Class A Shares* 10,000 18,546 ML Municipal Bond Fund-- National Portfolio--Class B Shares* 10,000 17,931 Lehman Brothers Municipal Bond Index++++ 10,000 19,967 *Assuming maximum sales charge, transaction costs and other operating expenses, including advisory fees. ++The 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 predictive of future performance. National Portfolio's Class A and Class B Shares Average Annual Total Return % Return Without % Return With Class A Shares* Sales Charge Sales Charge** One Year Ended 6/30/01 +10.32% +5.91% Five Years Ended 6/30/01 + 5.80 +4.94 Ten Years Ended 6/30/01 + 6.81 +6.37 *Maximum sales charge is 4%. **Assuming maximum sales charge. % Return % Return Class B Shares* Without CDSC With CDSC** One Year Ended 6/30/01 +9.49% +5.49% Five Years Ended 6/30/01 +5.00 +5.00 Ten Years Ended 6/30/01 +6.01 +6.01 *Maximum contingent deferred sales charge is 4% and is reduced to 0% after 4 years. **Assuming payments of applicable contingent deferred sales charge. National Portfolio's Class C and Class D Shares Total Return Based on a $10,000 Investment A Line graphic illustrating the growth of a $10,000 investment in ML Municipal Bond Fund National Portfolio Class C and Class D Shares* compared with a similar investment in the Lehman Brothers Municipal Bond Index++++. Beginning and ending values are: 10/21/94 6/01 ML Municipal Bond Fund-- National Portfolio--Class C Shares* 10,000 14,573 ML Municipal Bond Fund-- National Portfolio--Class D Shares* 10,000 14,533 Lehman Brothers Municipal Bond Index++++ 10,000 16,107 *Assuming maximum sales charge, transaction costs and other operating expenses, including advisory fees. **Commencement of operations. ++The 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. The starting date for the Index is from 10/31/94. Past performance is not predictive of future performance. National Portfolio's Class C and Class D Shares Average Annual Total Return % Return % Return Class C Shares* Without CDSC With CDSC** One Year Ended 6/30/01 +9.33% +8.33% Five Years Ended 6/30/01 +4.95 +4.95 Inception (10/21/94) through 6/30/01 +5.79 +5.79 *Maximum contingent deferred sales charge is 1% and is reduced to 0% after 1 year. **Assuming payment of applicable contingent deferred sales charge. % Return Without % Return With Class D Shares* Sales Charge Sales Charge** One Year Ended 6/30/01 +10.04% +5.64% Five Years Ended 6/30/01 + 5.53 +4.67 Inception (10/21/94) through 6/30/01 + 6.39 +5.75 *Maximum sales charge is 4%. **Assuming maximum sales charge. Limited Maturity Portfolio's Class A and Class B Shares Total Return Based on a $10,000 Investment A Line graphic illustrating the growth of a $10,000 investment in ML Municipal Bond Fund Limited Maturity Portfolio Class A Shares* compared with a similar investment in the Lehman Brothers Municipal Bond Index++++. and Lehman Brothers 3-Year General Obligation Bond Index++++++ Beginning and ending values are: 6/91 6/01 ML Municipal Bond Fund-- Limited Maturity Portfolio--Class A Shares* 10,000 15,244 Lehman Brothers Municipal Bond Index++++ 10,000 19,967 Lehman Brothers 3-Year General Obligation Bond Index++++++ 10,000 17,129 A Line graphic illustrating the growth of a $10,000 investment in ML Municipal Bond Fund Limited Maturity Portfolio Class B Shares* compared with a similar investment in the Lehman Brothers Municipal Bond Index++++. and Lehman Brothers 3-Year General Obligation Bond Index++++++ Beginning and ending values are: 11/02/92 6/01 ML Municipal Bond Fund-- Limited Maturity Portfolio--Class B Shares* 10,000 13,743 Lehman Brothers Municipal Bond Index++++ 10,000 17,264 Lehman Brothers 3-Year General Obligation Bond Index++++++ 10,000 15,380 *Assuming maximum sales charge, transaction costs and other operating expenses, including advisory fees. **Commencement of operations. ++The Limited Maturity 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. The starting date for the Index is from 11/30/92. ++++++This unmanaged Index consists of state and local government obligation bonds that mature in 3 years--4 years, rated Baa or better. The starting date for the Index in the Class B Shares' graph is from 11/30/92. Past performance is not predictive of future performance. Limited Maturity Portfolio's Class A and Class B Shares Average Annual Total Return % Return Without % Return With Class A Shares* Sales Charge Sales Charge** One Year Ended 6/30/01 +6.07% +5.01% Five Years Ended 6/30/01 +4.28 +4.07 Ten Years Ended 6/30/01 +4.41 +4.31 *Maximum sales charge is 1%. **Assuming maximum sales charge. % Return % Return Class B Shares* Without CDSC With CDSC** One Year Ended 6/30/01 +5.69% +4.69% Five Years Ended 6/30/01 +3.93 +3.93 Inception (11/2/92) through 6/30/01 +3.74 +3.74 *Maximum contingent deferred sales charge is 1% and is reduced to 0% after 1 year. **Assuming payment of applicable contingent deferred sales charge. Page 6 Merrill Lynch Municipal Bond Fund, Inc., June 30, 2001 PERFORMANCE DATA (concluded) Limited Maturity Portfolio's Class C and Class D Shares Total Return Based on a $10,000 Investment A Line graphic illustrating the growth of a $10,000 investment in ML Municipal Bond Fund Limited Maturity Portfolio Class C and Class D Shares* compared with a similar investment in the Lehman Brothers Municipal Bond Index++++. and Lehman Brothers 3-Year General Obligation Bond Index++++++ Beginning and ending values are: 10/21/94 6/01 ML Municipal Bond Fund-- Limited Maturity Portfolio--Class C Shares* 10,000 12,891 ML Municipal Bond Fund-- Limited Maturity Portfolio--Class D Shares* 10,000 13,059 Lehman Brothers Municipal Bond Index++++ 10,000 16,107 Lehman Brothers 3-Year General Obligation Bond Index++++++ 10,000 14,210 *Assuming maximum sales charge, transaction costs and other operating expenses, including advisory fees. **Commencement of operations. ++The Limited Maturity 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. The starting date for the Index is from 10/31/94. ++++++This unmanaged Index consists of state and local government obligation bonds that mature in 3 years--4 years, rated Baa or better. The starting date for the Index is from 10/31/94. Past performance is not predictive of future performance. Limited Maturity Portfolio's Class C and Class D Shares Average Annual Total Return % Return % Return Class C Shares* Without CDSC With CDSC** One Year Ended 6/30/01 +5.59% +4.59% Five Years Ended 6/30/01 +3.88 +3.88 Inception (10/21/94) through 6/30/01 +3.87 +3.87 *Maximum contingent deferred sales charge is 1% and is reduced to 0% after 1 year. **Assuming payment of applicable contingent deferred sales charge. % Return Without % Return With Class D Shares* Sales Charge Sales Charge** One Year Ended 6/30/01 +5.96% +4.90% Five Years Ended 6/30/01 +4.19 +3.98 Inception (10/21/94) through 6/30/01 +4.23 +4.07 *Maximum sales charge is 1%. **Assuming maximum sales charge. Recent Performance Results*
Ten Years/ Since 6-Month 12-Month Inception Standardized Total Total Total 30-Day As of June 30, 2001 Return Return Return Yield ML Municipal Bond Fund, Inc. Insured Portfolio Class A Shares** +2.48% +10.01% +88.01% 4.56% ML Municipal Bond Fund, Inc. Insured Portfolio Class B Shares** +1.96 + 9.04 +74.13 3.99 ML Municipal Bond Fund, Inc. Insured Portfolio Class C Shares** +1.94 + 8.99 +43.79 3.94 ML Municipal Bond Fund, Inc. Insured Portfolio Class D Shares** +2.35 + 9.74 +49.45 4.32 ML Municipal Bond Fund, Inc. National Portfolio Class A Shares** +2.87 +10.32 +93.19 4.62 aML Municipal Bond Fund, Inc. National Portfolio Class B Shares** +2.59 + 9.49 +79.32 4.05 ML Municipal Bond Fund, Inc. National Portfolio Class C Shares** +2.46 + 9.33 +45.72 4.00 ML Municipal Bond Fund, Inc. National Portfolio Class D Shares** +2.84 +10.04 +51.38 4.38 ML Municipal Bond Fund, Inc. Limited Maturity Portfolio Class A Shares*** +2.97 + 6.07 +53.98 3.05 ML Municipal Bond Fund, Inc. Limited Maturity Portfolio Class B Shares*** +2.89 + 5.69 +37.44 2.72 ML Municipal Bond Fund, Inc. Limited Maturity Portfolio Class C Shares*** +2.79 + 5.59 +28.91 2.72 ML Municipal Bond Fund, Inc. Limited Maturity Portfolio Class D Shares*** +2.92 + 5.96 +31.90 2.95
*Investment results shown do not reflect sales charges; results shown would be lower if a sales charge was included. Total investment returns are based on changes in net asset values for the periods shown, and assume reinvestment of all dividends and capital gains distributions at net asset value on the payable date. **The Fund's ten-year/since inception periods are ten years for Class A & Class B Shares and from 10/21/94 for Class C & Class D Shares. ***The Fund's ten-year/since inception periods are ten years for Class A Shares; from 11/2/92 for Class B Shares; and from 10/21/94 for Class C & Class D Shares. Page 7 Merrill Lynch Municipal Bond Fund, Inc., June 30, 2001
SCHEDULE OF INVESTMENTS (in Thousands) Municipal Bonds Insured Portfolio S&P Moody's Face STATE Ratings Ratings Amount Issue Value Alabama--1.5% AAA Aaa $ 1,585 Alabama Water Pollution Control Authority Revenue Bonds, Revolving Fund Loan, Series A, 6.75% due 8/15/2017 (b) $ 1,730 AAA Aaa 10,000 Lauderdale County and Florence, Alabama, Health Care Authority, Revenue Refunding Bonds (Coffee Health Group), Series A, 6% due 7/01/2029 (e) 10,630 AAA Aaa 7,000 University of Alabama, University Revenue Bonds (Birmingham), 6% due 10/01/2020 (h) 7,507 Arizona--1.3% AAA Aaa 6,750 Arizona State Municipal Financing Program, COP, Series 34, 7.25% due 8/01/2009 (g) 8,092 AAA Aaa 8,400 Arizona State Transportation Board, Highway Revenue Bonds, 5.25% due 7/01/2012 (e) 8,882 California--10.5% ABC, California, Unified School District, GO (h): AAA Aaa 2,785 5.513%** due 8/01/2033 456 AAA Aaa 2,925 5.523%** due 8/01/2034 452 AAA Aaa 4,275 Cabrillo, California, Unified School District, GO, Series A, 5.621%** due 8/01/2020 (b) 1,512 A1+ VMIG1++ 24,200 California Infrastructure and Economic Development Bank, Revenue Refunding Bonds (Independent System Operation Corporation Project), VRDN, Series A, 3.15% due 4/01/2008 (e)(f) 24,200 AAA Aaa 31,500 California Pollution Control Financing Authority, PCR, Refunding (Pacific Gas & Electric), AMT, Series A, 5.35% due 12/01/2016 (e) 31,466 AAA Aaa 3,000 Encinitas, California, Unified School District, GO, 5.571%** due 8/01/2019 (e) 1,128 AAA Aaa 26,085 Los Angeles, California, Community College District, GO, Series A, 5.50% due 8/01/2019 (e) 27,086 AAA Aaa 20,000 Los Angeles, California, Water and Power Revenue Refunding Bonds (Power System), Series A-A-1, 5.25% due 7/01/2019 (i) 20,186 AAA Aaa 5,800 Oakland, California, Redevelopment Agency, Tax Allocation Refunding Bonds, INFLOS, 8.823% due 9/01/2019 (d)(e) 6,279 Rialto, California, Unified School District, GO, Series A (h): AAA Aaa 13,985 6.12%** due 6/01/2019 5,307 AAA Aaa 11,685 6.24%** due 6/01/2025 3,082 AAA Aaa 15,000 San Jose, California, Redevelopment Agency, Tax Allocation Refunding Bonds, DRIVERS, Series 158, 8.086% due 8/01/2014 (d)(e) 15,818 Colorado--4.1% AAA Aaa 19,250 Aurora, Colorado, COP, 6% due 12/01/2025 (b) 20,711 NR* Aaa 31,160 Denver, Colorado, City and County Airport Revenue Refunding Bonds, RIB, Series 153, 8.34% due 11/15/2025 (d)(e) 32,931 District of AAA Aaa 7,495 District Columbia, GO, Refunding, DRIVERS, Series 152, Columbia--0.6% 7.965% due 6/01/2013 (d)(i) 8,282 Florida--3.8% AAA Aaa 6,500 Dade County, Florida, Water and Sewer System Revenue Bonds, 5.25% due 10/01/2026 (h) 6,472 NR* Aaa 7,500 Escambia County, Florida, Health Facilities Authority, Health Facility Revenue Bonds, DRIVERS, Series 159, 8.876% due 7/01/2020 (b)(d) 8,764 Florida State Board of Education, Lottery Revenue Bonds, Series B (h): AAA Aaa 8,900 6% due 7/01/2013 9,911 AAA Aaa 9,435 6% due 7/01/2014 10,441 AAA Aaa 9,645 6% due 7/01/2015 10,606 AAA Aaa 2,240 West Coast Regional Water Supply Authority, Florida, Capital Improvement Revenue Bonds, 10.40% due 10/01/2010 (a)(b) 3,107 Georgia--3.3% Georgia Municipal Electric Authority, Power Revenue Bonds, Series Y (b): AAA Aaa 490 6.40% due 1/01/2013 (c) 567 AAA Aaa 8,510 6.40% due 1/01/2013 9,824 Georgia Municipal Electric Authority, Power Revenue Refunding Bonds: AAA Aaa 20,000 Series EE, 7% due 1/01/2025 (b) 24,915 AAA Aaa 5,000 Series Z, 5.50% due 1/01/2020 (e) 5,307 AAA Aaa 2,490 Georgia State Municipal Electric Authority, Revenue Refunding Bonds, Series C, 5.25% due 1/01/2025 (e) 2,524 Hawaii--0.8% AAA Aaa 10,000 Hawaii State Airport System, Revenue Refunding Bonds, 6.45% due 7/01/2013 (e) 10,729 Illinois--9.9% AAA Aaa 2,000 Chicago, Illinois, O'Hare International Airport Revenue Bonds (Passenger Facility Charge), Series A, 5.625% due 1/01/2015 (b) 2,079 AAA Aaa 2,000 Chicago, Illinois, O'Hare International Airport Revenue Refunding Bonds, Senior Lien, Series A, 5% due 1/01/2013 (e) 2,010 AAA Aaa 3,250 Illinois Health Facilities Authority Revenue Bonds (Elmhurst Memorial Hospital), 6.625% due 1/01/2022 (h) 3,354 Illinois Health Facilities Authority, Revenue Refunding Bonds: AAA Aaa 3,740 (Methodist Medical Center), 5.50% due 11/15/2011 (e) 3,966 AAA NR* 14,450 RIB, Series 166, 8.94% due 2/15/2024 (b)(d)(j) 15,599 A1 VMIG1++ 1,500 (Resurrection Health), VRDN, Series A, 3.35% due 5/15/2029 (f)(i) 1,500 Illinois Regional Transportation Authority Revenue Bonds (e): AAA Aaa 15,615 6.50% due 7/01/2026 18,585 AAA Aaa 26,000 Series A, 6.25% due 6/01/2004 (a)(b) 28,515 AAA Aaa 3,000 Illinois State, GO, 5.75% due 5/01/2021 (e) 3,115 Kane, McHenry, Cook and DeKalb Counties, Illinois, United School District Number 300, GO (e): AAA Aaa 5,000 5.50% due 12/01/2013 5,318 AAA Aaa 5,500 5.50% due 12/01/2014 5,808 AAA Aaa 6,000 5.50% due 12/01/2015 6,296 AAA Aaa 7,000 5.50% due 12/01/2016 7,310 AAA Aaa 4,000 5.50% due 12/01/2017 4,151 AAA Aaa 5,000 Metropolitan Pier and Exposition Authority, Illinois, Dedicated State Tax Revenue Refunding Bonds (McCormick Plant Expansion Project), 5.50% due 12/15/2024 (h) 5,075 NR* Aaa 9,000 Northern Illinois University, Auxiliary Facilities System Revenue Refunding Bonds, 5.75% due 4/01/2022 (h) 9,261 AAA Aaa 6,905 Will and Kendall Counties, Illinois, Community Consolidated School District Number 202, GO, 5.75% due 12/30/2011 (i) 7,530 Indiana--1.0% AAA Aaa 5,555 Indiana State Office Building Commission, Facilities Revenue Bonds (Miami Correctional Facility--Phase 1), Series A, 5.50% due 7/01/2015 (b) 5,800 AAA Aaa 4,040 Indianapolis, Indiana, Local Public Improvement Revenue Bonds, 7.90% due 2/01/2002 (a)(g) 4,057 AAA Aaa 2,500 Penn, Indiana, High School Building Corporation Revenue Bonds, First Mortgage, 6.125% due 7/15/2005 (a)(e) 2,757 Kansas--1.3% AAA Aaa 11,000 Kansas City, Kansas, Utility System Revenue Refunding and Improvement Bonds, 6.25% due 9/01/2014 (h) 11,955 AAA Aaa 5,145 Manhattan, Kansas, Hospital Revenue Bonds (Mercy Health Center), 5.50% due 8/15/2020 (i) 5,241
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. ACES SM Adjustable Convertible Extendable Securities AMT Alternative Minimum Tax (subject to) BAN Bond Anticipation Notes COP Certificates of Participation DRIVERS Derivative Inverse Tax-Exempt Receipts EDA Economic Development Authority GO General Obligation Bonds HDA Housing Development Authority HFA Housing Finance Agency IDA Industrial Development Authority IDR Industrial Development Revenue Bonds INFLOS Inverse Floating Rate Municipal Bonds IRS Inverse Rate Securities LEVRRS Leveraged Reverse Rate Securities PCR Pollution Control Revenue Bonds RIB Residual Interest Bonds RITR Residual Interest Trust Receipts S/F Single-Family TAN Tax Anticipation Notes TRAN Tax Revenue Anticipation Notes VRDN Variable Rate Demand Notes Page 8 Merrill Lynch Municipal Bond Fund, Inc., June 30, 2001
SCHEDULE OF INVESTMENTS (continued) (in Thousands) Municipal Bonds Insured Portfolio S&P Moody's Face STATE Ratings Ratings Amount Issue Value Kentucky--0.1% A1 VMIG1++ $ 1,600 Kentucky Economic Development Finance Authority, Hospital Facilities Revenue Refunding Bonds (Baptist Healthcare), VRDN, Series C, 3.30% due 8/15/2031 (e)(f) $ 1,600 Maryland--0.4% AAA Aaa 4,400 Maryland State Health and Higher Educational Facilities Authority Revenue Bonds (University of Maryland Medical System), Series B, 7% due 7/01/2022 (h) 5,444 Massachusetts--2.1% AAA Aaa 2,715 Massachusetts Educational Loan Authority, Education Loan Revenue Bonds, AMT, Issue D, Series A, 7.25% due 1/01/2009 (e) 2,778 AAA Aaa 10,000 Massachusetts State Health and Educational Facilities Authority Revenue Bonds (Beth Israel Deaconess Medical Center), INFLOS, Series G-4, 8.573% due 7/01/2025 (b)(d) 10,500 AAA Aaa 3,100 Massachusetts State Health and Educational Facilities Authority, Revenue Refunding Bonds (Saint Elizabeth's Hospital), LEVRRS, Series E, 10.37% due 8/15/2021 (d)(i) 3,243 AAA Aaa 10,000 Route 3 North Transit Improvement Association, Massachusetts, Lease Revenue Bonds, 5.75% due 6/15/2025 (e) 10,448 Michigan--1.5% AAA Aaa 6,915 Michigan State, HDA, Rental Housing Revenue Refunding Bonds, Series B, 6.15% due 10/01/2015 (e) 7,242 AAA Aaa 10,000 Michigan State Strategic Fund, Limited Obligation Revenue Refunding Bonds (Detroit Edison Company), Series AA, 6.40% due 9/01/2025 (e) 10,703 NR* VMIG1++ 1,700 Michigan State Strategic Fund, PCR, Refunding (Consumers Power Project), VRDN, 3.30% due 4/15/2018 (b)(f) 1,700 Minnesota--1.6% NR* Aaa 5,860 Delano, Minnesota, Independent School District Number 879, GO, Series A, 5.875% due 2/01/2025 (i)(k) 6,219 AAA Aaa 5,910 Minneapolis and Saint Paul, Minnesota, Metropolitan Airports Commission, Airport Revenue Bonds, AMT, Series B, 6.20% due 1/01/2017 (h) 6,417 Sauk Rapids, Minnesota, Independent School District Number 047, GO, Series A (e): NR* Aaa 3,735 5.65% due 2/01/2020 3,896 NR* Aaa 4,440 5.70% due 2/01/2021 4,651 Mississippi--1.0% AAA Aaa 1,320 Harrison County, Mississippi, Wastewater Management District, Revenue Refunding Bonds (Wastewater Treatment Facilities), Series A, 8.50% due 2/01/2013 (h) 1,760 NR* Aaa 10,000 Mississippi Hospital Equipment and Facilities Authority Revenue Bonds (Forrest County General Hospital Project), 6% due 1/01/2030 (i) 10,591 Missouri--1.8% Kansas City, Missouri, Airport Revenue Refunding and Improvement Bonds, Series A (e): AAA Aaa 12,990 5.50% due 9/01/2013 13,758 AAA Aaa 9,000 5.50% due 9/01/2014 9,488 Nevada--4.2% Director for the State of Nevada, Department of Business and Industry Revenue Bonds (Las Vegas Monorail Company) (b): AAA Aaa 7,595 5.94%** due 1/01/2024 2,158 AAA Aaa 5,425 5.95%** due 1/01/2025 1,451 AAA Aaa 5,445 5.96%** due 1/01/2026 1,374 AAA Aaa 3,000 5.97%** due 1/01/2027 715 AAA Aaa 5,000 5.97%** due 1/01/2028 1,121 AAA Aaa 45,000 Washoe County, Nevada, Water Facility Revenue Bonds (Sierra Pacific Power Company), AMT, 6.65% due 6/01/2017 (e) 47,650 New Jersey--4.7% AAA Aaa 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 (e) 8,290 NR* Aaa 12,500 New Jersey EDA, Natural Gas Facilities Revenue Refunding Bonds (NUI Corporation), RIB, Series 371, 9.79% due 10/01/2022 (b)(d) 14,340 AAA Aaa 12,420 New Jersey State Housing and Mortgage Finance Agency, Home Buyer Revenue Bonds, AMT, Series M, 7% due 10/01/2026 (e) 13,118 Salem County, New Jersey, Industrial Pollution Control Financing Authority, Revenue Refunding Bonds (Public Service Electric & Gas), RIB (d)(e): AAA Aaa 10,000 Series 380, 9.59% due 6/01/2031 11,316 AAA Aaa 12,500 Series 381, 9.49% due 8/01/2030 14,170 New Mexico--0.5% AAA Aaa 5,585 Santa Fe County, New Mexico, Correctional System Revenue Bonds, 6% due 2/01/2027 (i) 6,297 New York--8.2% AAA Aaa 13,000 Long Island Power Authority, New York, Electric System Revenue Refunding Bonds, Series A, 5.50% due 12/01/2029 (e) 13,190 AAA Aaa 5,000 Nassau Health Care Corporation, New York, Health System Revenue Bonds (Nassau County), 6% due 8/01/2011 (i) 5,628 NR* Aaa 12,075 New York City, New York, City Municipal Water Finance Authority, Water and Sewer System Revenue Bonds, RIB, Series 158, 8.68% due 6/15/2026 (d)(e) 13,227 New York City, New York, GO, Refunding, Series G: AAA Aaa 7,655 5.75% due 2/01/2014 (e) 8,108 AAA NR* 5,155 5.75% due 2/01/2017 (i) 5,456 AAA Aaa 21,000 New York City, New York, GO, Series I, 6% due 4/15/2012 (i) 23,215 AAA Aaa 10,000 New York State Dormitory Authority, Revenue Refunding Bonds (Mental Health Services), Series A, 5.75% due 8/15/2022 (e) 10,477 NR* Aaa 20,000 New York State Local Government Assistance Corporation, Revenue Refunding Bonds, RIB, Series 468X, 8.17% due 4/01/2021 (d)(h) 20,619 AAA Aaa 160 New York State Medical Care Facilities Finance Agency Revenue Bonds, Series E, 6.25% due 8/15/2019 (h) 172 Niagara Falls, New York, GO, Public Improvement (e): AAA Aaa 2,975 6.90% due 3/01/2023 3,254 AAA Aaa 3,190 6.90% due 3/01/2024 3,490 North Carolina Piedmont Triad Airport Authority, North Carolina, Airport --0.7% Revenue Refunding Bonds, Series A (i): AAA Aaa 2,595 5.25% due 7/01/2014 2,697 AAA Aaa 1,320 5.25% due 7/01/2016 1,353 Raleigh-Durham, North Carolina, Airport Authority, Airport Revenue Bonds, Series A (h): NR* Aaa 2,530 5.25% due 11/01/2018 2,567 NR* Aaa 2,545 5.25% due 11/01/2019 2,574 Ohio--1.3% Ohio State Water Development Authority, Pollution Control Facilities Revenue Bonds (Water Control Loan Fund--Water Quality Series)(e): AAA Aaa 3,575 5.50% due 12/01/2010 3,832 AAA Aaa 3,175 5.50% due 6/01/2012 3,369 AAA Aaa 3,420 5.50% due 6/01/2013 3,611 AAA Aaa 6,000 5.50% due 6/01/2014 6,301 Oklahoma--0.6% AAA Aaa 6,385 Oklahoma State IDR, Refunding (Health System), Series A, 6.25% due 8/15/2016 (e) 6,973 A1+ VMIG1++ 300 Oklahoma State Industries Authority Revenue Refunding Bonds (Integris Baptist), VRDN, Series B, 3.30% due 8/15/2029 (e)(f) 300 Oregon--1.1% AAA Aaa 8,700 Oregon State Department, Administrative Services, COP, Series A, 6.25% due 5/01/2010 (a)(b) 10,044 AAA Aaa 3,865 Port of Portland, Oregon, Airport Revenue Refunding Bonds (Portland International Airport), AMT, Series 7-B, 7.10% due 1/01/2012 (a)(e) 4,644 Pennsylvania--2.3% Philadelphia, Pennsylvania, GO (i): AAA Aaa 3,000 5.25% due 9/15/2015 3,080 AAA Aaa 3,200 5.25% due 9/15/2016 3,268 AAA Aaa 4,155 5.25% due 9/15/2017 4,221 AAA Aaa 6,000 Philadelphia, Pennsylvania, Gas Works Revenue Bonds, 12th Series B, 7% due 5/15/2020 (c)(e) 7,273 AAA Aaa 11,700 Southeastern Pennsylvania Transportation Authority, Special Revenue Bonds, 5.375% due 3/01/2022 (h) 11,827
Page 9 Merrill Lynch Municipal Bond Fund, Inc., June 30, 2001
SCHEDULE OF INVESTMENTS (concluded) (in Thousands) Municipal Bonds Insured Portfolio S&P Moody's Face STATE Ratings Ratings Amount Issue Value Puerto Rico--0.5% AAA Aaa $ 5,985 Puerto Rico Electric Power Authority, Power Revenue Bonds, Trust Receipts, Class R, Series 16 HH, 8.824% due 7/01/2013 (d)(i) $ 7,050 Rhode Island--0.6% AAA Aaa 6,815 Rhode Island State Economic Development Corporation, Airport Revenue Bonds, Series B, 6% due 7/01/2028 (h) 7,294 South Carolina--1.7% South Carolina State Public Service Authority, Revenue Refunding Bonds, Series A (b): AAA Aaa 17,090 6.375% due 7/01/2021 17,852 AAA Aaa 4,200 6.25% due 1/01/2022 4,484 Tennessee --1.4% Putnam County, Tennessee, School GO (h): NR* Aaa 4,450 5.375% due 4/01/2018 4,570 NR* Aaa 3,750 5.50% due 4/01/2019 3,879 NR* Aaa 4,000 5.50% due 4/01/2020 4,129 NR* VMIG1++ 5,900 Sevier County, Tennessee, Public Building Authority, Local Government Public Improvement Revenue Bonds, VRDN, Series IV-B-5, 3.05% due 6/01/2022 (f)(i) 5,900 Texas--6.8% AAA Aaa 11,190 Austin, Texas, Utility System Revenue Bonds, Combined, 9.25% due 11/15/2008 (a)(e) 12,948 AAA Aaa 6,000 Brazos River Authority, Texas, PCR, Refunding (Texas Utilities Electric Company Project), AMT, 6.50% due 12/01/2027 (b) 6,297 AAA Aaa 12,000 Brazos River Authority, Texas, PCR (Texas Utilities Electric Company Project), AMT, Series B, 6.625% due 6/01/2022 (h) 12,548 AAA NR* 17,975 Dallas-Fort Worth, Texas, International Airport Revenue Bonds, DRIVERS, AMT, Series 202, 8.95% due 11/01/2028 (d)(h) 19,582 AAA Aaa 2,750 Harris County, Texas, Toll Road Revenue Refunding Bonds, Series A, 6.50% due 8/15/2017 (b) 2,891 AAA Aaa 3,500 Houston, Texas, Water Conveyance System Contract, COP, Series J, 6.25% due 12/15/2013 (b) 3,982 AAA Aaa 11,800 Matagorda County, Texas, Navigation District Number 1, Revenue Refunding Bonds (Houston Light and Power Company), Series A, 6.70% due 3/01/2027 (b) 12,275 A1+ NR* 1,000 North Central Texas, Health Facility Development Corporation Revenue Bonds (Methodist Hospitals--Dallas), VRDN, Series B, 3.30% due 10/01/2015 (f)(g) 1,000 A1+ VMIG1++ 3,000 Sabine River Authority, Texas, PCR, Refunding (Texas Utilities Electric Company Project), VRDN, Series A, 3.30% due 3/01/2026 (b)(f) 3,000 AAA Aaa 6,000 San Antonio, Texas, Electric and Gas Revenue Bonds, 5.375% due 2/01/2018 (e) 6,054 AAA Aaa 7,430 Southwest Higher Education Authority Incorporated, Revenue Refunding Bonds, Series B, 6.25% due 10/01/2022 (h) 7,780 Utah--1.9% A1 VMIG1++ 800 Emery County, Utah, PCR, Refunding (Pacificorp Projects), VRDN, 3.30% due 11/01/2024 (b)(f) 800 Utah State Building Ownership Authority, Lease Revenue Refunding Bonds (State Facilities Master Lease Program), Series C (i): AAA Aaa 3,995 5.50% due 5/15/2012 4,307 AAA Aaa 3,000 5.50% due 5/15/2013 3,225 AAA NR* 9,535 Utah Transit Authority, Sales Tax and Transportation Revenue Bonds (Salt Lake County Light Rail Transit Project), 5.375% due 12/15/2022 (i) 9,602 Utah Water Finance Agency Revenue Bonds (Pooled Loan Financing Program), Series A (b): NR* Aaa 2,515 5.75% due 10/01/2015 2,692 NR* Aaa 3,770 6% due 10/01/2020 4,064 Virginia--2.5% AAA Aaa 19,755 Fairfax County, Virginia, EDA, Resource Recovery Revenue Refunding Bonds, AMT, Series A, 6.10% due 2/01/2011 (b) 22,266 Virginia State, HDA, Commonwealth Mortgage Revenue Bonds, AMT, Series A, Sub-Series A-4 (e): AAA Aa1 2,285 5.40% due 1/01/2011 2,386 AAA Aaa 2,270 5.50% due 1/01/2012 2,370 AAA Aaa 5,000 6.30% due 7/01/2014 5,169 Washington--6.1% AAA Aaa 15,000 Energy Northwest, Washington, Electric Revenue Refunding Bonds (Project Number 3), Series A, 5.50% due 7/01/2017 (i) 15,513 AAA Aaa 33,535 Seattle, Washington, Municipal Light and Power Revenue Bonds, 6.625% due 7/01/2004 (a)(h) 37,206 AAA Aaa 18,000 Tacoma, Washington, Electric System Revenue Refunding Bonds, Series A, 5.75% due 1/01/2019 (i) 18,853 AAA Aaa 9,000 Washington State, GO, Series A, 4.50% due 7/01/2023 (i) 7,976 West Virginia--1.9% AAA Aaa 11,465 Mason County, West Virginia, PCR, Refunding (Appalachian Power Company), 6.85% due 6/01/2022 (e) 12,021 AAA Aaa 12,250 Pleasants County, West Virginia, PCR, Refunding (Potomac-Pleasants), Series C, 6.15% due 5/01/2015 (b) 13,057 Wisconsin--4.4% Milwaukee County, Wisconsin, Airport Revenue Bonds, AMT, Series A (h): NR* Aaa 2,625 6% due 12/01/2012 2,872 NR* Aaa 3,675 6% due 12/01/2013 3,991 NR* Aaa 3,675 6% due 12/01/2014 3,968 NR* Aaa 3,675 6% due 12/01/2015 3,948 AAA Aaa 9,000 Superior, Wisconsin, Limited Obligation Revenue Refunding Bonds (Midwest Energy Resources), Series E, 6.90% due 8/01/2021 (h) 10,941 AAA Aaa 4,650 Wisconsin Public Power Inc., Power Supply System Revenue Bonds, Series A, 5.75% due 7/01/2023 (e) 4,804 Wisconsin State, GO, AMT, Series B (e): AAA Aaa 7,920 6.50% due 5/01/2020 8,458 AAA Aaa 17,130 6.50% due 5/01/2025 18,293 Total Investments (Cost--$1,211,868)--98.0% 1,277,691 Variation Margin on Financial Futures Contracts***--0.0% 425 Other Assets Less Liabilities--2.0% 26,271 ---------- Net Assets--100.0% $1,304,387 ==========
(a) Prerefunded. (b) AMBAC Insured. (c) Escrowed to maturity. (d) The interest rate is subject to change periodically and inversely based upon prevailing market rates. The interest rate shown is the rate in effect at June 30, 2001. (e) MBIA Insured. (f) The interest rate is subject to change periodically based upon prevailing market rates. The interest rate shown is the rate in effect at June 30, 2001. (g) BIG Insured. (h) FGIC Insured. (i) FSA Insured. (j)FHA Insured. (k) All or a portion of security held as collateral in connection with open financial futures contracts. *Not rated. **Represents a zero coupon or step bond; the interest rate shown reflects the effective yield at the time of purchase by the Fund. ***Financial futures contracts sold as of June 30, 2001 were as follows: Number oF Expiration Contracts Issue Date Value 850 US Treasury Note September 2001 $ 87,563,281 Total Financial Futures Contracts Sold (Total Contract Price--$88,028,125) $ 87,563,281 ============ ++Highest short-term rating issued by Moody's Investors Service, Inc. Ratings of shares shown have not been audited by Deloitte & Touche LLP. See Notes to Financial Statements. Page 10 Merrill Lynch Municipal Bond Fund, Inc., June 30, 2001
SCHEDULE OF INVESTMENTS (in Thousands) Municipal Bonds National Portfolio S&P Moody's Face STATE Ratings Ratings Amount Issue Value Alabama--0.4% AAA Aaa $ 3,820 Alabama Incentives Financing Authority, Special Obligation Revenue Refunding Bonds, Series A, 6% due 10/01/2029 (c) $ 4,098 Alaska--3.4% AAA Aaa 3,000 Alaska State Housing Financial Corporation, General Mortgage Revenue Refunding, Series A, 6% due 6/01/2027 (f) 3,138 Anchorage, Alaska, School, GO, Series B (e): AAA Aaa 1,760 5.875% due 12/01/2016 1,891 AAA Aaa 2,100 5.875% due 12/01/2017 2,246 AA+ NR* 27,150 Valdez, Alaska, Marine Terminal Revenue Refunding Bonds (Sohio Pipeline--British Petroleum Oil), 7.125% due 12/01/2025 28,383 Arizona--1.5% AAA Aaa 1,620 Gilbert, Arizona, Water and Sewer Revenue Refunding Bonds, 6.50% due 7/01/2022 (e) 1,754 AAA Aaa 2,330 Phoenix, Arizona, Civic Improvement Corporation, Municipal Facilities, Excise Tax Revenue Bonds, 5.75% due 7/01/2016 (e) 2,506 Phoenix, Arizona, Civic Improvement Corporation, Water System Revenue Bonds, Junior Lien (i): AA- Aaa 2,000 5.625% due 7/01/2006 2,170 AA- Aaa 2,315 6% due 7/01/2006 2,551 NR* B3 5,000 Phoenix, Arizona, IDA, Airport Facility Revenue Refunding Bonds (America West Airlines Inc. Project), AMT, 6.30% due 4/01/2023 4,086 NR* Aaa 500 Phoenix, Arizona, IDA Revenue Bonds (Camelback Crossing), 6.20% due 9/20/2020 (d) 534 AA NR* 1,200 Tucson, Arizona, IDA, Senior Living Facilities Revenue Bonds (Christian Care Tucson Inc. Project), Series A, 6.125% due 7/01/2024 1,266 AAA Aaa 1,000 University of Arizona, COP (University of Arizona Parking and Student Housing), 5.75% due 6/01/2019 (c) 1,053 California--6.5% AAA Aaa 11,740 Alameda County, California, COP (Financing Project), 6% due 9/01/2021 (f) 12,502 California Pollution Control Financing Authority, PCR, Refunding (Pacific Gas and Electric), VRDN (a): A1+ NR* 12,200 AMT, Series B, 3.60% due 11/01/2026 12,200 A1+ NR* 8,900 Series C, 3.65% due 11/01/2026 8,900 NR* NR* 4,000 Long Beach, California, Special Tax Bonds (Community Facilities District No. 3--Pine Ave.), 6.375% due 9/01/2023 4,143 NR* Aa3 20,000 Los Angeles, California, Department of Water and Power, Electric Plant Revenue Refunding Bonds, RIB, Series 370, 9.12% due 2/15/2024 (g) 23,349 NR* NR* 5,000 San Francisco California, City and County Redevelopment Agency Revenue Bonds (Community Facilities District Number 6--Mission), 6% due 8/01/2021 4,959 NR* Aaa 1,075 San Francisco, California, Uptown Parking Corporation, Parking Revenue Bonds (Union Square), 6% due 7/01/2020 (f) 1,136 Colorado--4.5% AAA Aaa 25,000 Colorado Department of Transit, TRAN, 6% due 6/15/2014 (c) 27,629 Denver, Colorado, City and County Airport Revenue Bonds, AMT: A A2 2,575 Series A, 7.50% due 11/15/2023 2,870 A A2 9,710 Series B, 7.25% due 11/15/2023 10,320 AAA Aaa 3,685 Larimer County, Colorado, Poudre School District Number R-1, GO, 6% due 12/15/2016 (e) 4,033 BB+ Ba1 1,615 Northwest Parkway, Colorado, Public Highway Authority Revenue Bonds, First Tier, Sub-Series D, 7.125% due 6/15/2041 1,597 Connecticut--0.1% A1+ VMIG1++ 1,000 Connecticut State Health and Educational Facilities Authority Revenue Bonds (Yale University), VRDN, Series T-1, 2.40% due 7/01/2029 (a) 1,000 Florida--5.9% NR* NR* 2,600 Brooks of Bonita Springs II, Florida, Community Development District, Capital Improvement Revenue Bonds, Series B, 6.60% due 5/01/2007 2,627 NR* Aaa 2,725 Duval County, Florida, School Board, COP, 5.75% due 7/01/2017 (h) 2,864 AAA Aaa 6,330 Florida HFA, Revenue Bonds (Antigua Club Apartments), AMT, Series A-1, 7% due 2/01/2035 (c) 6,735 AA+ Aaa 10,500 Florida State Board of Education, Capital Outlay, GO (Public Education), Series B (i), 5.875% due 6/01/2005 11,463 AAA Aaa 5,200 Florida State, GO (Department of Transportation--Right of Way), 5.875% due 7/01/2005 (f)(i) 5,689 NR* NR* 2,305 Heritage Isles, Florida, Community Development District, BAN, 6.30% due 8/01/2001 2,305 AA- Aa3 9,500 Jacksonville, Florida, Electric Authority, Water and Sewer Revenue Bonds, Series A, 6% due 10/01/2024 10,269 AAA Aaa 4,500 Lee County, Florida, Transportation Facilities Revenue Bonds, 5.75% due 10/01/2022 (f) 4,669 NR* NR* 565 Mediterra, Florida, South Community Development District, Capital Improvement Revenue Bonds, Series B, 6.25% due 5/01/2004 568 AAA NR* 1,690 Orange County, Florida, HFA, Mortgage Revenue Bonds, AMT, Series A, 8.375% due 3/01/2021 (b)(d) 1,697 AAA Aaa 5,000 Orange County, Florida, Tourist Development, Tax Revenue Bonds, 5.50% due 10/01/2020 (c) 5,136 AAA Aaa 2,000 Saint Lucie, Florida, West Services District, Utility Revenue Refunding Bonds, Senior Lien, 6% due 10/01/2022 (f) 2,179 NR* NR* 4,810 Stoneybrook West, Florida, Community Development District, Special Assessment Revenue Bonds, Series B, 6.45% due 5/01/2010 4,871 Georgia--1.8% AAA Aaa 9,000 Atlanta, Georgia, Water and Sewer Revenue Bonds, 5.25% due 1/01/2007 (e)(i) 9,669 AAA Aaa 5,210 College Park, Georgia, Business and IDA, Revenue Bonds (Civic Center Project), 5.75% due 9/01/2026 (c) 5,527 AAA Aaa 3,450 Fulton County, Georgia, Development Authority Revenue Bonds (Morehouse College Project), 5.875% due 12/01/2030 (c) 3,675 Illinois--7.6% AAA NR* 10,620 Chicago, Illinois, Board of Education, GO, DRIVERS, Series 199, 8.20% due 12/01/2020 (c)(g) 11,555 Chicago, Illinois, GO (Neighborhoods Alive 21 Program) (e): AAA Aaa 1,400 5.875% due 1/01/2019 1,486 AAA Aaa 10,000 Series A, 6.50% due 7/01/2010 (i) 11,705 AAA Aaa 2,000 Chicago, Illinois, GO, Series A, 6.125% due 7/01/2010 (e)(i) 2,282 AAA Aaa 8,000 Chicago, Illinois, O'Hare International Airport, General Airport Revenue Refunding Bonds, Second Lien, Series A, 6.375% due 1/01/2012 (f) 8,708 AAA Aaa 2,265 Chicago, Illinois, Park District, GO, Refunding, Series B, 5.75% due 1/01/2015 (e) 2,413 AAA Aaa 1,500 Chicago, Illinois, Park District, GO, Series A, 5.75% due 1/01/2016 (e) 1,590 AAA Aaa 3,210 Cicero, Illinois, GO, Refunding (Corporate Purpose), 6% due 12/01/2028 (f) 3,439 NR* Aaa 7,000 Decatur, Illinois, GO, Refunding, 6% due 3/01/2025 (e) 7,364 AA Aa1 50 Illinois HDA, Residential Mortgage Revenue Bonds, RIB, AMT, 10.525% due 2/01/2018 (g) 53 Illinois State, GO, 1st Series (f): AAA Aaa 8,890 5.75% due 12/01/2015 9,517 AAA Aaa 3,745 5.75% due 12/01/2016 3,989 AAA Aaa 4,000 5.75% due 12/01/2017 4,238 AAA Aa2 3,000 Illinois State, Sales Tax Revenue Bonds, 6% due 6/15/2020 3,226 AA+ Aa1 2,000 Lake County, Illinois, Forest Preservation District, GO (Land Acquisition and Development), 5.75% due 12/15/2016 2,131 NR* A2 4,400 Southwestern Illinois Development Authority, Sewer Facilities Revenue Bonds (Monsanto Company Project), AMT, 7.30% due 7/15/2015 4,803 Indiana--1.4% AAA NR* 2,000 Indiana Bond Bank Revenue Bonds (State Revolving Fund Program), Series A, 5.875% due 8/01/2012 2,206 NR* NR* 2,595 Indiana State Educational Facilities Authority, Revenue Refunding Bonds (Saint Joseph's College Project), 7% due 10/01/2029 2,714 AA NR* 9,100 Indianapolis, Indiana, Local Public Improvement Bond Bank Revenue Refunding Bonds, Series D, 6.75% due 2/01/2020 9,694 Iowa--1.1% AAA Aaa 1,000 Iowa City, Iowa, Sewer Revenue Bonds, 5.75% due 7/01/2021 (f) 1,026 NR* NR* 9,000 Iowa Finance Authority, Health Care Facilities Revenue Refunding Bonds (Care Initiatives Project), 9.25% due 7/01/2025 10,731 Kansas--2.3% Wichita, Kansas, Hospital Revenue Refunding Bonds, RIB (f)(g): AAA Aaa 12,000 Series III-A, 9.705% due 10/20/2017 13,035 AAA Aaa 10,000 Series III-B, 9.908% due 10/21/2022 10,875
Page 11 Merrill Lynch Municipal Bond Fund, Inc., June 30, 2001
SCHEDULE OF INVESTMENTS (continued) (in Thousands) Municipal Bonds National Portfolio S&P Moody's Face STATE Ratings Ratings Amount Issue Value Kentucky--0.8% A- A3 $ 8,000 Perry County, Kentucky, Solid Waste Disposal Revenue Bonds (TJ International Project), AMT, 7% due 6/01/2024 $ 8,419 Louisiana--4.8% NR* A3 34,000 Lake Charles, Louisiana, Harbor and Terminal District, Port Facilities Revenue Refunding Bonds (Trunkline Long Company Project), 7.75% due 8/15/2022 36,228 BB- NR* 13,000 Port New Orleans, Louisiana, IDR, Refunding (Continental Grain Company Project), 7.50% due 7/01/2013 13,166 Maine--1.1% BBB Baa3 3,445 Maine Finance Authority, Solid Waste Recycling Facilities Revenue Bonds (Great Northern Paper Project-- Bowater), AMT, 7.75% due 10/01/2022 3,591 AA NR* 7,500 Maine State Housing Authority, Mortgage Purpose Revenue Bonds, DRIVERS, AMT, Series 170, 8.91% due 11/15/2028 (g) 7,839 Massachusetts--2.3% AA- Aa2 15,000 Massachusetts State, GO, Consolidated Loan, Series A, 6% due 2/01/2010 (i) 16,930 NR* Ca 10,488 Massachusetts State Health and Educational Facilities Authority, Revenue Refunding Bonds (New England Memorial Hospital), Series B, 6.25% due 7/01/2023 (j) 1,468 AAA Aaa 5,430 Route 3 North Transit Improvement Association, Massachusetts, Lease Revenue Bonds, 5.75% due 6/15/2018 (f) 5,749 Michigan--0.3% AAA Aaa 2,675 Michigan Municipal Bond Authority Revenue Bonds (Drinking Water Revolving Fund), 5.875% due 10/01/2016 2,909 Minnesota--0.3% AA+ NR* 3,000 Rochester, Minnesota, Health Care Facilities Revenue Bonds, IRS, Series H, 8.827% due 11/15/2015 (g) 3,229 Mississippi--0.3% NR* Aaa 3,085 Mississippi Home Corporation, S/F Mortgage Revenue Bonds (Access Program), AMT, Series A, 6.90% due 6/01/2024 (d) 3,292 Missouri--0.7% Fenton, Missouri, Tax Increment Revenue Refunding and Improvement Bonds (Gravois Bluffs): NR* NR* 2,670 6.75% due 10/01/2015 2,705 NR* NR* 4,000 7% due 10/01/2021 4,077 Nevada--2.4% AAA Aaa 8,125 Clark County, Nevada, Airport Revenue Bonds, Sub-Lien, Series A, 6% due 7/01/2029 (f) 8,706 Las Vegas, Nevada, Local Improvement Bonds, Special Assessment, Special Improvement District Number 808, Summerlin: NR* NR* 1,775 5.875% due 6/01/2009 1,783 NR* NR* 2,050 6.125% due 6/01/2012 2,046 NR* NR* 2,285 6.25% due 6/01/2013 2,285 Sparks, Nevada, Redevelopment Agency, Tax Allocation Revenue Refunding Bonds, Series A, Asset Guaranty: AA NR* 3,110 6% due 1/15/2015 3,301 AA NR* 6,315 6% due 1/15/2023 6,569 New Jersey--4.4% BB Ba2 735 New Jersey EDA, Special Facility Revenue Bonds (Continental Airlines Inc. Project), AMT, 7% due 11/15/2030 753 NR* Aaa 5,000 New Jersey State Transit Corporation, COP, RIB, Series 245, 9.39% due 9/15/2014 (c)(g) 6,126 NR* Aa2 14,690 New Jersey State Transportation Trust Fund Authority, Revenue Refunding Bonds, RIB, Series 204, 9.39% due 6/15/2015 (g) 17,995 AA Aa2 3,000 New Jersey State Transportation Trust Fund Authority, Transportation System Revenue Bonds, Series A, 6% due 6/15/2019 3,264 New Jersey State Turnpike Authority, Turnpike Revenue Refunding Bonds (f)(g): NR* Aaa 10,000 DRIVERS, Series 155, 8.725% due 1/01/2018 11,300 NR* Aaa 5,000 RIB, Series 315, 8.64% due 1/01/2018 5,650 New York--17.8% AAA Aaa 11,000 Metropolitan Transportation Authority, New York, Commuter Facilities, Service Contract Revenue Refunding Bonds, Series 8, 5.50% due 7/01/2021 (h) 11,410 AAA Aaa 10,000 Metropolitan Transportation Authority, New York, Transit Facilities Revenue Bonds, Series A, 5.625% due 7/01/2025 (f) 10,435 NR* Aaa 10,000 New York City, New York, City Municipal Water Finance Authority, Water and Sewer System Revenue Bonds, RIB, Series 158, 8.68% due 6/15/2026 (f)(g) 10,954 AAA Aaa 3,000 New York City, New York, City Transit Authority, Triborough Metropolitan Transportation Authority, COP, 5.75% due 1/01/2020 (c) 3,192 New York City, New York, City Transitional Finance Authority Revenue Bonds, Future Tax Secured: AA+ Aa2 10,915 Series A, 6% due 8/15/2029 11,747 AA+ Aa2 12,000 Series B, 6% due 11/15/2024 13,000 AA+ Aa2 5,000 Series B, 6% due 11/15/2029 5,406 New York City, New York, City Transitional Finance Authority, Revenue Refunding Bonds, Future Tax Secured, Series C: AA+ Aa2 5,000 5.875% due 11/01/2014 5,499 AA+ Aa2 13,630 5.875% due 11/01/2015 14,908 AA+ Aa2 8,000 5.875% due 11/01/2017 8,678 New York City, New York, GO: A A2 4,000 Series B, 8.25% due 6/01/2006 4,759 AAA Aaa 10,000 Series B, 5.875% due 8/01/2015 (f) 10,957 A Aaa 5,495 Series F, 8.25% due 11/15/2001 (i) 5,690 New York City, New York, GO, Refunding: A A2 6,600 Series A, 6% due 5/15/2021 7,135 A A2 10,000 Series A, 6.25% due 5/15/2026 10,944 A Aaa 10,000 Series B, 7.75% due 2/01/2002 (i) 10,439 A Aaa 4,500 Series B, 7.75% due 2/01/2002 (i) 4,698 AAA Aaa 4,000 Series C, 5.875% due 2/01/2016 (e) 4,254 AAA Aaa 15,000 Series G, 5.75% due 2/01/2014 (f) 15,888 A A2 1,000 Series H, 6% due 8/01/2017 1,066 AA- A3 5,000 New York State Dormitory Authority, Revenue Refunding Bonds (State University Educational Facilities), Series A, 7.50% due 5/15/2013 6,310 AAA Aaa 3,400 New York State Environmental Facilities Corporation, State Clean Water and Drinking, Revolving Funds Revenue Bonds (Pooled Loan Program), Series B, 5.875% due 1/15/2019 3,658 NR* Aa1 1,000 New York State Mortgage Agency, Homeowner Mortgage Revenue Refunding Bonds, Series 95, 5.50% due 10/01/2017 1,027 AAA Aaa 2,700 New York State Thruway Authority, Highway and Bridge Trust Fund Revenue Bonds, Series A, 5.875% due 4/01/2019 (h) 2,907 North Carolina--0.7% BBB Baa3 4,000 North Carolina Eastern Municipal Power Agency, Power System Revenue Bonds, Series D, 6.75% due 1/01/2026 4,248 NR* NR* 2,500 North Carolina Medical Care Commission, Health Care Facilities, First Mortgage Revenue Bonds (Presbyterian Homes Project), 6.875% due 10/01/2021 2,600 A1 VMIG1++ 100 North Carolina Medical Care Commission, Hospital Revenue Bonds (Pooled Equipment Financing Project), ACES, 2.75% due 12/01/2025 (a)(f) 100 Ohio--2.6% NR* Aaa 9,975 Ohio HFA, Residential Mortgage Revenue Bonds, Series A-1, 6.35% due 9/01/2031 (d) 10,507 AAA Aaa 4,500 Ohio HFA, S/F Mortgage Revenue Bonds, AMT, RIB, Series B, 10.733% due 3/31/2031 (d)(g) 4,691 AAA Aaa 8,000 Ohio State Air Quality Development Authority, Revenue Refunding Bonds (Dayton Power & Light Company), Series B, 6.40% due 8/15/2027 (f) 8,372 AAA Aaa 3,005 Toledo-Lucas County, Ohio, Lodging Tax Revenue Refunding Bonds (Convention Center Project), 5.70% due 10/01/2015 (f) 3,173 Oregon--1.7% AAA Aaa 2,485 Jackson County, Oregon, Central Point School District Number 006, GO, 5.75% due 6/15/2017 (e) 2,633 AAA Aaa 9,175 Oregon State Department of Administrative Services, COP, Series A, 6% due 5/01/2010 (c)(i) 10,425 NR* Aaa 3,190 Portland, Oregon, Urban Renewal and Redevelopment Revenue Bonds (South Park Blocks), Series A, 5.75% due 6/15/2018 (c) 3,389 NR* Aaa 1,000 Portland, Oregon, Urban Renewal and Redevelopment Revenue Refunding Bonds (Downtown Waterfront), Series A, 5.75% due 6/15/2018 (c) 1,061 Pennsylvania--3.6% AAA Aaa 7,000 Allegheny County, Pennsylvania, Port Authority, Special Transportation Revenue Bonds, 6.125% due 3/01/2009 (f)(i) 7,931 AAA Aaa 2,220 Allegheny County, Pennsylvania, Sanitation Authority, Sewer Revenue Bonds, 5.75% due 12/01/2017 (f) 2,372 AAA Aaa 13,000 Erie, Pennsylvania, School District, GO, 5.80% due 9/01/2010 (c)(i) 14,517 AA+ Aa2 8,800 Pennsylvania HFA Revenue Refunding Bonds, RIB, AMT, 10.725% due 10/03/2023 (g) 9,207
Page 12 Merrill Lynch Municipal Bond Fund, Inc., June 30, 2001
SCHEDULE OF INVESTMENTS (concluded) (in Thousands) Municipal Bonds National Portfolio S&P Moody's Face STATE Ratings Ratings Amount Issue Value Pennsylvania AAA NR* $ 2,000 Pennsylvania State Higher Educational Facilities Authority, (concluded) College and University Revenue Bonds (Eastern College), Series B, 8% due 10/15/2006 (i) $ 2,434 NR* NR* 1,400 Philadelphia, Pennsylvania, Authority for Industrial Developement, Health Care Facility Revenue Refunding Bonds (Paul's Run), Series A, 5.75% due 5/15/2018 1,212 Rhode Island--1.8% AA+ Aa2 8,075 Rhode Island Housing and Mortgage Finance Corporation Revenue Bonds, DRIVERS, AMT, Series 156, 8.824% due 4/01/2029 (g) 8,604 AAA Aaa 6,815 Rhode Island State Economic Development Corporation, Airport Revenue Bonds, Series B, 6% due 7/01/2028 (e) 7,294 AA NR* 1,000 Rhode Island State Economic Development Corporation Revenue Bonds (Providence Place Mall), 6.125% due 7/01/2020 1,055 AAA Aaa 2,000 Rhode Island State, GO (Consolidated Capital Development Loan), Series A, 5.75% due 7/15/2013 (e) 2,183 South Dakota--0.4% NR* Aaa 3,750 Pierre, South Dakota, School District Number 32-2, GO, 5.75% due 8/01/2020 (h) 3,928 Tennessee--1.6% Chattanooga, Tennessee, Industrial Development Board, Lease Rent Revenue Bonds (Southside Redevelopment Corporation) (c): AAA Aaa 4,485 5.75% due 10/01/2017 4,759 AAA Aaa 3,740 5.75% due 10/01/2018 3,954 AA Aa2 5,000 Metropolitan Government of Nashville and Davidson County, Tennessee, GO, 5.875% due 5/15/2026 5,202 NR* Aaa 2,500 Robertson and Sumner Counties, Tennessee, White House Utility District, Water Revenue Bonds, 6% due 1/01/2026 (h) 2,673 Texas--5.6% Austin, Texas, Convention Center Revenue Bonds (Convention Enterprises Inc.), First Tier, Series A: BBB- Baa3 4,300 6.60% due 1/01/2021 4,349 BBB- Baa3 1,000 6.70% due 1/01/2028 1,015 AAA Aaa 9,340 Austin, Texas, Independent School District, GO, Refunding, 5.75% due 8/01/2006 (i) 10,198 AAA Aaa 5,300 Austin, Texas, Revenue Bonds (Town Lake Community Events Center Venue), 6.20% due 11/15/2029 (e) 5,693 AAA Aaa 5,000 Bexar County, Texas, Revenue Bonds (Venue Project), 5.75% due 8/15/2012 (f) 5,405 AAA NR* 9,125 Dallas-Fort Worth, Texas, International Airport Revenue Bonds, DRIVERS, AMT, Series 201, 8.95% due 11/01/2024 (e)(g) 9,976 BBB Baa1 7,250 Gulf Coast Waste Disposal Authority, Texas, Revenue Bonds (Champion International Corporation), AMT, 7.45% due 5/01/2026 7,495 AAA Aaa 2,860 Jefferson County, Texas, GO, Certificates of Obligation, 6% due 8/01/2019 (h) 3,075 AAA Aaa 2,000 Lower Colorado River Authority, Texas, Revenue Refunding Bonds, Series A, 5.875% due 5/15/2015 (h) 2,151 Texas State Public Finance Authority, Building Revenue Bonds (h): AAA Aaa 2,100 (General Services Commission Project), Series A, 6% due 2/01/2020 2,247 AAA Aaa 1,000 (State Preservation Project), Series B, 6% due 8/01/2015 1,082 AAA Aaa 4,930 Upper Trinity Regional Water District, Texas, Water Revenue Bonds (Regional Treated Water Supply System), Series A, 6% due 8/01/2020 (e) 5,290 Utah--1.3% NR* NR* 2,000 Tooele County, Utah, PCR, Refunding (Laidlaw Environmental), AMT, Series A, 7.55% due 7/01/2027 (j) 55 AAA Aaa 12,000 Weber County, Utah, Municipal Building Authority, Lease Revenue Bonds, 7.50% due 12/15/2004 (i) 13,786 Virginia--0.3% NR* NR* 5,000 Peninsula Ports Authority, Virginia, Revenue Refunding Bonds (Port Facility--Zeigler Coal), 6.90% due 5/02/2022 (j) 3,250 Washington--0.9% AAA Aaa 2,065 Kitsap County, Washington, GO, 5.875% due 7/01/2020 (c) 2,186 AAA Aaa 2,500 Port Seattle, Washington, Special Facilities Revenue Bonds, Series A, 6% due 9/01/2029 (f) 2,668 AAA Aaa 3,010 Seattle, Washington, Drain and Wastewater Utility Revenue Bonds, 5.75% due 11/01/2022 (f) 3,149 AAA Aaa 1,625 University of Washington, University Revenue Bonds (Student Facilities Fee), 5.875% due 6/01/2017 (h) 1,735 West Virginia--0.8% A- A3 7,500 Upshur County, West Virginia, Solid Waste Disposal Revenue Bonds (TJ International Project), AMT, 7% due 7/15/2025 7,907 Wisconsin--4.7% NR* Aaa 2,050 Waterford, Wisconsin, Graded Joint School District Number 1, GO, Refunding, 5.75% due 4/01/2018 (e) 2,158 AAA NR* 11,080 Wisconsin Center District, Wisconsin Tax Revenue Bonds, Series B, 5.75% due 12/15/2006 (i) 12,255 Wisconsin Housing and EDA, Home Ownership Revenue Refunding Bonds: NR* Aa2 21,150 RITR, AMT, Series 18, 8.712% due 9/01/2028 (g) 22,449 AA Aaa 1,680 Series A, 7.10% due 3/01/2023 1,727 AAA Aaa 10,000 Wisconsin State, GO, AMT, Series B, 6.20% due 11/01/2026 (f) 10,435 Wyoming--0.9% AAA Aaa 8,400 Sweetwater County, Wyoming, PCR, Refunding (Idaho Power Company Project), Series A, 6.05% due 7/15/2026 (f) 8,857 Total Investments (Cost--$987,831)--98.6% 1,022,495 Other Assets Less Liabilities--1.4% 14,744 ---------- Net Assets--100.0% $1,037,239 ==========
(a) The interest rate is subject to change periodically based upon prevailing market rates. The interest rate shown is the rate in effect at June 30, 2001. (b) FHA Insured. (c) AMBAC Insured. (d) GNMA Collateralized. (e) FGIC Insured. (f) MBIA Insured. (g) The interest rate is subject to change periodically and inversely based upon prevailing market rates. The interest rate shown is the rate in effect at June 30, 2001. (h) FSA Insured. (i) Prerefunded. (j) Non-income producing security. *Not Rated. ++Highest short-term rating issued by Moody's Investors Service, Inc. Ratings of issues shown have not been audited by Deloitte & Touche LLP. See Notes to Financial Statements. Page 13
SCHEDULE OF INVESTMENTS (in Thousands) Municipal Bonds Limited Maturity Portfolio S&P Moody's Face STATE Ratings Ratings Amount Issue Value Alabama--3.0% AA Aa3 $ 7,675 Alabama State Public School and College Authority, Capital Improvement Revenue Bonds, Series D, 5% due 8/01/2003 $ 7,958 Arizona--3.6% AAA NR* 4,720 Phoenix, Arizona, Civic Improvement Corporation, Wastewater System, Lease Revenue Bonds, 6.125% due 7/01/2003 (a) 5,082 AAA Aaa 4,285 Pima County, Arizona, Unified School District Number 6, Marana, GO, Series A, 5.75% due 7/01/2003 (a)(f) 4,544 California--9.9% A1+ VMIG1++ 4,800 California Infrastructure and Economic Development Bank, Revenue Refunding Bonds (Independent System Operation Corporation Project), VRDN, Series A, 3.15% due 4/01/2008 (b)(d) 4,800 A1+ NR* 8,300 California Pollution Control Financing Authority, PCR, Refunding (Pacific Gas and Electric), VRDN, AMT, Series B, 3.60% due 11/01/2026 (b) 8,300 A1+ A1 4,000 Chula Vista, California, IDR, Refunding (San Diego Gas & Electric Co.), VRDN, AMT, Series A, 6.75% due 3/01/2023 (b) 4,108 SP1+ MIG1++ 5,000 Sacramento County, California, TRAN, 5% due 10/04/2001 5,030 SP1+ MIG1++ 4,000 San Diego, California, Unified School District, TRAN, Series A, 5.25% due 10/04/2001 4,026 Connecticut--2.5% Connecticut State Resource Recovery Authority, Resource Recovery Revenue Refunding Bonds (Bridgeport Resco Company LP Project): A+ A2 2,500 5.25% due 1/01/2002 2,527 A+ A2 4,000 5% due 1/01/2003 4,082 Delaware--2.1% AAA Aaa 5,500 Delaware State, GO, Series A, 5% due 4/01/2002 5,598
Page 14 Merrill Lynch Municipal Bond Fund, Inc., June 30, 2001
SCHEDULE OF INVESTMENTS (concluded) (in Thousands) Municipal Bonds Limited Maturity Portfolio S&P Moody's Face STATE Ratings Ratings Amount Issue Value Georgia--1.3% AA- Aa2 $ 3,500 Cherokee County, Georgia, GO, 4.25% due 8/01/2003 $ 3,577 Hawaii--1.4% AAA Aaa 3,585 Hawaii State, GO, Series CT, 5.25% due 9/01/2003 (e) 3,739 Illinois--16.9% Chicago, Illinois, Public Building Commission, Building Revenue Bonds, Series C (f): AAA Aaa 5,000 5.125% due 2/01/2003 5,147 AAA Aaa 5,000 5.125% due 2/01/2004 5,196 AAA NR* 5,000 Chicago, Illinois, Skyway Toll Bridge Revenue Refunding Bonds, 6.75% due 1/01/2004 (a) 5,491 AAA Aaa 12,000 Cook County, Illinois, GO, Series A, 6.6% due 11/15/2002 (a)(d) 12,822 AAA Aaa 2,255 Du Page County, Illinois, Transportation Revenue Refunding Bonds, 5.25% due 1/01/2005 (e) 2,367 AA Aa2 3,500 Illinois State, GO, 4% due 3/01/2002 3,531 AAA Aaa 5,000 Illinois State Toll Highway Authority, Toll Highway Revenue Refunding Bonds, Series A, 5.50% due 1/01/2004 (f) 5,235 AAA Aaa 5,000 Illinois Student Assistance Commission, Student Loan Revenue Refunding Bonds, Senior Series WW, 4.50% due 9/01/2002 5,089 Indiana--1.1% AAA Aaa 3,000 Indianapolis, Indiana, Airport Authority Revenue Refunding Bonds, AMT, Series A, 4.50% due 7/01/2001 (f) 3,000 Kansas--4.1% A2 A2 3,500 Burlington, Kansas, Environmental Improvement Revenue Refunding Bonds (Kansas City Power and Light Company Project), Series D, 4.35% due 9/01/2001 (b) 3,503 Kansas State Development Finance Authority Revenue Bonds, Board of Regents (Rehabilitation Center), Series G-2 (c): AAA Aaa 4,000 5% due 10/01/2001 4,024 AAA Aaa 3,250 5.50% due 10/01/2002 3,358 Kentucky--1.9% AAA Aaa 5,000 Carrollton and Henderson, Kentucky, Public Energy Authority, Gas Revenue Bonds (Kentucky Trust), Series A, 4.50% due 1/01/2002 (e) 5,008 Maryland--1.6% AAA Aaa 4,050 Washington Suburban Sanitation District, Maryland, Water Supply, GO, Refunding, 4.125% due 6/01/2004 4,146 Massachusetts--3.1% AAA Aaa 160 Massachusetts Education Loan Authority, Education Loan Revenue Refunding Bonds, AMT, Issue E, Series B, 5.50% due 7/01/2001 (c) 160 AA- Aa2 750 Massachusetts State, GO, Refunding, Series B, 6.25% due 8/01/2001 752 BBB NR* 2,925 Massachusetts State Industrial Finance Agency, Resource Recovery Revenue Refunding Bonds (Ogden Haverhill Associates), Series A, 4.50% due 12/01/2001 2,930 NR* Aaa 4,385 New England Education Loan Marketing Corporation, Massachusetts, Student Loan Revenue Refunding Bonds, Issue A, 5.80% due 3/01/2002 4,474 Michigan--1.1% AAA Aaa 105 Chelsea, Michigan, School District, GO, 6.75% due 5/01/2002 (f) 109 AAA Aaa 250 Dearborn, Michigan, Economic Development Corporation, Hospital Revenue Bonds (Oakwood Obligated Group), Series A, 6.95% due 8/15/2001 (a)(d) 256 AAA Aaa 2,250 Michigan State, GO, Refunding, 5% due 12/01/2004 2,365 NR* Aaa 100 Michigan State Hospital Finance Authority Revenue Bonds (McLaren Obligated Group), Series A, 7.50% due 9/15/2001 (a) 103 Minnesota--0.8% AAA Aaa 2,025 Metropolitan Council, Minnesota, Minneapolis-Saint Paul Metropolitan Area Transit, GO, Series A, 5% due 2/01/2003 2,084 Nebraska--4.4% AAA Aaa 2,575 American Public Energy Agency, Nebraska, Gas Supply Revenue Bonds (Nebraska Public Gas Agency Project), Series A, 4.50% due 6/01/2002 (c) 2,582 AAA Aaa 8,750 Nebraska Public Power District Revenue Refunding Bonds, Series A, 5.25% due 1/01/2004 (d) 9,125 New Hampshire--2.8% NR* NR* 7,500 New Hampshire State Business Finance Authority, PCR, Refunding,(UTD Illuminating), VRDN, AMT, Series A, 4.35% due 2/01/2002 (b) 7,511 New Jersey--2.0% AA+ Aa1 4,900 New Jersey State, GO, Refunding, Series D, 5.40% due 2/15/2003 5,082 AAA Aaa 125 Somerset County, New Jersey, GO, 5.875% due 12/01/2001 127 New Mexico--0.8% AA Aa3 2,000 Albuquerque, New Mexico, Joint Water and Sewer System--0.8% Revenue Refunding Bonds, Series A, 4.40% due 7/01/2003 2,047 New York--4.9% A- Baa1 4,000 Long Island Power Authority, New York, Electric System Revenue Refunding Bonds, Series A, 5.25% due 12/01/2002 4,122 A A2 3,200 New York City, New York, GO, Refunding, Series G, 4.30% due 8/01/2002 3,252 A Aaa 4,615 New York City, New York, GO, Series C, Sub-Series C-1, 7.5% due 8/01/2002 (a) 4,917 AAA Aaa 600 New York State Local Government Assistance Corporation Revenue Bonds, Series D, 7% due 4/01/2002 (a) 631 North Carolina--1.7% AAA Aaa 4,500 North Carolina State, Public School Building, GO, 4.60% due 4/01/2004 4,644 Ohio--6.4% AAA Aaa 2,500 Cincinnati, Ohio, City School District, GO, TAN, 5.50% due 12/01/2003 (c) 2,622 AAA Aaa 6,990 Columbus, Ohio, GO, Series 2, 5% due 6/15/2002 7,146 Ohio State, GO, Highway Capital Improvement: AAA Aa1 2,000 Series C, 4.75% due 5/01/2005 2,081 AAA Aa1 5,000 Series F, 5% due 5/01/2005 5,247 Oklahoma--0.9% NR* Aaa 2,365 Midwest City, Oklahoma, Municipal Authority, Capital Improvement Revenue Bonds, 4.55% due 6/01/2005 (e) 2,437 Oregon--1.8% AA+ Aa2 4,815 Tri-County, Oregon, Metropolitan Transportation District, GO, Refunding (Light Rail Extension), Series A, 4% due 7/01/2003 4,894 Pennsylvania--1.5% NR* MIG1++ 4,000 North Wales, Pennsylvania, Water Authority Revenue Bonds (Rural Water Projects), 5.125% due 9/01/2001 4,016 South Carolina--0.4% AAA Aaa 1,000 South Carolina State Highway, GO, Series B, 5.25% due 4/01/2005 1,058 Tennessee--2.2% AA+ Aa1 5,605 Tennessee State, GO, Refunding, Series B, 5.50% due 5/01/2004 5,918 Texas--7.0% AA Aa2 6,075 Fort Worth, Texas, Water and Sewer Revenue Refunding and Improvement Bonds, 5.50% due 2/15/2004 6,376 AAA Aaa 2,445 Garland, Texas, Independent School District, GO, Series A, 6% due 2/15/2002 (a) 2,495 AA Aa1 5,750 Texas State, Texas Public Finance Authority, GO, Refunding, Series B, 6% due 10/01/2004 6,187 AA Aa1 3,600 Texas State University System Revenue Bonds (Constitutional Appropriation), 4.75% due 8/15/2001 3,610 Virginia--1.3% AA A1 3,330 Richmond, Virginia, GO, Equipment Notes, 4.25% due 5/15/2002 3,368 Washington--3.6% AA+ Aa1 1,900 Seattle, Washington, GO, Refunding, 4.50% due 7/01/2001 1,900 AAA Aaa 2,000 Snohomish County, Washington, Public Utility District Number 001, Electric Revenue Refunding Bonds, 5% due 12/01/2003 (e) 2,082 AAA Aaa 3,195 Washington State, GO, Refunding, Series R-A, 5.25% due 9/01/2004 (e) 3,361 AA- Aa1 2,275 Washington State Public Power Supply System Revenue Refunding Bonds (Nuclear Project Number 3), Series A, 5% due 7/01/2003 2,349 Total Investments (Cost--$251,815)--96.1% 255,708 Other Assets Less Liabilities--3.9% 10,474 ---------- Net Assets--100.0% $ 266,182 ==========
(a) Prerefunded. (b) The interest rate is subject to change periodically based upon prevailing market rates. The interest rate shown is the rate in effect at June 30, 2001. (c) AMBAC Insured. (d) MBIA Insured. (e) FSA Insured. (f) FGIC Insured. *Not Rated. ++Highest short-term rating issued by Moody's Investors Service,Inc. Ratings of issues shown have not been audited by Deloitte & ToucheLLP. See Notes to Financial Statements. Page 15 Merrill Lynch Municipal Bond Fund, Inc., June 30, 2001 STATEMENTS OF ASSETS AND LIABILITIES
Limited Insured National Maturity As of June 30, 2001 Portfolio Portfolio Portfolio Assets: Investments, at value* $1,277,691,198 $1,022,495,169 $ 255,708,077 Cash 1,879,474 82,200 62,938 Receivables: Interest 20,553,561 16,503,633 4,523,719 Securities sold 3,763,261 4,841,244 7,073,700 Capital shares sold 2,732,874 1,763,332 49,995 Variation margin 425,000 -- -- Prepaid registration fees and other assets 807,446 152,205 63,396 -------------- -------------- -------------- Total assets 1,307,852,814 1,045,837,783 267,481,825 -------------- -------------- -------------- Liabilities: Payables: Securities purchased -- 5,000,000 -- Capital shares redeemed 1,653,034 1,964,699 1,008,398 Dividends to shareholders 1,094,619 875,259 165,134 Investment adviser 368,771 381,027 68,936 Distributor 182,796 193,744 13,169 Accrued expenses and other liabilities 166,395 184,274 44,566 -------------- -------------- -------------- Total liabilities 3,465,615 8,599,003 1,300,203 -------------- -------------- -------------- Net Assets: Net assets $1,304,387,199 $1,037,238,780 $ 266,181,622 ============== ============== ============== Net Assets Class A Common Stock, $.10 par value++ $ 11,974,990 $ 6,444,612 $ 1,904,692 Consist of: Class B Common Stock, $.10 par value++++ 2,911,983 2,244,602 313,077 Class C Common Stock, $.10 par value++++++ 187,295 314,246 6,012 Class D Common Stock, $.10 par value++++++++ 1,895,412 1,222,862 423,695 Paid-in capital in excess of par 1,269,936,596 1,039,881,233 261,989,271 Accumulated realized capital losses on investments--net (26,786,083) (46,937,416) (2,043,192) Accumulated distributions in excess of realized capital gains on investments--net (22,021,059) (596,027) (304,677) Unrealized appreciation on investments--net 66,288,065 34,664,668 3,892,744 -------------- -------------- -------------- Net assets $1,304,387,199 $1,037,238,780 $ 266,181,622 ============== ============== ============== Net Asset Class A: Value: Net assets $ 920,597,114 $ 653,685,063 $ 191,480,421 ============== ============== ============== Shares outstanding 119,749,898 64,446,120 19,046,921 ============== ============== ============== Net asset value and redemption price per share $ 7.69 $ 10.14 $ 10.05 ============== ============== ============== Class B: Net assets $ 223,710,594 $ 227,592,229 $ 31,480,018 ============== ============== ============== Shares outstanding 29,119,830 22,446,024 3,130,768 ============== ============== ============== Net asset value and redemption price per share $ 7.68 $ 10.14 $ 10.06 ============== ============== ============== Class C: Net assets $ 14,391,766 $ 31,879,825 $ 602,062 ============== ============== ============== Shares outstanding 1,872,946 3,142,464 60,117 ============== ============== ============== Net asset value and redemption price per share $ 7.68 $ 10.14 $ 10.01 ============== ============== ============== Class D: Net assets $ 145,687,725 $ 124,081,663 $ 42,619,121 ============== ============== ============== Shares outstanding 18,954,121 12,228,620 4,236,955 ============== ============== ============== Net asset value and redemption price per share $ 7.69 $ 10.15 $ 10.06 ============== ============== ============== *Identified cost $1,211,867,977 $ 987,830,501 $ 251,815,333 ============== ============== ============== ++Authorized shares--Class A 500,000,000 375,000,000 150,000,000 ============== ============== ============== ++++Authorized shares--Class B 375,000,000 375,000,000 150,000,000 ============== ============== ============== ++++++Authorized shares--Class C 375,000,000 375,000,000 150,000,000 ============== ============== ============== ++++++++Authorized shares--Class D 500,000,000 375,000,000 150,000,000 ============== ============== ==============
See Notes to Financial Statements. Page 16 STATEMENTS OF OPERATIONS
Limited Insured National Maturity For the Year Ended June 30, 2001 Portfolio Portfolio Portfolio Investment Interest and amortization of premium Income: and discount earned $ 74,817,055 $ 62,986,491 $ 11,918,977 -------------- -------------- -------------- Expenses: Investment advisory fees 4,865,278 5,011,968 922,155 Account maintenance and distribution fees --Class B 1,858,159 1,800,970 108,007 Accounting services 309,832 246,199 71,695 Transfer agent fees--Class A 295,542 270,993 43,655 Account maintenance fees--Class D 297,399 261,323 40,287 Account maintenance and distribution fees --Class C 102,801 238,409 1,540 Custodian fees 112,957 97,245 27,479 Transfer agent fees--Class B 97,663 117,894 9,040 Printing and shareholder reports 87,608 74,299 40,850 Professional fees 64,347 80,787 19,915 Registration fees 36,442 47,480 40,949 Transfer agent fees--Class D 37,876 42,582 8,731 Pricing services 41,335 27,057 13,723 Directors' fees and expenses 14,457 8,674 2,840 Transfer agent fees--Class C 5,089 14,391 152 Other 44,402 41,243 12,362 -------------- -------------- -------------- Total expenses 8,271,187 8,381,514 1,363,380 -------------- -------------- -------------- Investment income--net 66,545,868 54,604,977 10,555,597 -------------- -------------- -------------- Realized & Realized gain (loss) on investments--net 30,002,263 25,290,223 (94,770) Unrealized Change in unrealized appreciation/ Gain( Loss) on depreciation on investments--net 28,039,608 21,630,793 5,527,210 Investments -------------- -------------- -------------- --Net: Net Increase in Net Assets Resulting from Operations $ 124,587,739 $ 101,525,993 $ 15,988,037 ============== ============== ==============
See Notes to Financial Statements. Page 17 Merrill Lynch Municipal Bond Fund, Inc., June 30, 2001 STATEMENTS OF CHANGES IN NET ASSETS
Insured Portfolio National Portfolio For the Year For the Year Ended June 30, Ended June 30, Increase (Decrease) in Net Assets: 2001 2000 2001 2000 Operations: Investment income--net $ 66,545,868 $ 77,843,650 $ 54,604,977 $ 65,780,760 Realized gain (loss) on investments --net 30,002,263 (78,541,901) 25,290,223 (62,192,724) Change in unrealized appreciation/ depreciation on investments--net 28,039,608 7,805,843 21,630,793 (8,162,695) -------------- -------------- -------------- -------------- Net increase (decrease) in net assets resulting from operations 124,587,739 7,107,592 101,525,993 (4,574,659) -------------- -------------- -------------- -------------- Dividends & Investment income--net: Distribu- Class A (49,144,606) (57,133,564) (36,633,484) (43,599,153) tions to Class B (10,966,780) (15,325,442) (11,203,855) (15,259,347) Share- Class C (562,694) (646,631) (1,374,445) (1,906,874) holders: Class D (5,871,788) (4,738,013) (5,393,193) (5,015,386) In excess of realized gain on investments--net: Class A -- (15,607,942) -- -- Class B -- (4,878,687) -- -- Class C -- (207,962) -- -- Class D -- (1,326,468) -- -- -------------- -------------- -------------- -------------- Net decrease in net assets resulting from dividends and distributions to shareholders (66,545,868) (99,864,709) (54,604,977) (65,780,760) ============== ============== ============== ============== Capital Net decrease in net assets derived Share from capital share transactions (114,411,068) (275,055,198) (64,099,665) (268,812,275) Transac- ============== ============== ============== ============== tions: Net Assets: Total decrease in net assets (56,369,197) (367,812,315) (17,178,649) (339,167,694) Beginning of year 1,360,756,396 1,728,568,711 1,054,417,429 1,393,585,123 -------------- -------------- -------------- -------------- End of year $1,304,387,199 $1,360,756,396 $1,037,238,780 $1,054,417,429 ============== ============== ============== ==============
Limited Maturity Portfolio For the Year Ended June 30, Increase (Decrease) in Net Assets: 2001 2000 Operations: Investment income--net $ 10,555,597 $ 12,919,927 Realized gain (loss) on investments--net (94,770) (385,160) Change in unrealized appreciation/ depreciation on investments--net 5,527,210 (1,879,787) ------------- ------------- Net increase (decrease) in net assets resulting from operations 15,988,037 10,654,980 ------------- ------------- Dividends & Investment income--net: Distribu- Class A (7,913,125) (9,083,280) tions to Class B (1,094,398) (1,394,083) holders: Class C (15,552) (17,620) Class D (1,532,522) (2,424,944) In excess of realized gain on investments--net: Class A -- -- Class B -- -- Class C -- -- Class D -- -- ------------- ------------- Net decrease in net assets resulting from dividends and distributions to shareholders (10,555,597) (12,919,927) ============= ============= Capital Net decrease in net assets derived from capital share Share transactions (26,812,001) (98,688,194) Transac- ============= ============= tions: Net Assets: Total decrease in net assets (21,379,561) (100,953,141) Beginning of year 287,561,183 388,514,324 ------------- ------------- End of year $ 266,181,622 $ 287,561,183 ============= =============
See Notes to Financial Statements. Page 18 FINANCIAL HIGHLIGHTS The following per share data and ratios have been derived from information provided in the financial statements.
Insured Portfolio Class A For the Year Ended June 30, Increase (Decrease) in Net Asset Value: 2001 2000 1999 1998 1997 Per Share Net asset value, beginning of year $ 7.36 $ 7.79 $ 8.25 $ 8.06 $ 7.91 Operating ---------- ---------- ---------- ---------- ---------- Performance: Investment income--net .39 .40 .41 .43 .45 Realized and unrealized gain (loss) on investments--net .33 (.32) (.27) .20 .15 ---------- ---------- ---------- ---------- ---------- Total from investment operations .72 .08 .14 .63 .60 ---------- ---------- ---------- ---------- ---------- Less dividends and distributions: Investment income--net (.39) (.40) (.41) (.43) (.45) Realized gain on investments--net -- -- (.19) (.01) -- In excess of realized gain in investments--net -- (.11) -- -- -- ---------- ---------- ---------- ---------- ---------- Total dividends and distributions (.39) (.51) (.60) (.44) (.45) ---------- ---------- ---------- ---------- ---------- Net asset value, end of year $ 7.69 $ 7.36 $ 7.79 $ 8.25 $ 8.06 ========== ========== ========== ========== ========== Total Investment Return:* Based on net asset value per share 10.01% 1.21% 1.56% 8.05% 7.72% ========== ========== ========== ========== ========== Ratios to Expenses .45% .43% .42% .42% .44% Average ========== ========== ========== ========== ========== Net Assets: Investment income--net 5.19% 5.33% 5.02% 5.29% 5.58% ========== ========== ========== ========== ========== Supplemental Net assets, end of year (in thousands) $ 920,597 $ 972,420 $1,216,346 $1,377,025 $1,441,785 Data: ========== ========== ========== ========== ========== Portfolio turnover 64.39% 94.08% 86.35% 102.89% 74.40% ========== ========== ========== ========== ==========
The following per share data and ratios have been derived from information provided in the financial statements.
Insured Portfolio Class B For the Year Ended June 30, Increase (Decrease) in Net Asset Value: 2001 2000 1999 1998 1997 Per Share Net asset value, beginning of year $ 7.36 $ 7.78 $ 8.24 $ 8.05 $ 7.91 Operating ---------- ---------- ---------- ---------- ---------- Performance: Investment income--net .34 .34 .35 .37 .39 Realized and unrealized gain (loss) on investments--net .32 (.31) (.27) .20 .14 ---------- ---------- ---------- ---------- ---------- Total from investment operations .66 .03 .08 .57 .53 ---------- ---------- ---------- ---------- ---------- Less dividends and distributions: Investment income--net (.34) (.34) (.35) (.37) (.39) Realized gain on investments--net -- -- (.19) (.01) -- In excess of realized gain in investments--net -- (.11) -- -- -- ---------- ---------- ---------- ---------- ---------- Total dividends and distributions (.34) (.45) (.54) (.38) (.39) ---------- ---------- ---------- ---------- ---------- Net asset value, end of year $ 7.68 $ 7.36 $ 7.78 $ 8.24 $ 8.05 ========== ========== ========== ========== ========== Total Investment Return:* Based on net asset value per share 9.04% .57% .79% 7.24% 6.78% ========== ========== ========== ========== ========== Ratios to Expenses 1.21% 1.19% 1.18% 1.18% 1.19% Average ========== ========== ========== ========== ========== Net Assets: Investment income--net 4.43% 4.56% 4.26% 4.53% 4.82% ========== ========== ========== ========== ========== Supplemental Net assets, end of year (in thousands) $ 223,710 $ 276,154 $ 414,135 $ 498,624 $ 560,105 Data: ========== ========== ========== ========== ========== Portfolio turnover 64.39% 94.08% 86.35% 102.89% 74.40% ========== ========== ========== ========== ==========
Total investment returns exclude the effects of sales charges. See Notes to Financial Statements. Page 19 Merrill Lynch Municipal Bond Fund, Inc., June 30, 2001 FINANCIAL HIGHLIGHTS (continued) The following per share data and ratios have been derived from information provided in the financial statements.
Insured Portfolio Class C For the Year Ended June 30, Increase (Decrease) in Net Asset Value: 2001 2000 1999 1998 1997 Per Share Net asset value, beginning of year $ 7.36 $ 7.78 $ 8.24 $ 8.06 $ 7.91 Operating ---------- ---------- ---------- ---------- ---------- Performance: Investment income--net .33 .34 .34 .37 .38 Realized and unrealized gain (loss) on investments--net .32 (.31) (.27) .19 .15 ---------- ---------- ---------- ---------- ---------- Total from investment operations .65 .03 .07 .56 .53 ---------- ---------- ---------- ---------- ---------- Less dividends and distributions: Investment income--net (.33) (.34) (.34) (.37) (.38) Realized gain on investments--net -- -- (.19) (.01) -- In excess of realized gain in investments--net -- (.11) -- -- -- ---------- ---------- ---------- ---------- ---------- Total dividends and distributions (.33) (.45) (.53) (.38) (.38) ---------- ---------- ---------- ---------- ---------- Net asset value, end of year $ 7.68 $ 7.36 $ 7.78 $ 8.24 $ 8.06 ========== ========== ========== ========== ========== Total Investment Return:* Based on net asset value per share 8.99% .52% .74% 7.05% 6.86% ========== ========== ========== ========== ========== Ratios to Expenses 1.26% 1.24% 1.23% 1.23% 1.25% Average ========== ========== ========== ========== ========== Net Assets: Investment income--net 4.38% 4.52% 4.21% 4.48% 4.77% ========== ========== ========== ========== ========== Supplemental Net assets, end of year (in thousands) $ 14,392 $ 12,856 $ 16,850 $ 14,623 $ 11,922 Data: ========== ========== ========== ========== ========== Portfolio turnover 64.39% 94.08% 86.35% 102.89% 74.40% ========== ========== ========== ========== ==========
The following per share data and ratios have been derived from information provided in the financial statements.
Insured Portfolio Class D For the Year Ended June 30, Increase (Decrease) in Net Asset Value: 2001 2000 1999 1998 1997 Per Share Net asset value, beginning of year $ 7.36 $ 7.79 $ 8.24 $ 8.06 $ 7.91 Operating ---------- ---------- ---------- ---------- ---------- Performance: Investment income--net .37 .38 .39 .41 .43 Realized and unrealized gain (loss) on investments--net .33 (.32) (.26) .19 .15 ---------- ---------- ---------- ---------- ---------- Total from investment operations .70 .06 .13 .60 .58 ---------- ---------- ---------- ---------- ---------- Less dividends and distributions: Investment income--net (.37) (.38) (.39) (.41) (.43) Realized gain on investments--net -- -- (.19) (.01) -- In excess of realized gain in investments--net -- (.11) -- -- -- ---------- ---------- ---------- ---------- ---------- Total dividends and distributions (.37) (.49) (.58) (.42) (.43) ---------- ---------- ---------- ---------- ---------- Net asset value, end of year $ 7.69 $ 7.36 $ 7.79 $ 8.24 $ 8.06 ========== ========== ========== ========== ========== Total Investment Return:* Based on net asset value per share 9.74% .96% 1.43% 7.65% 7.46% ========== ========== ========== ========== ========== Ratios to Expenses .70% .68% .67% .67% .69% Average ========== ========== ========== ========== ========== Net Assets: Investment income--net 4.94% 5.10% 4.77% 5.03% 5.33% ========== ========== ========== ========== ========== Supplemental Net assets, end of year (in thousands) $ 145,688 $ 99,326 $ 81,238 $ 48,706 $ 38,422 Data: ========== ========== ========== ========== ========== Portfolio turnover 64.39% 94.08% 86.35% 102.89% 74.40% ========== ========== ========== ========== ==========
The following per share data and ratios have been derived from information provided in the financial statements.
National Portfolio Class A For the Year Ended June 30, Increase (Decrease) in Net Asset Value: 2001 2000 1999 1998 1997 Per Share Net asset value, beginning of year $ 9.70 $ 10.22 $ 10.64 $ 10.38 $ 10.11 Operating ---------- ---------- ---------- ---------- ---------- Performance: Investment income--net .54 .56 .56 .59 .60 Realized and unrealized gain (loss) on investments--net .44 (.52) (.42) .26 .27 ---------- ---------- ---------- ---------- ---------- Total from investment operations .98 .04 .14 .85 .87 ---------- ---------- ---------- ---------- ---------- Less dividends and distributions: Investment income--net (.54) (.56) (.56) (.59) (.60) In excess of realized gain on investments--net -- -- --++ -- -- ---------- ---------- ---------- ---------- ---------- Total dividends and distributions (.54) (.56) (.56) (.59) (.60) ---------- ---------- ---------- ---------- ---------- Net asset value, end of year $ 10.14 $ 9.70 $ 10.22 $ 10.64 $ 10.38 ========== ========== ========== ========== ========== Total Investment Return:* Based on net asset value per share 10.32% .58% 1.28% 8.36% 8.84% ========== ========== ========== ========== ========== Ratios to Expenses .58% .56% .55% .55% .55% Average ========== ========== ========== ========== ========== Net Assets: Investment income--net 5.42% 5.74% 5.26% 5.58% 5.86% ========== ========== ========== ========== ========== Supplemental Net assets, end of year (in thousands) $ 653,685 $ 682,553 $ 877,841 $ 964,940 $ 983,650 Data: ========== ========== ========== ========== ========== Portfolio turnover 80.88% 108.43% 125.75% 142.02% 99.52% ========== ========== ========== ========== ==========
The following per share data and ratios have been derived from information provided in the financial statements.
National Portfolio Class B For the Year Ended June 30, Increase (Decrease) in Net Asset Value: 2001 2000 1999 1998 1997 Per Share Net asset value, beginning of year $ 9.70 $ 10.21 $ 10.63 $ 10.37 $ 10.11 Operating ---------- ---------- ---------- ---------- ---------- Performance: Investment income--net .46 .49 .48 .51 .52 Realized and unrealized gain (loss) on investments--net .44 (.51) (.42) .26 .26 ---------- ---------- ---------- ---------- ---------- Total from investment operations .90 (.02) .06 .77 .78 ---------- ---------- ---------- ---------- ---------- Less dividends and distributions: Investment income--net (.46) (.49) (.48) (.51) (.52) In excess of realized gain on investments--net -- -- --++ -- -- ---------- ---------- ---------- ---------- ---------- Total dividends and distributions (.46) (.49) (.48) (.51) (.52) ---------- ---------- ---------- ---------- ---------- Net asset value, end of year $ 10.14 $ 9.70 $ 10.21 $ 10.63 $ 10.37 ========== ========== ========== ========== ========== Total Investment Return:* Based on net asset value per share 9.49% (.09%) .51% 7.55% 7.92% ========== ========== ========== ========== ========== Ratios to Expenses 1.34% 1.32% 1.31% 1.31% 1.31% Average ========== ========== ========== ========== ========== Net Assets: Investment income--net 4.67% 4.98% 4.50% 4.82% 5.10% ========== ========== ========== ========== ========== Supplemental Net assets, end of year (in thousands) $ 227,592 $ 254,860 $ 374,642 $ 406,798 $ 415,103 Data: ========== ========== ========== ========== ========== Portfolio turnover 80.88% 108.43% 125.75% 142.02% 99.52% ========== ========== ========== ========== ==========
*Total investment returns exclude the effects of sales charges. ++Amount is less than $.01 per share. See Notes to Financial Statements. Page 20 Merrill Lynch Municipal Bond Fund, Inc., June 30, 2001 FINANCIAL HIGHLIGHTS (continued) The following per share data and ratios have been derived from information provided in the financial statements.
National Portfolio Class C For the Year Ended June 30, Increase (Decrease) in Net Asset Value: 2001 2000 1999 1998 1997 Per Share Net asset value, beginning of year $ 9.71 $ 10.22 $ 10.64 $ 10.38 $ 10.11 Operating ---------- ---------- ---------- ---------- ---------- Performance: Investment income--net .46 .48 .47 .50 .52 Realized and unrealized gain (loss) on investments--net .43 (.51) (.42) .26 .27 ---------- ---------- ---------- ---------- ---------- Total from investment operations .89 (.03) .05 .76 .79 ---------- ---------- ---------- ---------- ---------- Less dividends and distributions: Investment income--net (.46) (.48) (.47) (.50) (.52) In excess of realized gain on Investments--net -- -- --++ -- -- ---------- ---------- ---------- ---------- ---------- Total dividends and distributions (.46) (.48) (.47) (.50) (.52) ---------- ---------- ---------- ---------- ---------- Net asset value, end of year $ 10.14 $ 9.71 $ 10.22 $ 10.64 $ 10.38 ========== ========== ========== ========== ========== Total Investment Return:* Based on net asset value per share 9.33% (.13%) .47% 7.49% 7.97% ========== ========== ========== ========== ========== Ratios to Expenses 1.39% 1.37% 1.36% 1.36% 1.36% Average ========== ========== ========== ========== ========== Net Assets: Investment income--net 4.61% 4.92% 4.45% 4.76% 5.04% ========== ========== ========== ========== ========== Supplemental Net assets, end of year (in thousands) $ 31,880 $ 30,303 $ 47,901 $ 41,087 $ 28,096 Data: ========== ========== ========== ========== ========== Portfolio turnover 80.88% 108.43% 125.75% 142.02% 99.52% ========== ========== ========== ========== ==========
The following per share data and ratios have been derived from information provided in the financial statements.
National Portfolio Class D For the Year Ended June 30, Increase (Decrease) in Net Asset Value: 2001 2000 1999 1998 1997 Per Share Net asset value, beginning of year $ 9.71 $ 10.22 $ 10.64 $ 10.39 $ 10.12 Operating ---------- ---------- ---------- ---------- ---------- Performance: Investment income--net .52 .54 .53 .56 .58 Realized and unrealized gain (loss) on investments--net .44 (.51) (.42) .25 .27 ---------- ---------- ---------- ---------- ---------- Total from investment operations .96 .03 .11 .81 .85 ---------- ---------- ---------- ---------- ---------- Less dividends and distributions: Investment income--net (.52) (.54) (.53) (.56) (.58) In excess of realized gain on investments--net -- -- --++ -- -- ---------- ---------- ---------- ---------- ---------- Total dividends and distributions (.52) (.54) (.53) (.56) (.58) ---------- ---------- ---------- ---------- ---------- Net asset value, end of year $ 10.15 $ 9.71 $ 10.22 $ 10.64 $ 10.39 ========== ========== ========== ========== ========== Total Based on net asset value per share 10.04% .43% 1.03% 7.99% 8.57% Investment ========== ========== ========== ========== ========== Return:* Ratios to Expenses .83% .81% .81% .80% .80% Average ========== ========== ========== ========== ========== Net Assets: Investment income--net 5.16% 5.50% 5.01% 5.32% 5.60% ========== ========== ========== ========== ========== Supplemental Net assets, end of year (in thousands) $ 124,082 $ 86,701 $ 93,201 $ 68,162 $ 51,038 Data: ========== ========== ========== ========== ========== Portfolio turnover 80.88% 108.43% 125.75% 142.02% 99.52% ========== ========== ========== ========== ==========
The following per share data and ratios have been derived from information provided in the financial statements.
Limited Maturity Portfolio Class A For the Year Ended June 30, Increase (Decrease) in Net Asset Value: 2001 2000 1999 1998 1997 Per Share Net asset value, beginning of year $ 9.85 $ 9.91 $ 9.96 $ 9.93 $ 9.91 Operating ---------- ---------- ---------- ---------- ---------- Performance: Investment income--net .39 .38 .37 .39 .39 Realized and unrealized gain (loss) on investments--net .20 (.06) (.04) .03 .04 ---------- ---------- ---------- ---------- ---------- Total from investment operations .59 .32 .33 .42 .43 ---------- ---------- ---------- ---------- ---------- Less dividends and distributions: Investment income--net (.39) (.38) (.37) (.39) (.39) Realized gain on investments--net -- -- -- -- (.02) In excess of realized gain on investments--net -- -- (.01) -- -- ---------- ---------- ---------- ---------- ---------- Total dividends and distributions (.39) (.38) (.38) (.39) (.41) ---------- ---------- ---------- ---------- ---------- Net asset value, end of year $ 10.05 $ 9.85 $ 9.91 $ 9.96 $ 9.93 ========== ========== ========== ========== ========== Total Based on net asset value per share 6.07% 3.31% 3.37% 4.26% 4.40% Investment ========== ========== ========== ========== ========== Return:* Ratios to Expenses .44% .40% .43% .43% .39% Average ========== ========== ========== ========== ========== Net Assets: Investment income--net 3.91% 3.83% 3.75% 3.88% 3.93% ========== ========== ========== ========== ========== Supplemental Net assets, end of year (in thousands) $ 191,481 $ 215,421 $ 261,970 $ 295,641 $ 343,641 Data: ========== ========== ========== ========== ========== Portfolio turnover 51.94% 51.42% 40.28% 72.69% 61.90% ========== ========== ========== ========== ==========
*Total investment returns exclude the effects of sales charges. ++Amount is less than $.01 per share. See Notes to Financial Statements. Page 21 Merrill Lynch Municipal Bond Fund, Inc., June 30, 2001 FINANCIAL HIGHLIGHTS (concluded) The following per share data and ratios have been derived from information provided in the financial statements.
Limited Maturity Portfolio Class B For the Year Ended June 30, Increase (Decrease) in Net Asset Value: 2001 2000 1999 1998 1997 Per Share Net asset value, beginning of year $ 9.86 $ 9.92 $ 9.97 $ 9.94 $ 9.91 Operating ---------- ---------- ---------- ---------- ---------- Performance: Investment income--net .35 .35 .34 .35 .36 Realized and unrealized gain (loss) on investments--net .20 (.06) (.04) .03 .05 ---------- ---------- ---------- ---------- ---------- Total from investment operations .55 .29 .30 .38 .41 ---------- ---------- ---------- ---------- ---------- Less dividends and distributions: Investment income--net (.35) (.35) (.34) (.35) (.36) Realized gain on investments--net -- -- -- -- (.02) In excess of realized gain on investments--net -- -- (.01) -- -- ---------- ---------- ---------- ---------- ---------- Total dividends and distributions (.35) (.35) (.35) (.35) (.38) ---------- ---------- ---------- ---------- ---------- Net asset value, end of year $ 10.06 $ 9.86 $ 9.92 $ 9.97 $ 9.94 ========== ========== ========== ========== ========== Total Based on net asset value per share 5.69% 2.94% 3.01% 3.89% 4.13% Investment ========== ========== ========== ========== ========== Return:* Ratios to Expenses .80% .76% .78% .78% .75% Average ========== ========== ========== ========== ========== Net Assets: Investment income--net 3.55% 3.47% 3.39% 3.43% 3.58% ========== ========== ========== ========== ========== Supplemental Net assets, end of year (in thousands) $ 31,480 $ 32,742 $ 42,930 $ 44,714 $ 54,275 Data: ========== ========== ========== ========== ========== Portfolio turnover 51.94% 51.42% 40.28% 72.69% 61.90% ========== ========== ========== ========== ==========
The following per share data and ratios have been derived from information provided in the financial statements.
Limited Maturity Portfolio Class C For the Year Ended June 30, Increase (Decrease) in Net Asset Value: 2001 2000 1999 1998 1997 Per Share Net asset value, beginning of year $ 9.82 $ 9.88 $ 9.94 $ 9.91 $ 9.88 Operating ---------- ---------- ---------- ---------- ---------- Performance: Investment income--net .35 .34 .34 .35 .35 Realized and unrealized gain (loss) on investments--net .19 (.06) (.05) .03 .05 ---------- ---------- ---------- ---------- ---------- Total from investment operations .54 .28 .29 .38 .40 ---------- ---------- ---------- ---------- ---------- Less dividends and distributions: Investment income--net (.35) (.34) (.34) (.35) (.35) Realized gain on investments--net -- -- -- -- (.02) In excess of realized gain on investments--net -- -- (.01) -- -- ---------- ---------- ---------- ---------- ---------- Total dividends and distributions (.35) (.34) (.35) (.35) (.37) ---------- ---------- ---------- ---------- ---------- Net asset value, end of year $ 10.01 $ 9.82 $ 9.88 $ 9.94 $ 9.91 ========== ========== ========== ========== ========== Total Based on net asset value per share 5.59% 2.93% 2.89% 3.88% 4.11% Investment ========== ========== ========== ========== ========== Return:* Ratios to Expenses .81% .76% .79% .79% .75% Average ========== ========== ========== ========== ========== Net Assets: Investment income--net 3.53% 3.46% 3.37% 4.27% 3.57% ========== ========== ========== ========== ========== Supplemental Net assets, end of year (in thousands) $ 602 $ 308 $ 437 $ 86 $ 108 Data: ========== ========== ========== ========== ========== Portfolio turnover 51.94% 51.42% 40.28% 72.69% 61.90% ========== ========== ========== ========== ==========
The following per share data and ratios have been derived from information provided in the financial statements.
Limited Maturity Portfolio Class D For the Year Ended June 30, Increase (Decrease) in Net Asset Value: 2001 2000 1999 1998 1997 Per Share Net asset value, beginning of year $ 9.86 $ 9.92 $ 9.97 $ 9.94 $ 9.91 Operating ---------- ---------- ---------- ---------- ---------- Performance: Investment income--net .38 .37 .37 .38 .38 Realized and unrealized gain (loss) on investments--net .20 (.06) (.04) .03 .05 ---------- ---------- ---------- ---------- ---------- Total from investment operations .58 .31 .33 .41 .43 ---------- ---------- ---------- ---------- ---------- Less dividends and distributions: Investment income--net (.38) (.37) (.37) (.38) (.38) Realized gain on investments--net -- -- -- -- (.02) In excess of realized gain on investments--net -- -- (.01) -- -- ---------- ---------- ---------- ---------- ---------- Total dividends and distributions (.38) (.37) (.38) (.38) (.40) ---------- ---------- ---------- ---------- ---------- Net asset value, end of year $ 10.06 $ 9.86 $ 9.92 $ 9.97 $ 9.94 ========== ========== ========== ========== ========== Total Based on net asset value per share 5.96% 3.20% 3.27% 4.16% 4.40% Investment ========== ========== ========== ========== ========== Return:* Ratios to Expenses .54% .50% .53% .54% .48% Average ========== ========== ========== ========== ========== Net Assets: Investment income--net 3.80% 3.72% 3.65% 3.89% 3.84% ========== ========== ========== ========== ========== Supplemental Net assets, end of year (in thousands) $ 42,619 $ 39,090 $ 83,177 $ 68,562 $ 20,383 Data: ========== ========== ========== ========== ========== Portfolio turnover 51.94% 51.42% 40.28% 72.69% 61.90% ========== ========== ========== ========== ==========
*Total investment returns exclude the effects of sales charges. See Notes to Financial Statements. Page 22 Merrill Lynch Municipal Bond Fund, Inc., June 30, 2001 NOTES TO FINANCIAL STATEMENTS 1. Significant Accounting Policies: Merrill Lynch Municipal Bond Fund, Inc. (the "Fund") is registered under the Investment Company Act of 1940 as a diversified, open-end management investment company. The Fund's financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, which may require the use of management accruals and estimates. The Fund's Portfolios offer four classes of shares under the Merrill Lynch Select Pricing(SM) System. Shares of Class A and Class D are sold with a front-end sales charge. Shares of Class B and Class C may be subject to a contingent deferred sales charge. All classes of shares have identical voting, dividend, liquidation and other rights and the same terms and conditions, except that Class B, Class C and Class D 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. The following is a summary of significant accounting policies followed by the Fund. (a) Valuation of investments--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 Fund. All Portfolios: Municipal bonds and money market securities are traded primarily in the over-the-counter markets and are valued at the most recent bid price or yield equivalent as obtained from dealers that make markets in such securities. Positions in futures contracts and options thereon, which are traded on exchanges, are valued at closing prices as of the close of such exchanges. Assets for which market quotations are not readily available are valued at fair value on a consistent basis using methods determined in good faith by the Fund's Board of Directors, including valuations furnished by a pricing service retained by the Fund, which may utilize a matrix system for valuations. The procedures of the pricing service and its valuations are reviewed by the officers of the Fund under the general supervision of the Board of Directors. (b) Derivative financial instruments--The Fund may engage in various portfolio investment strategies to increase or decrease the level of risk to which the Fund is exposed more quickly and efficiently than transactions in other types of instruments. 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's Portfolios may purchase or sell financial futures contracts and options on such futures contracts for the purpose of hedging the market risk on existing securities or the intended purchase of securities. 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. (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. Interest income is recognized on the accrual basis. Discounts and market premiums are amortized into interest income. The Fund will adopt the provisions to amortize all premiums and discounts on debt securities effective July 1, 2001, as now required under the new AICPA Audit and Accounting Guide for Investment Companies. The cumulative effect of this accounting change will have no impact on the total net assets of the Fund, but will result in a $1,299,562 and a $35,232 decrease and a $27,922 increase to the cost of securities in the Insured, Limited Maturity and National Portfolios, respectively, and a corresponding $1,299,562 and a $35,232 increase and a $27,922 decrease to net unrealized appreciation in the Insured, Limited Maturity and National Portfolios, respectively. (e) Prepaid registration fees--Prepaid registration fees are charged to expenses 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. Distributions in excess of realized capital gains are due primarily to differing tax treatments for futures transactions and post-October losses. (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. 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 Plans 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 Limited Net Assets of the Three Insured National Maturity Combined Portfolios Portfolio Portfolio Portfolio Not exceeding $250 million .40% .50% .40% In excess of $250 million but not exceeding $400 million .375 .475 .375 In excess of $400 million but not exceeding $550 million .375 .475 .35 In excess of $550 million but not exceeding $1.5 billion .375 .475 .325 In excess of $1.5 billion .35 .475 .325 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 Distribution Fees Limited Limited Insured National Maturity Insured National Maturity Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Class B .25% .25% .15% .50% .50% .20% Class C .25 .25 .15 .55 .55 .20 Class D .25 .25 .10 -- -- -- Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), a subsidiary of ML & Co., 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 B, Class C and Class D 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, 2001, FAMD earned underwriting discounts and direct commissions and MLPF&S earned dealer concessions on sales of the Fund's Class A and Class D Shares follows: Limited Insured National Maturity Portfolio Portfolio Portfolio Class A Shares: FAMD $10,264 $11,629 $ 416 MLPF&S 69,136 63,952 3,631 Class D Shares: FAMD $ 5,719 $ 6,922 $ 962 MLPF&S 40,840 68,966 8,692 For the year ended June 30, 2001, MLPF&S received contingent deferred sales charges of $481,802 relating to transactions in Class B Shares, amounting to $206,769, $258,500 and $16,533 in the Insured, National and Limited Maturity Portfolios, respectively, and $7,947 relating to transactions in Class C Shares, amounting to $525 and $7,422 in the Insured and National Portfolios, respectively. Furthermore, MLPF&S received contingent deferred sales charges of $851 relating to transactions subject to front-end sales charge waivers in Class D Shares, amounting to $451 and $400 in the Insured and Limited Maturity Portfolios, respectively. Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of ML & Co., is the Fund's transfer agent. Prior to January 1, 2001, FAM provided accounting services to the Fund at its cost and the Fund reimbursed FAM for these services. FAM continues to provide certain accounting services to the Fund. The Fund reimburses FAM at its cost for such services. For the year ended June 30, 2001, the Fund reimbursed FAM an aggregate of $127,406, $103,166 and $34,448 in the Insured, National and Limited Maturity Portfolios, respectively, for the above-described services. The Fund entered into an agreement with State Street Bank and Trust Company ("State Street"), effective January 1, 2001, pursuant to which State Street provides certain accounting services to the Fund. The Fund pays a fee for these services. Certain officers and/or directors of the Fund are officers and/or directors of FAM, PSI, FAMD, FDS, and/or ML & Co. Page 23 Merrill Lynch Municipal Bond Fund, Inc., June 30, 2001 NOTES TO FINANCIAL STATEMENTS (continued) 3. Investments: Purchases and sales of investments, excluding short-term securities, for the year ended June 30, 2001 were as follows: Purchases Sales Insured Portfolio $ 814,056,319 $ 930,524,756 National Portfolio 811,063,484 875,288,743 Limited Maturity Portfolio 122,581,933 143,523,291 Net realized gains (losses) for the year ended June 30, 2001 and net unrealized gains as of June 30, 2001 were as follows: Realized Unrealized Insured Portfolio Gains Gains Long-term investments $ 30,002,263 $ 65,823,221 Financial futures contracts -- 464,844 -------------- -------------- Total $ 30,002,263 $ 66,288,065 ============== ============== Realized Unrealized National Portfolio Gains Gains Long-term investments $ 25,290,223 $ 34,664,668 -------------- -------------- Total $ 25,290,223 $ 34,664,668 ============== ============= Realized Unrealized Limited Maturity Portfolio Losses Gains Long-term investments $ (87,533) $ 3,892,744 Short-term investments (7,237) -- -------------- -------------- Total $ (94,770) $ 3,892,744 ============== ============== As of June 30, 2001 net unrealized appreciation for Federal income tax purposes were as follows: Gross Gross Net Unrealized Unrealized Unrealized Appreciation Depreciation Appreciation Insured Portfolio $68,729,166 $ 2,905,945 $65,823,221 National Portfolio 48,585,396 13,920,728 34,664,668 Limited Maturity Portfolio 3,910,849 18,105 3,892,744 The aggregate cost of investments at June 30, 2001 for Federal income tax purposes was $1,211,867,977 for the Insured Portfolio, $987,830,501 for the National Portfolio, and $251,815,333 for the Limited Maturity Portfolio. 4. Capital Share Transactions: Net decrease in net assets derived from capital share transactions for the years ended June 30, 2001 and June 30, 2000 were $(114,411,068) and $(275,055,198), respectively, for the Insured Portfolio; $(64,099,665) and $(268,812,275), respectively, for the National Portfolio, and $(26,812,001) and $(98,688,194), respectively, for the Limited Maturity Portfolio. Transactions in capital shares for each class were as follows: Insured Portfolio Class A Shares for the Year Dollar Ended June 30, 2001 Shares Amount Shares sold 1,427,734 $ 10,879,765 Shares issued to shareholders in reinvestment of dividends 2,625,131 19,947,178 ------------ -------------- Total issued 4,052,865 30,826,943 Shares redeemed (16,366,210) (123,992,361) ------------ -------------- Net decrease (12,313,345) $ (93,165,418) ============ ============== Insured Portfolio Class A Shares for the Year Dollar Ended June 30, 2000 Shares Amount Shares sold 2,189,238 $ 16,064,750 Shares issued to shareholders in reinvestment of dividends and distributions 4,168,354 30,616,793 ------------ -------------- Total issued 6,357,592 46,681,543 Shares redeemed (30,464,525) (225,027,241) ------------ -------------- Net decrease (24,106,933) $ (178,345,698) ============ ============== Insured Portfolio Class B Shares for the Year Dollar Ended June 30, 2001 Shares Amount Shares sold 2,812,803 $ 21,451,283 Shares issued to shareholders in reinvestment of dividends 667,922 5,069,294 ------------ -------------- Total issued 3,480,725 26,520,577 Automatic conversion of shares (4,267,970) (32,457,905) Shares redeemed (7,622,598) (57,690,475) ------------ -------------- Net decrease (8,409,843) $ (63,627,803) ============ ============== Insured Portfolio Class B Shares for the Year Dollar Ended June 30, 2000 Shares Amount Shares sold 3,270,666 $ 24,137,115 Shares issued to shareholders in reinvestment of dividends and distributions 1,345,927 9,877,799 ------------ -------------- Total issued 4,616,593 34,014,914 Automatic conversion of shares (5,976,596) (44,419,700) Shares redeemed (14,317,769) (105,647,752) ------------ -------------- Net decrease (15,677,772) $ (116,052,538) ============ ============== Insured Portfolio Class C Shares for the Year Dollar Ended June 30, 2001 Shares Amount Shares sold 499,727 $ 3,826,445 Shares issued to shareholders in reinvestment of dividends 35,920 272,860 ------------ -------------- Total issued 535,647 4,099,305 Shares redeemed (409,419) (3,101,300) ------------ -------------- Net increase 126,228 $ 998,005 ============ ============== Insured Portfolio Class C Shares for the Year Dollar Ended June 30, 2000 Shares Amount Shares sold 460,085 $ 3,400,275 Shares issued to shareholders in reinvestment of dividends and distributions 58,936 432,490 ------------ -------------- Total issued 519,021 3,832,765 Shares redeemed (936,770) (6,943,556) ------------ -------------- Net decrease (417,749) $ (3,110,791) ============ ============== Insured Portfolio Class D Shares for the Year Dollar Ended June 30, 2001 Shares Amount Shares sold 13,510,419 $ 102,970,054 Automatic conversion of shares 4,266,565 32,457,905 Shares issued to shareholders in reinvestment of dividends 388,222 2,953,112 ------------ -------------- Total issued 18,165,206 138,381,071 Shares redeemed (12,703,356) (96,996,923) ------------ -------------- Net increase 5,461,850 $ 41,384,148 ============ ============== Insured Portfolio Class D Shares for the Year Dollar Ended June 30, 2000 Shares Amount Shares sold 5,635,273 $ 41,646,584 Automatic conversion of shares 5,974,043 44,419,700 Shares issued to shareholders in reinvestment of dividends and distributions 401,383 2,941,244 ------------ -------------- Total issued 12,010,699 89,007,528 Shares redeemed (8,952,192) (66,553,699) ------------ -------------- Net increase 3,058,507 $ 22,453,829 ============ ============== National Portfolio Class A Shares for the Year Dollar Ended June 30, 2001 Shares Amount Shares sold 3,205,962 $ 31,960,303 Shares issued to shareholders in reinvestment of dividends 1,804,242 18,050,261 ------------ -------------- Total issued 5,010,204 50,010,564 Shares redeemed (10,899,821) (109,075,525) ------------ -------------- Net decrease (5,889,617) $ (59,064,961) ============ ============== National Portfolio Class A Shares for the Year Dollar Ended June 30, 2000 Shares Amount Shares sold 2,501,422 $ 24,056,825 Shares issued to shareholders in reinvestment of dividends 2,217,109 21,483,144 ------------ -------------- Total issued 4,718,531 45,539,969 Shares redeemed (20,297,630) (196,458,002) ------------ -------------- Net decrease (15,579,099) $ (150,918,033) ============ ============== National Portfolio Class B Shares for the Year Dollar Ended June 30, 2001 Shares Amount Shares sold 3,513,254 $ 35,164,873 Shares issued to shareholders in reinvestment of dividends 479,599 4,794,417 ------------ -------------- Total issued 3,992,853 39,959,290 Automatic conversion of shares (1,524,031) (15,253,380) Shares redeemed (6,294,843) (62,763,426) ------------ -------------- Net decrease (3,826,021) $ (38,057,516) ============ ============== National Portfolio Class B Shares for the Year Dollar Ended June 30, 2000 Shares Amount Shares sold 3,230,018 $ 31,342,736 Shares issued to shareholders in reinvestment of dividends 723,846 7,016,462 ------------ -------------- Total issued 3,953,864 38,359,198 Automatic conversion of shares (1,771,855) (17,264,191) Shares redeemed (12,589,149) (121,755,396) ------------ -------------- Net decrease (10,407,140) $ (100,660,389) ============ ============== National Portfolio Class C Shares for the Year Dollar Ended June 30, 2001 Shares Amount Shares sold 794,329 $ 8,018,241 Shares issued to shareholders in reinvestment of dividends 74,364 744,084 ------------ -------------- Total issued 868,693 8,762,325 Shares redeemed (848,298) (8,455,809) ------------ -------------- Net increase 20,395 $ 306,516 ============ ============== Page 24 Merrill Lynch Municipal Bond Fund, Inc., June 30, 2001 NOTES TO FINANCIAL STATEMENTS (concluded) National Portfolio Class C Shares for the Year Dollar Ended June 30, 2000 Shares Amount Shares sold 592,010 $ 5,777,103 Shares issued to shareholders in reinvestment of dividends 110,217 1,068,763 ------------ -------------- Total issued 702,227 6,845,866 Shares redeemed (2,267,391) (21,908,932) ------------ -------------- Net decrease (1,565,164) $ (15,063,066) ============ ============== National Portfolio Class D Shares for the Year Dollar Ended June 30, 2001 Shares Amount Shares sold 9,806,380 $ 98,249,860 Automatic conversion of shares 1,522,876 15,253,380 Shares issued to shareholders in reinvestment of dividends 238,130 2,387,772 ------------ -------------- Total issued 11,567,386 115,891,012 Shares redeemed (8,269,580) (83,174,716) ------------ -------------- Net increase 3,297,806 $ 32,716,296 ============ ============== National Portfolio Class D Shares for the Year Dollar Ended June 30, 2000 Shares Amount Shares sold 4,890,948 $ 47,366,022 Automatic conversion of shares 1,770,615 17,264,191 Shares issued to shareholders in reinvestment of dividends 236,352 2,290,783 ------------ -------------- Total issued 6,897,915 66,920,996 Shares redeemed (7,085,726) (69,091,783) ------------ -------------- Net decrease (187,811) $ (2,170,787) ============ ============== Limited Maturity Portfolio Class A Shares for the Year Dollar Ended June 30, 2001 Shares Amount Shares sold 1,462,647 $ 14,632,026 Shares issued to shareholders in reinvestment of dividends 452,741 4,510,226 ------------ -------------- Total issued 1,915,388 19,142,252 Shares redeemed (4,727,779) (47,108,289) ------------ -------------- Net decrease (2,812,391) $ (27,966,037) ============ ============== Limited Maturity Portfolio Class A Shares for the Year Dollar Ended June 30, 2000 Shares Amount Shares sold 1,536,138 $ 15,117,350 Shares issued to shareholders in reinvestment of dividends 512,562 5,053,751 ------------ -------------- Total issued 2,048,700 20,171,101 Shares redeemed (6,612,955) (65,210,325) ------------ -------------- Net decrease (4,564,255) $ (45,039,224) ============ ============== Limited Maturity Portfolio Class B Shares for the Year Dollar Ended June 30, 2001 Shares Amount Shares sold 624,476 $ 6,238,998 Shares issued to shareholders in resinvestment of dividends 69,458 692,233 ------------ -------------- Total issued 693,934 6,931,231 Automatic conversion of shares (79,376) (792,225) Shares redeemed (805,597) (8,013,075) ------------ -------------- Net decrease (191,039) $ (1,874,069) ============ ============== Limited Maturity Portfolio Class B Shares for the Year Dollar Ended June 30, 2000 Shares Amount Shares sold 890,806 $ 8,796,176 Shares issued to shareholders in reinvestment of dividends 90,275 890,200 ------------ -------------- Total issued 981,081 9,686,376 Automatic conversion of shares (20,095) (198,201) Shares redeemed (1,968,527) (19,397,167) ------------ -------------- Net decrease (1,007,541) $ (9,908,992) ============ ============== Limited Maturity Portfolio Class C Shares for the Year Dollar Ended June 30, 2001 Shares Amount Shares sold 40,701 $ 404,478 Shares issued to shareholders in reinvestment of dividends 1,162 11,555 ------------ -------------- Total issued 41,863 416,033 Shares redeemed (13,145) (130,860) ------------ -------------- Net increase 28,718 $ 285,173 ============ ============== Limited Maturity Portfolio Class C Shares for the Year Dollar Ended June 30, 2000 Shares Amount Shares sold 71,755 $ 707,095 Shares issued to shareholders in reinvestment of dividends 1,301 12,780 ------------ -------------- Total issued 73,056 719,875 Shares redeemed (85,885) (844,221) ------------ -------------- Net decrease (12,829) $ (124,346) ============ ============== Limited Maturity Portfolio Class D Shares for the Year Dollar Ended June 30, 2001 Shares Amount Shares sold 1,740,306 $ 17,346,660 Automatic conversion of shares 79,340 792,225 Shares issued to shareholders in reinvestment of dividends 80,824 806,042 ------------ -------------- Total issued 1,900,470 18,944,927 Shares redeemed (1,628,053) (16,201,995) ------------ -------------- Net increase 272,417 $ 2,742,932 ============ ============== Limited Maturity Portfolio Class D Shares for the Year Dollar Ended June 30, 2000 Shares Amount Shares sold 1,521,072 $ 15,017,187 Automatic conversion of shares 20,088 198,201 Shares issued to shareholders in reinvestment of dividends 131,400 1,296,203 ------------ -------------- Total issued 1,672,560 16,511,591 Shares redeemed (6,094,726) (60,127,223) ------------ -------------- Net decrease (4,422,166) $ (43,615,632) ============ ============== 5. Short-Term Borrowings: On December 1, 2000, the Fund, along with certain other funds managed by MLIM and its affiliates, renewed and amended a $1,000,000,000 credit agreement with Bank One, N.A. and certain other lenders. The Fund may borrow under the credit agreement to fund shareholder redemptions and for other lawful purposes other than for leverage. The Fund may borrow up to the maximum amount allowable under the Fund's current prospectus and statement of additional information, subject to various other legal, regulatory or contractual limits. The Fund pays a commitment fee of .09% per annum based on the Fund's pro rata share of the unused portion of the facility. Amounts borrowed under the facility bear interest at a rate equal to, at each fund's election, the Federal Funds rate plus .50% or a base rate as determined by Bank One, N.A. The Fund did not borrow under the facility during the year ended June 30, 2001. 6. Capital Loss Carryforward: At June 30, 2001, the Insured Portfolio had a net capital loss carryforward of approximately $50,189,000, of which $17,630,000 expires in 2008 and $32,559,000 expires in 2009; the National Portfolio had a net capital loss carryforward of approximately $44,931,000, of which $25,616,000 expires in 2008 and $19,315,000 expires in 2009; and the Limited Maturity Portfolio had a net capital loss carry-forward of approximately $2,474,000, of which $1,928,000 expires in 2003, $120,000 expires in 2008 and $426,000 expires in 2009. These amounts will be available to offset like amounts of any future taxable gains. 7. Reorganization Plan: On March 13, 2001, the Fund's Board of Directors approved a plan of reorganization, subject to shareholder approval and certain other conditions, whereby the National Portfolio would acquire substantially all of the assets and liabilities of Merrill Lynch Arkansas Municipal Bond Fund, Merrill Lynch Colorado Municipal Bond Fund and Merrill Lynch New Mexico Municipal Bond Fund in exchange for newly issued shares of the Fund. These Funds are registered, non- diversified, open-end management investment companies. All four entities have a similar investment objective and are managed by FAM. Page 25 Merrill Lynch Municipal Bond Fund, Inc., June 30, 2001 INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders, 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. (comprising, respectively, the Insured, National and Limited Maturity Portfolios) as of June 30, 2001, the related statements of operations for the year then ended and changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and the financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned at June 30, 2001 by correspondence with the custodian and brokers. Where replies were not received from brokers, we performed other auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements and financial highlights 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, 2001, the results of their operations, the changes in their net assets, and their financial highlights for the respective stated periods in conformity with accounting principles generally accepted in the United States of America. Deloitte & Touche LLP New York, New York August 17, 2001 IMPORTANT TAX INFORMATION (unaudited) All of the net investment income distributions declared daily by Merrill Lynch Municipal Bond Fund, Inc. during its taxable year ended June 30, 2001 qualify as tax-exempt interest dividends for Federal income tax purposes. Page 26