<DOCUMENT>
<TYPE>EX-99.17L
<SEQUENCE>25
<FILENAME>dex9917l.txt
<DESCRIPTION>A/R TO SHAREHOLDERS OF THE REGISTRANT, 6/30/01
<TEXT>
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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*
<TABLE>
<CAPTION>
Ten Years/
Since
6-Month 12-Month Inception Standardized
Total Total Total 30-Day
As of June 30, 2001 Return Return Return Yield
<S> <C> <C> <C> <C>
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
</TABLE>
*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
<PAGE>
Merrill Lynch Municipal Bond Fund, Inc., June 30, 2001
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (in Thousands)
Municipal Bonds Insured Portfolio
S&P Moody's Face
STATE Ratings Ratings Amount Issue Value
<S> <C> <C> <C> <C> <C>
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
</TABLE>
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
<PAGE>
Merrill Lynch Municipal Bond Fund, Inc., June 30, 2001
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
Municipal Bonds Insured Portfolio
S&P Moody's Face
STATE Ratings Ratings Amount Issue Value
<S> <C> <C> <C> <C> <C>
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
</TABLE>
Page 9
<PAGE>
Merrill Lynch Municipal Bond Fund, Inc., June 30, 2001
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
Municipal Bonds Insured Portfolio
S&P Moody's Face
STATE Ratings Ratings Amount Issue Value
<S> <C> <C> <C> <C> <C>
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
==========
</TABLE>
(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
<PAGE>
Merrill Lynch Municipal Bond Fund, Inc., June 30, 2001
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (in Thousands)
Municipal Bonds National Portfolio
S&P Moody's Face
STATE Ratings Ratings Amount Issue Value
<S> <C> <C> <C> <C> <C>
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
</TABLE>
Page 11
<PAGE>
Merrill Lynch Municipal Bond Fund, Inc., June 30, 2001
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
Municipal Bonds National Portfolio
S&P Moody's Face
STATE Ratings Ratings Amount Issue Value
<S> <C> <C> <C> <C> <C>
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
</TABLE>
Page 12
<PAGE>
Merrill Lynch Municipal Bond Fund, Inc., June 30, 2001
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
Municipal Bonds National Portfolio
S&P Moody's Face
STATE Ratings Ratings Amount Issue Value
<S> <C> <C> <C> <C> <C>
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
==========
</TABLE>
(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
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (in Thousands)
Municipal Bonds Limited Maturity Portfolio
S&P Moody's Face
STATE Ratings Ratings Amount Issue Value
<S> <C> <C> <C> <C> <C>
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
</TABLE>
Page 14
<PAGE>
Merrill Lynch Municipal Bond Fund, Inc., June 30, 2001
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
Municipal Bonds Limited Maturity Portfolio
S&P Moody's Face
STATE Ratings Ratings Amount Issue Value
<S> <C> <C> <C> <C> <C>
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
==========
</TABLE>
(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
<PAGE>
Merrill Lynch Municipal Bond Fund, Inc., June 30, 2001
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
Limited
Insured National Maturity
As of June 30, 2001 Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C>
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
============== ============== ==============
</TABLE>
See Notes to Financial Statements.
Page 16
<PAGE>
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Limited
Insured National Maturity
For the Year Ended June 30, 2001 Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C>
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
============== ============== ==============
</TABLE>
See Notes to Financial Statements.
Page 17
<PAGE>
Merrill Lynch Municipal Bond Fund, Inc., June 30, 2001
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
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
<S> <C> <C> <C> <C> <C>
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
============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
Limited Maturity Portfolio
For the Year
Ended June 30,
Increase (Decrease) in Net Assets: 2001 2000
<S> <C> <C>
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
============= =============
</TABLE>
See Notes to Financial Statements.
Page 18
<PAGE>
FINANCIAL HIGHLIGHTS
The following per share data and ratios have been derived from information
provided in the financial statements.
<TABLE>
<CAPTION>
Insured Portfolio
Class A
For the Year Ended June 30,
Increase (Decrease) in Net Asset Value: 2001 2000 1999 1998 1997
<S> <C> <C> <C> <C> <C> <C>
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%
========== ========== ========== ========== ==========
</TABLE>
The following per share data and ratios have been derived from information
provided in the financial statements.
<TABLE>
<CAPTION>
Insured Portfolio
Class B
For the Year Ended June 30,
Increase (Decrease) in Net Asset Value: 2001 2000 1999 1998 1997
<S> <C> <C> <C> <C> <C> <C>
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%
========== ========== ========== ========== ==========
</TABLE>
Total investment returns exclude the effects of sales charges.
See Notes to Financial Statements.
Page 19
<PAGE>
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.
<TABLE>
<CAPTION>
Insured Portfolio
Class C
For the Year Ended June 30,
Increase (Decrease) in Net Asset Value: 2001 2000 1999 1998 1997
<S> <C> <C> <C> <C> <C> <C>
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%
========== ========== ========== ========== ==========
</TABLE>
The following per share data and ratios have been derived from information
provided in the financial statements.
<TABLE>
<CAPTION>
Insured Portfolio
Class D
For the Year Ended June 30,
Increase (Decrease) in Net Asset Value: 2001 2000 1999 1998 1997
<S> <C> <C> <C> <C> <C> <C>
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%
========== ========== ========== ========== ==========
</TABLE>
The following per share data and ratios have been derived from information
provided in the financial statements.
<TABLE>
<CAPTION>
National Portfolio
Class A
For the Year Ended June 30,
Increase (Decrease) in Net Asset Value: 2001 2000 1999 1998 1997
<S> <C> <C> <C> <C> <C> <C>
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%
========== ========== ========== ========== ==========
</TABLE>
The following per share data and ratios have been derived from information
provided in the financial statements.
<TABLE>
<CAPTION>
National Portfolio
Class B
For the Year Ended June 30,
Increase (Decrease) in Net Asset Value: 2001 2000 1999 1998 1997
<S> <C> <C> <C> <C> <C> <C>
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%
========== ========== ========== ========== ==========
</TABLE>
*Total investment returns exclude the effects of sales charges.
++Amount is less than $.01 per share.
See Notes to Financial Statements.
Page 20
<PAGE>
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.
<TABLE>
<CAPTION>
National Portfolio
Class C
For the Year Ended June 30,
Increase (Decrease) in Net Asset Value: 2001 2000 1999 1998 1997
<S> <C> <C> <C> <C> <C> <C>
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%
========== ========== ========== ========== ==========
</TABLE>
The following per share data and ratios have been derived from information
provided in the financial statements.
<TABLE>
<CAPTION>
National Portfolio
Class D
For the Year Ended June 30,
Increase (Decrease) in Net Asset Value: 2001 2000 1999 1998 1997
<S> <C> <C> <C> <C> <C> <C>
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%
========== ========== ========== ========== ==========
</TABLE>
The following per share data and ratios have been derived from information
provided in the financial statements.
<TABLE>
<CAPTION>
Limited Maturity Portfolio
Class A
For the Year Ended June 30,
Increase (Decrease) in Net Asset Value: 2001 2000 1999 1998 1997
<S> <C> <C> <C> <C> <C> <C>
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%
========== ========== ========== ========== ==========
</TABLE>
*Total investment returns exclude the effects of sales charges.
++Amount is less than $.01 per share.
See Notes to Financial Statements.
Page 21
<PAGE>
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.
<TABLE>
<CAPTION>
Limited Maturity Portfolio
Class B
For the Year Ended June 30,
Increase (Decrease) in Net Asset Value: 2001 2000 1999 1998 1997
<S> <C> <C> <C> <C> <C>
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%
========== ========== ========== ========== ==========
</TABLE>
The following per share data and ratios have been derived from information
provided in the financial statements.
<TABLE>
<CAPTION>
Limited Maturity Portfolio
Class C
For the Year Ended June 30,
Increase (Decrease) in Net Asset Value: 2001 2000 1999 1998 1997
<S> <C> <C> <C> <C> <C>
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%
========== ========== ========== ========== ==========
</TABLE>
The following per share data and ratios have been derived from information
provided in the financial statements.
<TABLE>
<CAPTION>
Limited Maturity Portfolio
Class D
For the Year Ended June 30,
Increase (Decrease) in Net Asset Value: 2001 2000 1999 1998 1997
<S> <C> <C> <C> <C> <C>
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%
========== ========== ========== ========== ==========
</TABLE>
*Total investment returns exclude the effects of sales charges.
See Notes to Financial Statements.
Page 22
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
</TEXT>
</DOCUMENT>