Merrill Lynch High Income Municipal Bond Fund, Inc.
Annual
Report
August 31, 1994
Officers and Directors
Arthur Zeikel, President and Director
Ronald W. Forbes, Director
Cynthia A. Montgomery, Director
Charles C. Reilly, Director
Kevin A. Ryan, Director
Richard R. West, Director
Terry K. Glenn, Executive Vice President
Donald C. Burke, Vice President
Vincent R. Giordano, Vice President
Gerald M. Richard, Treasurer
Robert Harris, Secretary
Custodian
The Bank of New York
1 Wall Street
New York, New York 10286
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
<PAGE>
This report, including the financial information herein, is
transmitted to the shareholders of Merrill Lynch High Income
Municipal Bond Fund, Inc. for their information. It is not a
prospectus, circular or representation intended for use in the pur-
chase of shares of the Fund or any securities mentioned in the
report. Past performance results shown in this report should not be
considered a representation of future performance.
Merrill Lynch High Income
Municipal Bond Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
Merrill Lynch High Income Municipal Bond Fund, Inc.
DEAR SHAREHOLDER
For the year ended August 31, 1994, Merrill Lynch High Income
Municipal Bond Fund, Inc. earned $0.650 per share income dividends,
representing a net annualized yield of 5.95%, based on a month-end
per share net asset value of $10.92. Over the same period, the
Fund's total investment return was +1.75%, based on a change in per
share net asset value from $11.44 to $10.92, and assuming
reinvestment of $0.691 per share income dividends and $0.026 per
share capital gains distributions.
For the six-month period ended August 31, 1994, the Fund's total
investment return was -0.62%, based on a change in per share net
asset value from $11.32 to $10.92, and assuming reinvestment of
$0.325 per share income dividends.
The Environment
Concerns of increasing inflationary pressures continued to prompt
volatility in the US stock and bond markets during the June--August
period. In addition, the weakness of the US dollar in foreign
exchange markets prolonged stock and bond market declines during
July. While the immediate concerns regarding the US dollar had
diminished by late July, the possibility of continued tightening by
the Federal Reserve Board resurfaced after Chairman Alan Greenspan
gave his most recent Congressional testimony. However, a lower-than-
expected rate of growth reported for the US economy during the
second calendar quarter allayed inflationary concerns to some
degree, despite the fifth increase in short-term interest rates made
by the central bank in mid-August.
<PAGE>
While the economic recovery is continuing, data suggest that it is
losing some momentum. Consumer spending is increasing, but at a
relatively slow pace, and existing home sales may have peaked. In
the industrial sector, capital goods spending is still on the rise,
but the gain for the second quarter was revised downward to 6.5%. On
balance, the growth in US industry is progressing at a steady,
modest rate.
Despite evidence of a moderating trend in the US economy, Chairman
Greenspan indicated in his July Humphrey-Hawkins testimony that the
central bank would prefer to err on the side of too much monetary
tightening rather than too little. In the weeks ahead, investors
will continue to assess economic data and inflationary trends in
order to gauge whether further increases in short-term interest
rates are imminent. Continued indications of moderate and
sustainable levels of economic growth would be positive for the US
capital markets.
The Municipal Market
Yields on long-term municipal revenue bonds ended the August quarter
little changed. The Bond Buyer Revenue Bond Index rose five basis
points (0.05%) to end the quarter at 6.46%. However, weekly
volatility has remained high, with yields fluctuating as much as 15
basis points from week to week. US Treasury bond yields exhibited a
similar pattern during the August quarter. Over the last three
months, yields on the long-term US Treasury bond rose approximately
five basis points to end the quarter at approximately 7.47%.
The continued volatility of the municipal bond market is largely a
reflection of the same lack of conviction regarding the direction of
interest rates that has been seen during most of 1994. Over the past
quarter, fixed-income markets have been unable to form a consensus
regarding the potential strength of the current economic recovery or
the resultant response by the Federal Reserve Board. However, in the
past month a number of economic indicators suggested that the pace
of the current economic expansion is slowing. Also, most analysts
believe that the Federal Reserve Board will now wait before acting
again in order to judge the overall impact of their actions on
economic growth and inflation. These factors have allowed the
municipal bond market to gain a measure of stability in recent
weeks.
<PAGE>
The municipal bond market's technical position has remained
supportive. Approximately $40 billion in long-term securities was
issued during the three months ended August 31, 1994. This
represents a decline of over 50% versus the August quarter of one
year ago. As discussed in earlier reports, this reduction in new-
issue supply has minimized the selling pressure by larger
institutional investors who fear being unable to purchase sizable
amounts of securities in the future. Such a significant decline in
issuance would normally be expected to trigger a decline in yields
as investors chase a commodity in scarce supply. Investor demand,
however, has also diminished somewhat in recent months as net flows
into long-term municipal bond funds have dramatically slowed, or in
some instances, reversed. Consequently, the supply/demand relation-
ship within the municipal bond marketplace has remained in balance,
promoting the overall stability in yield levels seen in the past
months.
With after-tax equivalent yields in excess of 10.50% (assuming the
highest Federal income tax bracket), long-term tax-exempt bonds
continue to represent considerable value relative to other taxable
investment alternatives. We continue to anticipate that municipal
bond yields will decline further in late 1994 and 1995. The economic
impact of the significant interest rate increases experienced since
early February have yet to be totally realized. The resultant drag
on the economy should provide the foundation for further interest
rate declines. Under such a scenario, current tax-exempt bond yields
may prove to represent considerable value.
Portfolio Strategy
The year ended August 31, 1994 proved to be a relatively uneventful
one for Merrill Lynch High Income Municipal Bond Fund, Inc.,
especially in light of the volatility experienced in the fixed-
income markets as a whole. While interest rates fluctuated
considerably, the Fund's strategy and portfolio composition helped
to insulate shareholders from market volatility, thereby generating
a competitive total return for the year.
Since inception on November 2, 1990, the Fund's investment strategy
has been, and will continue to be, to provide shareholders with high
current income exempt from Federal income taxes by investing
primarily in a portfolio of medium-grade to lower-grade or unrated
municipal obligations. This past year witnessed the maturation of
this strategy, with more than 87% of the Fund's net assets so
invested. While this represents a 10% increase from one year ago
levels, a closer look at the composition and structure of the Fund's
holdings is warranted in order to gain a clearer understanding of
the Fund's performance.
<PAGE>
First, we have stated frequently in previous shareholder reports
that existing holdings are regularly monitored for creditworthiness
and ongoing viability. Those holdings that are not living up to the
expectations of our credit analysts are sold, soon to be replaced
with other investments possessing more favorable credit character-
istics. In fact, during the past year, we have selectively added to
the Fund's holdings a number of attractively priced securities that
reflect our ongoing commitment to seek undervalued lower-rated or
unrated bonds demonstrating upside potential from both a credit as
well as a performance standpoint. The net result of these activities
has been a moderate level of turnover that keeps the portfolio
invested in securities that can be expected to perform well on a
relative basis.
Another factor that has contributed to overall performance was the
persistent narrowing of credit spreads. This process, ongoing for
several years now in the fixed-income markets, represents one of the
more important phenomena affecting the municipal marketplace today.
Declining municipal volume, increasingly competitive institutional
demand and the favorable impact of an economic recovery have all
been contributing factors as well. To a large extent, our investment
decisions have been influenced by this environment as we have
elected not to participate in several high-yield issues in the
belief that their prices did not adequately reflect the inherent
credit risk. By the same token, we have sought to capitalize on
opportunities present within the scope of an improving economy by
increasing exposure to both industrial development and pollution
control bonds. These corporate-backed securities, as of August 31,
1994 at 24% of net assets, have performed well in the context of
improving corporate profitability.
Finally, while the Fund's exposure to the healthcare sector is not
substantially changed from one year ago levels, there has been a
significant reduction from the 47% held in November 1992. Healthcare-
related holdings currently stand at approximately 36% of net assets.
This reduction is wholly a product of the portfolio adjustments
discussed earlier, and no doubt reflects the pressures associated
with increasing competition from managed care providers as well as
the uncertain nature of the impending healthcare legislation.
<PAGE>
Lower-rated hospital bonds in particular represent a difficult
investment vehicle both in terms of liquidity and financial
stability. Inasmuch as these characteristics require a heightened
level of vigilance on the part of our credit analysts, this sector
also represents significant value in today's market. Scarce
liquidity creates opportunities to acquire what we perceive to be
credits that can be expected to outperform as the prospects for the
healthcare industry grow more certain. Our experience and analytical
resources should enable us to capitalize on pricing aberrations in
the marketplace, and to the extent that Merrill Lynch High Income
Municipal Bond Fund, Inc. continues to place heavy emphasis on this
industry, management expects this strategy to play a significant
role in the Fund's future performance.
Looking forward, we will continue to search the marketplace for
additional high-yield products that will contribute toward the
Fund's total return. Prospects for any material change in the
structure and composition of the portfolio will be dictated both by
our perceptions of individual credits as well as trends affecting
specific market sectors. Finally, in spite of the likelihood of
continuing volatility, the Fund's cash reserves will remain
constant, reflecting both the reality of diminished supply as well
as an effort to sustain current levels of tax-exempt income.
In Conclusion
We appreciate your investment in Merrill Lynch High Income Municipal
Bond Fund, Inc., and we look forward to assisting you with your
financial needs in the months and years ahead.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Vice President and Portfolio Manager
September 29, 1994
<PAGE>
PORTFOLIO ABBREVIATIONS
To simplify the listing of Merrill Lynch High Income 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 below and at right.
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
CPCR Collateralized Pollution Control Revenue Bonds
DATES Daily Adjustable Tax-Exempt Securities
GO General Obligation Bonds
HFA Housing Finance Authority
IDA Industrial Development Authority
IDR Industrial Development Revenue Bonds
INFLOS Inverse Floating Rate Municipal Bonds
M/F Multi-Family
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
S/F Single-Family
UT Unlimited Tax
VRDN Variable Rate Demand Notes
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Alabama--0.5% B+ NR $1,000 Brewton, Alabama, Industrial Development Board, PCR,
Refunding (Container Corporation American Project), 8% due
4/01/2009 $ 1,006
<PAGE>
Arizona--2.7% NR Ba 3,000 Arizona Health Facilities Authority, Hospital Systems Revenue
Refunding Bonds (Saint Luke's Health Systems), 7.25% due
11/01/2014 3,009
BB Ba2 1,000 Maricopa County, Arizona, Pollution Control Corporation, PCR,
Refunding (Public Service Company--Palo Verde), 6.375% due
8/15/2023 917
NR NR 1,280 Pima County, Arizona, IDA, Revenue Bonds (La Hacienda
Project), 9.50% due 12/01/2016 1,254
Pinal County, Arizona, IDA, PCR (Magma--Copper/Newmont
Mining Corporation) (a):
A1+ P1 200 DATES, 2.35% due 12/01/2009 200
AA P1 300 VRDN, 3.25% due 12/01/2009 300
California--0.7% NR NR 1,500 Long Beach, California, Redevelopment Agency, M/F Housing
Revenue Refunding Bonds (Pacific Court Apartments), AMT,
Issue B, 6.80% due 9/01/2013 1,470
Colorado--7.1% BBB+ Baa1 2,000 Colorado Health Facilities Authority, Hospital Revenue Bonds
(P/SL Healthcare System Project), Series A, 6.875% due
2/15/2023 1,991
BBB- NR 1,000 Colorado Health Facilities Financial Authority, Revenue
Refunding Bonds (National Jewish Center Immunization Project),
6.875% due 2/15/2012 994
Denver, Colorado, City and County Airport Revenue Bonds:
BB Baa 2,000 AMT, Series A, 7.50% due 11/15/2023 1,931
BB Baa 900 AMT, Series A, 8% due 11/15/2025 909
BB Baa 2,000 AMT, Series B, 7.50% due 11/15/2025 1,957
BB Baa 2,000 AMT, Series D, 7.75% due 11/15/2013 2,012
BB Baa 1,250 Series A, 7.50% due 11/15/2012 1,250
BB Baa 2,000 Series A, 7.25% due 11/15/2025 1,949
NR NR 2,000 Mountain Village Metropolitan District, Colorado, Refunding
Bonds (San Miguel County), UT, 8.10% due 12/01/2011 2,179
Connecticut--1.0% NR NR 1,950 New Haven, Connecticut, Facilities Revenue Bonds (Hill Health
Corporation Project), 9.25% due 5/01/2017 2,134
District of BBB NR 3,000 District of Columbia, COP, GO, 7.30% due 1/01/2013 3,067
Columbia--1.4%
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Florida--0.7% BB- NR $ 960 Jacksonville, Florida, Port Authority, IDA, Revenue Refunding
Bonds (United States Gypsum Corporate Project), 7.25% due
10/01/2014 $ 947
A1 VMIG1 400 Pinellas County, Florida, Health Facilities Authority,
Revenue Refunding Bonds (Pooled Hospital Loan Project), DATES,
3.25% due 12/01/2015 (a) 400
A1 VMIG1 200 Saint Lucie County, Florida, PCR, Refunding (Florida Power
and Light Company Project), VRDN, 3.25% due 1/01/2026 (a) 200
Georgia--2.2% NR NR 2,535 Atlanta, Georgia, Urban Residential Finance Authority, College
Facilities Revenue Bonds (Morris Brown College Project),
9.50% due 6/01/2011 2,484
NR NR 2,000 Atlanta, Georgia, Urban Residential Finance Authority, M/F
Mortgage Revenue Bonds (Northside Plaza Apartments Project),
9.75% due 11/01/2020 2,110
Hawaii--0.8% AAA NR 1,750 Hawaii State Department of Budget and Finance, Special
Purpose Mortgage Revenue Bonds (Citizens Utility Company),
RIB, Series 91-B, 9.689% due 11/01/2021 (g) 1,811
Illinois--2.3% BB Baa2 470 Chicago, Illinois, O'Hare International Airport, Special
Facilities Revenue Bonds (United Airlines), AMT, Series B,
8.95% due 5/01/2018 512
BBB+ NR 2,000 Illinois Educational Facilities Authority Revenue Bonds
(Chicago Osteopathic Health System), 7.25% due 5/15/2022 2,032
NR Baa1 1,250 Illinois Health Facilities Authority Revenue Bonds (Holy Cross
Hospital Project), 6.75% due 3/01/2024 1,222
BBB NR 1,000 Lansing, Illinois, Tax Increment Revenue Refunding Bonds, 7%
due 12/01/2008 1,038
Indiana--0.7% A NR 1,500 Indiana Bond Bank, Special Hospital Program Revenue Bonds
(Hendricks Community Hospital), Series A, 7.125% due 4/01/2013 1,570
Iowa--0.7% NR NR 1,500 Iowa Finance Authority, Health Care Facilities Revenue Bonds
(Mercy Health Initiatives Project), 9.95% due 7/01/2019 1,579
Kentucky--4.1% Jefferson County, Kentucky, First Mortgage Revenue Bonds
(Christian Church Homes):
BBB NR 600 6.125% due 11/15/2013 556
BBB NR 1,165 6.125% due 11/15/2018 1,034
AAA Aaa 4,000 Louisville, Kentucky, Hospital Revenue Bonds, INFLOS, 9.612%
due 10/01/2014 (b)(g) 4,235
NR NR 3,000 Perry County, Kentucky, Solid Waste Disposal Revenue Bonds,
AMT, 7% due 6/01/2024 2,977
<PAGE>
Louisiana--5.2% NR Baa3 3,500 Lake Charles, Louisiana, Harbor and Terminal District, Port
Facilities Revenue Refunding Bonds (Trunkline LNG Company
Project), 7.75% due 8/15/2022 3,773
BBB+ Baa1 1,000 Louisiana Public Facilities Authority, Hospital Revenue Bonds
(Woman's Hospital Foundation Project), 7.25% due 10/01/2022 1,016
NR A 1,000 Louisiana Public Facilities Authority, Student Loan Revenue
Bonds, AMT, Series A-3, 7% due 9/01/2006 1,041
BB- NR 3,000 Port New Orleans, Louisiana, IDA, Revenue Refunding Bonds
(Continental Grain Company Project), 7.50% due 7/01/2013 3,017
BBB- NR 2,000 West Feliciana Parish, Louisiana, PCR (Gulf States Utilities),
Series II, 7.70% due 12/01/2014 2,171
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Massachusetts--8.1% NR NR $1,200 Boston, Massachusetts, Industrial Development Financing
Authority, Solid Waste Disposal Facility Revenue Bonds
(Jet-A-Way Project), AMT, 10.50% due 1/01/2011 $ 1,326
NR Ba 1,325 Lawrence, Massachusetts, GO, 9.875% due 12/15/1998 1,546
AAA Aaa 3,500 Massachusetts Health and Educational Facilities Authority
Revenue Bonds (Beth Israel Hospital), INFLOS, 8.472% due
7/01/2025 (e)(g) 3,325
NR NR 1,205 Massachusetts Health and Educational Facilities Authority
Revenue Bonds (North Adams Regional Hospital), Series B,
8% due 7/01/1998 1,301
NR B1 1,675 Massachusetts Industrial Finance Agency Revenue Bonds (Bay
Cove Human Services Inc.), 8.38% due 4/01/2019 1,717
NR NR 1,000 Massachusetts Industrial Finance Agency, Solid Waste
Disposal Revenue Bonds (Molten Metal Technology Project),
AMT, 8.25% due 8/01/2014 1,000
BB+ Ba1 1,600 Massachusetts Industrial Finance Authority Revenue Bonds
(Vinfen Corporate Issue), 7.10% due 11/15/2018 1,512
NR NR 5,000 Massachusetts Port Authority Revenue Bonds (Harborside Hyatt
Project), AMT, 10% due 3/01/2026 5,450
Michigan--2.3% BBB Ba1 2,900 Detroit, Michigan, GO, UT, Series A, 8.70% due 4/01/2010 3,276
A1+ VMIG1 1,700 Grand Rapids, Michigan, Water Supply System, Revenue
Refunding Bonds, VRDN, 3.30% due 1/01/2020 (a)(h) 1,700
<PAGE>
Minnesota--3.1% Saint Paul, Minnesota, Housing and Redevelopment Authority,
Hospital Revenue Bonds (Healtheast Project):
BBB- Baa 1,000 Series B, 6.625% due 11/01/2017 955
BBB- Baa 4,820 Series D, 9.75% due 11/01/2017 5,583
Mississippi--0.5% NR Baa 1,000 Mississippi Hospital Equipment and Facilities Authority
Revenue Bonds (Riley Memorial Hospital), Series B, 7.125%
due 5/01/2022 1,004
Missouri--5.2% BBB- NR 3,000 Joplin, Missouri, IDA, Hospital Facilities Revenue Refunding
and Improvement Bonds (Tri-State Osteopathic Project), 8.25%
due 12/15/2014 3,254
Missouri Health and Educational Facilities Authority Revenue
Bonds (Southwest Baptist University Project):
BB NR 905 9.50% due 10/01/2001 1,041
BB NR 3,690 9.50% due 10/01/2011 4,367
AAA Aaa 2,000 Phelps County, Missouri, Hospital Revenue Bonds (Phelps
County Regional Medical Center), 8.30% due 3/01/2000 (d) 2,343
Montana--0.9% NR NR 2,000 Montana State Investment Board, Resource Recovery Revenue
Bonds (Yellowstone Energy Light & Power Project), AMT, 7%
due 12/31/2019 1,944
Nevada--1.3% BBB+ NR 3,000 Las Vegas, Nevada, Downtown Redevelopment Agency, Tax
Increment Revenue Bonds (Fremont Street Project), Series A,
6.10% due 6/15/2014 2,854
New BBB+ Baa1 1,845 New Hampshire Higher Educational and Health Facilities
Hampshire--2.6% Authority Revenue Bonds (Saint Joseph Hospital), 7.50% due
1/01/2016 1,906
BB+ Baa3 3,450 New Hampshire, IDA, PCR (Public Service Company New
Hampshire Project), Series B, 7.50% due 5/01/2021 3,575
New Jersey--5.8% BBB+ Baa1 2,000 Camden County, New Jersey, Pollution Control Financing
Authority, Solid Waste Resource Recovery Revenue Bonds,
Series D, 7.25% due 12/01/2010 2,014
New Jersey Health Care Facilities, Financing Authority
Revenue Bonds:
NR NR 4,800 (Riverwood Center), Series A, 9.90% due 7/01/2021 5,304
BBB- Baa 4,700 (Saint Elizabeth Hospital), Series B, 8.25% due 7/01/2020 5,075
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
New Mexico--1.3% BB Ba2 $2,000 Farmington, New Mexico, PCR, Refunding (Public Service
Company--San Juan Project), Series A, 6.40% due 8/15/2023 $ 1,840
A A3 1,000 Lordsburg, New Mexico, PCR, Refunding (Phelps Dodge
Corporate Project), 6.50% due 4/01/2013 1,016
New York--3.8% New York City, New York, GO, UT:
A- Aaa 1,850 Series B, 8.25% due 6/01/2001 (d) 2,213
A- Baa1 5,260 Series C, 7.50% due 8/01/2021 5,683
A1+ NR 200 New York City, New York, IDA, IDR (Japan Airlines Company
Ltd. Project), AMT, VRDN, 2.75% due 11/01/2015 (a) 200
North NR VMIG1 100 Person County, North Carolina, Industrial Facilities and
Carolina--0.0% Pollution Control Financing Authority, Solid Waste Disposal
Revenue Bonds (Carolina Power and Light Company), AMT, DATES,
3.30% due 11/01/2016 (a) 100
Ohio--4.1% NR NR 1,725 Cincinnati, Ohio, Student Loan Funding Corporation, Revenue
Refunding Bonds, AMT, Series B, 6.75% due 1/01/2007 1,761
AAA Aaa 2,000 Ohio, HFA, S/F Mortgage Revenue Bonds, Series A2, AMT, RIB,
10.287% due 3/24/2031 (c)(g) 2,040
BB Baa3 2,500 Ohio State Air Quality Development Authority, CPCR, Refunding
(Cleveland Electric Company), AMT, 6.85% due 7/01/2023 2,406
BB Ba2 2,500 Ohio State Water Development Authority, Pollution Control
Facilities Revenue Bonds (Toledo Edison Company Project),
Series A, AMT, 7.40% due 11/01/2022 2,528
Oklahoma--0.5% BB- NR 985 Blaine County, Oklahoma, Industrial Authority, IDA, Revenue
Bonds (United States Gypsum Corp. Project), 7.25% due
10/01/2010 989
Oregon--1.4% NR NR 1,000 Western Generation Agency, Oregon, Cogeneration Project
Revenue Bonds (Wauna Cogeneration Project), Series B, AMT,
7.40% due 1/01/2016 1,011
B+ NR 1,955 Yamhill County, Oregon, PCR, Refunding (Smurfit Newsprint
Corporate Project), 8% due 12/01/2003 1,984
<PAGE>
Pennsylvania--10.8% BB+ Baa3 1,750 Allegheny County, Pennsylvania, IDA, Revenue Refunding Bonds
(Environmental Improvement), Series A, 6.70% due 12/01/2020 1,751
BBB- NR 5,000 McKean County, Pennsylvania, Hospital Authority Revenue
Bonds (Bradford Hospital Project), 8.875% due 10/01/2020 5,920
BBB NR 1,710 Montgomery County, Pennsylvania, Higher Education and Health
Authority, Hospital Revenue Bonds (Jeanes Health System
Project), 8.625% due 7/01/2000 (d) 2,045
Montgomery County, Pennsylvania, IDA, Revenue Refunding
Bonds:
NR NR 1,500 (1st Mortgage-Meadowood Corporation Project), Series A,
10.25% due 12/01/2020 1,635
NR Ba 3,500 (Pennsburg Nursing and Rehabilitation Center), 7.625% due
7/01/2018 3,498
BB Ba 1,500 Pennsylvania Convention Center Authority, Revenue Refunding
Bonds, Series A, 6.75% due 9/01/2019 1,477
NR NR 2,000 Pennsylvania Economic Development Financing Authority, IDR
(GEHL Company Inc. Project), AMT, Series F, 9% due 9/01/2010 2,054
BBB- NR 1,500 Pennsylvania Economic Development Financing Authority,
Resource Recovery Revenue Bonds (Colver Project), AMT,
Series D, 7.15% due 12/01/2018 1,510
NR NR 3,000 Washington County, Pennsylvania, Hospital Authority Revenue
Refunding Bonds (Canonsburg General Hospital Project), 7.35%
due 6/01/2013 3,035
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Rhode Island--1.5% BBB+ NR $1,500 Rhode Island Health and Educational Building Corporation,
Hospital Revenue Bonds (South County Hospital), 7.25% due
11/01/2011 $ 1,544
NR Ba 1,615 West Warwick, Rhode Island, GO, UT, Series A, 6.80% due
7/15/1998 1,670
South Carolina--0.7% NR Baa1 1,500 Horry County, South Carolina, Hospital Facilities Revenue
Refunding Bonds (Conway Hospital, Inc.), 6.75% due 7/01/2012 1,508
South Dakota--0.5% BBB Baa 1,000 South Dakota Health and Educational Facilities Authority,
Revenue Refunding Bonds (Prairie Lakes Health Care), 7.25%
due 4/01/2022 1,012
Tennessee--3.3% NR NR 4,265 Knox County, Tennessee, Health, Educational and Housing
Facilities Board, Hospital Facilities Revenue Bonds (Baptist
Health Systems of East Tennessee), 8.60% due 4/15/2016 4,516
BBB- Baa1 2,500 McMinn County, Tennessee, Industrial Development Board,
Solid Waste Disposal Revenue Bonds (Calhoun Newsprint), AMT,
7.40% due 12/01/2022 2,594
<PAGE>
Texas--8.5% BBB Baa2 1,250 Brazos River Authority, Texas, PCR (Texas Utilities
Electric Company), AMT, Series A, 8.125% due 2/01/2020 1,367
Dallas-Fort Worth, Texas, International Airport Facilities
Improvement Corporation Revenue Bonds:
BB+ Baa2 3,000 (American Airlines, Inc.), AMT, 7.25% due 11/01/2030 2,892
BB Ba1 3,375 (Delta Airlines Incorporated), 6.25% due 11/01/2013 3,047
BBB A 1,500 Ector County, Texas, Hospital Revenue Bonds (Ector County
Hospital), 7.30% due 4/15/2012 1,550
NR NR 1,000 Gulf Coast, Texas, Waste Disposal Authority, PCR and Solid
Waste Disposal Revenue Bonds (Diamond Shamrock Corporation
Project), 6.75% due 6/01/2009 1,000
BBB- Baa 4,920 Jefferson County, Texas, Health Facilities Development
Corporation, Hospital Revenue Bonds (Baptist Healthcare
Systems Project), 8.875% due 6/01/2021 5,489
BBB NR 1,500 Midland County, Texas, Hospital District Revenue Bonds
(Midland Memorial Hospital), 7.50% due 6/01/2016 1,572
NR NR 1,845 Swisher County, Texas, Jail Facilities Financing Corporation
Revenue Bonds (Criminal Detention Center), 9.75% due
8/01/2009 (f) --
BBB Baa2 1,000 West Side Calhoun County, Texas, Navigation District, Solid
Waste Revenue Bonds (Union Carbide Chemical and Plastics),
AMT, 8.20% due 3/15/2021 1,091
Utah--1.5% AAA Aaa 3,000 Salt Lake City, Utah, Hospital Revenue Refunding Bonds (IHC
Hospitals, Inc.), INFLOS, 10.123% due 5/15/2020 (e)(g) 3,176
Wisconsin--1.1% NR B1 2,350 Walworth, Wisconsin, IDA, Revenue Refunding Bonds (United
States Gypsum Corp. Project), 7.25% due 5/01/2010 2,360
Total Investments (Cost--$202,857)--98.9% 210,710
Other Assets Less Liabilities--1.1% 2,248
--------
Net Assets--100.0% $212,958
========
<FN>
(a)The interest rate is subject to change periodically based upon
the prevailing market rate. The interest rate shown is the rate in
effect at August 31, 1994.
(b)MBIA Insured.
(c)GNMA Collateralized.
(d)Prerefunded.
(e)AMBAC Insured.
(f)Non-income producing security.
(g)The interest rate is subject to change periodically and inversely
to the prevailing market rate. The interest rate shown is the rate
in effect at August 31, 1994.
(h)FGIC Insured.
NR--Not Rated.
Ratings of issues shown have not been audited by Deloitte & Touche
LLP.
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of August 31, 1994
<CAPTION>
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$202,856,604) (Note 1a) $210,709,836
Cash 8,513
Receivables:
Interest $ 4,070,376
Securities sold 2,647,647
Capital shares sold 264,576 6,982,599
------------
Deferred organization expenses (Note 1e) 51,074
Prepaid registration fees and other assets (Note 1e) 10,703
------------
Total assets 217,762,725
------------
Liabilities: Payables:
Securities purchased 3,954,072
Dividends to shareholders (Note 1g) 455,273
Investment adviser (Note 2) 173,804
Administration (Note 2) 45,738
Capital shares redeemed 366 4,629,253
------------
Accrued expenses and other liabilities 175,093
------------
Total liabilities 4,804,346
------------
Net Assets: Net assets $212,958,379
============
Net Assets Common stock, $.10 par value, 200,000,000 shares authorized $ 1,950,625
Consist of: Paid-in capital in excess of par 200,357,571
Undistributed realized capital gains--net 2,796,951
Unrealized appreciation on investments--net 7,853,232
------------
Net assets--Equivalent to $10.92 per share based on 19,506,250 shares
of capital outstanding $212,958,379
============
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Year Ended
August 31, 1994
<S> <S> <C>
Investment Interest and amortization of premium and discount earned $ 16,203,513
Income
(Note 1d):
Expenses: Investment advisory fees (Note 2) 2,111,003
Administrative fees (Note 2) 555,527
Transfer agent fees (Note 2) 109,848
Professional fees 94,021
Listing fees 89,348
Printing and shareholder reports 77,621
Advertising 55,909
Registration fees (Note 1e) 52,694
Amortization of organization expenses (Note 1e) 43,665
Accounting services (Note 2) 39,397
Directors' fees and expenses 25,613
Custodian fees 23,853
Pricing services 11,524
Other 5,946
------------
Total expenses before reimbursement 3,295,969
Reimbursement of expenses (Note 2) (3,563)
------------
Total expenses after reimbursement 3,292,406
------------
Investment income--net 12,911,107
------------
Realized & Realized gain on investments--net 3,571,349
Unrealized Change in unrealized appreciation on investments--net (12,998,193)
Gain (Loss) on ------------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 3,484,263
(Notes 1d & 3): ============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<PAGE>
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended August 31,
Increase (Decrease) in Net Assets: 1994 1993
<S> <S> <C> <C>
Operations: Investment income--net $ 12,911,107 $ 11,632,598
Realized gain on investments--net 3,571,349 1,137,534
Change in unrealized appreciation on investments--net (12,998,193) 12,041,409
------------ ------------
Net increase in net assets resulting from operations 3,484,263 24,811,541
------------ ------------
Dividends & Investment income--net (12,911,107) (11,632,598)
Distributions Realized gain on investments--net (1,365,806) (851,810)
To Shareholders ------------ ------------
(Note 1g): Net decrease in net assets resulting from dividends and
distributions to shareholders (14,276,913) (12,484,408)
------------ ------------
Capital Share Net increase in net assets derived from capital share
Transactions transactions 6,828,611 33,860,084
(Note 4): ------------ ------------
Net Assets: Total increase (decrease) in net assets (3,964,039) 46,187,217
Beginning of year 216,922,418 170,735,201
------------ ------------
End of year $212,958,379 $216,922,418
============ ============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (concluded)
<PAGE>
<TABLE>
Financial Highlights
<CAPTION>
For the
Period
The following per share data and ratios have been derived Nov. 2,
from information provided in the financial statements. 1990++ to
For the Year Ended August 31, Aug, 31,
Increase (Decrease) in Net Asset Value: 1994 1993 1992 1991
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 11.44 $ 10.74 $ 10.29 $ 10.00
Operating --------- --------- --------- ---------
Performance: Investment income--net .65 .68 .71 .63
Realized and unrealized gain (loss) on
investments--net (.45) .75 .50 .29
--------- --------- --------- ---------
Total from investment operations .20 1.43 1.21 .92
--------- --------- --------- ---------
Less dividends and distributions:
Investment income--net (.65) (.68) (.71) (.63)
Realized gain on investments--net (.07) (.05) (.05) --
--------- --------- --------- ---------
Total dividends and distributions (.72) (.73) (.76) (.63)
--------- --------- --------- ---------
Net asset value, end of period $ 10.92 $ 11.44 $ 10.74 $ 10.29
========= ========= ========= =========
Total Investment Based on net asset value per share 1.75% 13.83% 12.29% 9.43%+++
Return:** ========= ========= ========= =========
Ratios to Expenses, net of reimbursement 1.48% 1.37% 1.30% .84%*
Average ========= ========= ========= =========
Net Assets: Expenses 1.48% 1.47% 1.55% 1.76%*
========= ========= ========= =========
Investment income--net 5.81% 6.17% 6.85% 7.43%*
========= ========= ========= =========
Supplemental Net assets, end of period (in thousands) $ 212,958 $ 216,922 $ 170,735 $ 114,628
Data: ========= ========= ========= =========
Portfolio turnover 28.51% 28.74% 31.74% 75.92%
========= ========= ========= =========
<PAGE>
<FN>
++Commencement of Operations.
+++Aggregate total investment return.
*Annualized.
**Total investment returns exclude the effects of
sales loads. The Fund is a continuously offered
closed-end fund, the shares of which are offered
at net asset value. Therefore, no separate market
exists.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch High Income Municipal Bond Fund, Inc. (the "Fund") is
registered under the Investment Company Act of 1940 as a
continuously offered, non-diversified, closed-end management
investment company. The following is a summary of significant
accounting policies followed by the Fund.
(a) Valuation of investments--Municipal bonds are traded primarily
in the over-the-counter markets and are valued at the most recent
bid price or yield equivalent as obtained by the Fund's pricing
service from dealers that make markets in such securities. Financial
futures contracts, which are traded on exchanges, are valued at
their closing prices as of the close of such exchanges. Options,
which are traded on exchanges, are valued at their last sale price
as of the close of such exchanges or, lacking any sales, at the last
available bid price. Securities with remaining maturities of sixty
days or less are valued at amortized cost, which approximates market
value. Securities for which market quotations are not readily
available are valued at fair value as determined in good faith by or
under the direction of the Board of Directors of the Fund.
(b) Financial futures contracts--The Fund may purchase or sell
certain financial futures contracts and options thereon 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 Fund
deposits and maintains as collateral such initial margin as required
by the exchange on which the transaction is effected. Pursuant to
the contract, the Fund agrees 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 Fund as unrealized gains or losses. When the
contract is closed, the Fund records 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.
<PAGE>
(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). Interest income is recognized on the accrual
basis. Discounts and market premiums are amortized into interest
income. Realized gains and losses on security transactions are
determined on the identified cost basis.
(e) Deferred organization expenses and prepaid registration fees--
Deferred organization expenses are amortized on a straight-line
basis over a five-year period. Prepaid registration fees are charged
to expense as the related shares are issued.
(f) Non-income producing investments--Written and purchased options
are non-income producing investments.
(g) 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.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Merrill Lynch Asset Management, L.P. ("MLAM" or "Adviser").
Effective January 1, 1994, the investment advisory business of MLAM
was reorganized from a corporation to a limited partnership. Both
prior to and after the reorganization, ultimate control of MLAM was
vested with Merrill Lynch & Co., Inc. ("ML & Co."). The general
partner of MLAM is Princeton Services, Inc. ("PSI"), an indirect
wholly-owned subsidiary of ML & Co. The limited partners are ML &
Co. and Merrill Lynch Investment Management, Inc. ("MLIM"), which is
also an indirect wholly-owned subsidiary of ML & Co. The Fund has
also entered into a Distribution Agreement with Merrill Lynch Funds
Distributor, Inc. ("MLFD" or "Distributor"), an indirect wholly-
owned subsidiary of ML & Co.
MLAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee at an annual rate of 0.95% of
the Fund's average daily net assets.
<PAGE>
The Fund also has entered into an Administrative Services Agreement
with MLAM whereby MLAM will receive a fee equal to an annual rate of
0.25% of the Fund's average daily net assets, in return for the
performance of administrative services (other than investment advice
and related portfolio activities) necessary for the operation of the
Fund. The Investment Advisory Agreement obligates MLAM to reimburse
the Fund to the extent the Fund's expenses (excluding interest,
taxes, brokerage fees and commissions, and extraordinary items)
exceed (a) 2.0% of the Fund's average daily net assets or (b) 2.5%
of the Fund's first $30 million of average daily net assets, 2.0% of
the next $70 million of average daily net assets, and 1.5% of the
average daily net assets in excess thereof. MLAM's obligation to
reimburse the Fund is limited to the amount of the investment
advisory fee. No fee payment will be made to the Investment Adviser
during any fiscal year which will cause such expenses to exceed the
most restrictive expense limitation applicable at the time of such
payment. MLAM has voluntarily agreed to waive a portion of the
combined investment advisory and administrative fees. For the year
ended August 31, 1994, MLAM earned fees of $2,111,003, of which
$3,563 was waived.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by MLAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of MLIM, MLFD, FDS, PSI, MLPF&S, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended August 31, 1994 were $59,834,412 and $57,064,356,
respectively.
Net realized and unrealized gains as of August 31, 1994 were as
follows:
Realized Unrealized
Gains Gains
Long-term investments $ 2,846,080 $ 7,853,232
Financial futures contracts 725,269 --
----------- ------------
Total $ 3,571,349 $ 7,853,232
=========== ============
As of August 31, 1994, net unrealized appreciation for Federal
income tax purposes aggregated $7,853,232, of which $10,724,635
related to appreciated securities and $2,871,403 related to depreci-
ated securities. The aggregate cost of investments at August 31,
1994 for Federal income tax purposes was $202,856,604.
<PAGE>
4. Capital Share Transactions:
Transactions in capital shares were as follows:
For the Year Ended Dollar
August 31, 1994 Shares Amount
Shares sold 2,811,953 $ 31,764,655
Shares issued to share-
holders in reinvest-
ment of dividends 526,098 5,902,562
----------- ------------
Total issued 3,338,051 37,667,217
Shares tendered (2,797,604) (30,838,606)
----------- ------------
Net increase 540,447 $ 6,828,611
=========== ============
For the Year Ended Dollar
August 31, 1993 Shares Amount
Shares sold 4,347,002 $ 48,160,844
Shares issued to share-
holders in reinvestment
of dividends 465,531 4,748,066
----------- ------------
Total issued 4,812,533 52,908,910
Shares tendered (1,739,446) (19,048,826)
----------- ------------
Net increase 3,073,087 $ 33,860,084
=========== ============
<AUDIT-REPORT>
The Board of Directors and Shareholders,
Merrill Lynch High Income Municipal
Bond Fund, Inc.:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments, of Merrill Lynch
High Income Municipal Bond Fund, Inc. as of August 31, 1994, 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
three-year period then ended and the period November 2, 1990
(commencement of operations) to August 31, 1991. 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.
<PAGE>
We conducted our audits in accordance with generally accepted
auditing standards. 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 August
31, 1994 by correspondence with the custodian and brokers. 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
Merrill Lynch High Income Municipal Bond Fund, Inc. as of August 31,
1994, the results of its operations, the changes in its net assets,
and the financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
September 30, 1994
</AUDIT-REPORT>
IMPORTANT TAX INFORMATION
All of the net investment income distributions paid monthly by
Merrill Lynch High Income Municipal Bond Fund, Inc. during its
taxable year ended August 31, 1994 qualify as tax-exempt interest
dividends for Federal income tax purposes.
Additionally, the Fund distributed short-term capital gains of
$.043007 per share and long-term capital gains of $.026223 per share
to shareholders of record on December 22, 1993.
Please retain this information for your records.
<PAGE>
