Merrill Lynch High Income Municipal Bond Fund, Inc.
Quarterly
Report
May 31, 1994
This report, including the
financial information herein,
is transmitted to the share-
holders of Merrill Lynch
High Income Municipal Bond
Fund, Inc. for their informa-
tion. 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 perform-
ance results shown in this
report should not be consi-
dered a representation of
future performance.
Merrill Lynch High Income
Municipal Bond Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
<PAGE>
Merrill Lynch High Income Municipal Bond Fund, Inc.
DEAR SHAREHOLDER
For the three-month period ended May 31, 1994, Merrill Lynch High
Income Municipal Bond Fund, Inc. earned $0.164 per share income
dividends, representing a net annualized yield of 6.00%, based on
a per share net asset value of $10.88 as of May 31, 1994. Over
the same period, the Fund's total investment return was -2.39%,
based on a change in per share net asset value from $11.32 to
$10.88, and assuming reinvestment of $0.168 per share income
dividends.
The Environment
Inflationary concerns persisted during the May quarter. The
Federal Reserve Board followed up its initial increase in the
Federal Funds rate with three subsequent monetary policy
tightening moves. At the same time, investors viewed signs of
economic strength as an indication that the rate of inflation
would soon accelerate. Among the most trouble-some statistics
released was the mid-May rise in the Commodity Research Bureau's
inflation index. However, by quarter-end this index had declined
back to the levels at which it began the year.
Despite an upward revision in gross domestic product growth to
3.0% for the first quarter of the year, later economic data
releases suggest a moderating trend. Disposable income fell 0.5%
in April, consumer spending dropped 0.4% after adjusting for
inflation, and sales of new homes also fell. Consumer confidence
declined for the first time in three months, reflected in
sluggish retail sales. However, employment data for May sent
somewhat conflicting signals. The unemployment rate dropped
sharply in May from 6.4% to 6.0%, but at the same time business
payrolls grew only modestly.
In the weeks ahead, investors are likely to continue to focus
their attention on the direction of the economy and inflationary
trends. Evidence of stable and moderate economic growth, combined
with subdued inflationary pressures, would be a positive
development for the financial markets. The absence of these
trends, along with continued monetary policy tightening by the
central bank, would likely lead to continued volatility in stock
and bond prices over the near term.
<PAGE>
The Municipal Market
During the three months ended May 31, 1994, tax-exempt bond
yields exhibited considerable volatility as they rose to their
highest level in two years. As measured by the Bond Buyer Revenue
Bond Index, the yield on a newly issued municipal bond maturing
in 30 years rose during the period by approximately 50 basis
points (0.50%) to 6.41% by the end of May. Yields on seasoned
municipal revenue issues rose by over 60 basis points in sympathy
with the even more dramatic rise in US Treasury bond yields. By
the end of May, yields on US Treasury securities had risen by
over 60 basis points to 7.42%.
Long-term tax-exempt interest rates gradually rose throughout the
May quarter. However, on a weekly basis, municipal bond yields
fluctuated by as much as 15 basis points as investors were unable
to reconcile the rapid economic growth seen in the last quarter
of 1993 and into early 1994 with continued weak inflationary
pressures. Following the Federal Reserve Board's initial interest
rate increase in early February, municipal bond prices began to
erode in concert with taxable bond prices as investors began to
sell securities in anticipation of further interest rate
increases. As the Federal Reserve Board continued to raise short-
term interest rates in subsequent months, municipal bond yields
rose further to a high of 6.60% in mid-May before declining
somewhat at May month-end.
The magnitude of the rise in tax-exempt bond yields during the
past six months has not been seen since 1987 when municipal bond
yields rose 250 basis points from March to October of that year.
It is very important to note that the municipal bond price
declines over the past six months, while certainly damaging, were
essentially much different than the 1987 episode. Recent price
declines have been largely the result of consistent and insistent
selling pressures over the past four months. In 1987, the tax-
exempt bond market was much more volatile and, at times, chaotic
as investors sought to liquidate positions without much concern
to fundamental value. The recent price deterioration, for the
most part, has been orderly, and the municipal bond market's
liquidity and integrity have not been challenged or jeopardized.
<PAGE>
To a large extent, the municipal bond market has continued to be
supported by its strong technical position. New-issue volume for
the past six months has been approximately $100 billion. This
represents a decline of approximately 40% versus the comparable
period a year earlier. This reduction has been even more
pronounced over the past three months when only $41 billion in
long-term securities were issued, representing over a 50% decline
in issuance from the level a year ago. This decline was expected
and discussed in earlier shareholder reports. This reduced
issuance has minimized potential selling pressures in recent
months as institutional investors have been wary of selling
appreciable amounts of securities that they may be unable to
replace later this year at any price level. We expect this
decline in new bond issuance to continue this year and into 1995.
Despite recent price declines, tax-exempt securities remain among
the most attractive investment alternatives available. Longer-
term municipal securities, after the recent yield increases,
yield approximately 85% of comparable US Treasury issues.
Purchasers of these municipal bonds also accrue substantial
after-tax yield advantages. For example, to investors in the 39%
marginal Federal income tax bracket, the purchase of a tax-exempt
product yielding 6.35% represents an after-tax equivalent of
10.40%. With prevailing estimates of 1994 inflation at no more
than 3%--4%, real after-tax rates in excess of 6.25% easily
compensate longer-term investors for much of the price volatility
recently experienced.
We continue to look for municipal bond yields to decline later
this year and into 1995 as inflationary pressures remain low and
as the domestic economy is further slowed by the impact of higher
interest rates. As this scenario unfolds, currently available
tax-exempt products should generate attractive returns for long-
term investors.
Portfolio Strategy
During the quarter ended May 31, 1994, our portfolio strategy
continued to focus on generating an attractive level of tax-
exempt income for shareholders. We purchased approximately $3.25
million in high-yield securities bearing an average yield of
almost 7.75%. No material changes occurred in the portfolio
structure, with 85% of the Fund's holdings still rated Baa by
Moody's Investors Service, Inc. or BBB by Standard & Poor's
Corp., or lower. We continue to pursue situations where proceeds
from the sale of holdings we believe to be overvalued can be
reinvested in other tax-exempt securities possessing what we
believe is greater intrinsic value. All current holdings are
regularly monitored for creditworthiness and ongoing viability by
our staff of research analysts.
<PAGE>
Looking forward, we intend to maintain the Fund's cash reserves
at or below current levels. Technicals in the tax-exempt arena
appear increasingly favorable, especially in light of our
expectation for stable-to-slightly lower interest rates in the
months ahead.
We appreciate your ongoing interest 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
June 17, 1994
<PAGE>
PORTFOLIO COMPOSITION
For the Quarter Ended May 31, 1994
Top Ten States*
Texas 11.53%
Pennsylvania 8.94
New Jersey 7.08
Massachusetts 6.70
Colorado 6.45
Missouri 5.16
Louisiana 5.15
New York 4.96
Ohio 4.13
Tennessee 3.35
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Total Top Ten 63.45
Total Others 36.55
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Total Portfolio 100.00%
=======
Net assets as of May 31, 1994 were $214,323,584.
[FN]
*Based on total market value of the portfolio as of May 31,
1994.
GRAPHIC MATERIAL APPEARS HERE.
SEE APPENDIX GRAPHIC AND IMAGE MATERIAL ITEM 1.
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
<PAGE>
Custodian
The Bank of New York
110 Washington Street
New York, New York 10286
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
APPENDIX GRAPHIC AND IMAGE MATERIAL.
ITEM 1:
Quality Ratings*
(Based on Nationally Recognized Rating Services)
A pie chart illustrating the following percentages:
AAA/Aaa 12%
A/A 3%
BBB/Baa 44%
BB/Ba 16%
B/B 3%
NR 22%
[FN]
*Based on total market value of the portfolio as of May 31,
1994.
