<PAGE>
MERRILL LYNCH HIGH INCOME MUNICIPAL BOND FUND, INC.
BOX 9011
PRINCETON, NEW JERSEY 08543-9011
NOTICE OF MEETING OF STOCKHOLDERS
FEBRUARY 25, 1994
TO THE STOCKHOLDERS OF
MERRILL LYNCH HIGH INCOME MUNICIPAL BOND FUND, INC.:
Notice is hereby given that a Meeting of Stockholders (the 'Meeting') of
Merrill Lynch High Income Municipal Bond Fund, Inc. (the 'Fund') will be held at
the offices of Merrill Lynch Asset Management, 800 Scudders Mill Road,
Plainsboro, New Jersey, on Friday, February 25, 1994 at 10:00 A.M. for the
following purposes:
(1) To elect six Directors to serve for an indefinite term;
(2) To consider and act upon a proposal to ratify the selection of
Deloitte & Touche to serve as independent auditors of the Fund for
its fiscal year ending August 31, 1994; and
(3) To transact such other business as may properly come before the
Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on December 20, 1993
as the record date for the determination of stockholders entitled to notice of
and to vote at the Meeting or any adjournment thereof.
A complete list of the stockholders of the Fund entitled to vote at the
Meeting will be available and open to the examination of any stockholder of the
Fund for any purpose germane to the Meeting during ordinary business hours from
and after February 11, 1994 at the office of the Fund, 800 Scudders Mill Road,
Plainsboro, New Jersey 08536. You are cordially invited to attend the Meeting.
Stockholders who do not expect to attend the Meeting in person are requested to
complete, date and sign the enclosed form of proxy and return it promptly in the
envelope provided for this purpose. The enclosed proxy is being solicited on
behalf of the Board of Directors of the Fund.
By Order of the Board of Directors
ROBERT HARRIS
Secretary
Plainsboro, New Jersey
Dated: January 7, 1994
<PAGE>
PROXY STATEMENT
------------------------
MERRILL LYNCH HIGH INCOME MUNICIPAL BOND FUND, INC.
BOX 9011
PRINCETON, NEW JERSEY 08543-9011
------------------------
MEETING OF STOCKHOLDERS
FEBRUARY 25, 1994
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of Merrill Lynch High Income
Municipal Bond Fund, Inc., a Maryland corporation (the 'Fund'), to be voted at a
Meeting of Stockholders of the Fund (the 'Meeting'), to be held at the offices
of Merrill Lynch Asset Management ('MLAM'), 800 Scudders Mill Road, Plainsboro,
New Jersey, on Friday, February 25, 1994 at 10:00 A.M. The approximate mailing
date of this Proxy Statement is January 12, 1994.
All properly executed proxies received prior to the Meeting will be voted
at the Meeting in accordance with the instructions marked thereon or otherwise
as provided therein. Unless instructions to the contrary are marked, proxies
will be voted for the election of the six Directors named herein to serve for an
indefinite term and for the ratification of the selection of independent
auditors to serve for the Fund's current fiscal year. Any proxy may be revoked
at any time prior to the exercise thereof by giving written notice to the
Secretary of the Fund.
The Board of Directors has fixed the close of business on December 20, 1993
as the record date for the determination of stockholders entitled to notice of
and to vote at the Meeting and at any adjournment thereof. Stockholders on the
record date will be entitled to one vote for each share held, with no shares
having cumulative voting rights. As of December 20, 1993, the Fund had
outstanding 19,705,839 shares of common stock, par value $.10 per share. To the
knowledge of the Fund, as of December 20, 1993 no person was the beneficial
owner of more than five percent of its outstanding shares.
The Board of Directors of the Fund knows of no business other than that
mentioned in Items 1 and 2 of the Notice of Meeting which will be presented for
consideration at the Meeting. If any other matter is properly presented, it is
the intention of the persons named in the enclosed proxy to vote in accordance
with their best judgment.
<PAGE>
ELECTION OF DIRECTORS
At the Meeting, six Directors will be elected to serve for an indefinite
term until their successors are elected and qualified.
There normally will be no meeting of stockholders for the purpose of
electing Directors unless and until such time as less than a majority of the
Directors holding office have been elected by stockholders, at which time the
Directors then in office will call a special meeting of stockholders for the
election of Directors. Stockholders may, in accordance with the terms of the
By-Laws of the Fund, cause a meeting to be held for the purpose of voting on the
removal of Directors at the request of 10% of the outstanding shares of the
Fund. A Director elected by the holders of capital stock may be removed only for
cause by a vote of the holders of at least three-quarters of the shares of the
Fund entitled to vote on the matter. See 'Additional Information--Meetings of
Stockholders' below.
It is the intention of the persons named in the enclosed proxy to nominate
and vote in favor of the election of the persons listed below.
Each nominee listed below has consented to serve as a Trustee. The Board of
Directors of the Fund knows of no reason why any of these nominees will be
unable to serve, but in the event of any such unavailability, the proxies
received will be voted for such substitute nominee or nominees as the Board of
Directors may recommend.
Certain information concerning the nominees is set forth as follows:
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
OF THE FUND
PRINCIPAL OCCUPATIONS BENEFICIALLY
DURING PAST FIVE YEARS DIRECTOR OWNED AT
NAME AND ADDRESS OF NOMINEE AGE AND PUBLIC DIRECTORSHIPS(1) SINCE DECEMBER 20, 1993
- -------------------------------------- ---- ----------------------------------------- --------- ------------------
<S> <C> <C> <C> <C>
Ronald W. Forbes(1)(2) ............... 53 Professor of Finance, School of Busi- 1989 -0-
School of Business BA 309 ness, State University of New York at
State University of New York at Albany, since 1989, and Associate
Albany Professor prior thereto; Member, Task
1400 Washington Avenue Force on Municipal Securities Markets,
Albany, New York 12222 Twentieth Century Fund.
Cynthia A. Montgomery(1) ............. 41 Professor, Harvard Business School since -- -0-
Harvard Business School 1989; Associate Professor, J.L. Kellogg
Soldiers Field Road Graduate School of Management,
Boston, Massachusetts 02163 Northwestern University, 1985-1989;
Assistant Professor, Graduate School of
Business Administration, the University
of Michigan, 1979-1985; Director, UNUM
Corporation.
Charles C. Reilly(1)(2) .............. 62 President and Chief Investment Officer of 1990 -0-
9 Hampton Harbor Road Verus Capital, Inc. from 1979 to 1990;
Hampton Bays, New York 11946 Senior Vice President of Arnhold and S.
Bleichroeder, Inc. from 1973 to 1990;
Adjunct Professor, Columbia University
Graduate
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
OF THE FUND
PRINCIPAL OCCUPATIONS BENEFICIALLY
DURING PAST FIVE YEARS DIRECTOR OWNED AT
NAME AND ADDRESS OF NOMINEE AGE AND PUBLIC DIRECTORSHIPS(1) SINCE DECEMBER 20, 1993
- -------------------------------------- ---- ----------------------------------------- --------- ------------------
<S> <C> <C> <C> <C>
School of Business since 1990; Adjunct
Professor, Wharton School, University
of Pennsylvania, 1990; Director,
Harvard Business School Alumni
Association, since 1991.
Kevin A. Ryan(1)(2) .................. 61 Professor of Education at Boston 1992 -0-
127 Commonwealth Avenue University since 1982; Founder and
Chestnut Hill, Massachusetts 02167 current Director of The Boston Uni-
versity Center for the Advancement of
Ethics and Character.
Richard R. West(1)(2) ................ 55 Professor of Finance, and Dean from 1984 1989 -0-
482 Tepi Drive to 1993, New York University Leonard N.
Southbury, Connecticut 06488 Stern School of Business
Administration; Professor of Finance at
the Amos Tuck School of Business
Administration from 1976 to 1984 and
Dean from 1976 to 1983; Director of
Vornado, Inc. (real estate
holding corporation), Bowne & Co., Inc.
(printer), Smith Corona Corporation
(manufacturer of typewriters and word
processors) and Alexander's Inc.
Arthur Zeikel(1)(3) .................. 61 President of MLAM since 1977, Chief 1989 -0-
P.O. Box 9011 Investment Officer thereof since 1976
Princeton, New Jersey 08543-9011 and Director thereof from 1976 to 1993;
President and Chief Investment Officer
of Fund Asset Management ('FAM') since
1977 and Director thereof from 1977 to
1993; Director of Princeton Services,
Inc. ('Princeton Services') since 1993;
an Executive Vice President of Merrill
Lynch & Co., Inc. ('ML & Co.') since
1990; an Executive Vice President of
Merrill Lynch, Pierce, Fenner & Smith
Incorporated ('Merrill Lynch') since
1990 and a Senior Vice President from
1985 to 1990.
</TABLE>
(footnotes on following page)
3
<PAGE>
- ------------------
(1) Each of the nominees is a director or trustee of certain other investment
companies for which MLAM or FAM acts as investment adviser. See 'Merrill
Lynch Investment Company Directorships' below.
(2) Member of Audit Committee of the Board of Directors.
(3) Interested person, as defined in the Investment Company Act of 1940, as
amended (the 'Investment Company Act'), of the Fund.
Committee's and Board of Directors' Meetings. The Board of Directors has a
standing Audit Committee, which consists of the Directors who are not
'interested persons' of the Fund within the meaning of the Investment Company
Act. The principal purpose of the Audit Committee is to review the scope of the
annual audit conducted by the Fund's independent auditors and the evaluation by
such auditors of the accounting procedures followed by the Fund. The
non-interested Directors have retained independent legal counsel to assist them
in connection with these duties. The Board of Directors does not have a
nominating committee.
During the fiscal year ended August 31, 1993, the Board of Directors held
six meetings and the Audit Committee held four meetings. Each of the Directors
then serving attended at least 75% of the total number of meetings of the Board
of Directors, and, if a member, the total number of meetings of the Audit
Committee, held during such period.
Interested Persons. The Fund considers Mr. Zeikel to be an 'interested
person' of the Fund within the meaning of Section 2(a)(19) of the Investment
Company Act as a result of the position he holds with MLAM and its affiliates.
Mr. Zeikel is the President of the Fund, the President of MLAM and FAM, and a
Director of Princeton Services, the general partner of MLAM and FAM.
Compensation of Directors. MLAM, the investment adviser, pays all
compensation of all officers of the Fund and all Directors of the Fund who are
affiliated with ML & Co. or its subsidiaries. The Fund pays each Director not
affiliated with the investment adviser a fee of $2,000 per year plus $400 per
meeting attended, together with such Director's actual out-of-pocket expenses
relating to attendance at meetings. The Fund also pays each member of its Audit
Committee, which consists of all of the non-affiliated Directors, a fee of
$1,000 per year, together with such Director's out-of-pocket expenses relating
to attendance at meetings. In addition, the Chairman of the Audit Committee
receives an annual fee of $1,000. These fees and expenses aggregated $33,789 for
the fiscal year ended August 31, 1993.
Merrill Lynch Investment Company Directorships. FAM and MLAM act as the
investment adviser for over 90 other registered investment companies. Mr. Zeikel
is a trustee or director of each of these companies except for Merrill Lynch
Series Fund, Inc., Merrill Lynch Institutional Intermediate Fund, Merrill Lynch
Funds for Institutions Series and Merrill Lynch Institutional Tax-Exempt Fund.
Each of the nominees is a director or trustee of Merrill Lynch Utility Income
Fund, MuniVest Fund, Inc., MuniVest Fund II, Inc., Senior High Income Portfolio,
Inc., Senior High Income Portfolio II, Inc., Taurus MuniCalifornia Holdings,
Inc. and Taurus MuniNew York Holdings, Inc. Messrs. Forbes, Reilly, Ryan and
West are trustees or directors of and Ms. Montgomery is nominated to be a
trustee or director of CMA Money Fund, CMA Treasury Fund, CMA Tax-Exempt Fund,
CMA Government Securities Fund, CMA Multi-State Municipal Series Trust, CBA
Money Fund, Merrill Lynch Strategic Dividend Fund, Merrill Lynch Municipal
Series Trust, Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch Municipal
Bond Fund, Inc., The Corporate Fund Accumulation Program, Inc., The Municipal
Fund Accumulation Program, Inc., Merrill Lynch Prime Fund, Inc., Merrill Lynch
Global Utility Fund, Inc., and Merrill Lynch Fund For Tomorrow, Inc. In
addition, Messrs. Reilly and West are directors of Merrill Lynch Healthcare
Fund, Inc., Merrill Lynch International Holdings, Inc., Merrill Lynch Latin
America Fund, Inc., Merrill Lynch
4
<PAGE>
Short-Term Global Income Fund, Inc., Merrill Lynch Technology Fund, Inc.,
Merrill Lynch Global Bond Fund for Investment and Retirement, Merrill Lynch
Global Allocation Fund, Inc., Merrill Lynch Pacific Fund, Inc., Merrill Lynch
Developing Capital Markets Fund, Inc., Merrill Lynch EuroFund, Merrill Lynch
Dragon Fund, Inc., Merrill Lynch International Equity Fund, and Merrill Lynch
Americas Income Fund, Inc.
Officers of the Fund. The Board of Directors has elected six officers of
the Fund. The following sets forth information concerning each of these
officers:
<TABLE>
<CAPTION>
OFFICER
NAME AND PRINCIPAL OCCUPATION OFFICE AGE SINCE
- -------------------------------------------------------------------------------- --------------- ---- --------
<S> <C> <C> <C>
Arthur Zeikel .................................................................. President 61 1990
President of MLAM since 1977, Chief Investment Officer thereof since 1976 and
Director thereof from 1976 to 1993; President and Chief Investment Officer of
FAM since 1977 and Director thereof from 1977 to 1993; Director of Princeton
Services since 1993; Executive Vice President of ML & Co. since 1990;
Executive Vice President of Merrill Lynch since 1990 and a Senior Vice
President from 1985 to 1990.
Terry K. Glenn ................................................................. Executive Vice 53 1990
Executive Vice President of MLAM and FAM since 1983 and Director thereof from President
1992 to 1993; Director of Princeton Services since 1993; President of Merrill
Lynch Funds Distributor, Inc. ('MLFD') since 1986 and Director thereof since
1991; President of Princeton Administrators.
Vincent R. Giordano ............................................................ Vice President 49 1990
Senior Vice President of MLAM and FAM since 1984; Portfolio Manager of MLAM
since 1977 and Vice President from 1980 to 1984.
Donald C. Burke ................................................................ Vice President 33 1993
Vice President of MLAM since 1990; employee of Deloitte & Touche from 1982 to
1990.
Gerald M. Richard .............................................................. Treasurer 44 1990
Senior Vice President and Treasurer of MLAM and FAM since 1984; Treasurer of
MLFD since 1984 and Vice President since 1981.
Robert Harris .................................................................. Secretary 41 1990
Vice President of MLAM since 1984; Secretary of MLFD since 1982.
</TABLE>
Stock Ownership. At December 20, 1993, the Directors and officers of the
Fund as a group (eleven persons) owned an aggregate of less than 1/4 of 1% of
the Common Stock of the Fund outstanding at such date. At such date, Mr. Zeikel,
a Director of the Fund, and the officers of the Fund owned an aggregate of less
than 1/4 of 1% of the outstanding shares of common stock of ML & Co.
SELECTION OF INDEPENDENT AUDITORS
The Board of Directors of the Fund, including a majority of the Directors
who are not interested persons of the Fund, has selected the firm of Deloitte &
Touche ('D&T'), independent auditors, to examine the financial statements of the
Fund for the current fiscal year. The appointment of D&T continues a
relationship with the Fund that began in 1990. The Fund knows of no direct or
indirect financial interest of such firm in the Fund. Such appointment is
subject to ratification or rejection by the stockholders of the Fund. Unless a
contrary specification is made, the accompanying proxy will be voted in favor of
ratifying the selection of such auditors.
D&T also acts as independent auditors for ML & Co. and all of its
subsidiaries and for substantially all of the other investment companies for
which MLAM or FAM acts as investment adviser. The fees received by D&T from
these other entities are substantially greater, in the aggregate, than the total
fees received by it from
5
<PAGE>
the Fund. The Board of Directors of the Fund considered the fact that D&T has
been retained as the independent auditors for ML & Co. and the other entities
described above in its evaluation of the independence of D&T with respect to the
Fund.
Representatives of D&T are expected to be present at the Meeting and will
have the opportunity to make a statement if they so desire and to respond to
questions from stockholders.
THE INVESTMENT ADVISORY AGREEMENT
On September 14, 1990, the Fund entered into an investment advisory
agreement (the 'Investment Advisory Agreement') and an administration agreement
(the 'Administration Agreement') with MLAM. On December 4, 1991, the Board of
Directors of the Fund approved the continuance of the Investment Advisory
Agreement and the Administration Agreement for a period of one year. On December
9, 1992 and on December 8, 1993, the Board of Directors of the Fund approved the
continuance of the Investment Advisory Agreement and the Administration
Agreement for additional periods of one year.
INFORMATION CONCERNING MLAM
Effective January 1, 1994, MLAM was reorganized as a Delaware limited
partnership. MLAM (the general partner of which is Princeton Services, a
wholly-owned subsidiary of ML & Co.) is owned and controlled by ML & Co. and is
located at 800 Scudders Mill Road, Plainsboro, New Jersey 08536. ML & Co. is
located at 250 Vesey Street, New York, New York 10281. The reorganization did
not result in a change of management of MLAM, in any of its personnel, or in an
adverse change in its financial condition. Prior to the reorganization, MLAM was
a Delaware corporation which was a wholly-owned subsidiary of ML & Co. MLAM or
FAM acts as the investment adviser for more than 90 other registered investment
companies. In addition, MLAM offers portfolio management and portfolio analysis
services to individuals and institutions. MLAM's audited balance sheet for its
fiscal year ended December 28, 1992 is appended to this Proxy Statement as
Exhibit A. An unaudited balance sheet for MLAM as of September 24, 1993 is
appended to this Proxy Statement as Exhibit B. MLAM represents that, to its
knowledge, there has been no material adverse change in its financial condition
since September 24, 1993.
Securities held by the Fund may also be held by, or be appropriate
investments for, other funds or clients (collectively referred to as 'clients')
for which MLAM or FAM acts as an investment adviser. Because of different
investment objectives or other factors, a particular security may be bought for
one or more clients when one or more clients are selling the security. If
purchases or sales of securities for the Fund or other clients arise for
consideration at or about the same time, transactions in such securities will be
made, insofar as feasible, for the respective clients in a manner deemed
equitable to all by MLAM or FAM. To the extent that transactions on behalf of
more than one client of MLAM or FAM during the same period may increase the
demand for securities being purchased or the supply of securities being sold,
there may be an adverse effect on price.
The following table sets forth the name, title and principal occupation of
the principal executive officer of MLAM and the directors of Princeton Services,
the general partner of MLAM:
<TABLE>
<CAPTION>
NAME TITLE PRINCIPAL OCCUPATION
- ---------------------------------- ---------------------------------- ----------------------------------
<S> <C> <C>
Arthur Zeikel*.................... President of MLAM and Director of President of MLAM and FAM
Princeton Services
Terry K. Glenn.................... Executive Vice President of MLAM Executive Vice President of MLAM
and Director of Princeton Services and FAM
Philip L. Kirstein................ Senior Vice President and General General Counsel of MLAM and FAM
Counsel of MLAM and Director of
Princeton Services
</TABLE>
- ------------------------
* Mr. Zeikel is presently a Director and the President of the Fund. The address
of Messrs. Zeikel, Glenn and Kirstein is P.O. Box 9011, Princeton, New Jersey
08543-9011, which is also the address of FAM and MLAM.
6
<PAGE>
TERMS OF INVESTMENT ADVISORY AND ADMINISTRATION AGREEMENTS
Investment Advisory Agreement. The Investment Advisory Agreement provides
that, subject to the direction of the Board of Directors of the Fund, MLAM is
responsible for the actual management of the Fund's portfolio and for the review
of the Fund's holdings in light of its own research analysis and analyses from
other relevant sources. The responsibility for making decisions to buy, sell or
hold a particular security rests with MLAM, subject to review by the Board of
Directors. MLAM provides the portfolio management for the Fund. Such portfolio
management considers analyses from various sources, makes the necessary
investment decisions and places transactions accordingly. MLAM is also obligated
to perform certain management services for the Fund.
Administration Agreement. Under the terms of the Administration Agreement
with the Fund, MLAM also performs or arranges for the performance of the
administrative services (i.e., services other than investment advice and related
portfolio activities) necessary for the operation of the Fund, including paying
all compensation of and furnishing office space for officers and employees of
the Fund connected with investment and economic research, trading and investment
management of the Fund, as well as the compensation of all Directors of the Fund
who are affiliated persons of MLAM or any of its affiliates.
Investment Advisory and Administration Fees. The Investment Advisory
Agreement provides that as compensation for its services to the Fund, MLAM
receives from the Fund at the end of each month a fee at an annual rate of 0.95%
of the Fund's average daily net assets (i.e., the average daily value of the
total assets of the Fund, minus the sum of accrued liabilities of the Fund and
accumulated dividends on the shares of preferred stock, if any). For purposes of
this calculation, average daily net assets are determined at the end of each
month on the basis of the average net assets of the Fund for each day during the
month.
For the administrative services rendered to the Fund and the facilities
furnished, the Fund pays MLAM a monthly fee at an annual rate of 0.25% of the
Fund's average daily net assets determined in the same manner as the fee payable
by the Fund under the Investment Advisory Agreement. The combined advisory and
administration fees are greater than the advisory fees paid by most funds but
are similar in amount to the fees paid by similar funds making similar
investments.
For the fiscal year ended August 31, 1993, the fee paid by the Fund to MLAM
pursuant to the Investment Advisory Agreement was $1,791,108 and the fee paid by
the Fund to MLAM pursuant to the Administration Agreement was $471,341 (based on
average daily net assets of approximately $188.5 million). MLAM voluntarily
reimbursed to the Fund $188,538 of the combined advisory and administration fees
payable by the Fund which resulted in an effective fee rate of 1.10% for the
period. There can be no assurance that the Investment Adviser will continue to
reimburse fees in the future. At November 30, 1993, the Fund had net assets of
approximately $223.2 million. At this asset level the Fund's annual investment
advisory and administration fees would aggregate approximately $2.7 million.
Payment of Expenses. The Administration Agreement, as described above,
obligates MLAM to pay all compensation of and furnish office space for officers
and employees of the Fund connected with investment and economic research,
trading and investment management of the Fund, as well as the fees of all
Directors of the Fund who are affiliated persons of MLAM or any of its
affiliates. The Fund pays all other expenses incurred in the operation of the
Fund, including, among other things, expenses for legal and auditing services,
taxes, costs of printing, proxies, listing fees, if any, stock certificates and
shareholder reports, charges of the Custodian and Transfer Agent, Dividend
Disbursing Agent and Shareholder Servicing Agent, expenses of registering the
shares under Federal and State securities laws, fees and expenses with respect
to the issuance of preferred shares or any borrowing, Securities and Exchange
Commission fees, fees and expenses of unaffiliated directors, accounting
7
<PAGE>
and pricing costs, insurance, interest, brokerage costs, litigation and other
extraordinary or non-recurring expenses, mailing and other expenses properly
payable by the Fund. Accounting services are provided to the Fund by MLAM, and
the Fund reimburses MLAM for its costs in connection with such services. For the
fiscal year ended August 31, 1993, the Fund reimbursed $53,421 to MLAM for such
accounting services.
Duration and Termination. The Investment Advisory Agreement will continue
in effect from year to year if approved annually (a) by the Board of Directors
of the Fund or by a majority of the outstanding shares of capital stock of the
Fund and (b) by a majority of the Directors who are not parties to such
agreement or interested persons (as defined in the Investment Company Act) of
any such party. Such agreement is not assignable and may be terminated without
penalty on 60 days' written notice at the option of either party thereto or by
the vote of the stockholders of the Fund. The Administration Agreement will
continue in effect for an indefinite term but is not assignable and may be
terminated without penalty on 60 days' written notice at the option of either
party thereto.
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
Subject to policies established by the Board of Directors of the Fund, MLAM
is primarily responsible for the execution of the Fund's portfolio transactions
and the allocation of the brokerage. In executing such transactions, MLAM seeks
to obtain the best results for the Fund, taking into account such factors as
price (including the applicable fee, commission or spread), size of order,
difficulty of execution and operational facilities of the firm involved and the
firm's risk in positioning a block of securities. While MLAM generally seeks
reasonable competitive commission rates, the Fund does not necessarily pay the
lowest commission or spread available. The securities in which the Fund invests
generally do not trade in a broker market, therefore the Fund paid no brokerage
commissions in connection with portfolio transactions for the fiscal year ended
August 31, 1993.
The Fund has no obligation to deal with any bank, broker or dealer in the
execution of transactions in portfolio securities. Subject to obtaining the best
price and execution, brokers who provided supplemental investment research to
MLAM, including Merrill Lynch, may receive orders for transactions by the Fund.
Information so received will be in addition to and not in lieu of the services
required to be performed by MLAM under the Investment Advisory Agreement and the
expenses of MLAM will not necessarily be reduced as a result of the receipt of
such supplemental information.
The securities in which the Fund invests are traded in the over-the-counter
markets, and the Fund intends to deal directly with dealers who make markets in
the securities involved, except in those circumstances where better prices and
execution are available elsewhere. Under the Investment Company Act, except as
permitted by exemptive order, persons affiliated with the Fund are prohibited
from dealing with the Fund as principal in the purchase and sale of securities.
Since transactions in the over-the-counter market usually involve transactions
with dealers acting as principal for their own account, the Fund will not deal
with affiliated persons, including Merrill Lynch and its affiliates, in
connection with such transactions except that, pursuant to an exemptive order
obtained by MLAM, the Fund may engage in principal transactions with Merrill
Lynch in high quality, short-term, tax-exempt securities. For the fiscal year
ended August 31, 1993, the Fund did not engage in any transactions pursuant to
such order. However, an affiliated person of the Fund may serve as its broker in
over-the-counter transactions conducted on an agency basis.
The Board of Directors has considered the possibility of recapturing for
the benefit of the Fund brokerage commissions, dealer spreads and other expenses
of possible portfolio transactions, such as underwriting commissions, by
conducting portfolio transactions through affiliated entities, including Merrill
Lynch. For example, brokerage commissions received by Merrill Lynch could be
offset against the investment advisory fee paid by the
8
<PAGE>
Fund to MLAM. After considering all factors deemed relevant, the Directors made
a determination not to seek such recapture. The Directors will reconsider this
matter from time to time.
ADDITIONAL INFORMATION
The expenses of preparation, printing and mailing of the enclosed form of
proxy and accompanying Notice and Proxy Statement will be borne by the Fund. The
Fund will reimburse banks, brokers and others for their reasonable expenses in
forwarding proxy solicitation material to the beneficial owners of the shares of
the Fund. The Fund may also hire proxy solicitors at the expense of the Fund.
In order to obtain the necessary quorum at the Meeting (i.e., a majority of
the shares of the Fund entitled to vote at the Meeting, present in person or by
proxy), supplementary solicitation may be made by mail, telephone, telegraph or
personal interview by officers of the Fund. It is anticipated that the cost of
such supplementary solicitation, if any, will be nominal.
The proposal to elect the Fund's directors (Item 1) and the proposal to
ratify the selection of the Fund's auditors (Item 2) may be approved by majority
vote of the stockholders, present in person or by proxy, at a meeting at which a
quorum is duly constituted.
All shares represented by properly executed proxies, unless such proxies
have previously been revoked, will be voted at the Meeting in accordance with
the directions on the proxies; if no direction is indicated, the shares will be
voted 'FOR' the six Director nominees and 'FOR' the ratification of D&T as
independent auditors for the Fund. Shares will not be voted for any of the
aforementioned proposals, however, unless (i) in the judgment of the Fund's
Board of Directors, there has been no material adverse change in the financial
condition of MLAM between September 24, 1993 and the date of MLAM's most
recently completed fiscal quarter and (ii) the Fund shall have received a
certificate of the President or a Senior Vice President of MLAM, dated the
Meeting date, attesting that, to the knowledge of such officer, there has been
no material adverse change in the financial condition of MLAM unless such
material adverse change has been disclosed to stockholders in additional proxy
solicitation materials.
Broker-dealer firms, including Merrill Lynch, holding Fund shares in
'street name' for the benefit of their customers and clients will request the
instructions of such customers and clients on how to vote their shares on both
Items before the Meeting. The Fund understands that, under the rules of the New
York Stock Exchange, such broker-dealer firms may, without instructions from
their customers and clients, grant authority to the proxies designated to vote
on the election of Directors (Item 1) and ratification of the selection of
independent auditors (Item 2) if no instructions have been received prior to the
date specified in the broker-dealer firm's request for voting instructions.
Merrill Lynch has advised that it intends to exercise discretion over shares
held in its name for which no instructions are received by voting such shares in
the same proportion as it has voted shares for which it has received
instructions. The Fund will include shares held of record by broker-dealers as
to which such authority has been granted in its tabulation of the total number
of votes present for purposes of determining whether the necessary quorum of
shareholders exists. The Fund also will count towards a quorum shares as to
which proxies are returned by record shareholders but which are marked 'abstain'
on any Item. Accordingly, a failure to instruct or an abstention will not have
an effect on the vote on Item 1 or Item 2.
9
<PAGE>
MEETINGS OF STOCKHOLDERS
The By-Laws of the Fund do not require that the Fund hold an annual meeting
of stockholders. However, the Fund will be required to call special meetings of
stockholders in accordance with the requirements of the Investment Company Act
to seek approval of new management and advisory arrangements or of a change in
the fundamental policies, objectives or restrictions of the Fund. The Fund also
would be required to hold a special stockholders' meeting to elect new Directors
at such time as less than a majority of the Directors holding office have been
elected by stockholders. The By-Laws of the Fund provide that a stockholders'
meeting may be called for any reason at the request of 10% of the outstanding
shares of the Fund or by a majority of the Directors or the President of the
Fund.
By Order of the Board of Directors
ROBERT HARRIS
Secretary
Dated: January 7, 1994
10
<PAGE>
EXHIBIT A
INDEPENDENT AUDITORS' REPORT
MERRILL LYNCH INVESTMENT MANAGEMENT, INC.:
We have audited the accompanying consolidated balance sheet of Merrill Lynch
Investment Management, Inc. and its subsidiaries (the 'Company') as of December
25, 1992. This consolidated balance sheet is the responsibility of the Company's
management. Our responsibility is to express an opinion on the consolidated
balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, such consolidated balance sheet presents fairly, in all material
respects, the financial position of the Company at December 25, 1992 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE
Parsippany, New Jersey
February 19, l993
A-1
<PAGE>
MERRILL LYNCH INVESTMENT MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 25,
1992
----------------
<S> <C>
ASSETS
Cash and cash equivalents....................................................................... $ 3,049,854
Receivable from affiliated companies--lease transactions........................................ 730,849,170
Investments in affiliated Limited Partnership................................................... 64,587,294
Investments in leases:
Leveraged leases.............................................................................. 121,508,161
Sales-type lease.............................................................................. 12,831,711
Investments in affiliated investment companies--at the lower of cost or market
(market: $40,783,430)......................................................................... 40,382,265
Fund management and administrative fees receivable.............................................. 32,720,272
Fixed assets (net of $9,140,416 accumulated depreciation)....................................... 6,577,818
Prepaid expenses and other assets............................................................... 12,372,403
----------------
TOTAL ASSETS.................................................................................... $ 1,024,878,948
----------------
----------------
LIABILITIES AND STOCKHOLDER'S EOUITY
LIABILITIES:
Payable to affiliates........................................................................... $ 747,726,743
Accrued liabilities and other payables.......................................................... 36,982,643
Deferred income--unearned fees.................................................................. 5,361,686
Deferred income taxes:
Arising from leveraged leases................................................................. 111,585,182
Arising from sales-type lease................................................................. 5,245,721
Other......................................................................................... 43,705,466
----------------
Total liabilities............................................................................... 950,607,441
----------------
STOCKHOLDER'S EQUITY:
Common stock, par value $1.00 per share--authorized 25,000 shares,
outstanding 10,000 shares..................................................................... 10,000
Additional paid-in capital...................................................................... 23,266,792
Accumulated translation adjustment.............................................................. 280,287
Retained earnings............................................................................... 50,714,428
----------------
Total stockholder's equity...................................................................... 74,271,507
----------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY...................................................... $ 1,024,878,948
----------------
----------------
</TABLE>
See notes to consolidated balance sheet.
A-2
<PAGE>
MERRILL LYNCH INVESTMENT MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET, DECEMBER 25, 1992
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization--Merrill Lynch Investment Management, Inc. and its
subsidiaries (the 'Company'), serve as investment adviser to certain registered
investment companies, and provide investment advisory services for individuals
and institutions. Merrill Lynch Investment Management, Inc., a wholly-owned
subsidiary of Merrill Lynch Group, Inc., is an indirect wholly-owned subsidiary
of Merrill Lynch & Co., Inc. ('ML&Co').
The Company's consolidated balance sheet reflects its 100 percent ownership
of Merrill Lynch Funds Distributor, Inc., a distributor of shares of various
affiliated managed registered investment companies, Fund Asset Management, Inc.,
an investment adviser to various registered investment companies and a lessor
participant in leveraged lease agreements, Merrill Lynch International Asset
Management, Ltd., a Channel Islands based investment adviser and Princeton
Administrators, Inc., an administrator to certain non-affiliated investment
companies, and its 60% ownership of Merrill Lynch International Capital
Management Co., a Japan based investment adviser.
Fixed assets--Fixed assets are recorded at cost and consist principally of
furniture and equipment. Depreciation is calculated using the straight-line
method over a period ranging from 3 to 10 years.
Deferred income--unearned fees--Investment advisory services are billed at
the beginning of the period for which services are to be rendered. The fee is
deferred and credited to income on a pro rata basis over the period of the
contract, which normally does not exceed one year.
Income Taxes--The results of the operations of the Company are included in
the consolidated Federal and combined state and local income tax returns filed
by ML&Co. It is the policy of ML&Co. to allocate the tax associated with such
operating results to each respective subsidiary in a manner which approximates
the separate company method. Effective in the first quarter of 1992, ML&Co.
adopted Statement of Financial Accounting Standards No. 109, 'Accounting for
Income Taxes' ('SFAS 109') which requires an asset and liability method in
recording income taxes on all transactions that have been recognized in the
financial statements. SFAS 109 provides that deferred taxes be adjusted to
reflect tax rates at which future tax liabilities or assets are expected to be
settled or realized. Previously, the Company accounted for income taxes in
accordance with SFAS 96. The current year's impact on adopting SFAS 109 was
minimal.
Cash and cash equivalents--For purposes of the consolidated balance sheet,
cash and cash equivalents include marketable securities with initial maturity
dates of less than three months. The carrying amount approximates fair value
because of the short maturity of those instruments.
2. TRANSACTIONS WITH AFFILIATES
The Company serves as an investment adviser for certain investment
companies. In addition, the Company, through its 100% owned subsidiary Princeton
Administrators, Inc., serves as an administrator for certain non-affiliated
investment companies. Management fees earned as adviser and administrator are
based on a percentage of the net assets of each investment company. Such fees
are generally recognized in the period earned.
The Company maintains investments in certain of these investment companies.
Such investments are carried at the lower of cost or market value. Market value
is determined based upon quoted market prices.
A-3
<PAGE>
MERRILL LYNCH INVESTMENT MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET, DECEMBER 25, 1992--(CONTINUED)
The Company has an arrangement with Merrill Lynch, Pierce, Fenner & Smith
Incorporated ('MLPF&S') which provides that the Company, which receives revenue
as investment adviser to certain investment companies (the 'Funds'), reimburse
MLPF&S for certain costs incurred in processing transactions involving shares of
the Funds.
In connection with the formation of certain affiliated investment companies
(the 'Investment Companies'), the Company has reimbursed MLPF&S for subscription
expenses incurred in offering the Investment Companies' shares for sale. The
unamortized balance included in prepaid expenses and other assets totalled
$5,361,686 as of December 25, 1992.
The Company has an unsecured note agreement with ML&Co. for $650,000,000.
In addition, the Company has certain other amounts payable to affiliates. These
amounts are payable on demand. During 1992, the Company's investments in Merrill
Lynch Interfunding, Inc. and Merlease Leasing Corp. were sold to an affiliate at
book value. Receivable from affiliated companies-lease transactions represents
the proceeds from this transaction.
The Company has a 98 percent limited partnership interest in ML Plainsboro
Limited Partnership ('MLP'), whose general partner is an affiliate. Profits and
losses are allocated to the Company based on its percentage interest.
The 'Receivable from affiliated companies' arising from lease transactions
is summarized as follows:
<TABLE>
<S> <C>
Monies advanced to fund lease transactions................................................ $(117,240,047)
Tax benefits allocated to the Company by ML&Co. .......................................... 150,407,083
Proceeds from sale of subsidiaries........................................................ 684,115,048
Other..................................................................................... 13,567,086
-------------
Total..................................................................................... $ 730,849,170
-------------
-------------
</TABLE>
ML&Co. is the holder of the Company's excess cash, which is available on
demand to meet current liabilities. ML&Co. credits the Company for interest at a
floating rate approximating ML&Co.'s average borrowing rate based on the
Company's average daily balance due to/from ML&Co.
3. INVESTMENTS IN LEASES
The Company is a lessor participant in leveraged lease agreements. The
Company's net investment in leveraged leases is summarized as follows:
<TABLE>
<S> <C>
Rentals receivable (net of principal and interest on nonrecourse debt).................... $ 117,309,811
Estimated residual values of leased assets................................................ 40,329,738
Less:
Unearned and deferred income............................................................ (34,891,388)
Allowance for uncollectibles............................................................ (1,240,000)
-------------
Investment in leveraged leases............................................................ 121,508,161
Less deferred taxes arising from leveraged leases......................................... (111,585,182)
-------------
Net investment in leveraged leases........................................................ $ 9,922,979
-------------
-------------
</TABLE>
A-4
<PAGE>
MERRILL LYNCH INVESTMENT MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET, DECEMBER 25, 1992--(CONTINUED)
Pertinent information relating to the Company's investments in leveraged
leases is summarized as follows:
<TABLE>
<CAPTION>
ESTIMATED
RESIDUAL
LENGTH OF VALUE
LEASE EQUITY OF LEASED
TYPE OF PROPERTY (YEARS) INVESTMENT PROPERTY
- --------------------------------------------------------------------- --------- ---------- ---------
<S> <C> <C> <C>
Chemical tanker...................................................... 20 42.75% 15.0%
Generating plant..................................................... 24-25 34.06% 15.0%
</TABLE>
Financing beyond the Company's equity interest in the purchase price of the
properties was furnished by outside parties in the form of long-term debt that
provides for no recourse against the Company and is collateralized by a first
lien on the properties and related rentals. At the end of the respective lease
terms, ownership of the properties remains with the Company.
The Company's investment in the sales-type leases is composed of the
following elements at December 25, 1992:
<TABLE>
<S> <C>
Minimum lease payments receivable......................................................... $ 13,612,690
Less unearned income...................................................................... (780,979)
-------------
Investment in sales-type financing leases................................................. $ 12,831,711
-------------
-------------
</TABLE>
At December 25, 1992 minimum lease payments receivable are $9,941,000 for
1993 and $3,672,000 for 1994.
For Federal income tax purposes, the Company receives the investment tax
credit and has the benefit of tax deductions for (i) depreciation on the entire
amount of leased assets and (ii) interest on the outstanding long-term debt. For
state and local tax purposes, the Company also receives the benefits of tax
deductions from (i) and (ii) above. Since, during the early years of the leases,
those deductions exceed the Company's lease rental income, substantial excess
deductions are available to be applied against the Company's other income and
the consolidated income of ML&Co. In the later years of these leases, rental
income will exceed the related deductions and taxes will be payable (to the
extent that net deductions arising from additional leveraged lease transactions
do not offset such lease income). Deferred taxes have been provided to reflect
these temporary differences.
4. INCOME TAXES
As part of the consolidated group, the Company transfers its current
Federal and state tax liabilities to the Parent. At December 25, 1992, the
Company had a current Federal tax payable of $6,922,068, and current state tax
payable of $2,588,057 payable to the Parent.
5. PENSION PLAN
The Company participates in the ML&Co. Comprehensive Retirement program
(the 'Program'), consisting of the Retirement Accumulation Plan ('RAP') and the
Employee Stock Ownership Plan (the 'ESOP'). Both plans became effective January
1, 1989. Under the Program, cash contributions made by the Company and the
ML&Co. stock held by the ESOP are allocated quarterly to participant's accounts.
Allocations are based on years
A-5
<PAGE>
MERRILL LYNCH INVESTMENT MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET, DECEMBER 25, 1992--(CONTINUED)
of service, age and eligible compensation. Actuarial data regarding the
Company's Plan participants is not separately available.
6. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides certain health care and life insurance benefits for
retired employees. The Company reserves the right to amend or terminate this
program at any time. Substantially all of the Company's employees become
eligible for these benefits upon attainment of age 55 and completion of 10 years
of service.
In December 1990, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions ('SFAS 106'). SFAS 106, effective
for fiscal year 1993, will require that the Company change its method of
accounting for postretirement health care and life insurance benefits from
expensing these costs on a pay-as-you-go basis to an accrual basis. This change
in accounting will require the recognition of a transition obligation which
represents the actuarial present value of benefits attributed to prior employee
service. The Company has not yet determined what effect the adoption of SFAS 106
will have on its financial condition.
7. NAME CHANGE
Effective December 28, 1991, the Company, through an amendment of its
certificate of incorporation, changed its name to Merrill Lynch Investment
Management, Inc. ('MLIM'). MLIM will do business under the name 'Merrill Lynch
Asset Management'.
A-6
<PAGE>
EXHIBIT B
MERRILL LYNCH INVESTMENT MANAGEMENT, INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 24, 1993 (UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Cash and Cash Equivalents....................................................................... $ 1,887,182
Receivable from Affiliated Companies--Lease Transactions........................................ 747,641,938
Investment in Affiliated Limited Partnership.................................................... 62,966,260
Investment in Leases:
Leveraged leases.............................................................................. 118,273,550
Sales-type lease.............................................................................. 8,152,491
Investment in Affiliated Investment Companies--at the lower of cost or market (market:
$24,344,191).................................................................................. 22,981,485
Fund Management and Administrative Fees Receivable.............................................. 48,337,144
Fixed Assets (net of $10,807,825 accumulated depreciation)...................................... 8,706,455
Other Assets.................................................................................... 6,132,037
----------------
TOTAL ASSETS.................................................................................... $ 1,025,078,542
----------------
----------------
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES
Payable to Affiliates........................................................................... $ 737,062,022
Accrued Liabilities and Other Payables.......................................................... 10,597,512
Deferred Income Taxes:
Arising from leveraged leases................................................................. 111,401,573
Arising from sales-type lease................................................................. 2,333,002
Other......................................................................................... 70,751,039
----------------
Total Liabilities............................................................................... 932,145,148
----------------
STOCKHOLDER'S EQUITY
Common Stock, par value $1.00 per share--authorized 25,000 shares;
outstanding 10,000 shares..................................................................... 10,000
Additional Paid-in Capital...................................................................... 23,266,792
Accumulated translation adjustment.............................................................. 640,374
Retained Earnings............................................................................... 69,016,228
----------------
Total Stockholder's Equity...................................................................... 92,933,394
----------------
TOTAL LIABILITIES & STOCKHOLDER'S EQUITY........................................................ $ 1,025,078,542
----------------
----------------
</TABLE>
B-1
<PAGE>
<PAGE>
PROXY
MERRILL LYNCH HIGH INCOME MUNICIPAL BOND FUND, INC.
Box 9011, Princeton, New Jersey 08543-9011
This Proxy is solicited on behalf of the Board of Directors
The undersigned hereby appoints Arthur Zeikel, Terry K. Glenn and Robert
Harris as proxies, each with the power to appoint his substitute, and
hereby authorizes them to represent and to vote, as designated below,
all the shares of common stock of Merrill Lynch High Income Municipal
Bond Fund, Inc. (the "Fund") held of record by the undersigned on
December 20, 1993 at a special meeting of shareholders of the Fund to be
held on February 25, 1994 or any adjournment thereof.
This proxy when properly executed will be voted in the manner directed
by the undersigned shareholder. If no direction is made, this proxy will
be voted for Proposals 1 and 2.
________________________________________________________________________
1. Election of Directors.
FOR / / WITHHOLD / /
Nominees: Ronald W. Forbes, Cynthia A. Montgomery, Charles C. Reilly,
Kevin A. Ryan, Richard R. West, Arthur Zeikel
To withhold authority to vote for any individual nominee, write the name
on the following line:
_____________________________________________________________
_________________________________________________________________________
2. Proposal to ratify the selection of Deloitte & Touche as the
independent auditors of the Fund to serve for the current fiscal year.
FOR / / AGAINST / / ABSTAIN / /
____________________________________________________________________________
3. In the discretion of such proxies, upon such other business as may
properly come before the meeting or any adjournment thereof.
____________________________________________________________________________
Please sign exactly as name appears hereon. When shares are held by
joint tenants, both should sign. When signing as attorney or as
executor, administrator, trustee or guardian, please give full title as
such. If a corporation, please sign in full corporate name by president
or other authorized officer. If a partnership, please sign in
partnership name by authorized person.
__________________________________________________
Signature Date
__________________________________________________
Signature, if held jointly Date
Please mark boxes in blue or black ink.
__________________________________________________
<PAGE>
<PAGE>
_________________________________________________________________
BY SIGNING AND PROMPTLY RETURNING THE ENCLOSED PROXY YOU MAY SAVE YOUR
FUND THE EXPENSE OF ADDITIONAL SOLICITATION COSTS.
_________________________________________________________________
THE ENCLOSED PROXY CARD HAS BEEN FORWARDED TO YOU BECAUSE YOU WERE A
SHAREHOLDER ON THE RECORD DATE.
IT IS IMPORTANT THAT YOU VOTE AND SIGN THIS PROXY AND RETURN IT IN THE
ENCLOSED ENVELOPE AS SOON AS POSSIBLE.
_________________________________________________________________
