MERRILL LYNCH
HIGH INCOME
MUNICIPAL
BOND FUND, INC.
FUND LOGO
Annual Report
August 31, 1995
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
purchase 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.
<PAGE>
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, 1995, Merrill Lynch High Income
Municipal Bond Fund, Inc. earned $0.651 per share income dividends,
representing a net annualized yield of 5.93%, based on a month-end
per share net asset value of $10.97. Over the same period, the
Fund's total investment return was +8.74%, based on a change in per
share net asset value from $10.92 to $10.97, and assuming
reinvestment of $0.680 per share income dividends and $0.148 per
share capital gains distributions.
For the three-month period ended August 31, 1995, the Fund's total
investment return was +2.04%, based on a change in per share net
asset value from $10.92 to $10.97, and assuming reinvestment of
$0.161 per share income dividends.
The Environment
During the August quarter, US economic indicators continued to
suggest that economic growth is moderate and that the rate of
inflation remains low. Gross domestic product (GDP) growth for the
three months ended June 30 were revised to show that the economy
expanded at a 1.1% pace, rather than the 0.5% rate that was
originally reported. However, although the employment report for
August exceeded consensus expectations, most of the new jobs created
were in the service sector, reflecting the ongoing sluggishness in
manufacturing. In addition, total hours worked and hourly wages
declined in August. Other lackluster economic indicators included
disappointing durable goods orders in July and continued poor retail
sales results.
<PAGE>
After gaining ground in recent weeks, the US dollar has strengthened
relative to the yen and the Deutschemark. Improving interest rate
differentials favoring the US currency, combined with coordinated
central bank intervention and more positive investor sentiment, have
helped to bolster the dollar in foreign exchange markets. Other
factors that appear to be improving the US dollar's outlook in the
near term are a pick-up in capital flows to the United States and
the prospect of increased capital outflows from Japan. However, it
remains to be seen if the US dollar's strengthening trend can
continue without significant improvements in the US budget and trade
deficits.
In the weeks ahead, investor interest will continue to focus on US
economic activity. Clear signs of a moderate, noninflationary
expansion could further benefit the US stock and bond markets. In
addition, should the current Federal budget deficit reduction
efforts now underway in Washington prove successful, the
implications would likely be positive for the US financial markets.
The Municipal Market
Tax-exempt bond yields generally drifted upward throughout the three
months ended August 31, 1995. As measured by the Bond Buyer Revenue
Bond Index, yields on A-rated, uninsured tax-exempt revenue bonds
rose approximately 20 basis points (0.20%) to 6.26%. Market yields
have generally risen in response to investor concerns that the
domestic economy was regaining momentum and that the Federal Reserve
Board's action in July had been premature. Fears that an expanding
economy would have negative inflationary implications pushed
municipal bond yields higher to 6.44% by mid-August. Municipal bonds
yields rallied at the end of August as investors saw signs that
recent economic strength was diminishing and the inflationary
environment would remain benign. However, while displaying
considerable weekly volatility, US Treasury bond yields ended the
August quarter essentially unchanged at 6.65%.
Municipal bonds have underperformed US Treasury securities for a
number of reasons. The record highs of the US equity market have
continued to attract retail investors seeking further capital gains.
Investor demand has also been diminished in recent months by the
"sticker shock" effect that periodically affects the municipal bond
market. Investors who had become accustomed to purchasing tax-
exempt securities in the 6.50%--7.00% range six to seven months ago
have demonstrated an understandable reluctance to purchase similar
securities at current levels. The strong fundamental structure of
the municipal bond market, however, suggests that such hesitancy may
prove costly.
<PAGE>
However, the major reason by far for the tax-exempt market's recent
underperformance has been concerns regarding the implication for
municipal bonds' tax advantage resulting from various proposed tax
law changes (for example, flat tax, value-added tax or national
sales tax) that have reduced investor demand for tax-exempt
products. Such concerns are likely to quickly recede as investors
realize that such, if any, changes are unlikely to be enacted before
late 1996 at the earliest. Long-term investors will also recall 1986
when similar tax proposals were made, municipal bond yields
initially rose, in some instances, to over 100% of taxable yields.
Tax-exempt bond yields quickly declined as investors' fears proved
to be unfounded.
The municipal bond market's strong technical position has diminished
somewhat in recent months. New-issue supply over the last six months
has totaled approximately $75 billion, or a decline of over 12%
compared to the corresponding period in 1994. Over the last three
months, however, municipalities issued approximately $42 billion in
new securities, which represents less than a 2% decline versus the
same period a year earlier. Investor demand has remained muted in
recent months despite significant funds available to investors. By
the end of August investors, both individual and institutional, are
expected to have received as much as $85 billion from tax-exempt
bond maturities, coupon payments and the proceeds of early bond
redemptions. Little new money has entered the municipal market in
recent months, largely in response to the factors mentioned above.
Consequently, much of the technical support that the municipal
market enjoyed earlier this year has evaporated, causing municipal
bond yields to decline at a slower rate than their taxable
counterparts.
However, the recent relative underperformance of municipal bonds has
made them particularly attractive to long-term investors. Tax-exempt
bonds currently yield well over 90% of US Treasury securities. In
some instances, A-rated, long-term revenue bonds have yielded almost
95% of US Treasury bonds. Analysts usually consider municipal bonds
yielding over 82% of US Treasury securities to be historically
attractive. With inflation-adjusted, "real" after-tax equivalent tax-
exempt yields of over 6.50%, municipal securities appear to
represent considerable value.
Current tax-exempt yield levels appear to be overcompensating for
any proposed changes in tax law that can reasonably be expected to
be enacted. As Congressional hearings on this matter would continue
into 1996, and the revenue losses resultant from such changes become
more apparent, the likelihood of any significant changes to tax
codes and the resultant decline of municipal bonds' inherent tax
advantage should decline. Under such a scenario, tax-exempt bond
yields would quickly decline and currently available municipal bond
yields would return to their normal historic relationship.
<PAGE>
Portfolio Strategy
Despite considerable interest rate volatility during the year ended
August 31, 1995, Merrill Lynch High Income Municipal Bond Fund, Inc.
achieved an attractive total return. However, the Fund's asset
growth remains muted as concerns over both the direction of interest
rates and the prospects of tax reform further complicate investment
decisions. Nevertheless, the stability of the Fund's asset base over
the past year has enabled us to pursue the same strategy that has
produced competitive returns since the Fund's inception.
The composition and structure of the portfolio have changed very
little over the last 12 months, with perhaps the one exception being
a further reduction of the Fund's exposure to the healthcare sector.
The credit mix is essentially unchanged as just under 86% of net
assets are invested in medium-grade to lower-grade or unrated
municipal obligations. Call protection, though not yet an immediate
source of concern, remains on the horizon as an increasingly
critical component of our strategy. In order to sustain an
attractive dividend, it is imperative to remain alert to the
inexorable drag the passage of time has on a portfolio's average
call protection. To that end, call provisions become an integral
part of the decision making process when considering prospective
purchases and sales.
The high-yield sector of the tax-exempt market-place exhibited signs
of maturation over the course of the past year as a modest but
steady flow of new-issue product met with strong demand from
institutional investors. Additionally, secondary market liquidity
improved as the dealer community sought both to service a broadening
investor base as well as capitalize on market aberrations brought on
by the interest rate volatility of recent times. These developments
have facilitated the overall implementation of our strategy. The
enhanced scope and depth of the high-yield sector provide a greater
opportunity for improved performance.
Looking ahead, our own investment outlook will remain neutral until
clearer signs emerge with regard to the economy, deficit reduction
as well as incipient tax reform. It does appear that inflation, at
least in the foreseeable future, does not constitute a credible
threat. With that in mind, we are comfortable maintaining a fully
invested posture, despite our neutral investment outlook.
<PAGE>
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
(Theodore R. Jaeckel Jr.)
Theodore R. Jaeckel Jr.
Portfolio Manager
September 29, 1995
We are pleased to announce that Theodore R. Jaeckel Jr. is
responsible for the day-to-day management of Merrill Lynch High
Income Municipal Bond Fund, Inc. Mr. Jaeckel has been employed by
Merrill Lynch Asset Management since 1991 as Vice President and
Portfolio Manager. Prior thereto, Mr. Jaeckel was employed by
Chemical Bank from 1983 to 1991, becoming Vice President in the Tax
Exempt Bond Division in 1986.
<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
DATES Daily Adjustable Tax-Exempt Securities
GO General Obligation Bonds
HFA Housing Finance Agency
IDA Industrial Development Authority
IDB Industrial Development Board
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 $ 1,049
Arizona--3.2% NR* Aaa 2,920 Arizona Health Facilities Authority, Hospital Systems Revenue
Refunding Bonds (Saint Luke's Health Systems), 7.25% due
11/01/2003 (d) 3,455
NR* NR* 1,280 Pima County, Arizona, IDA, Revenue Bonds (La Hacienda
Project), 9.50% due 12/01/2016 1,296
AA P1 1,500 Pinal County, Arizona, IDA, PCR (Magma Copper/Newmont
Mining Corporation), VRDN, 3.55% due 12/01/2009 (a) 1,500
California-- NR* NR* 1,500 Long Beach, California, Redevelopment Agency, M/F Housing
0.7% Revenue Bonds (Pacific Court Apartments), AMT, Issue B,
6.80% due 9/01/2013 1,380
<PAGE>
Colorado-- BBB+ Baa1 2,000 Colorado Health Facilities Authority, Hospital Revenue Bonds
7.8% (P/SL Healthcare System Project), Series A, 6.875% due
2/15/2023 2,232
Denver, Colorado, City and County Airport Revenue Bonds:
BB Baa 2,000 AMT, Series A, 7.50% due 11/15/2023 2,149
BB Baa 900 AMT, Series A, 8% due 11/15/2025 993
BB Baa 2,000 AMT, Series B, 7.50% due 11/15/2025 2,073
BB Baa 2,000 AMT, Series D, 7.75% due 11/15/2013 2,430
BB Baa 1,250 Series A, 7.50% due 11/15/2012 1,349
BB Baa 2,000 Series A, 7.25% due 11/15/2025 2,138
NR* NR* 2,000 Mountain Village Metropolitan District, Colorado, Refunding
Bonds (San Miguel County), UT, 8.10% due 12/01/2011 2,173
Connecticut-- NR* NR* 1,925 New Haven, Connecticut, Facilities Revenue Bonds (Hill Health
1.0% Corporation Project), 9.25% due 5/01/2017 2,089
</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>
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 $ 983
NR* VMIG1++ 100 Palm Beach County, Florida, Water and Sewer Revenue Bonds,
VRDN, 3.55% due 10/01/2011 (a) 100
A1 VMIG1++ 300 Pinellas County, Florida, Health Facilities Authority, Revenue
Refunding Bonds (Pooled Hospital Loan Program), DATES,
3.55% due 12/01/2015 (a) 300
Georgia--3.5% NR* NR* 2,520 Atlanta, Georgia, Urban Residential Finance Authority, College
Facilities Revenue Bonds (Morris Brown College Project), 9.50%
due 6/01/2011 2,804
NR* NR* 2,000 Atlanta, Georgia, Urban Residential Finance Authority, M/F
Housing Mortgage Revenue Bonds (Northside Plaza Apartments
Project), 9.75% due 11/01/2020 2,113
NR* NR* 2,000 Hancock County, Georgia, COP, 8.50% due 4/01/2015 2,065
Hawaii--0.9% AAA NR* 1,750 Hawaii State Department of Budget and Finance, Special
Purpose Mortgage Revenue Bonds (Citizens Utility Company),
RIB, Series 91-B, 9.085% due 11/01/2021 (g) 1,853
<PAGE>
Illinois--4.7% Chicago, Illinois, O'Hare International Airport, Special
Facilities Revenue Bonds:
BB+ Baa2 4,000 Refunding (American Airlines Inc. Project), 8.20% due
12/01/2024 4,565
BB Baa2 450 (United Airlines, Inc.), AMT, Series B, 8.95% due 5/01/2018 508
BBB+ NR* 2,000 Illinois Educational Facilities Authority Revenue Bonds
(Chicago Osteopathic Health System), 7.25% due 5/15/2022 2,044
NR* Baa1 1,250 Illinois Health Facilities Authority Revenue Bonds (Holy Cross
Hospital Project), 6.75% due 3/01/2024 1,216
BBB NR* 1,000 Lansing, Illinois, Sales Tax, Tax Increment Revenue Refunding
Bonds (Landing Redevelopment), 7% due 12/01/2008 1,074
Indiana--1.6% A NR* 1,500 Indiana Bond Bank, Special Hospital Program Revenue Bonds
(Hendricks Community Hospital), Series A, 7.125% due 4/01/2013 1,613
BB- Ba3 1,500 Indiana State Development Financing Authority, PCR, Refunding
(Inland Steel Company Project Number 12), 6.85% due 12/01/2012 1,527
Iowa--0.8% NR* NR* 1,500 Iowa Finance Authority, Health Care Facilities Revenue Bonds
(Mercy Health Initiatives Project), 9.95% due 7/01/2019 1,583
Kentucky--2.2% AAA Aaa 4,000 Louisville, Kentucky, Hospital Revenue Bonds, INFLOS, 9.045%
due 10/01/2014 (b)(g) 4,375
Louisiana--4.1% 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 3,901
BBB+ Baa 1,000 Louisiana Public Facilities Authority, Hospital Revenue Bonds
(Woman's Hospital Foundation Project), 7.25% due 10/01/2022 1,016
BB- NR* 3,000 Port New Orleans, Louisiana, IDR, Refunding (Continental Grain
Company Project), 7.50% due 7/01/2013 3,111
</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>
Massachusetts-- NR* NR* $ 1,200 Boston, Massachusetts, Industrial Development Financing
8.9% Authority, Solid Waste Disposal Facility Revenue Bonds
(Jet-A-Way Project), AMT, 10.50% due 1/01/2011 $ 1,339
NR* Ba 1,060 Lawrence, Massachusetts, GO, 9.875% due 12/15/1998 1,227
Massachusetts Health and Educational Facilities Authority
Revenue Bonds (New England Memorial Hospital):
NR* Ba 3,000 Refunding, Series B, 6.125% due 7/01/2013 2,453
NR* NR* 1,930 Series C, 7% due 4/01/2014 1,723
NR* NR* 905 Massachusetts Health and Educational Facilities Authority
Revenue Bonds (North Adams Regional Hospital), Series B,
8% due 7/01/1998 980
NR* B1 1,675 Massachusetts Industrial Finance Agency Revenue Bonds
(Bay Cove Human Services Inc.), 8.375% due 4/01/2019 1,802
BB+ Ba1 1,600 Massachusetts Industrial Finance Agency Revenue Bonds
(Vinfen Corporate Issue), 7.10% due 11/15/2018 1,584
NR* NR* 1,000 Massachusetts Industrial Finance Agency, Solid Waste Disposal
Revenue Bonds (Molten Metal Technology Project), 8.25% due
8/01/2014 1,031
NR* NR* 5,000 Massachusetts Port Authority, Special Project Revenue Bonds
(Harborside Hyatt Project), AMT, 10% due 3/01/2026 5,592
Michigan-- BBB Ba1 2,900 Detroit, Michigan, GO, UT, Series A, 8.70% due 4/01/2000 (d) 3,440
1.7%
Minnesota-- BBB- Baa 2,000 Saint Paul, Minnesota, Housing and Redevelopment Authority,
1.1% Hospital Revenue Bonds (Healtheast Project), Series D, 9.75%
due 11/01/2017 2,235
Missouri-- BBB- NR* 2,935 Joplin, Missouri, IDA, Hospital Facilities Revenue Refunding
5.4% and Improvement Bonds (Tri-State Osteopathic Project), 8.25%
due 12/15/2014 3,000
Missouri Health and Educational Facilities Authority Revenue
Bonds (Southwest Baptist University Project):
BB NR* 905 9.50% due 10/01/2001 1,023
BB NR* 3,690 9.50% due 10/01/2011 4,253
AAA Aaa 2,000 Phelps County, Missouri, Hospital Revenue Bonds (Phelps
County Regional Medical Center), 8.30% due 3/01/2000 (d) 2,342
Nevada--0.4% BBB+ NR* 750 Las Vegas, Nevada, Downtown Redevelopment Agency, Tax
Increment Revenue Bonds (Fremont Street Project), Series A,
6.10% due 6/15/2014 726
<PAGE>
New Hampshire-- BBB+ Baa1 1,845 New Hampshire Higher Educational and Health Facilities
3.7% Authority Revenue Bonds (Saint Joseph Hospital), 7.50% due
1/01/2016 1,903
BB+ Baa3 5,140 New Hampshire, IDA, PCR (Public Service Company New
Hampshire Project), Series B, 7.50% due 5/01/2021 5,454
New Jersey-- NR* Ba 2,150 Atlantic County, New Jersey, Utilities Authority, Solid Waste
8.4% Revenue Bonds, 7.125% due 3/01/2016 2,174
BBB+ Ba 4,000 Camden County, New Jersey, Pollution Control Financing
Authority, Solid Waste Resource Recovery Revenue Bonds,
Series D, 7.25% due 12/01/2010 4,081
New Jersey Health Care Facilities, Financing Authority
Revenue Bonds:
NR* NR* 4,760 (Riverwood Center Issue), Series A, 9.90% due 7/01/2021 5,331
BBB- Baa 4,700 (Saint Elizabeth Hospital), Series B, 8.25% due 7/01/2020 5,074
</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>
New Mexico-- A A2 $ 1,000 Lordsburg, New Mexico, PCR, Refunding (Phelps Dodge
0.5% Corporate Project), 6.50% due 4/01/2013 $ 1,032
New York-- BBB+ Baa1 5,260 New York City, New York, GO, UT, Series C, Sub-Series C-1,
2.8% 7.50% due 8/01/2021 5,618
Ohio--2.4% NR* Ba2 2,325 Defiance County, Ohio, Economic Development Revenue Bonds
(Kroger Co. Project), 8% due 10/15/2015 2,519
AAA Aaa 2,000 Ohio, HFA, S/F Mortgage Revenue Bonds, RIB, AMT, Series A-2,
9.538% due 3/24/2031 (c)(g) 2,112
Oklahoma-- BB NR* 985 Blaine County, Oklahoma, Industrial Authority, IDA, Revenue
0.5% Bonds (United States Gypsum Corp. Project), 7.25% due 10/01/2010 1,031
Oregon--1.6% NR* NR* 1,000 Western Generation Agency, Oregon, Cogeneration Project
Revenue Bonds (Wauna Cogeneration Project), AMT, Series B,
7.40% due 1/01/2016 1,039
B+ NR* 1,955 Yamhill County, Oregon, PCR, Refunding (Smurfit Newsprint
Corporate Project), 8% due 12/01/2003 2,027
<PAGE>
Pennsylvania-- NR* NR* 2,000 Lehigh County, Pennsylvania, General Purpose Authority
12.4% Revenue Bonds (Wiley House), 8.75% due 11/01/2014 2,038
BBB- NR* 5,000 McKean County, Pennsylvania, Hospital Authority Revenue
Bonds (Bradford Hospital Project), 8.875% due 10/01/2020 6,020
Montgomery County, Pennsylvania, IDA, Revenue Refunding Bonds:
NR* NR* 1,500 (1st Mortgage--Meadowood Corporation Project), Series A,
10.25% due 12/01/2020 1,662
NR* Ba 3,400 (Pennsburg Nursing and Rehabilitation Center), 7.625% due
7/01/2018 3,456
NR* NR* 2,000 Pennsylvania Economic Development Financing Authority, IDR
(GEHL Company Inc. Project), AMT, Series F, 9% due 9/01/2010 2,157
NR* NR* 5,000 Pennsylvania Economic Development Financing Authority,
Recycling Revenue Bonds (Ponderosa Fibres Project), AMT,
Series A, 9.25% due 1/01/2022 5,287
BBB- NR* 1,000 Pennsylvania Economic Development Financing Authority,
Resource Recovery Revenue Bonds (Colver Project), AMT,
Series D, 7.15% due 12/01/2018 1,025
NR* NR* 3,000 Washington County, Pennsylvania, Hospital Authority, Revenue
Refunding Bonds (Canonsburg General Hospital Project), 7.35%
due 6/01/2013 3,031
Rhode Island-- BBB+ NR* 1,500 Rhode Island Health and Educational Building Corporation,
1.5% Hospital Revenue Bonds (South County Hospital), 7.25% due
11/01/2011 1,551
NR* Ba 1,260 West Warwick, Rhode Island, GO, UT, Series A, 6.80% due
7/15/1998 1,325
Tennessee-- NR* NR* 4,265 Knox County, Tennessee, Health, Educational and Housing
4.2% Facilities Board, Hospital Facilities Revenue Bonds (Baptist
Health System of East Tennessee), 8.60% due 4/15/2016 4,624
BBB- Baa1 3,500 McMinn County, Tennessee, IDB, Solid Waste Revenue Bonds
(Calhoun Newsprint), AMT, 7.40% due 12/01/2022 3,741
</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>
Texas--6.7% BB+ Baa2 $ 3,000 Dallas-Fort Worth, Texas, International Airport Facilities
Improvement Corporation Revenue Bonds (American Airlines,
Inc.), AMT, 7.25% due 11/01/2030 $ 3,118
BBB- Ba1 4,870 Jefferson County, Texas, Health Facilities Development
Corporation, Hospital Revenue Bonds (Baptist Healthcare
System Project), 8.875% due 6/01/2021 5,346
BB Ba 3,270 Odessa, Texas, Junior College District, Revenue Refunding
Bonds, Series A, 8.125% due 12/01/2018 3,305
NR* VMIG1++ 500 Southwest Higher Education Authority Incorporated, Texas,
Revenue Refunding Bonds (Southern Methodist University),
VRDN, 3.50% due 7/01/2015 (a) 500
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 Chemicals and Plastics),
AMT, 8.20% due 3/15/2021 1,108
<PAGE>
Utah--2.4% BBB+ Baa2 1,300 Carbon County, Utah, Solid Waste Disposal Revenue Refunding
Bonds (Laidlaw Inc. - ECDC Project), AMT, Series A, 7.50% due
2/01/2010 1,384
AAA Aaa 3,000 Salt Lake City, Utah, Hospital Revenue Refunding Bonds (IHC
Hospitals, Inc.), INFLOS, 9.211% due 5/15/2020 (e)(g) 3,292
Vermont--0.8% NR* NR* 1,500 Vermont Educational and Health Buildings Financing Agency,
Revenue Refunding Bonds (College of St. Joseph Project), 8.50%
due 11/01/2024 1,577
Wisconsin--1.2% NR* Ba3 2,350 Walworth, Wisconsin, IDA, Revenue Refunding Bonds (United
States Gypsum Corp. Project), 7.25% due 5/01/2010 2,398
Total Investments (Cost--$180,774)--98.3% 195,147
Other Assets Less Liabilities--1.7% 3,428
--------
Net Assets--100.0% $198,575
========
<FN>
(a)The interest rate is subject to change periodically based upon
prevailing market rates. The interest rate shown is the rate in
effect at August 31, 1995.
(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
based upon prevailing market rates. The interest rate shown is the
rate in effect at August 31, 1995.
*Not Rated.
++Highest short-term rating by Moody's Investors Service, Inc.
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, 1995
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$180,773,886) (Note 1a) $195,147,439
Cash 135,000
Receivables:
Interest $ 4,037,207
Capital shares sold 43,743 4,080,950
------------
Deferred organization expenses (Note 1e) 7,409
Prepaid registration fees and other assets (Note 1e) 10,152
------------
Total assets 199,380,950
------------
Liabilities: Payables:
Dividends to shareholders (Note 1f) 446,050
Investment adviser (Note 2) 161,945
Administration (Note 2) 42,617 650,612
------------
Accrued expenses and other liabilities 155,465
------------
Total liabilities 806,077
------------
Net Assets: Net assets $198,574,873
============
Net Assets Common stock, $.10 par value, 200,000,000 shares authorized $ 1,809,646
Consist of: Paid-in capital in excess of par 185,699,710
Accumulated realized capital losses on investments--net (2,713,001)
Accumulated distributions in excess of realized capital gains--net (595,035)
Unrealized appreciation on investments--net 14,373,553
------------
Net assets--Equivalent to $10.97 per share based on 18,096,461
shares of capital outstanding $198,574,873
============
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Year Ended August 31, 1995
<S> <S> <C>
Investment Income Interest and amortization of premium and discount earned $ 15,451,765
(Note 1d):
Expenses: Investment advisory fees (Note 2) 1,923,921
Administrative fees (Note 2) 506,295
Professional fees 152,333
Transfer agent fees (Note 2) 124,881
Printing and shareholder reports 63,356
Advertising 57,409
Registration fees (Note 1e) 51,811
Accounting services (Note 2) 49,486
Amortization of organization expenses (Note 1e) 43,665
Listing fees 34,342
Directors' fees and expenses 26,422
Custodian fees 20,612
Pricing services 12,973
Other 5,875
------------
Total expenses 3,073,381
------------
Investment income--net 12,378,384
------------
Realized & Realized loss on investments--net (2,713,001)
Unrealized Change in unrealized appreciation on investments--net 6,520,321
Gain (Loss) on ------------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 16,185,704
(Notes 1b, 1d & 3): ============
</TABLE>
<PAGE>
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended August 31,
Increase (Decrease) in Net Assets: 1995 1994
<S> <S> <C> <C>
Operations: Investment income--net $ 12,378,384 $ 12,911,107
Realized gain (loss) on investments--net (2,713,001) 3,571,349
Change in unrealized appreciation on investments--net 6,520,321 (12,998,193)
------------ ------------
Net increase in net assets resulting from operations 16,185,704 3,484,263
------------ ------------
Dividends & Investment income--net (12,378,384) (12,911,107)
Distributions Realized gain on investments--net (2,796,951) (1,365,806)
To Shareholders In excess of realized gain on investments--net (595,035) --
(Note 1f): ------------ ------------
Net decrease in net assets resulting from dividends
and distributions to shareholders (15,770,370) (14,276,913)
------------ ------------
Capital Share Net increase (decrease) in net assets derived from capital
Transactions share transactions (14,798,840) 6,828,611
(Note 4): ------------ ------------
Net Assets: Total decrease in net assets (14,383,506) (3,964,039)
Beginning of year 212,958,379 216,922,418
------------ ------------
End of year $198,574,873 $212,958,379
============ ============
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: 1995 1994 1993 1992 1991
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.92 $ 11.44 $ 10.74 $ 10.29 $ 10.00
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .65 .65 .68 .71 .63
Realized and unrealized gain (loss) on
investments--net .23 (.45) .75 .50 .29
-------- -------- -------- -------- --------
Total from investment operations .88 .20 1.43 1.21 .92
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.65) (.65) (.68) (.71) (.63)
Realized gain on investments--net (.15) (.07) (.05) (.05) --
In excess of realized gain on investments--net (.03) -- -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.83) (.72) (.73) (.76) (.63)
-------- -------- -------- -------- --------
Net asset value, end of period $ 10.97 $ 10.92 $ 11.44 $ 10.74 $ 10.29
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 8.74% 1.75% 13.83% 12.29% 9.43%+++
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement 1.52% 1.48% 1.37% 1.30% .84%*
Net Assets: ======== ======== ======== ======== ========
Expenses 1.52% 1.48% 1.47% 1.55% 1.76%*
======== ======== ======== ======== ========
Investment income--net 6.11% 5.81% 6.17% 6.85% 7.43%*
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $198,575 $212,958 $216,922 $170,735 $114,628
Data: ======== ======== ======== ======== ========
Portfolio turnover 21.28% 28.51% 28.74% 31.74% 75.92%
======== ======== ======== ======== ========
<FN>
*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.
++Commencement of Operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<PAGE>
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 and other portfolio
securities in which the Fund invests are traded primarily in the
over-the-counter municipal bond and money markets and are valued at
the last available bid price in the over-the-counter market or on
the basis of yield equivalents as obtained from one or more dealers
that make markets in the securities. Financial futures contracts and
options thereon, which are traded on exchanges, are valued at their
settlement 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. Short-term investments with remaining
maturities of sixty days or less are valued at amortized cost, which
approximates market value. Securities and assets 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, including valuations furnished by a pricing
service retained by the Fund, which may utilize a matrix system for
valuations. The procedures of the pricing service and its valuations
are reviewed by the officers of the Fund under the general
supervision of the Directors.
(b) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the debt markets. Losses may
arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
* Financial futures contracts--The Fund may purchase or sell interest
rate futures contracts and options on such futures contracts for the
purpose of hedging the market risk on existing securities or the
intended purchase of securities. Futures contracts are contracts for
delayed delivery of securities at a specific future date and at a
specific price or yield. Upon entering into a contract, the 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>
* Options--The Fund is authorized to write covered call options and
purchase put options. When the Fund writes an option, an amount
equal to the premium received by the Fund is reflected as an asset
and an equivalent liability. The amount of the liability is
subsequently marked to market to reflect the current market value of
the option written. When a security is purchased or sold through an
exercise of an option, the related premium paid (or received) is
added to (or deducted from) the basis of the security acquired or
deducted from (or added to) the proceeds of the security sold. When
an option expires (or the Fund enters into a closing transaction),
the Fund realizes a gain or loss on the option to the extent of the
premiums received or paid (or gain or loss to the extent the cost of
the closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
(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 charged to expense on a
straight-line basis over a five-year period. Prepaid registration
fees are charged to expense as the related shares are issued.
(f) Dividends and distributions--Dividends from net investment
income are declared daily and paid monthly. Distributions of capital
gains are recorded on the ex-dividend dates. Distributions in excess
of realized capital gains are due primarily to differing tax
treatments for futures transactions and post-October losses.
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"). The general partner
of MLAM is Princeton Services, Inc. ("PSI"), an indirect whollyowned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner.
<PAGE>
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.
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, distribution fees, 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 net
assets, 2.0% of the next $70 million of average daily net assets,
and 1.5% of the average 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 MLAM
during any fiscal year which will cause such expenses to exceed
the most restrictive expense limitation applicable at the time
of such payment.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), 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 MLAM, PSI, MLPF&S, MLFDS, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended August 31, 1995 were $41,657,329 and $58,801,563,
respectively.
Net realized and unrealized gains (losses) as of August 31, 1995
were as follows:
Realized Unrealized
Losses Gains
Long-term investments $ (678,301) $14,373,553
Short-term investments (156,729) --
Financial futures contracts (1,877,971) --
----------- -----------
Total $(2,713,001) $14,373,553
=========== ===========
<PAGE>
As of August 31, 1995, net unrealized appreciation for Federal
income tax purposes aggregated $14,373,553, of which $14,520,979
related to appreciated securities and $147,426 related to
depreciated securities. The aggregate cost of investments at August
31, 1995 for Federal income tax purposes was $180,773,886.
4. Capital Shares Transactions:
Transactions in capital shares were as follows:
For the Year Ended Dollar
August 31, 1995 Shares Amount
Shares sold 1,405,923 $ 15,030,501
Shares issued to share-
holders in reinvestment of
dividends and distributions 630,887 6,628,373
---------- ------------
Total issued 2,036,810 21,658,874
Shares tendered (3,446,599) (36,457,714)
---------- ------------
Net decrease (1,409,789) $(14,798,840)
========== ============
For the Year Ended Dollar
August 31, 1994 Shares Amount
Shares sold 2,811,953 $ 31,764,655
Shares issued to share-
holders in reinvestment of
dividends and distributions 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
=========== ============
<AUDIT-REPORT>
INDEPENDENT AUDITORS' 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, 1995, 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
four-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.
We conducted our audits in accordance with gener-ally 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, 1995 by correspondence with the custodian. 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,
1995, 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 29, 1995
</AUDIT-REPORT>
<PAGE>
IMPORTANT TAX INFORMATION (unaudited)
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, 1995 qualify as tax-exempt interest
dividends for Federal income tax purposes.
Additionally, the Fund distributed short-term capital gains of
$.030455 per share and long-term capital gains of $.148436 to
shareholders of record on December 21, 1994.
Please retain this information for your records.
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
90 Washington Street
New York, New York 10286
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800)637-3863
