MERRILL LYNCH
HIGH INCOME
MUNICIPAL BOND
FUND, INC.
FUND LOGO
Quarterly Report
November 30, 1994
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.
Merrill Lynch
High Income
Municipal Bond
Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
<PAGE>
Merrill Lynch High Income Municipal Bond Fund, Inc.
DEAR SHAREHOLDER
For the three-month period ended November 30, 1994, Merrill Lynch
High Income Municipal Bond Fund, Inc. earned $0.165 per share income
dividends, representing a net annualized yield of 6.45%, based on a
month-end per share net asset value of $10.24. Over the same period,
the Fund's total investment return was -4.74%, based on a change in
per share net asset value from $10.92 to $10.24, and assuming
reinvestment of $0.164 per share income dividends.
The Environment
Volatility in the US financial markets continued during the November
quarter, largely prompted by concerns of increasing inflationary
pressures. The possibility of continued monetary policy tightening
by the Federal Reserve Board was predominant in the minds of
investors throughout most of the period. Therefore, there was little
surprise in mid-November when the central bank announced the sixth
increase in short-term interest rates thus far this year. Early in
the period, the weakness of the US dollar in foreign exchange
markets also prompted declines in US stock and bond prices, but some
strengthening of the US currency has occurred recently.
Despite widespread inflationary expectations, recently released data
show that the rate of inflation remains near a 30-year low, as consumer
prices barely rose in October. Other economic results show little
evidence of an overheating economy. Housing starts fell during
October, and higher interest rates will likely continue to weaken
housing demand. Although retail sales are rising, the real strength
in the economy is still in the manufacturing sector.
In the weeks ahead, investors will continue to assess economic data
and inflationary trends in order to gauge whether further increases
in short-term interest rates are likely. In addition, investor
interest will also be focused on the progress that the new Congress
makes on both reducing the Federal budget deficit and providing tax
cuts that promote savings and investment. Legislative progress,
combined with continued indications of moderate and sustainable
levels of economic growth, would be positive for the US capital
markets.
<PAGE>
The Municipal Market
The long-term tax-exempt market continued to erode throughout the
three months ended November 30, 1994. As measured by the Bond Buyer
Revenue Bond Index, yields on A-rated municipal revenue bonds
maturing in 30 years rose by over 85 basis points (0.85%) to 7.32%
during the period ended November 30, 1994. This represents the
highest level of tax-exempt bond yields in over two years. US
Treasury bonds also suffered significant declines during the quarter
as Treasury bond yields rose approximately 55 basis points to end
the quarter at 8.00%.
The tax-exempt bond market reacted negatively throughout the quarter
to indications that, despite a series of interest rate increases by
the Federal Reserve Board, the strength of the domestic economy seen
in recent quarters has not yet been significantly reduced. While
inflationary pressures have remained well contained, additional
Federal Reserve Board actions have been expected both to ensure that
domestic economic growth is eventually confined to current levels
and to assure nervous financial markets of its anti-inflationary
intentions. Within this context, institutional investors have
largely withdrawn from the municipal market to await a more stable
environment. At the same time, retail investors have been redeeming
mutual fund shares, largely in anticipation of continued price
declines. Investor withdrawals were particularly heavy in October
and early November, with tax-exempt mutual fund outflows exceeding
$3 billion during the last quarter.
Fortunately, while the demand for tax-exempt bonds has declined
somewhat in recent months, new bond issuance has remained greatly
reduced. During the three months ended November 30, 1994, only $32
billion in long-term tax-exempt securities were issued, a decline of
over 50% compared to the November 30, 1993 quarter. Similarly, for
the six months ended November 30, 1994, only $75 billion in
municipal securities were underwritten, a decline of over 50%
compared to the comparable period a year earlier. This reduction in
issuance in recent quarters has allowed the municipal bond market to
react to both the decline in investor demand and the rise in
fixed-income yields in a more orderly fashion than in similar
situations in the past, particularly during 1987.
Long-term tax-exempt revenue bonds currently yield approximately 7%,
or almost 11.5% on an after-tax equivalent basis, to an investor in
the 39.6% Federal income tax bracket. As inflation has only
marginally increased in the past year, real tax-exempt interest
rates have risen dramatically. The Federal Reserve Board appears
committed to maintaining inflation at or below its current levels.
Indeed, most forecasts expect inflation to remain in its present
range of 3%--4% throughout 1995 and, potentially, for the remainder
of the 1990s. Real after-tax equivalent interest rates exceeding 7%
represent historically attractive municipal investments for
long-term investors.
<PAGE>
Federal Reserve Board actions taken thus far have yet to fully
impact US domestic growth and expected additional actions should
promote only a modest economic expansion within a benign
inflationary context beginning sometime early in 1995. Within such
an environment, it is unlikely that tax-exempt interest rates will
remain at their current attractive levels. Tax-exempt bond issuance
is unlikely to return to the historic high levels seen in 1992 and
1993, while investor demand should return as markets stabilize. As
we have discussed in earlier reports, the total number of tax-exempt
bonds outstanding is scheduled to decline dramatically in 1994 and
1995 as a result of both regular bond maturities and early
redemptions. Investors seeking tax-advantaged issues are likely to
find it very difficult to obtain currently available tax-exempt
yields as the current supply/demand balance is unlikely to be
maintained in the coming quarters.
Portfolio Strategy
During the quarter ended November 30, 1994, our portfolio strategy
continued to focus on seeking to generate a high level of tax-exempt
income. During the last three months, we purchased approximately
$7.5 million in high-yield securities bearing an average yield of
8.35%. Additional transactions involved the sale of various
securities that had demonstrated favorable performance
characteristics over time and were therefore fully priced relative
to the overall market. These sales served the dual purpose of
building sufficient cash reserves in the expectation of the Fund's
most recent tender offer.
<PAGE>
Looking forward, we will maintain our current strategy of steadily
building cash reserves. This gradualist approach seems most sensible
as it enables us to seek to protect the portfolio's net asset value
while avoiding the possibility of having to sell at inopportune
times.
In Conclusion
We appreciate your investment in Merrill Lynch High Income Municipal
Bond Fund, Inc., and we look forward to assisting you with your
financial needs in the months and years ahead.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Vice President and Portfolio Manager
December 23, 1994
PORTFOLIO COMPOSITION
For the Quarter Ended November 30, 1994
<PAGE>
Top Ten States*
Pennsylvania 10.27%
Massachusetts 9.13
Texas 7.56
Colorado 6.96
New Jersey 6.22
Missouri 5.41
Louisiana 4.87
Illinois 4.43
New York 3.88
Ohio 3.83
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Total Top Ten 62.56
Total Others 37.44
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Total Portfolio 100.00%
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Net assets as of November 30, 1994 were $193,120,286.
GRAPHIC MATERIAL APPEARS HERE. SEE APPENDIX,
GRAPHIC AND IMAGE MATERIAL, ITEM 1.
[FN]
*Based on total market value of the portfolio as of November 30,
1994.
++Not Rated.
++++Temporary investments in short-term municipal securities.
<PAGE>
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
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
APPENDIX, GRAPHIC AND IMAGE MATERIAL,
ITEM 1:
Quality Ratings*
(Based on Nationally Recognized Rating Services)
AAA/Aaa 9%
A/A 4%
BBB/Baa 42%
BB/Ba 17%
B/B 4%
NR++ 23%
Other++++ 1%
<PAGE>
[FN]
*Based on total market value of the portfolio as of November 30,
1994.
++Not Rated.
++++Temporary investments in short-term municipal securities.
