MERRILL LYNCH
HIGH INCOME
MUNICIPAL BOND
FUND, INC.
FUND LOGO
Quarterly Report
May 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.
Merrill Lynch
High Income
Municipal Bond
Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
<PAGE>
Merrill Lynch High Income Municipal Bond Fund, Inc.
DEAR SHAREHOLDER
For the three-month period ended May 31, 1995, Merrill Lynch High
Income Municipal Bond Fund, Inc. earned $0.162 per share income
dividends, representing a net annualized yield of 5.88%, based on a
per share net asset value of $10.92 as of May 31, 1995. Over the
same period, the Fund's total investment return was +3.48%, based on
a change in per share net asset value from $10.71 to $10.92, and
assuming reinvestment of $0.160 per share income dividends.
The Environment
Increasing signs of slowing economic growth led to higher US stock
and bond prices during the May quarter. Recent declines in
indicators such as new home sales and durable goods orders were
reflected in the slight downward revision in first-quarter gross
domestic product growth to 2.7% from 2.8%. At the same time,
inventories of unsold goods grew at a slower rate than previously
estimated, while consumer, residential construction and capital
goods spending were revised upward. As a result, it appears that the
economy is losing enough momentum to keep inflation under control
and preclude further significant monetary policy tightening by the
Federal Reserve Board.
Despite some periods of strengthening, the US dollar has been
persistently weak relative to the yen and the Deutschemark. Large
trade deficits and exports of capital from the United States have
kept the US currency in a decade-long decline relative to the
Japanese and German currencies. Over the longer term, since the
United States has the highest productivity among industrialized
nations and among the lowest labor costs, demand for US dollar-
denominated assets may improve. However, a reduction of the still-
widening US trade deficit may be necessary before the US dollar
appreciates substantially relative to the yen and the Deutschemark.
Another important factor that will continue to influence currency
markets is the increasing possibility of US/Japanese trade
sanctions.
Thus far in 1995, economic developments have been very positive for
the US stock and bond markets. Continued signs of a moderating
expansion and well contained inflationary pressures would provide
further assurance that the peak in interest rates is behind us,
creating a stronger foundation for higher stock and bond prices. On
the other hand, indications of reaccelerating growth and increasing
inflationary pressures would be negative developments for the US
financial markets.
<PAGE>
The Municipal Market
Throughout most of the three months ended May 31, 1995, the
municipal bond market continued the improvement that began in late
1994. Signs of a weakening domestic economy and ongoing moderate
inflationary pressures have continued to foster an environment of
declining interest rates. As measured by the Bond Buyer Revenue Bond
Index, yields on A-rated, uninsured municipal revenue bonds declined
over 30 basis points (0.30%) to 6.02% during the May quarter. Tax-
exempt bond yields have fallen over 125 basis points since their
high last November and are now lower than they were a year ago. Over
the three months ended May 31, 1995, 30-year US Treasury bond yields
fell even more dramatically, declining approximately 75 basis points
to 6.65%.
The recent underperformance of the tax-exempt bond market can be
viewed as the result of a combination of special factors, all of
which are likely to have only a limited impact on the market in the
long run. It is important to note that over the last six months,
declines in both taxable and tax-exempt bond yields have been
essentially identical. Long-term US Treasury bond yields have fallen
135 basis points since the end of last November. Similarly,
municipal bond yields declined 130 basis points over the same
period. The tax-exempt bond market, however, saw much of its
improvement in late 1994 and early 1995. In January and February
1995, the tax-exempt bond market easily outperformed its taxable
counterpart. Recent underperformance by municipal bonds is, in large
part, the result of the taxable bond market "catching up" to the
municipal bond market's earlier gains. Additionally, in recent
months various proposed tax law changes (such as the flat, value-
added or national sales taxes) have raised concerns regarding the
ongoing tax-advantaged status of municipal bonds and reduced
investor demand. Such concerns are likely to quickly recede as
investors realize that any changes, even if they do occur, are
unlikely to be enacted before late 1996 at the earliest. Also, long-
term investors will recall 1986 when similar tax proposals were made
and municipal bond yields initially rose to 100% or more of taxable
yields. Tax-exempt bond yields quick-ly declined as investors' fears
proved to be unfounded.
Investor demand has also been diminished in recent months by the
"sticker shock" effect that periodically affects the tax-exempt bond
market. Investors who had become accustomed to purchasing municipal
securities yielding in the 6.50%--7.00% range six or seven months
ago have demonstrated understandable reluctance to purchase similar
securities at current levels. The ongoing strong technical structure
of the municipal market, however, suggests that such hesitancy may
prove costly.
Investors are expected to receive as much as $80 billion from tax-
exempt bond maturities, coupon payments and from the proceeds of
early bond redemptions during June and July 1995. This amount is far
greater than total new bond issuance seen in recent months. During
the quarter ended May 31, 1995, less than $35 billion in tax-exempt
securities were issued. This represents a decline in issuance of
approximately 25% versus levels seen in the same period in 1994.
With estimates of 1995 annual new bond issuance of approximately
$125 billion, the supply of available municipal securities is likely
to remain extremely limited regardless of the market level.
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Tax-exempt bonds currently yield 85%--90% of comparable US Treasury
securities. Analysts usually consider municipal bonds yielding more
than 82% of US Treasury securities to be historically attractive.
For example, with after-tax equivalent yields in excess of 9.50%,
municipal securities appear to represent considerable value. In the
presently strong technical environment, many investors are likely to
view the current situation as an opportunity to purchase very
attractively priced tax-exempt products, causing municipal bond
yields to quickly return to their more historic relationship.
Portfolio Strategy
During the quarter ended May 31, 1995, portfolio activity
accelerated as we added several new tax-exempt high-yield securities
to the Fund's portfolio. Throughout the May quarter, we purchased a
total of $18.6 million in bonds bearing an average yield of just
over 8%. In light of fairly neutral cash flows, it was necessary to
pay for these bonds with proceeds raised from the sale of some of
the Fund's existing holdings. For the most part, this was
accomplished by reducing positions that had met our performance
expectations. Further improvement in these securities from a credit
as well as a price perspective seemed unlikely, especially in
comparison to prospects for some of the Fund's new purchases.
Looking forward, we will continue to seek new investment
opportunities in an effort to provide shareholders with an
attractive rate of return.
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
June 20, 1995
<PAGE>
PORTFOLIO COMPOSITION
For the Quarter Ended May 31, 1995
Top Ten States*
Pennsylvania 12.66%
Massachusetts 9.08
New Jersey 8.43
Colorado 7.61
Texas 7.46
Missouri 5.41
Illinois 4.74
Louisiana 4.04
Kentucky 3.81
New Hampshire 3.73
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Total Top Ten 66.97
Total Others 33.03
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Total Portfolio 100.00%
=======
Net assets as of May 31, 1995 were $202,834,861.
Quality Ratings*
(Based on Nationally Recognized Rating Services)
A pie chart representing the following percentages:
AAA/Aaa 7%
A/A 5%
BBB/Baa 40%
BB/Ba 15%
B/B 2%
NR++ 30%
Other++++ 1%
[FN]
*Based on total market value of the portfolio as of May 31, 1995.
++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
Merrill Lynch Financial
Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
