MERRILL LYNCH
HIGH INCOME
MUNICIPAL BOND
FUND, INC.
FUND LOGO
Quarterly Report
November 30, 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. Statements and
other information herein are as dated and are subject to change.
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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 three-month period ended November 30, 1995, Merrill Lynch
High Income Municipal Bond Fund, Inc. earned $0.161 per share income
dividends, representing a net annualized yield of 5.77%, based on a
month-end per share net asset value of $11.16. Over the same period,
the Fund's total investment return was +3.21%, based on a change in
per share net asset value from $10.97 to $11.16, and assuming
reinvestment of $0.160 per share income dividends.
The Environment
The pace of US economic activity apparently changed once again
during the quarter ended November 30, 1995. During the summer
months, there was strong evidence of a slowing economy, a trend that
reversed during the third calendar quarter of 1995, when gross
domestic product growth rebounded to a 4.2% pace. However, recent
economic releases suggest that this rate of expansion was not
sustained.
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A number of key measures of economic growth indicate that the
economy is losing momentum. Retail sales for November were soft,
reflecting continued caution on the part of debt-burdened consumers.
Home sales and housing starts both declined in October, despite
lower mortgage rates. At the same time, there has been an increase
in initial unemployment claims, along with weak job and income
growth. In response to this slowing in the economy, inflationary
pressures continue to be subdued. As a result of these trends,
long-term interest rates have fallen, bond prices have risen, and
the US stock market reached a new all-time high.
The strong stock and bond market rallies suggest that investors are
not only anticipating that a lackluster economy will lead the
Federal Reserve Board to resume its easing of monetary policy, but
also that the Clinton Administration and Congress will reach an
agreement in their current Federal budget deliberations. While the
probable direction of economic activity will continue to be the
primary focus of investors in the weeks ahead, a credible plan for
reducing the Federal budget deficit will also be an important factor
in the investment outlook.
The Municipal Market
Tax-exempt bond yields continued to decline during the three-month
period ended November 30, 1995. As measured by the Bond Buyer
Revenue Bond Index, the yield on uninsured, long-term municipal
revenue bonds fell approximately 50 basis points (0.50%) to end the
November period at approximately 5.75%. While tax-exempt bond yields
declined dramatically from their highs one year ago, municipal bond
yields have exhibited considerable yield volatility on a weekly
basis. In recent months, tax-exempt bond yields fluctuated by as
much as 20 basis points on a week-to-week basis. US Treasury bond
yields displayed similar volatility. By November 30, 1995, long-term
US Treasury bond yields had declined almost 50 basis points to
6.13%. Proposed Federal tax restructuring continued to weigh heavily
on the tax-exempt bond market. Thus far in 1995, US Treasury bond
yields have declined approximately 175 basis points. Municipal bond
yields fell approximately 120 basis points as the uncertainty
surrounding any changes to the existing Federal income tax structure
prevented the municipal bond market from rallying as strongly as its
taxable counterpart.
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A general view of a moderately expanding domestic economy, supported
by a very favorable inflationary environment, allowed interest rates
to significantly decline from their recent highs in November 1994.
However, this decline was not a smooth downward curve. Conflicting
economic indicators were released during recent months that have
prevented a clear consensus regarding the near-term direction of
interest rates from being reached. The resultant uncertainty has
promoted more of a saw-toothed pattern as interest rate declines
were repeatedly interrupted by indications of stronger-than-expected
economic growth. As these concerns have been overcome by subsequent
weaker economic releases, interest rate declines have resumed. These
periods of volatility are likely to continue for the remainder of
1995, or until proposed Federal budget deficit reduction packages
are resolved and any resultant responses by the Federal Reserve
Board have occurred.
However, the municipal bond market's technical position remained
supportive throughout recent quarters. Approximately $42 billion in
long-term municipal securities were issued during the November 30,
1995 quarter. While this issuance is slightly above underwritings
during the November 30, 1994 quarter, tax-exempt bond issuance over
the last 12 months remained approximately 20% below comparable 1994
levels. The municipal bond market should maintain this positive
technical position well into 1996. Annual issuance for 1995 is now
projected to be approximately $140 billion, significantly less than
last year's already low level of $162 billion. Projected maturities
and early redemptions for the remainder of 1995 and throughout 1996
will lead to a continued decline in the total outstanding municipal
bond supply through-out 1996 and, perhaps, into 1998 should new bond
issuance remain at historically low levels.
Despite the municipal bond market's relative underperformance
compared to the US Treasury market thus far in 1995, the extent of
the tax-exempt bond market's rally was nonetheless quite impressive.
Municipal bond yields fell approximately 160 basis points from their
highs reached in November 1994, and municipal bond prices rose
accordingly. Most tax-exempt products recouped almost all of the
losses incurred in 1994 and are well on their way to posting
double-digit total returns for all of 1995. This relative
underperformance so far in 1995 provided long-term investors with
the rare opportunity to purchase tax-exempt securities at yield
levels near those of taxable securities.
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Additionally, many of the factors that led to the relative
underperformance of the tax-exempt bond market thus far in 1995,
namely investor concern regarding Federal budget deficit reductions
and proposed changes in the Federal income tax structure, are
nearing resolution. Recent public opinion polls suggested that the
majority of American taxpayers prefer the existing Federal income
tax system compared to proposed changes, such as the flat-tax or
national sales tax. In an upcoming election year, neither party is
likely to advocate a clearly unpopular position, particularly one
that can be expected to negatively impact the Federal budget deficit
reduction program through reduced tax revenues. As these factors are
resolved, we believe that much of the resistance that the municipal
bond market met this year should dissipate. This should allow
municipal bond yields to decline from current levels in order to
return to more normal historic yield relationships.
Portfolio Strategy
Merrill Lynch High Income Municipal Bond Fund, Inc. experienced
little activity during the quarter ended November 30, 1995. We
limited transactions to the occasional sale of overvalued holdings.
This served the dual role of maintaining a sufficient degree of
liquidity in the Fund as well as allowing for the potential
redeployment of assets. Additionally, we invested $5 million in a
non-investment grade issue bearing a coupon of 7.75%. During the
quarter, no further high-yield products met the standards
established by our credit analysts, although we continue to scour
the marketplace for suitable candidates.
The Fund's portfolio structure changed minimally, reflecting both
our neutral outlook as well as a continuing focus on maintaining an
attractive dividend. The Fund's cash reserves remained low enough
for us to achieve this goal while allowing for ample liquidity
during the quarterly tender offers. Currently, approximately 87% of
the Fund's net assets are either non-rated, below investment grade,
or rated in the lowest investment grade category by at least one of
the major rating agencies.
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
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(Vincent R. Giordano)
Vincent R. Giordano
Vice President
(Theodore R. Jaeckel Jr.)
Theodore R. Jaeckel Jr.
Portfolio Manager
January 3, 1996
PORTFOLIO COMPOSITION
For the Quarter Ended November 30, 1995
Top Ten States*
Pennsylvania 14.62%
Massachusetts 9.21
New Jersey 8.68
Texas 6.88
Colorado 5.89
Missouri 5.58
Illinois 5.04
Tennessee 4.29
Louisiana 4.20
New Hampshire 3.79
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Total Top Ten 68.18
Total Others 31.82
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Total Portfolio 100.00%
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Net assets as of November 30, 1995 were $199,335,326.
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Quality Ratings*
(Based on Nationally Recognized Rating Services)
A pie chart illustrating the following percentages:
AAA/Aaa 9%
AA/Aa 1%
A/A 1%
BBB/Baa 35%
BB/Ba 19%
B/B 4%
NR++ 30%
Other++++ 1%
[FN]
*Based on total market value of the portfolio as of
November 30, 1995.
++Not Rated.
++++Temporary investments in short-term municipal securities.
OFFICERS AND DIRECTORS
ArthurZeikel, 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
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Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
