MERRILL LYNCH
HIGH INCOME
MUNICIPAL BOND
FUND, INC.
FUND LOGO
Quarterly Report
May 31, 1996
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.
<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 three-month period ended May 31, 1996, Merrill Lynch High
Income Municipal Bond Fund, Inc. earned $0.169 per share income
dividends, representing a net annualized yield of 6.01%, based on a
per share net asset value of $10.91 as of May 31, 1996. Over the
same period, the Fund's total investment return was -0.54%, based on
a change in per share net asset value from $11.14 to $10.91, and
assuming reinvestment of $0.176 per share income dividends.
The Environment
Conflicting economic indicators created greater uncertainty in the
investment outlook during the quarter ended May 31, 1996. With
reports of stronger-than-expected employment data, investors began
to anticipate renewed economic growth. Long-term interest rates
rose, and the Federal Reserve Board left monetary policy on hold.
However, revised data indicate the US economy actually grew more
slowly in the first quarter of 1996 than had been originally
reported. In addition, consumer sentiment does not appear to be
improving markedly.
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Investors also became concerned that inflationary pressures are
increasing because of higher prices for agricultural commodities and
a sharp upturn in the price of crude oil. Nevertheless, other
wholesale and consumer price increases remain subdued. More
important, wage increases--a significant factor in the inflation
outlook--continue to be well-contained.
Investors are likely to continue to focus on the probable direction
of economic activity and Federal Reserve Board monetary policy in
the weeks ahead. At this time, it appears that the economy is not on
the verge of overheating. Nevertheless, it is likely that any
further near-term indication of stronger-than-expected economic
activity may increase investor apprehension concerning the outlook
for higher inflation and interest rates.
The Municipal Market
Long-term municipal bond yields continued to rise throughout the
three-month period ended May 31, 1996. Economic indicators released
during the February quarter portrayed a moderately expanding economy
with few inflationary pressures. However, continued economic
strength, coupled with rising commodity prices, served to augment
inflationary expectations over the last three months. This led to
concerns that the next move by the Federal Reserve Board will be to
raise interest rates to stifle any incipient inflationary pressures.
As measured by the Bond Buyer Revenue Bond Index, uninsured
municipal revenue bonds yielded 6.17% at May 31, 1996, up over 30
basis points (0.30%). US Treasury bond yields also rose during the
May quarter. Over the last three months, US Treasury bond yields
rose over 50 basis points to end the period ended May 31, 1996 at
7%.
During the May quarter, the municipal bond market continued to enjoy
the same strong technical position that supported its outperformance
for much of 1995. The rate of increase in new-bond issuance has
recently slowed. Over the last six months over $90 billion in new
long-term municipal securities were underwritten. This represents an
increase of 45% versus the comparable period a year earlier.
However, during the May quarter, approximately $45 billion in
securities were issued, an increase of 25% versus the same period a
year ago. This relative decline in bond issuance can be expected to
continue as bond issuance historically declines during the summer
months. Also, bond issuance dedicated toward refinancing existing
debt has fallen in response to higher bond yields.
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At the same time investor demand has remained consistently strong.
With nominal new-issue yields above 6%, retail investor interest has
been steady. Additionally, in June and July, investors are expected
to receive over $50 billion in new assets derived from coupon
income, bond maturities, and proceeds from early redemptions. Annual
new-bond issuance has declined in recent years and is expected to
remain below levels seen in the early 1990s. Consequently, as the
higher-couponed bonds issued in the early-to-mid 1980s have been
redeemed at their first optional call dates, the number of total
outstanding tax-exempt bonds has declined. This combination of a
declining net supply and significant amounts of new assets helped
maintain investor demand in recent months.
It is unlikely that the municipal bond market will continue to
significantly outperform US Treasury securities in the near future.
The tax-exempt bond markets' recent performance has led to the yield
ratio between taxable and tax-exempt securities falling from in
excess of 90% to approximately 85%. While historically attractive,
some institutional investors, particularly hedge funds and other
cross-over buyers, have begun to view the tax-exempt bond markets'
recent outperformance as an opportunity to sell a relatively
expensive asset.
Looking ahead, no clear consensus for the direction of interest
rates currently exists. It is possible that the primary focus going
forward will be the extent to which the increase in interest rates
seen thus far in 1996 will negatively impact future economic growth.
Should growth characterize the interest-rate sensitive sectors of
the economy, such as housing, auto, and consumer spending, as many
economists assert is likely, then bond yields are likely to decline.
Under such a scenario, the municipal bond market's performance is
likely to closely mirror that of the US Treasury bond market.
Portfolio Strategy
During the quarter ended May 31, 1996, our portfolio strategy
continued to focus on seeking to generate a high level of tax-exempt
income for our shareholders. We purchased approximately $4.0 million
in high-yield securities bearing an average yield of 7.25%. While no
material changes have occurred in the portfolio structure, we
anticipate positioning the Fund somewhat more aggressively should
interest rates continue to rise from current levels.
For some time now, Merrill Lynch High Income Municipal Bond Fund,
Inc. has remained defensively structured. High-yield securities are
generally less influenced by fluctuations in interest rates than
credit-related developments. As a result, the Fund has experienced
little of the volatility shared by the more interest rate-sensitive
general market tax-exempt mutual bond funds. During the current
market downturn, this characteristic benefited shareholders since
most of the Fund's holdings retained their value better than the
investment-grade municipal market as a whole. The recent rise in
long-term interest rates provides us with an opportunity to lock in
yields at attractive levels as well as extend the portfolio's
average call protection. While these efforts may increase the
portfolio's sensitivity to interest rate fluctuations somewhat,
there is compelling value at current levels and so a modestly more
aggressive approach seems appropriate, given the potential returns.
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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
Senior Vice President
(Kenneth A. Jacob)
Kenneth A. Jacob
Vice President and Portfolio Manager
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(Theodore R. Jaeckel Jr.)
Theodore R. Jaeckel Jr.
Vice President and Portfolio Manager
June 28, 1996
PORTFOLIO COMPOSITION
For the Quarter Ended May 31, 1996
Top Ten States*
Pennsylvania 13.23%
New Jersey 10.48
Massachusetts 9.01
Texas 8.78
Illinois 5.75
Missouri 5.55
Georgia 5.10
New York 4.35
Tennessee 4.31
Louisiana 4.19
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Total Top Ten 70.75
Total Others 29.25
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Total Portfolio 100.00%
=======
Net assets as of May 31, 1996 were $195,424,178.
Quality Ratings*
(Based on Nationally Recognized Rating Services)
A pie chart illustrating the following percentages:
AAA/Aaa 9%
AA/Aa 2%
A/A 1%
BBB/Baa 29%
BB/Ba 18%
B/B 7%
NR++ 33%
Other++++ 1%
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[FN]
*Based on total market value of the portfolio as of May 31, 1996.
++Not Rated.
++++Temporary investments in short-term municipal securities.
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
Vincent R. Giordano, Senior Vice President
Donald C. Burke, Vice President
Kenneth A. Jacob, Vice President
Theodore R. Jaeckel Jr., 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
