MERRILL LYNCH
HIGH INCOME
MUNICIPAL BOND
FUND, INC.
FUND LOGO
Semi-Annual Report
February 29, 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 six-month period ended February 29, 1996, Merrill Lynch High
Income Municipal Bond Fund, Inc. earned $0.323 per share income
dividends, representing a net annualized yield of 5.81%, based on a
per share net asset value of $11.14 as of February 29, 1996. Over
the same period, the Fund's total investment return was +4.61%,
based on a change in per share net asset value from $10.97 to
$11.14, and assuming reinvestment of $0.322 per share income
dividends.
For the three-month period ended February 29, 1996, the Fund's total
investment return was +1.36%, based on a change in per share net
asset value from $11.16 to $11.14, and assuming reinvestment of
$0.162 per share income dividends.
The Environment
Throughout most of the February quarter, it appeared that the US
economy was losing momentum. Consumer spending was barely growing
and the industrial sector was at a virtual standstill. With
inflationary pressures subdued, the Federal Reserve Board responded
to the slowing economy by continued modest monetary policy easing.
However, late in the quarter a series of economic releases began to
suggest that economic activity would not continue to be as sluggish
as originally expected. A surge in auto sales and factory orders,
rising consumer confidence and strong housing starts led some
investors to believe that economic activity was again accelerating
and further easing by the Federal Reserve Board unlikely. These
concerns were highlighted shortly after the February quarter's close
with the report of a sharp increase in new jobs in February and a
drop in unemployment. In the weeks ahead, it is likely that
investors will continue to monitor economic data releases closely as
they attempt to gauge the US economy's progress.
<PAGE>
The impasse between the Clinton Administration and Congress over the
Federal budget continues. However, both sides have made concessions
since the debate began. It appears that investors are currently
focusing on the progress that has been made rather than on the
differences that remain. Initially, President Clinton proposed
deficits of about $190 billion annually through fiscal year 2002. He
now proposes balanced budgets, as do the Republicans. Furthermore,
even without policy changes, it appears that the US Federal budget
deficit could remain stable at about 2% of gross domestic product
for the rest of the decade. This is far better than is the case for
most Group of Seven industrial nations and a great improvement over
the last 15 years. Nevertheless, current indications are that a
piecemeal budget accord is the most likely outcome. Although this
may fall short of investors' best expectations, it appears that the
Federal budget debate over the past year has resulted in a trend
toward a more conservative fiscal policy.
The Municipal Market
Long-term tax-exempt revenue bond yields continued to decline during
the six-month period ended February 29, 1996. However, the municipal
bond market reversed the trend seen throughout most of 1995 and
significantly outperformed the US Treasury bond market. Buoyed by
investor expectations of continuing mild inflation and weakening
domestic economic growth, tax-exempt bond yields steadily declined
as 1995 ended. As measured by the Bond Buyer Revenue Bond Index, A-
rated municipal revenue bond yields declined over 60 basis points
(0.60%) to 5.63%. Economic indicators released in January and
February 1996 suggested earlier expectations of weaker economic
growth were, perhaps, overly optimistic. As investor confidence
waned, tax-exempt bond yields rose somewhat to 5.86% at February 29,
1996. US Treasury bond yields followed a similar, although more
volatile pattern over the last six months. By the end of 1995, US
Treasury bond yields fell approximately 45 basis points to 6.00%.
Yields rose significantly for the remainder of the February period
to 6.45%. For the six months ended February 29, 1996, long-term tax-
exempt bond yields declined 40 basis points while US Treasury bond
yields fell approximately 20 basis points.
<PAGE>
The municipal bond market's recent outperformance was largely the
result of two principal factors. First, and perhaps most important,
much of the earlier concern regarding proposed changes in Federal
income tax codes and their effect on the tax treatment of tax-exempt
bond income dissipated. As the negative revenue impact of the
various proposals, including the flat tax, became apparent, the
likelihood of immediate reform quickly diminished. When the Kemp
Commission dealing with Federal income tax reform released its
findings early in 1996, the obvious need for reform was highlighted.
However, no specific recommendations of a flat tax, value-added tax
or any other specific reform were made. Consequently, fears of
losing the favored tax treatment of municipal bond income declined
even further. As a percentage of Treasury bond yields, tax-exempt
bond yield ratios quickly declined from 95% to approximately 90%.
This allowed the municipal bond market to preserve much of the gains
it made in recent months.
The second major factor leading to the municipal bond market's
recent improvement was the return of a more favorable technical
environment. During the six months ended February 29, 1996, $86
billion in municipal securities were underwritten, an increase of
nearly 40% versus the comparable period a year earlier. However,
much of this increase was biased by recent underwritings over the
last three months. Municipal issuers sought to refinance their
existing higher-couponed debt as tax-exempt bond yields approached
recent historic lows. Over the past three months such refundings
contributed to total bond issuance of over $40 billion. However, at
the same time investors continue to receive significant amounts of
assets derived from coupon income, bond maturities and proceeds from
early redemptions. During January and February 1996, investors
received approximately $35 billion in such assets, nearly equal to
the total amount of bonds issued during the previous three months.
These cash flows helped maintain individual retail investor demand
during recent months. Additionally, major institutional investors,
including certain insurance companies whose underwriting profits
were cyclically high, demonstrated significant ongoing interest in
the tax-exempt bond market, particularly on higher-quality
securities. Individual and institutional investor demands were
strong enough during the February period to absorb the relative
increase in bond issuance and still allow tax-exempt bond yields to
decline further.
Looking ahead, we believe the municipal bond market is likely to
continue to outperform the US Treasury bond market. Investor demand
should remain adequate to absorb new bond issuance. It is also
likely that the rapid pace of issuance seen thus far in 1996 cannot
be maintained. The recent rise in yields made further bond
refinancings economically unfeasible. Since these refinancings were
the driving force of recent bond issuance, as the amount of these
refundings decline, overall issuance should decline. This should
allow the current demand/supply balance to be easily maintained.
Additionally, as a percentage of US Treasury bond yields, long-term
municipal bond yields remain historically attractive. With long-
term, tax-exempt revenue bonds yielding approximately 90% of their
taxable counterparts, should taxable interest rates resume their
decline, municipal bond yields are poised to decline further.
<PAGE>
Portfolio Strategy
During the six-month period ended February 29, 1996, our portfolio
strategy continued to focus on seeking to generate an attractive
level of tax-exempt income for shareholders. During the February
quarter, approximately $6.5 million in high-yield securities were
purchased bearing an average yield of 8.23%. No material changes
occurred in the portfolio structure as 88% of the Fund's holdings
was rated Baa by Moody's Investors Service, Inc., or BBB by Standard
& Poor's Corp., or lower. We continue to pursue opportunities where
proceeds from the sale of overvalued holdings can be reinvested in
other tax-exempt securities possessing greater intrinsic value. We
regularly monitor all current holdings for creditworthiness and
ongoing viability. Looking ahead, we intend to maintain cash
reserves at levels sufficient to meet the requirements of ongoing
quarterly tender offers.
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
Portfolio Manager
<PAGE>
(Theodore R. Jaeckel, Jr.)
Theodore R. Jaeckel Jr.
Portfolio Manager
March 28, 1996
We are pleased to announce that Kenneth A. Jacob is responsible for
the day-to-day co-management of Merrill Lynch High Income Municipal
Bond Fund, Inc. Mr. Jacob has been employed by Merrill Lynch Asset
Management, L.P. since 1984 as Vice President.
PORTFOLIO ABBREVIATIONS
To simplify the listings 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.
ACES SM Adjustable Convertible Extendable Securities
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
<PAGE>
<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, IDB, PCR, Refunding (Container
Corporation American Project), 8% due 4/01/2009 $ 1,074
Arizona--2.9% NR* Aaa 2,860 Arizona Health Facilities Authority, Hospital Systems
Revenue Refunding Bonds (Saint Luke's Health Systems),
7.25% due 11/01/2003 (d) 3,329
NR* NR* 1,235 Pima County, Arizona, IDA, Revenue Bonds (La Hacienda
Project), 9.50% due 12/01/2016 1,255
AA P1 1,200 Pinal County, Arizona, IDA, PCR (Magma Copper/Newmont
Mining Corporation), VRDN, 3.25% due 12/01/2009 (a) 1,200
California--1.3% BBB- Baa 10,000 Foothill/Eastern Transportation Corridor Agency, California,
Toll Road Revenue Bonds (Senior Lien), Series A, 6.50%**
due 1/01/2028 1,285
NR* NR* 1,500 Long Beach, California, Redevelopment Agency, M/F Housing
Revenue Bonds (Pacific Court Apartments), AMT, Issue B,
6.80% due 9/01/2013 1,212
Colorado--5.9% NR* Baa1 2,000 Colorado Health Facilities Authority, Hospital Revenue
Bonds (P/SL Healthcare System Project), Series A,
6.875% due 2/15/2003 (d) 2,314
Denver, Colorado, City and County Airport Revenue Bonds:
BBB Baa 900 AMT, Series A, 8% due 11/15/2025 1,035
BBB Baa 2,000 AMT, Series D, 7.75% due 11/15/2013 2,395
BBB Baa 1,250 Series A, 7.50% due 11/15/2012 1,456
BBB Baa 2,000 Series A, 7.25% due 11/15/2025 2,289
NR* NR* 2,000 Mountain Village Metropolitan District, Colorado, Refunding
Bonds (San Miguel County), UT, 8.10% due 12/01/2011 2,224
Connecticut--1.1% NR* B1 1,925 New Haven, Connecticut, Facilities Revenue Bonds (Hill
Health Corporation Project), 9.25% due 5/01/2017 2,103
</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>
District of B- NR* $2,000 District of Columbia, GO, COP, 7.30% due 1/01/2013 $ 2,064
Columbia--1.0%
Florida--0.9% BB NR* 960 Jacksonville, Florida, Port Authority, IDR, Refunding
(United States Gypsum Corporate Project), 7.25% due 10/01/2014 1,017
A1 VMIG1++ 700 Pinellas County, Florida, Health Facilities Authority,
Revenue Refunding Bonds (Pooled Hospital Loan Program),
DATES, 3.25% due 12/01/2015 (a) 700
<PAGE>
Georgia--3.6% NR* NR* 2,520 Atlanta, Georgia, Urban Residential Finance Authority,
College Facilities Revenue Bonds (Morris Brown College
Project), 9.50% due 6/01/2011 2,905
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 2,160
NR* NR* 2,000 Hancock County, Georgia, COP, 8.50% due 4/01/2015 (i) 2,174
Hawaii--1.0% AA+ NR* 1,750 Hawaii State Department of Budget and Finance, Special
Purpose Mortgage Revenue Bonds (Citizens Utility Company),
RIB, Series 91-B, 9.204% due 11/01/2021 (g) 1,977
Illinois--7.2% BBB NR* 1,500 Alton, Illinois, Hospital Facility, Revenue Refunding Bonds
(Saint Anthony's Health Center), 6% due 9/01/2014 1,415
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 4,688
BB Baa2 450 (United Airlines, Inc.), AMT, Series B, 8.95% due 5/01/2018 517
NR* NR* 2,000 Illinois Educational Facilities Authority Revenue Bonds
(Chicago Osteopathic Health System), 7.25% due
11/15/2019 (d) 2,394
NR* Baa1 1,250 Illinois Health Facilities Authority Revenue Bonds (Holy
Cross Hospital Project), 6.75% due 3/01/2024 1,258
BBB NR* 1,000 Lansing, Illinois, Sales Tax, Tax Increment, Revenue Refunding
Bonds (Landing Redevelopment), 7% due 12/01/2008 1,098
BBB- NR* 3,000 Metropolitan Pier and Exposition Authority, Illinois,
Hospital Facilities Revenue Bonds (McCormick Place
Convention), 6.25% due 7/01/2017 2,974
Indiana--0.8% A NR* 1,500 Indiana Bond Bank, Special Hospital Program Revenue
Bonds (Hendricks Community Hospital), Series A, 7.125%
due 4/01/2013 1,631
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 1,605
Kentucky--2.3% AAA Aaa 4,000 Louisville, Kentucky, Hospital Revenue Bonds, INFLOS,
8.752% due 10/01/2014 (b)(g) 4,680
Louisiana--4.1% NR* Baa2 3,500 Lake Charles, Louisiana, Harbor and Terminal District,
Port Facilities Revenue Refunding Bonds (Trunkline LNG
Company Project), 7.75% due 8/15/2022 3,960
BBB+ Baa1 1,000 Louisiana Public Facilities Authority, Hospital Revenue
Bonds (Woman's Hospital Foundation Project), 7.25%
due 10/01/2022 1,044
BB- NR* 3,000 Port New Orleans, Louisiana, IDR, Refunding (Continental
Grain Company Project), 7.50% due 7/01/2013 3,175
</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
8.8% Authority, Solid Waste Disposal Facility Revenue Bonds
(Jet-A-Way Project), AMT, 10.50% due 1/01/2011 $ 1,384
NR* Ba 795 Lawrence, Massachusetts, GO, 9.875% due 12/15/1998 900
Massachusetts Health and Educational Facilities Authority
Revenue Bonds:
NR* B 1,890 (New England Memorial Hospital Project), Series C,
7% due 4/01/2014 1,735
NR* NR* 905 (North Adams Regional Hospital), Issue B, 8% due 7/01/1998 978
NR* B 3,000 Refunding (New England Memorial Hospital), Series B,
6.125% due 7/01/2013 2,440
Massachusetts Industrial Finance Agency Revenue Bonds:
NR* B1 1,675 (Bay Cove Human Services Inc.), 8.375% due 4/01/2019 1,820
BB+ Ba1 1,600 (Vinfen Corporation), 7.10% due 11/15/2018 1,615
NR* NR* 1,000 Massachusetts Industrial Finance Agency, Solid Waste
Disposal Revenue Bonds (Molten Metal Technology Project),
8.25% due 8/01/2014 1,042
NR* NR* 5,000 Massachusetts Port Authority, Special Project Revenue
Bonds (Harborside Hyatt Project), AMT, 10% due 3/01/2026 5,605
Michigan--1.8% AAA Ba1 2,900 Detroit, Michigan, GO, UT, Series A, 8.70% due 4/01/2000 (d) 3,420
A1+ VMIG1++ 100 Grand Rapids, Michigan, Water Supply Systems, Revenue
Refunding Bonds, VRDN, 3.20% due 1/01/2020 (a)(h) 100
Missouri--5.4% BBB- NR* 2,865 Joplin, Missouri, IDA, Hospital Facilities Revenue Refunding
and Improvement Bonds (Tri-State Osteopathic Project),
8.25% due 12/15/2014 3,061
Missouri Health and Educational Facilities Authority Revenue
Bonds (Southwest Baptist University Project):
BB NR* 905 9.50% due 10/01/2001 1,029
BB NR* 3,690 9.50% due 10/01/2011 4,328
AAA Aaa 2,000 Phelps County, Missouri, Hospital Revenue Bonds (Phelps
County Regional Medical Center), 8.30% due 3/01/2000 (d) 2,336
New Hampshire-- BB+ Ba1 5,140 New Hampshire, IDA, PCR (Public Service Company New
2.7% Hampshire Project), Series B, 7.50% due 5/01/2021 5,436
<PAGE>
New Jersey--9.4% NR* Ba 2,150 Atlantic County, New Jersey, Utilities Authority, Solid Waste
Revenue Bonds, 7.125% due 3/01/2016 2,108
NR* NR* 2,000 Camden County, New Jersey, Improvement Authority Lease
Revenue Bonds (HOH Hauling & Warehousing), Series A,
9.875% due 1/01/2021 1,990
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 4,132
New Jersey Health Care Facilities Financing Authority
Revenue Bonds:
NR* NR* 4,760 (Riverwood Center Issue), Series A, 9.90% due 7/01/2021 5,367
BBB- Baa 4,700 (Saint Elizabeth Hospital), Series B, 8.25% due 7/01/2020 5,121
New Mexico--0.5% A A2 1,000 Lordsburg, New Mexico, PCR, Refunding (Phelps Dodge
Corporation Project), 6.50% due 4/01/2013 1,049
New York--4.2% BBB+ Baa1 5,260 New York City, New York, GO, UT, Series C, Sub-Series C-1,
7.50% due 8/01/2021 5,884
NR* NR* 2,500 New York City, New York, IDA, Revenue Bonds (Visy Paer
Inc. Project), AMT, 7.95% due 1/01/2028 2,574
</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>
North Carolina NR* VMIG1++ $ 100 North Carolina Medical Care Community,
- --0.2 Hospital Revenue Bonds (Pooled Financing Project), ACES,
Series B, 3.25% due 10/01/2013 (a) $ 100
NR* VMIG1++ 200 Person County, North Carolina, Industrial Facilities and
Pollution Control Financing Authority, Solid Waste Disposal
Revenue Bonds (Carolina Power and Light Company), AMT,
DATES, 3.45% due 11/01/2016 (a) 200
Ohio--2.3% NR* Ba2 2,325 Defiance County, Ohio, Economic Development Revenue
Bonds (Kroger Co. Project), 8% due 10/15/2015 2,559
AAA Aaa 1,950 Ohio, HFA, S/F Mortgage Revenue Bonds, RIB, AMT,
Series A-2, 9.839% due 3/24/2031 (c)(g) 2,121
Oklahoma--0.5% BB NR* 985 Blaine County, Oklahoma, Industrial Authority, IDR (United
States Gypsum Corp. Project), 7.25% due 10/01/2010 1,050
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 1,051
B+ NR* 1,955 Yamhill County, Oregon, PCR, Refunding (Smurfit Newsprint
Corporate Project), 8% due 12/01/2003 2,064
<PAGE>
Pennsylvania NR* NR* 2,000 Lehigh County, Pennsylvania, General Purpose Authority
- --13.4% Revenue Bonds (Wiley House Kids Peace), 8.75% due
11/01/2014 2,080
BBB- NR* 5,000 McKean County, Pennsylvania, Hospital Authority Revenue
Bonds (Bradford Hospital Project), 8.875% due 10/01/2020 5,956
Montgomery County, Pennsylvania, IDA, Revenue Bonds:
NR* Ba 3,400 (Pennsburg Nursing and Rehabilitation Center),
7.625% due 7/01/2018 3,475
NR* NR* 1,500 Refunding (1st Mortgage-Meadowood Corporation Project),
Series A, 10.25% due 12/01/2020 1,671
NR* NR* 2,000 Pennsylvania Economic Development Financing Authority,
IDR (GEHL Company Inc. Project), AMT, Series F,
9% due 9/01/2010 2,174
NR* NR* 5,000 Pennsylvania Economic Development Financing Authority,
Recycling Revenue Bonds (Ponderosa Fibres Project), AMT,
Series A, 9.25% due 1/01/2022 5,149
NR* NR* 5,000 Philadelphia, Pennsylvania, Authority for IDR, Refunding
(Commercial Development Philadelphia Airport), AMT,
7.75% due 12/01/2017 5,172
NR* NR* 1,000 Washington County, Pennsylvania, Hospital Authority,
Revenue Refunding Bonds (Canonsburg General Hospital
Project), 7.35% due 6/01/2013 954
Rhode Island BBB+ NR* 1,500 Rhode Island Health and Educational Building Corporation,
- --1.4% Hospital Revenue Bonds (South County Hospital), 7.25%
due 11/01/2011 1,572
NR* Baa 1,260 West Warwick, Rhode Island, GO, UT, Series A, 6.80%
due 7/15/1998 1,294
Tennessee--4.2% NR* NR* 4,265 Knox County, Tennessee, Health, Educational and Housing
Facilities Board, Hospital Facilities Revenue Bonds (Baptist
Health System of East Tennessee), 8.60% due 4/15/2016 4,545
BBB Baa1 3,500 McMinn County, Tennessee, IDB, Solid Waste Revenue Bonds
(Recycling Facility-Calhoun Newsprint-Bowater), AMT,
7.40% due 12/01/2022 3,810
</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 $ 3,249
A1+ Aaa 300 Harris County, Texas, Industrial Development Corporation,
PCR (Exxon Project), DATES, Series 1984-A, 3.25% due
3/01/2024 (a) 300
BB Ba1 4,870 Jefferson County, Texas, Health Facilities Development
Corporation, Hospital Revenue Bonds (Baptist Healthcare
System Project), 8.875% due 6/01/2021 5,150
BB Ba 3,270 Odessa, Texas, Junior College District, Revenue Refunding
Bonds, Series A, 8.125% due 12/01/2018 3,557
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 1,131
<PAGE>
Utah--1.8% AAA Aaa 3,000 Salt Lake City, Utah, Hospital Revenue Refunding Bonds
(IHC Hospitals, Inc.), INFLOS, 9.51% due 5/15/2020 (e)(g) 3,495
Vermont--0.8% NR* NR* 1,500 Vermont Educational and Health Buildings Financing Agency
Revenue Bonds (College of Saint Joseph's Project), 8.50%
due 11/01/2024 1,615
Wisconsin--1.2% NR* Ba2 2,350 Walworth, Wisconsin, IDR, Refunding (United States Gypsum
Corp. Project), 7.25% due 5/01/2010 2,422
Total Investments (Cost--$183,459)--100.3% 199,977
Liabilities in Excess of Other Assets--(0.3%) (648)
--------
Net Assets--100.0%
$199,329
========
<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 February 29, 1996.
(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 February 29, 1996.
(h)FGIC Insured.
(i)Bank Qualified.
*Not Rated.
**Represents a zero coupon bond; the interest rate shown is the
effective yield at the time of purchase by the Fund.
++Highest short-term rating by Moody's Investors Service, Inc.
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of February 29, 1996
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$183,459,451) (Note 1a) $199,977,478
Cash 62,061
Receivables:
Interest $ 3,923,966
Capital shares sold 567,091 4,491,057
------------
Deferred organization expenses (Note 1e) 7,409
Prepaid registration fees and other assets (Note 1e) 45,225
------------
Total assets 204,583,230
------------
Liabilities: Payables:
Securities purchased 4,421,469
Dividends to shareholders (Note 1f) 446,199
Investment adviser (Note 2) 152,306
Administration (Note 2) 40,081 5,060,055
------------
Accrued expenses and other liabilities 194,600
------------
Total liabilities 5,254,655
------------
Net Assets: Net assets $199,328,575
============
Net Assets Common stock, $.10 par value, 200,000,000 shares authorized $ 1,789,768
Consist of: Paid-in capital in excess of par 183,482,778
Accumulated realized capital losses on investments--net (1,866,963)
Accumulated distributions in excess of realized capital gains--net (595,035)
Unrealized appreciation on investments--net 16,518,027
------------
Net assets--Equivalent to $11.14 per share based on 17,897,683
shares of capital outstanding $199,328,575
============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Six Months Ended
February 29, 1996
<S> <S> <C>
Investment Income Interest and amortization of premium and discount earned $ 7,352,467
(Note 1d):
<PAGE>
Expenses: Investment advisory fees (Note 2) 951,848
Administrative fees (Note 2) 250,486
Transfer agent fees (Note 2) 61,770
Registration fees (Note 1e) 44,061
Professional fees 43,067
Printing and shareholder reports 37,164
Accounting services (Note 2) 33,279
Advertising 28,340
Listing fees 17,709
Directors' fees and expenses 12,137
Custodian fees 9,878
Pricing services 6,445
Amortization of organization expenses (Note 1e) 3,705
Other 3,614
------------
Total expenses 1,503,503
------------
Investment income--net 5,848,964
------------
Realized & Realized gain on investments--net 846,038
Unrealized Change in unrealized appreciation on investments--net 2,144,474
Gain on ------------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 8,839,476
(Notes 1b, 1d & 3): ============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Six For the
Months Ended Year Ended
February 29, August 31,
Increase (Decrease) in Net Assets: 1996 1995
<S> <S> <C> <C>
Operations: Investment income--net $ 5,848,964 $ 12,378,384
Realized gain (loss) on investments--net 846,038 (2,713,001)
Change in unrealized appreciation on investments--net 2,144,474 6,520,321
------------ ------------
Net increase in net assets resulting from operations 8,839,476 16,185,704
------------ ------------
Dividends & Investment income--net (5,848,964) (12,378,384)
Distributions to Realized gain on investments--net -- (2,796,951)
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 (5,848,964) (15,770,370)
------------ ------------
<PAGE>
Capital Share Net decrease in net assets derived from capital shares
Transactions transactions (2,236,810) (14,798,840)
(Note 4): ------------ ------------
Net Assets: Total increase (decrease) in net assets 753,702 (14,383,506)
Beginning of period 198,574,873 212,958,379
------------ ------------
End of period $199,328,575 $198,574,873
============ ============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights
<CAPTION>
For the
Six
The following per share data and ratios have been derived Months
from information provided in the financial statements. Ended
Feb. 29, For the Year Ended August 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1994 1993 1992
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.97 $ 10.92 $ 11.44 $ 10.74 $ 10.29
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .32 .65 .65 .68 .71
Realized and unrealized gain (loss) on
investments--net .17 .23 (.45) .75 .50
-------- -------- -------- -------- --------
Total from investment operations .49 .88 .20 1.43 1.21
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.32) (.65) (.65) (.68) (.71)
Realized gain on investments--net -- (.15) (.07) (.05) (.05)
In excess of realized gain on investments--net -- (.03) -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.32) (.83) (.72) (.73) (.76)
-------- -------- -------- -------- --------
Net asset value, end of period $ 11.14 $ 10.97 $ 10.92 $ 11.44 $ 10.74
======== ======== ======== ======== ========
<PAGE>
Total Investment Based on net asset value per share 4.61%+++ 8.64% 1.75% 13.83% 12.29%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement 1.50%* 1.52% 1.48% 1.37% 1.30%
Net Assets: ======== ======== ======== ======== ========
Expenses 1.50%* 1.52% 1.48% 1.47% 1.55%
======== ======== ======== ======== ========
Investment income--net 5.82%* 6.11% 5.81% 6.17% 6.85%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $199,329 $198,575 $212,958 $216,922 $170,735
Data: ======== ======== ======== ======== ========
Portfolio turnover 10.25% 21.28% 28.51% 28.74% 31.74%
======== ======== ======== ======== ========
<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.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
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. These unaudited financial statements reflect all
adjustments which are, in the opinion of management, necessary to a
fair statement of the results for the interim period presented. All
such adjustments are of a normal recurring nature. The following is
a summary of significant accounting policies followed by the Fund.
<PAGE>
(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 Board of 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.
* 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.
<PAGE>
(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.
NOTES TO FINANCIAL STATEMENTS (concluded)
(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 wholly-
owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is
the limited partner.
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.
<PAGE>
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 six months ended February 29, 1996 were $21,674,843 and
$19,949,608, respectively.
Net realized and unrealized gains as of February 29, 1996 were as
follows:
Realized Unrealized
Gains Gains
Long-term investments $ 846,038 $ 16,518,027
--------- ------------
Total $ 846,038 $ 16,518,027
========= ============
As of February 29, 1996, net unrealized appreciation for Federal
income tax purposes aggregated $16,518,027, of which $16,886,026
related to appreciated securities and $367,999 related to
depreciated securities. The aggregate cost of investments at
February 29, 1996 for Federal income tax purposes was $183,459,451.
4. Capital Shares Transactions:
Transactions in capital shares were as follows:
For the Six Months Ended Dollar
February 29, 1996 Shares Amount
Shares sold 926,157 $ 10,315,895
Shares issued to share-
holders in reinvestment of
dividends 212,617 2,369,349
------------ ------------
Total issued 1,138,774 12,685,244
Shares tendered (1,337,552) (14,922,054)
------------ ------------
Net decrease (198,778) $ (2,236,810)
============ ============
<PAGE>
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)
============ ============
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, Senior 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
<PAGE>
