MERRILL LYNCH
HIGH INCOME
MUNICIPAL BOND
FUND, INC.
FUND LOGO
Annual Report
August 31, 1996
<PAGE>
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.
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 year ended August 31, 1996, Merrill Lynch High Income
Municipal Bond Fund, Inc. earned $0.657 per share income dividends,
representing a net annualized yield of 5.95%, based on a month-end
per share net asset value of $10.94. Over the same period, the
Fund's total investment return was +5.81%, based on a change in per
share net asset value from $10.97 to $10.94, and assuming
reinvestment of $0.661 per share income dividends.
<PAGE>
For the three-month period ended August 31, 1996, the Fund's total
investment return was +1.79%, based on a change in per share net
asset value from $10.91 to $10.94, and assuming reinvestment of
$0.163 per share income dividends.
The Municipal Market Environment
Municipal bond yields rose over the six months ended August 31,
1996. Investors became increasingly alarmed that earlier forecasts
of continued moderate growth were overly optimistic. As indications
of stronger growth were released, particularly the strong employment
reports released beginning in March, fears of associated
inflationary pressures mounted and yields rose in response. By May
and June, long-term municipal bond yields rose into the 6.25%--6.30%
range.
However, in early July the combination of the Federal Reserve Board
suggesting that growth was expected to slow later in 1996 and a
temporary stock market correction allowed municipal bond yields to
fall as investors scrambled to purchase relatively scarce
securities. As measured by the Bond Buyer Revenue Bond Index,
long-term, A-rated uninsured tax-exempt bonds yielded 6.09% at
August 31, 1996, an increase of over 20 basis points (0.20%) in the
last six months. Long-term US Treasury bond yields rose
significantly over the same period. By August 31, 1996, yields on US
Treasury bonds increased almost 65 basis points to end the six-month
period at 7.11%.
The municipal bond market's recent outperformance of its taxable
counterpart was largely the result of two principal factors. First,
much of the concern in the tax-exempt market regarding the potential
loss of the inherent tax-advantage of the municipal bonds
dissipated. For much of 1995, various tax proposals, such as a flat
tax or national sales tax, were put forward either to reduce the
national debt or reform the current tax system. Most of these
proposals would have severely limited the tax advantages enjoyed by
the municipal bond market. However, in February 1996, the Kemp
Commission released its findings regarding various tax reform
proposals. While noting that numerous changes should be made, no
mention of curtailing or stopping municipal bonds' current favored
tax status was made.
The second major factor leading to the municipal bond market's
recent outperformance was the return of a more favorable technical
environment. The rate of increase in new bond issuance recently
slowed. Over the last 12 months, approximately $175 billion in
long-term municipal securities were issued, an increase of over 25%
as compared to the same period a year earlier. Much of this increase
was the result of issuers seeking to refinance their existing
higher-coupon debt as interest rates declined in 1995 and early
1996. As interest rates rose, these financings became increasingly
economically impractical and issuance declined. Over the last six
months, less than $90 billion in long-term tax-exempt securities
were underwritten, an increase of 12% versus the comparable period a
year earlier. Only $43 billion in tax-exempt securities were issued
in the last three months, a 6% decline in issuance compared to the
August 31, 1995 quarter.
<PAGE>
At the same time investor demand remained consistently strong. With
nominal new-issue yields above 6%, retail investor interest was
steady. Additionally, investors received over $50 billion this June
and July in 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-coupon bonds issued
in the early-to-mid 1980s were redeemed at their first optional call
date, the total number of outstanding tax-exempt bonds has declined.
This combination of a declining net supply and significant amounts
of 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 market's recent performance led to the yield
ratio between long-term taxable and tax-exempt securities falling
from in excess of 90% to approximately 85%. While historically still
very attractive, some institutional investors, particularly
short-term traders, began to view the tax-exempt bond market's
recent outperformance as an opportunity to sell a relatively
expensive asset. However, to the long-term investor such a sale
would represent the loss of an attractively priced asset which may
not be easily replaced given the relative scarcity of municipal
bonds under present supply conditions.
Looking ahead, no clear consensus for the direction of interest
rates currently exists. Perhaps, 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 slow in the interest rate-sensitive sectors of the economy,
like 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
Merrill Lynch High Income Municipal Bond Fund, Inc. emerged from the
year ended August 31, 1996 with greater liquidity. In addition, the
Fund is better insulated from possible early redemption of portfolio
holdings. Along with maintaining a fully invested posture, these two
themes dominated our portfolio strategy for the past 12 months. As a
result, the average call protection of the portfolio was extended by
more than one year. While the actual rating profile of the Fund
remained fairly stable, we enhanced liquidity through a greater
emphasis on more widely held and recognizable high-yield securities.
Corporate-related, tax-exempt debt issuance usually possess these
traits. Therefore, the industrial development/pollution control
sector constitutes an increasingly large percentage of the Fund's
holdings. Conversely, we reduced the Fund's healthcare holdings
somewhat, reflecting a moderate tightening of credit spreads within
this sector in recent months. The illiquidity so characteristic of
high-yield healthcare issues warrants a more cautious approach given
current market levels. We will continue to monitor this sector for
opportunities that may arise.
<PAGE>
Our investment strategy resulted in a portfolio that should be more
responsive to market rallies yet remain resilient during periods
when interest rates rise. Illiquidity causes credit spreads to widen
in a declining market, adversely affecting the performance of many
high-yield securities. This focus on liquidity contributed to the
Fund's performance, especially during the market volatility
experienced over the last few months. Looking ahead, we will
continue to emphasize this approach as a way of seeking added
flexibility and enhanced performance. As in the past, we expect to
keep cash reserves to a minimum, reflecting our efforts to enhance
the flow of tax-exempt income.
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
<PAGE>
(Theodore R. Jackel Jr.)
Theodore R. Jaeckel Jr.
Vice President and Portfolio Manager
September 30, 1996
PORTFOLIO ABBREVIATIONS
To simplify the listing 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.
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
DATES Daily Adjustable Tax-Exempt Securities
EDA Economic Development Authority
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
<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--1.3% B+ NR* $ 1,000 Brewton, Alabama, IDB, PCR, Refunding (Container Corporation
American Project), 8% due 4/01/2009 $ 1,055
BBB- Baa3 1,500 Mobile, Alabama, IDB, Solid Waste Disposal Revenue
Refunding Bonds (Mobile Energy Services Company Project),
6.95% due 1/01/2020 1,563
<PAGE>
Arizona--0.7% NR* NR* 1,235 Pima County, Arizona, IDA, Revenue Bonds (La Hacienda
Project), 9.50% due 12/01/2016 1,237
A1+ P1 100 Pinal County, Arizona, IDA, PCR (Magma Copper/Newmont
Mining Corporation), VRDN, 3.55% due 12/01/2009 (a) 100
California--2.4% NR* Aa3 100 California Pollution Control Financing Authority, Resource
Recovery Revenue Bonds (Honey Lake Power Project), VRDN,
AMT, 3.50% due 9/01/2018 (a) 100
BBB- Baa 10,000 Foothill/Eastern Transportation Corridor Agency, California,
Toll Road Revenue Bonds (Senior Lien), Series A, 6.50%**
due 1/01/2028 1,183
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 1,214
NR* NR* 12,000 San Joaquin Hills, California, Transportation Corridor Agency,
Toll Road Revenue Bonds (Senior Lien), 6.425%** due 1/01/2022 2,199
Colorado--3.9% Denver, Colorado, City and County Airport Revenue Bonds:
BBB Baa 900 AMT, Series A, 8% due 11/15/2025 999
BBB Baa 2,000 AMT, Series D, 7.75% due 11/15/2013 2,332
AAA NR* 500 Series A, 7.25% due 11/15/2002 (d) 569
BBB Baa 1,500 Series A, 7.25% due 11/15/2025 1,664
NR* NR* 2,000 Mountain Village Metropolitan District, Colorado, Refunding
Bonds (San Miguel County), UT, 8.10% due 12/01/2011 2,220
Connecticut--1.0% NR* B1 1,895 New Haven, Connecticut, Facilities Revenue Bonds (Hill Health
Corporation Project), 9.25% due 5/01/2017 2,033
District of B- NR* 2,000 District of Columbia, COP, 7.30% due 1/01/2013 2,049
Columbia--1.0%
</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>
Florida--1.6% BB NR* $ 960 Jacksonville, Florida, Port Authority, IDR, Refunding
(United States Gypsum Corporate Project), 7.25% due 10/01/2014 $ 991
A1+ VMIG1++ 200 Manatee County, Florida, PCR, Refunding (Florida Power and
Light Company Project), VRDN, 3.55% due 9/01/2024 (a) 200
NR* VMIG1++ 100 Palm Beach County, Florida, Water and Sewer Revenue Bonds,
VRDN, 3.60% due 10/01/2011 (a) 100
A1 VMIG1++ 1,900 Pinellas County, Florida, Health Facilities Authority, Revenue
Refunding Bonds (Pooled Hospital Loan Program), DATES,
3.55% due 12/01/2015 (a) 1,900
<PAGE>
Georgia--3.7% NR* NR* 2,480 Atlanta, Georgia, Urban Residential Finance Authority, College
Facilities Revenue Bonds (Morris Brown College Project),
9.50% due 12/01/2001 (d) 3,068
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 2,191
NR* NR* 2,000 Hancock County, Georgia, COP, 8.50% due 4/01/2015 (h) 2,171
Hawaii--0.9% AA+ NR* 1,750 Hawaii State Department of Budget and Finance, Special
Purpose Mortgage Revenue Bonds (Citizens Utility Company),
RIB, Series 91-B, 9.232% due 11/01/2021 (g) 1,872
Illinois--5.6% BBB NR* 1,500 Alton, Illinois, Hospital Facility Revenue Refunding Bonds
(Saint Anthony's Health Center), 6% due 9/01/2014 1,384
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 4,599
BB Baa2 445 (United Airlines, Inc.), AMT, Series B, 8.95% due 5/01/2018 505
NR* NR* 2,000 Illinois Educational Facilities Authority Revenue Bonds
(Chicago Osteopathic Health System), 7.25% due 11/15/2019 (d) 2,272
NR* Baa1 1,250 Illinois Health Facilities Authority Revenue Bonds
(Holy Cross Hospital Project), 6.75% due 3/01/2024 1,243
BBB NR* 1,000 Lansing, Illinois, Tax Increment Revenue Refunding Bonds
(Sales Tax-Landings Redevelopment), 7% due 12/01/2008 1,085
Indiana--1.8% A NR* 1,500 Indiana Bond Bank, Special Hospital Program Revenue Bonds
(Hendricks Community Hospital), Series A, 7.125% due 4/01/2013 1,618
NR* NR* 2,000 Wabash, Indiana, Solid Waste Disposal Revenue Bonds (Jefferson
Smurfit Corporation Project), AMT, 7.50% due 6/01/2026 2,012
Iowa--0.9% NR* NR* 1,500 Iowa Finance Authority, Health Care Facilities Revenue
Refunding Bonds (Care Initiatives Project), 9.25% due 7/01/2025 1,720
Kentucky--2.2% AAA Aaa 4,000 Louisville, Kentucky, Hospital Revenue Bonds, INFLOS,
9.24% due 10/01/2014 (b)(g) 4,450
Louisiana--4.0% 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 3,913
BBB+ A 1,000 Louisiana Public Facilities Authority, Hospital Revenue Bonds
(Woman's Hospital Foundation Project), 7.25% due 10/01/2022 1,054
BB- NR* 3,000 Port New Orleans, Louisiana, IDR, Refunding (Continental
Grain Company Project), 7.50% due 7/01/2013 3,104
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
<PAGE>
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
10.0% Authority, Solid Waste Disposal Facility Revenue Bonds
(Jet-A-Way Project), AMT, 10.50% due 1/01/2011 $ 1,359
NR* Ba 795 Lawrence, Massachusetts, GO, 9.875% due 12/15/1998 877
AAA Aaa 3,460 Massachusetts Municipal Wholesale Electric Company,
Power Supply System, Revenue Refunding Bonds, Series B,
5% due 7/01/2017 (b) 3,101
Massachusetts State Health and Educational Facilities
Authority Revenue Bonds:
NR* B 1,850 (New England Memorial Hospital Project), Series C,
7% due 4/01/2014 1,652
NR* NR* 605 (North Adams Regional Hospital), Issue B, 8% due 7/01/1998 629
NR* B 3,000 Refunding (New England Memorial Hospital), Series B,
6.125% due 7/01/2013 2,382
Massachusetts State Industrial Finance Agency Revenue Bonds:
NR* B1 1,675 (Bay Cove Human Services Inc.), 8.375% due 4/01/2019 1,782
BB+ Ba1 1,600 (Vinfen Corporation), 7.10% due 11/15/2018 1,574
NR* NR* 1,000 Massachusetts State Industrial Finance Agency, Solid Waste
Disposal Revenue Bonds (Molten Metal Technology Project),
8.25% due 8/01/2014 1,024
NR* NR* 5,000 Massachusetts State Port Authority, Special Project Revenue
Bonds (Harborside Hyatt Project), AMT, 10% due 3/01/2026 5,586
Michigan--1.7% AAA Ba1 2,900 Detroit, Michigan, GO, UT, Series A, 8.70% due 4/01/2000 (d) 3,323
Missouri--5.3% BBB- NR* 2,865 Joplin, Missouri, IDA, Hospital Facilities Revenue Refunding
and Improvement Bonds (Tri-State Osteopathic Project),
8.25% due 12/15/2014 3,044
Missouri Health and Educational Facilities Authority Revenue
Bonds (Southwest Baptist University Project):
BB NR* 905 9.50% due 10/01/2001 1,008
BB NR* 3,690 9.50% due 10/01/2011 4,238
AAA Aaa 2,000 Phelps County, Missouri, Hospital Revenue Bonds (Phelps
County Regional Medical Center), 8.30% due 3/01/2000 (d) 2,269
New Hampshire-- BB- NR* 3,500 New Hampshire State Business Finance Authority, Pollution
1.8% Control and Solid Waste Revenue Refunding Bonds (Crown Paper
Company Project), 7.75% due 1/01/2022 3,525
New Jersey--9.0% NR* NR* 2,000 Camden County, New Jersey, Improvement Authority, Lease
Revenue Bonds (Holt Hauling & Warehousing), Series A,
9.875% due 1/01/2021 2,000
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 4,107
NR* NR* 1,500 New Jersey, EDA, IDR, Refunding (Newark Airport Marriott
Hotel), 7% due 10/01/2014 1,495
New Jersey Health Care Facilities Financing Authority
Revenue Bonds:
NR* NR* 4,725 (Riverwood Center Issue), Series A, 9.90% due 7/01/2021 5,244
BBB- Baa 4,700 (Saint Elizabeth Hospital), Series B, 8.25% due 7/01/2020 5,110
</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>
New Mexico--1.0% BB Ba2 $2,000 Farmington, New Mexico, PCR, Refunding (Public Service
Company-San Juan Project), Series A, 6.40% due 8/15/2023 $ 1,939
New York--8.4% BBB+ Baa1 5,260 New York City, New York, GO, UT, Series C, Sub-Series C-1,
7.50% due 8/01/2021 5,795
NR* NR* 2,500 New York City, New York, IDA, Revenue Bonds (Visy Paer Inc.
Project), AMT, 7.95% due 1/01/2028 2,616
Port Authority of New York and New Jersey, Special Obligation
Revenue Bonds (Special Project-KIAC), AMT, Series 4:
NR* NR* 2,250 3rd Installment, 7% due 10/01/2007 2,369
NR* NR* 2,750 5th Installment, 6.75% due 10/01/2019 2,737
Utica, New York, Public Improvement Bonds:
CCC B 635 8.50% due 8/15/2007 643
CCC B 635 8.50% due 8/15/2008 644
CCC B 500 8.50% due 8/15/2009 507
CCC B 500 8.50% due 8/15/2010 507
CCC B 500 8.50% due 8/15/2011 507
CCC B 500 8.50% due 8/15/2012 507
Ohio--2.3% NR* Ba1 2,325 Defiance County, Ohio, Economic Development Revenue Bonds
(Kroger Co. Project), 8% due 10/15/2015 2,537
AAA Aaa 1,950 Ohio, HFA, S/F Mortgage Revenue Bonds, RIB, AMT, Series A-2,
9.885% due 3/24/2031 (c)(g) 2,052
Oklahoma--0.5% BB NR* 985 Blaine County, Oklahoma, Industrial Authority, IDR
(United States Gypsum Corp. Project), 7.25% due 10/01/2010 1,029
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 1,031
B+ NR* 1,955 Yamhill County, Oregon, PCR, Refunding (Smurfit Newsprint
Corporate Project), 8% due 12/01/2003 2,071
Pennsylvania-- NR* NR* 2,000 Lehigh County, Pennsylvania, General Purpose Authority
12.5% Revenue Bonds (Wiley House Kids Peace), 8.75% due 11/01/2014 2,056
BBB- NR* 5,000 McKean County, Pennsylvania, Hospital Authority Revenue
Bonds (Bradford Hospital Project), 8.875% due 10/01/2020 5,814
Montgomery County, Pennsylvania, IDA, Revenue Bonds:
NR* Ba 3,400 (Pennsburg Nursing and Rehabilitation Center), 7.625%
due 7/01/2018 3,401
NR* NR* 1,500 Refunding (1st Mortgage-Meadowood Corporation Project),
Series A, 10.25% due 12/01/2020 1,649
NR* NR* 2,000 Pennsylvania Economic Development Financing Authority, IDR
(GEHL Company Inc. Project), AMT, Series F, 9% due 9/01/2010 2,181
NR* NR* 5,000 Pennsylvania Economic Development Financing Authority,
Recycling Revenue Bonds (Ponderosa Fibres Project), AMT,
Series A, 9.25% due 1/01/2022 4,703
NR* NR* 5,000 Philadelphia, Pennsylvania, Authority for IDR, Refunding
(Commercial Development Philadelphia Airport), AMT, 7.75%
due 12/01/2017 5,245
</TABLE>
<PAGE>
<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>
Rhode Island-- BBB+ NR* $ 1,500 Rhode Island State Health and Educational Building Corporation,
1.2% Hospital Financing Revenue Bonds (South County Hospital),
7.25% due 11/01/2011 $ 1,550
NR* Baa 875 West Warwick, Rhode Island, GO, UT, Series A, 6.80% due
7/15/1998 905
South Carolina-- AA- Aa 2,000 Greenville, South Carolina, Hospital System Revenue
0.9% Refunding Bonds, Series B, 5.25% due 5/01/2023 1,792
Tennessee--2.3% 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 4,494
Texas--6.4% 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 3,159
BB Ba1 4,805 Jefferson County, Texas, Health Facilities Development
Corporation, Hospital Revenue Bonds (Baptist Healthcare
System Project), 8.875% due 6/01/2021 5,022
BB Ba 3,270 Odessa, Texas, Junior College District, Revenue Refunding Bonds,
Series A, 8.125% due 12/01/2018 3,459
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
Disposal Revenue Bonds (Union Carbide Chemicals and Plastics),
AMT, 8.20% due 3/15/2021 1,112
Utah--1.7% AAA Aaa 3,000 Salt Lake City, Utah, Hospital Revenue Refunding Bonds
(IHC Hospitals, Inc.), INFLOS, 9.779% due 5/15/2020 (e)(g) 3,375
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 1,608
Total Investments (Cost--$184,349)--98.4% 196,314
Other Assets Less Liabilities--1.6% 3,238
--------
Net Assets--100.0% $199,552
========
<PAGE>
<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 August 31, 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 August 31, 1996.
(h)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.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of August 31, 1996
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$184,348,939) (Note 1a) $196,313,800
Cash 6,042
Receivables:
Interest $ 3,922,428
Capital shares sold 76,072 3,998,500
------------
Prepaid registration fees and other assets (Note 1e) 9,942
------------
Total assets 200,328,284
------------
Liabilities: Payables:
Dividends to shareholders (Note 1f) 360,295
Investment adviser (Note 2) 172,947
Administration (Note 2) 45,513 578,755
------------
Accrued expenses and other liabilities 197,100
------------
Total liabilities 775,855
------------
<PAGE>
Net Assets: Net assets $199,552,429
============
Net Assets Common stock, $.10 par value, 200,000,000 shares authorized $ 1,823,397
Consist of: Paid-in capital in excess of par 187,104,917
Accumulated realized capital losses on investments--net (1,340,746)
Unrealized appreciation on investments--net 11,964,861
------------
Net assets--Equivalent to $10.94 per share based on 18,233,970 shares of
capital outstanding $199,552,429
============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For The Year Ended
August 31, 1996
<S> <S> <C>
Investment Income Interest and amortization of premium and discount earned $ 14,914,448
(Note 1d):
Expenses: Investment advisory fees (Note 2) 1,911,059
Administrative fees (Note 2) 502,910
Transfer agent fees (Note 2) 123,874
Registration fees (Note 1e) 88,152
Professional fees 81,506
Accounting services (Note 2) 70,139
Printing and shareholder reports 68,644
Advertising 62,151
Listing fees 35,538
Directors' fees and expenses 24,597
Custodian fees 19,548
Pricing services 13,173
Amortization of organization expenses (Note 1e) 7,409
Other 7,695
------------
Total expenses 3,016,395
------------
Investment income--net 11,898,053
------------
<PAGE>
Realized & Realized gain on investments--net 1,967,290
Unrealized Change in unrealized appreciation on investments--net (2,408,692)
Gain (Loss) on ------------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 11,456,651
(Notes 1b, 1d & 3): ============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended August 31,
Increase (Decrease) in Net Assets: 1996 1995
<S> <S> <C> <C>
Operations: Investment income--net $ 11,898,053 $ 12,378,384
Realized gain (loss) on investments--net 1,967,290 (2,713,001)
Change in unrealized appreciation on investments--net (2,408,692) 6,520,321
------------ ------------
Net increase in net assets resulting from operations 11,456,651 16,185,704
------------ ------------
Dividends & Investment income--net (11,898,053) (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 (11,898,053) (15,770,370)
------------ ------------
Capital Share Net increase (decrease) in net assets derived from
Transactions capital shares transactions 1,418,958 (14,798,840)
(Note 4): ------------ ------------
Net Assets: Total increase (decrease) in net assets 977,556 (14,383,506)
Beginning of year 198,574,873 212,958,379
------------ ------------
End of year $199,552,429 $198,574,873
============ ============
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements.
For the Year Ended August 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1994 1993 1992
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 10.97 $ 10.92 $ 11.44 $ 10.74 $ 10.29
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .66 .65 .65 .68 .71
Realized and unrealized gain (loss) on
investments--net (.03) .23 (.45) .75 .50
-------- -------- -------- -------- --------
Total from investment operations .63 .88 .20 1.43 1.21
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.66) (.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 (.66) (.83) (.72) (.73) (.76)
-------- -------- -------- -------- --------
Net asset value, end of year $ 10.94 $ 10.97 $ 10.92 $ 11.44 $ 10.74
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 5.81% 8.68% 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 5.90% 6.11% 5.81% 6.17% 6.85%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $199,552 $198,575 $212,958 $216,922 $170,735
Data: ======== ======== ======== ======== ========
Portfolio turnover 28.54% 21.28% 28.51% 28.74% 31.74%
======== ======== ======== ======== ========
<FN>
*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.
See Notes to Financial Statements.
</TABLE>
<PAGE>
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. The following is a summary of significant
accounting policies followed by the Fund.
(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.
<PAGE>
* 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.
(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.
(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.
<PAGE>
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.
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, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended August 31, 1996 were $57,059,552 and $55,429,659,
respectively.
Net realized and unrealized gains as of August 31, 1996 were as
follows:
Realized Unrealized
Gains Gains
Long-term investments $ 1,967,290 $ 11,964,861
------------ ------------
Total $ 1,967,290 $ 11,964,861
============ ============
As of August 31, 1996, net unrealized appreciation for Federal
income tax purposes aggregated $11,964,861, of which $13,087,215
related to appreciated securities and $1,122,354 related to
depreciated securities. The aggregate cost of investments at August
31, 1996 for Federal income tax purposes was $184,348,939.
<PAGE>
4. Capital Shares Transactions:
Transactions in capital shares were as follows:
For the Year Ended Dollar
August 31, 1996 Shares Amount
Shares sold 1,986,078 $ 21,952,170
Shares issued to share-
holders in reinvestment
of dividends 435,140 4,809,103
------------ ------------
Total issued 2,421,218 26,761,273
Shares tendered (2,283,709) (25,342,315)
------------ ------------
Net increase 137,509 $ 1,418,958
============ ============
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)
============ ============
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Merrill Lynch High Income Municipal
Bond Fund, Inc.:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments, of Merrill Lynch
High Income Municipal Bond Fund, Inc. as of August 31, 1996, the
related statements of operations for the year then ended and changes
in net assets for each of the years in the two-year period then
ended, and the financial highlights for each of the years in the
five-year period then ended. These financial statements and the
financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our
audits.
<PAGE>
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of securities owned at August
31, 1996 by correspondence with the custodian. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
Merrill Lynch High Income Municipal Bond Fund, Inc. as of August 31,
1996, the results of its operations, the changes in its net assets,
and the financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
September 30, 1996
</AUDIT-REPORT>
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid monthly by
Merrill Lynch High Income Municipal Bond Fund, Inc. during its
taxable year ended August 31, 1996 qualify as tax-exempt interest
dividends for Federal income tax purposes.
Additionally, there were no capital gains distributed by the Fund
during the year.
Please retain this information for your records.
OFFICERS AND DIRECTORS
<PAGE>
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
