MERRILL LYNCH
HIGH INCOME
MUNICIPAL BOND
FUND, INC.
[FUND LOGO]
STRATEGIC
Performance
Semi-Annual Report
February 28, 1997
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, NY 10286
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
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 #11677-- 2/97
Merrill Lynch High Income Municipal Bond Fund, Inc.
DEAR SHAREHOLDER
For the six-month period ended February 28, 1997, Merrill Lynch High
Income Municipal Bond Fund, Inc. earned $0.321 per share income
dividends, representing a net annualized yield of 5.81%, based on
a month-end per share net asset value of $11.15. Over the same period,
the Fund's total investment return was +5.25%, based on a change in per
share net asset value from $10.94 to $11.15, and assuming reinvestment
of $0.328 per share income dividends and $0.032 per share capital gains
distributions.
For the three-month period ended February 28, 1997, the Fund's total
investment return was +1.25%, based on a change in per share net asset
value from $11.21 to $11.15, and assuming reinvestment of $0.167 per
share income dividends and $0.032 per share capital gains distributions.
The Municipal Market Environment
During the three-month period ended February 28, 1997, long-term
municipal revenue bond yields rose moderately. As measured by the Bond
Buyer Revenue Index, A-rated, uninsured tax-exempt revenue bond yields
increased approximately 15 basis points (0.15%) to 5.93%. During
December 1996 and January 1997, evidence for continued strong economic
growth increased inflationary fears and pushed fixed-income interest
rates higher. Long-term tax-exempt bond yields rose to approximately 6%
at the end of January 1997 before slightly declining during February. US
Treasury bond yields followed a similar pattern, but exhibited far
greater volatility. By late January 1997, US Treasury bond yields rose
approximately 60 basis points (0.60%) to approximately 6.95% before
falling modestly to end the February quarter at 6.80%. In total, US
Treasury bond yields increased 45 basis points during the February
quarter, while municipal bond yields rose less than 15 basis points.
The municipal bond market's ability to withstand the pressure of higher
bond yields in recent months was mainly the result of a continued strong
technical position. During the six months ended February 28, 1997,
approximately $100 billion in new long-term municipal securities was
issued, essentially unchanged from issuance of a year earlier. Approx-
imately $45 billion in tax-exempt bonds was issued during the quarter
ended February 28, 1997, representing a decline of approximately 8%
compared to the quarter ended February 29, 1996. This declining trend
has been even more pronounced thus far in 1997. During January and
February 1997, slightly over $21 billion in new long-term municipal
bonds was underwritten, a decline of over 15% from the first two months
of 1996.
While the recent demand for long-term tax-exempt bonds has not been
overwhelming, it was more than adequate to prevent the more significant
yield increases seen in the taxable bond markets. In early January 1997,
long-term investors did receive over $20 billion in coupon income, bond
maturities and proceeds from early redemptions. Much of these monies,
despite the continued lure of the equity market, was reallocated to the
municipal bond market. Continued strong demand from certain insurance
companies generated considerable scarcity of higher-rated tax-exempt
bonds in the 15-year -- 20-year maturity sector. Additionally, the
increasingly short supply of attractively priced municipal securities in
the 25-year -- 30-year maturity sector prevented many institutional
investors from raising large cash reserve positions. Scarce supply made
the reinvestment of such positions uncertain and, given increased market
volatility, the timing of such reinvestment became even more
problematic.
Looking forward, the supply of new bond issuance of 1997 is expected to
be very similar to that of 1996, with most annual estimates falling in
the $170 billion -- $175 billion range. Investor demand is also expected
to regain some of its former strength with 1997 total municipal
redemptions (refundings, maturities and coupon payments) in the $175
billion -- $185 billion range. This overall balance suggests that the
positive technical backdrop enjoyed in 1996 may continue in 1997. The
near-term direction of interest rates remains uncertain. Recent renewed
economic growth has not yet resulted in renewed inflationary pressures.
The interest rate volatility seen in recent months, however, is likely
to continue until either the rate of recent economic growth declines or
the Federal Reserve Board raises interest rates to restrict further
growth. The tax-exempt bond market's technical position, however, is
likely to be strong enough for much of 1997 to continue to dampen much
of this interest rate volatility. This suggests that municipal bond
yields may continue to trade in a relatively narrow range, rewarding
neither an overly aggressive nor defensive portfolio strategy.
Portfolio Strategy
During the quarter ended February 28, 1997, the volatility experienced
in the long-term Treasury securities market contrasted sharply with the
minimal impact felt in the high-yield tax-exempt market. Lower and
nonrated municipal bonds tend to respond in muted fashion to
fluctuations in the overall level of long-term interest rates. This
characteristic was clearly demonstrated in the relatively stable net
asset value exhibited by Merrill Lynch High Income Municipal Bond Fund,
Inc. during the quarter ended February 28, 1997. Our efforts reflect the
continuation of our strategy to extend the portfolio's average call
protection through an ongoing search for high-yield products with
reasonable upside potential. Four separate high-yield issues totaling
$10.5 million par value were purchased by the Fund during the quarter,
bearing an average weighted yield of 8.19%. Funding of these purchases
came from the sale of some of the portfolio's seasoned holdings which
were recently advance refunded to an early call date. By locking in a
substantial premium on the existing holdings, the proceeds can then be
used to purchase a proportionately greater par value of new bonds. This
limits the yield impact, extends call protection and provides an
opportunity for enhanced total return with the new holding.
Going forward, we expect the high-yield tax-exempt market will continue
to be characterized by surplus demand chasing a shortage of available
products. Supply is not expected to vary significantly from recent
quarters. We expect our strategy to remain unchanged for some time as
the high-yield market provides relatively few opportunities to
successfully accomplish our objective. We do anticipate closing on a few
transactions within the next few weeks, and we look forward to updating
shareholders in our upcoming May quarterly report.
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 to come.
Sincerely,
/S/ARTHUR ZEIKEL
Arthur Zeikel
President
/S/VINCENT R. GIORDANO
Vincent R. Giordano
Senior Vice President
/S/KENNETH A. JACOB
Kenneth A. Jacob
Vice President and Portfolio Manager
/S/THEODORE R. JAECKEL JR.
Theodore R. Jaeckel Jr.
Vice President and Portfolio Manager
March 26, 1997
Merrill Lynch High Income Municipal Bond Fund, Inc. February 28, 1997
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <C> <C> <C> <C> <C>
Alabama -- 1.3% B+ NR* $1,000 Brewton, Alabama, IDB, PCR, Refunding (Container Corporation
American Project), 8% due 4/01/2009 $1,081
BBB- Baa3 1,500 Mobile, Alabama, IDB, Solid Waste Disposal Revenue Refunding
Bonds (Mobile Energy Services Company Project), 6.95% due
1/01/2020 1,592
Arizona -- 0.6% NR* NR* 1,235 Pima County, Arizona, IDA, Revenue Bonds (La Hacienda
Project), 9.50% due 12/01/2016 1,254
California -- 2.4% BBB- Baa 10,000 Foothill/Eastern Transportation Corridor Agency, California,
Toll Road Revenue Bonds (Senior Lien), Series A, 6.50%** due
1/01/2028 1,424
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 975
NR* NR* 12,000 San Joaquin Hills, California, Transportation Corridor Agency,
Toll Road Revenue Bonds (Senior Lien), 6.425%** due 1/01/2022 2,564
Colorado -- 4.8% NR* NR* 1,700 Colorado Postsecondary Educational Facilities Authority
Revenue Bonds (Colorado Ocean Journey Inc. Project),
8.30% due 12/01/2017 1,713
Denver, Colorado, City and County Airport Revenue Bonds:
BBB Baa 900 AMT, Series A, 8% due 11/15/2025 1,005
BBB Baa 2,000 AMT, Series D, 7.75% due 11/15/2013 2,406
AAA Baa 1,500 Series A, 7.25% due 11/15/2002 (d) 1,730
AAA NR* 500 Series A, 7.25% due 11/15/2002 (d) 577
NR* NR* 2,000 Mountain Village Metropolitan District, Colorado, Refunding
Bonds (San Miguel County), UT, 8.10% due 12/01/2011 2,227
Connecticut -- 1.0% NR* B1 1,895 New Haven, Connecticut, Facilities Revenue Bonds (Hill Health
Corporation Project), 9.25% due 5/01/2017 2,050
District of B- NR* 2,000 District of Columbia, COP, 7.30% due 1/01/2013 2,111
Columbia -- 1.0%
Florida --1.1% NR* NR* 1,000 Arbor Greene, Florida, Community Development District,
Special Assessment Revenue Bonds, 7.60% due 5/01/2018 1,008
BB+ NR* 960 Jacksonville, Florida, Port Authority, IDR, Refunding (United
States Gypsum Corporate Project), 7.25% due 10/01/2014 1,022
A1 VMIG1+ 300 Pinellas County, Florida, Health Facilities Authority, Revenue
Refunding Bonds (Pooled Hospital Loan Program), DATES,
3.40% due 12/01/2015 (a) 300
Georgia -- 3.6% 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) 3,061
NR* NR* 1,975 Atlanta, Georgia, Urban Residential Finance Authority, M/F
Housing Mortgage Revenue Bonds (Northside Plaza Apartments
Project), 9.75% due 11/01/2020 2,152
NR* NR* 2,000 Hancock County, Georgia, COP, 8.50% due 4/01/2015 2,175
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, 9.436% due 11/01/2021 (g) 1,949
Illinois -- 6.3% BB+ Baa2 4,000 Chicago, Illinois, O'Hare International Airport, Special
Facilities
Revenue Refunding Bonds (American Airlines Inc. Project),
8.20% due 12/01/2024 4,721
NR* NR* 3,195 Illinois Development Finance Authority, Primary Health Care
Centers Facilities, Acquisition Program Revenue Bonds,
7.75% due 12/01/2016 3,224
NR* NR* 2,000 Illinois Educational Facilities Authority Revenue Bonds
(Chicago Osteopathic Health System), 7.25% due 11/15/2019 (d) 2,408
NR* Baa1 1,250 Illinois Health Facilities Authority Revenue Bonds (Holy Cross
Hospital Project), 6.75% due 3/01/2024 1,291
BBB NR* 1,000 Lansing, Illinois, Tax Increment Revenue Refunding Bonds
(Sales Tax-Landings Redevelopment), 7% due 12/01/2008 1,099
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 1,639
NR* NR* 2,000 Wabash, Indiana, Solid Waste Disposal Revenue Bonds
(Jefferson Smurfit Corporation Project), AMT, 7.50% due
6/01/2026 2,101
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 1,759
Kentucky -- 2.3% AAA Aaa 4,000 Louisville, Kentucky, Hospital Revenue Bonds, INFLOS,
9.349% due 10/01/2014 (b)(g) 4,600
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 3,975
BBB+ A 1,000 Louisiana Public Facilities Authority, Hospital Revenue Bonds
(Woman's Hospital Foundation Project), 7.25% due 10/01/2022 1,068
BB NR* 3,000 Port New Orleans, Louisiana, IDR, Refunding (Continental
Grain Company Project), 7.50% due 7/01/2013 3,232
Massachusetts -- NR* NR* 1,145 Boston, Massachusetts, Industrial Development Financing
8.2% Authority, Solid Waste Disposal Facility Revenue Bonds
(Jet-A-Way Project), AMT, 10.50% due 1/01/2011 1,296
NR* Ba 530 Lawrence, Massachusetts, GO, 9.875% due 12/15/1998 576
Massachusetts State Health and Educational Facilities
Authority Revenue Bonds:
NR* B 1,810 (New England Memorial Hospital Project), Series C,
7% due 4/01/2014 1,656
NR* NR* 605 (North Adams Regional Hospital), Issue B, 8% due 7/01/1998 625
NR* B 3,000 Refunding (New England Memorial Hospital), Series B,
6.125% due 7/01/2013 2,445
Massachusetts State Industrial Finance Agency Revenue Bonds:
NR* B1 1,675 (Bay Cove Human Services Inc.), 8.375% due 4/01/2019 1,826
BBB Ba1 1,600 (Vinfen Corporation), 7.10% due 11/15/2018 1,679
NR* NR* 1,000 Massachusetts State Industrial Finance Agency, Solid Waste
Disposal Revenue Bonds (Molten Metal Technology Project),
8.25% due 8/01/2014 1,057
NR* NR* 5,000 Massachusetts State Port Authority, Special Project Revenue
Bonds (Harborside Hyatt Project), AMT, 10% due 3/01/2026 5,587
Michigan -- 1.6% AA Aa2 1,500 Michigan State Hospital Finance Authority, Revenue Refunding
Bonds (Henry Ford Health Systems), Series A, 5.25% due
11/15/2025 1,399
NR* P1 1,900 Michigan State Strategic Fund, PCR, Refunding (Consumers
Power Project), VRDN, Series A, 3.40% due 4/15/2018 (a) 1,900
Missouri -- 5.2% BBB- NR* 2,830 Joplin, Missouri, IDA, Hospital Facilities Revenue Refunding
and Improvement Bonds (Tri-State Osteopathic Project), 8.25%
due 12/15/2014 3,062
Missouri Health and Educational Facilities Authority Revenue
Bonds (Southwest Baptist University Project):
BB NR* 905 9.50% due 10/01/2001 972
BB NR* 3,690 9.50% due 10/01/2011 4,318
AAA Aaa 2,000 Phelps County, Missouri, Hospital Revenue Bonds (Phelps
County Regional Medical Center), 8.30% due 3/01/2000 (d) 2,259
New Hampshire -- BB- NR* 3,500 New Hampshire State Business Finance Authority,
1.8% Pollution Control and Solid Waste Revenue Refunding Bonds
(Crown Paper Company Project), 7.75% due 1/01/2022 3,685
New Jersey -- 11.6% Camden County, New Jersey, Improvement Authority, Lease
Revenue Bonds (Holt Hauling & Warehousing), Series A:
NR* NR* 4,600 9.625% due 1/01/2011 4,992
NR* NR* 2,000 9.875% due 1/01/2021 2,189
BB 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 4,122
NR* NR* 1,500 New Jersey, EDA, IDR, Refunding (Newark Airport Marriott
Hotel), 7% due 10/01/2014 1,553
New Jersey Health Care Facilities Financing Authority
Revenue Bonds:
NR* NR* 4,725 (Riverwood Center Issue), Series A, 9.90% due 7/01/2021 5,261
AAA Aaa 4,700 (Saint Elizabeth Hospital), Series B, 8.25% due 7/01/2000 (d) 5,359
New York -- 7.8% New York City, New York, GO, UT, Series C, Sub-Series C-1:
BBB+ Aaa 1,795 7.50% due 8/01/2002 (d) 2,074
BBB+ Baa1 3,465 7.50% due 8/01/2021 3,823
NR* NR* 2,500 New York City, New York, IDA, Revenue Bonds (Visy Paper Inc.
Project), AMT, 7.95% due 1/01/2028 2,696
Port Authority of New York and New Jersey, Special Obligation
Revenue Bonds (Special Project-KIAC), AMT, Series 4:
NR* NR* 1,000 3rd Installment, 7% due 10/01/2007 1,077
NR* NR* 2,750 5th Installment, 6.75% due 10/01/2019 2,817
Utica, New York, Public Improvement Bonds, UT:
CCC B 635 8.50% due 8/15/2007 665
CCC B 635 8.50% due 8/15/2008 666
CCC B 500 8.50% due 8/15/2009 523
CCC B 500 8.50% due 8/15/2010 523
CCC B 500 8.50% due 8/15/2011 521
CCC B 500 8.50% due 8/15/2012 521
Ohio -- 1.0% AAA Aaa 1,900 Ohio, HFA, S/F Mortgage Revenue Bonds, RIB, AMT, Series A-2,
9.943% due 3/24/2031 (c)(g) 2,076
Oklahoma -- 0.5% BB+ NR* 985 Blaine County, Oklahoma, Industrial Authority, IDR (United
States Gypsum Corp. Project), 7.25% due 10/01/2010 1,041
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 2,128
Pennsylvania
- -- 12.4% NR* NR* 2,000 Lehigh County, Pennsylvania, General Purpose Authority
Revenue Bonds (Wiley House Kids Peace), 8.75% due 11/01/2014 2,081
BBB- NR* 5,000 McKean County, Pennsylvania, Hospital Authority Revenue
Bonds (Bradford Hospital Project), 8.875% due 10/01/2020 5,794
Montgomery County, Pennsylvania, IDA, Revenue Bonds:
NR* Ba3 3,400 (Pennsburg Nursing and Rehabilitation Center), 7.625%
due 7/01/2018 3,519
NR* NR* 1,500 Refunding (1st Mortgage-Meadowood Corporation Project),
Series A, 10.25% due 12/01/2020 1,652
NR* NR* 2,000 Pennsylvania Economic Development Financing Authority, IDR
(GEHL Company Inc. Project), AMT, Series F, 9% due 9/01/2010 2,184
NR* NR* 5,000 Pennsylvania Economic Development Financing Authority,
Recycling Revenue Bonds (Ponderosa Fibres Project),
AMT, Series A, 9.25% due 1/01/2022 4,478
NR* NR* 5,000 Philadelphia, Pennsylvania, Authority for IDR, Refunding
(Commercial Development Philadelphia Airport), AMT,
7.75% due 12/01/2017 5,410
Rhode Island
- -- 1.3% BBB+ NR* 1,500 Rhode Island State Health and Educational Building
Corporation, Hospital Financing Revenue Bonds (South
County Hospital), 7.25% due 11/01/2001 (d) 1,677
NR* Baa 875 West Warwick, Rhode Island, GO, UT, Series A, 6.80% due
7/15/1998 896
Texas -- 8.8% 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 3,229
A1+ NR* 3,800 Harris County, Texas, Health Facilities Development
Corporation, Hospital Revenue Bonds (Methodist Hospital),
VRDN, 3.45% due 12/01/2025 (a) 3,800
BB Ba1 4,805 Jefferson County, Texas, Health Facilities Development
Corporation, Hospital Revenue Bonds (Baptist Healthcare
System Project), 8.875% due 6/01/2021 5,071
BB Ba 3,270 Odessa, Texas, Junior College District, Revenue Refunding
Bonds, Series A, 8.125% due 12/01/2018 3,530
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 1,115
AAA Aaa 2,840 Ysleta, Texas, Independent School District Refunding Bonds, UT,
5.70%** due 8/15/2013 1,131
Utah -- 1.7% AAA Aaa 3,000 Salt Lake City, Utah, Hospital Revenue Refunding Bonds
(IHC Hospitals, Inc.), INFLOS, 9.743% due 5/15/2020 (e)(g) 3,499
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 1,648
Virginia -- 1.9% NR* NR* 2,000 Pittsylvania County, Virginia, IDA, Multi-Trade Revenue Bonds,
AMT, Series A, 7.50% due 1/01/2014 2,118
AAA Aaa 2,000 Upper Occoquan, Virginia, Sewer Authority, Regional Sewer
Revenue Bonds, Series A, 4.75% due 7/01/2029 (b) 1,734
Total Investments (Cost -- $185,174) -- 98.4% 200,079
Other Assets Less Liabilities -- 1.6% 3,238
--------
Net Assets -- 100.0% $203,317
========
(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 28, 1997.
(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 28, 1997.
* 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.
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.
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
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL INFORMATION
Statement of Assets and Liabilities as of February 28, 1997
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $185,173,930) (Note 1a) $200,079,129
Cash 30,541
Receivables:
Interest $ 3,735,547
Capital shares sold 146,548 3,882,095
------------
Prepaid registration fees and other assets (Note 1e) 9,941
------------
Total assets 204,001,706
------------
Liabilities: Payables:
Dividends to shareholders (Note 1f) 326,414
Investment adviser (Note 2) 149,365
Administration (Note 2) 39,306 515,085
------------
Accrued expenses and other liabilities 169,739
------------
Total liabilities 684,824
------------
Net Assets: Net assets $203,316,882
============
Net Assets Common stock, $.10 par value, 200,000,000 shares authorized $ 1,824,159
Consist of: Paid-in capital in excess of par 187,126,328
Accumulated realized capital losses on investments -- net (538,804)
Unrealized appreciation on investments -- net 14,905,199
------------
Net assets -- Equivalent to $11.15 per share based on
18,241,589 shares of capital outstanding $203,316,882
============
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the Six Months Ended
February 28, 1997
<S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 7,360,915
(Note 1d):
Expenses: Investment advisory fees (Note 2) 958,190
Administrative fees (Note 2) 252,155
Transfer agent fees (Note 2) 64,351
Advertising 32,994
Printing and shareholder reports 32,968
Accounting services (Note 2) 30,134
Registration fees (Note 1e) 29,043
Professional fees 25,131
Listing fees 18,315
Directors' fees and expenses 12,697
Custodian fees 10,110
Pricing services 7,224
Other 3,478
------------
Total expenses 1,476,790
------------
Investment income -- net 5,884,125
------------
Realized & Realized gain on investments -- net 1,481,956
Unrealized Change in unrealized appreciation on investments -- net 2,940,338
Gain on ------------
Investments -- Net Net Increase in Net Assets Resulting from Operations $ 10,306,419
(Notes 1b, 1d & 3): ============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
For the Six For the
Months Ended Year Ended
Increase (Decrease) in Net Assets: Feb. 28, 1997 Aug. 31, 1996
<S> <C> <C> <C>
Operations: Investment income -- net $ 5,884,125 $ 11,898,053
Realized gain on investments -- net 1,481,956 1,967,290
Change in unrealized appreciation on investments -- net 2,940,338 (2,408,692)
------------ ------------
Net increase in net assets resulting from operations 10,306,419 11,456,651
------------ ------------
Dividends & Investment income -- net (5,884,125) (11,898,053)
Distributions Realized gain on investments -- net (680,014) --
To Shareholders ------------ ------------
(Note 1f): Net decrease in net assets resulting from dividends
and distributions to shareholders (6,564,139) (11,898,053)
------------ ------------
Capital Share Net increase in net assets derived from capital
Transactions shares transactions 22,173 1,418,958
(Note 4): ------------ ------------
Net Assets: Total increase in net assets 3,764,453 977,556
Beginning of period 199,552,429 198,574,873
------------ ------------
End of period $203,316,882 $199,552,429
============ ============
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
The following per share data and ratios have been derived For the Six
from information provided in the financial statements. Months Ended
Feb. 28, For the Year Ended August 31,
Increase (Decrease) in Net Asset Value: 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.94 $ 10.97 $ 10.92 $ 11.44 $ 10.74
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income -- net .32 .66 .65 .65 .68
Realized and unrealized gain (loss) on
investments -- net .25 (.03) .23 (.45) .75
---------- ---------- ---------- ---------- ----------
Total from investment operations .57 .63 .88 .20 1.43
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income -- net (.32) (.66) (.65) (.65) (.68)
Realized gain on investments -- net (.04) -- (.15) (.07) (.05)
In excess of realized gain on
investments -- net -- -- (.03) -- --
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (.36) (.66) (.83) (.72) (.73)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 11.15 $ 10.94 $ 10.97 $ 10.92 $ 11.44
========== ========== ========== ========== ==========
Total Investment Based on net asset value per share 5.25%++ 5.81% 8.68% 1.75% 13.83%
Return:** ========== ========== ========== ========== ==========
Ratios to Average Expenses, net of reimbursement 1.46%* 1.50% 1.52% 1.48% 1.37%
Net Assets: ========== ========== ========== ========== ==========
Expenses 1.46%* 1.50% 1.52% 1.48% 1.47%
========== ========== ========== ========== ==========
Investment income -- net 5.83%* 5.90% 6.11% 5.81% 6.17%
========== ========== ========== ========== ==========
Supplemental Net assets, end of period (in thousands) $203,317 $199,552 $198,575 $212,958 $216,922
========== ========== ========== ========== ==========
Portfolio turnover 15.30% 28.54% 21.28% 28.51% 28.74%
========== ========== ========== ========== ==========
* Annualized.
** Total investment returns exclude the effects of the early withdrawal charge, if any. 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>
Merrill Lynch High Income Municipal Bond Fund, Inc. February 28, 1997
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.
(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.
(bullet) 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.
(bullet) 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) Prepaid registration fees -- 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.
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 the Fund pays a monthly fee at 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.
For the six months ended February 28, 1997, Merrill Lynch Funds
Distributor, Inc. ("MLFD") earned early withdrawal charges of $14,621
relating to the tender of the Fund's shares.
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, MLFDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for
the six months ended February 28, 1997 were $30,123,007 and $34,468,904,
respectively.
Net realized and unrealized gains as of February 28, 1997 were as
follows:
Realized Unrealized
Gains Gains
Long-term investments $1,481,956 $14,905,199
---------- -----------
Total $1,481,956 $14,905,199
========== ===========
As of February 28, 1997, net unrealized appreciation for Federal income
tax purposes aggregated $14,905,199, of which $15,959,964 related to
appreciated securities and $1,054,765 related to depreciated securities.
The aggregate cost of investments at February 28, 1997 for Federal
income tax purposes was $185,173,930.
4. Capital Shares Transactions:
Transactions in capital shares were as follows:
For the Six Months Ended Dollar
February 28, 1997 Shares Amount
Shares sold 811,059 $9,008,382
Shares issued to share-
holders in reinvestment of
dividends and distributions 237,329 2,635,620
---------- ----------
Total issued 1,048,388 11,644,002
Shares tendered (1,040,769) (11,621,829)
---------- ----------
Net increase 7,619 $22,173
========== ==========
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
========== ==========
