MERRILL LYNCH
HIGH INCOME
MUNICIPAL BOND
FUND, INC.
[FUND LOGO]
STRATEGIC
Performance
Quarterly Report
November 30, 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
John M. Loffredo, Vice President
Gerald M. Richard, Treasurer
Patrick D. Sweeny, 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 -- 11/97
[RECYCLE LOGO]
Printed on post-consumer recycled paper
Merrill Lynch High Income Municipal Bond Fund, Inc.
DEAR SHAREHOLDER
For the three-month period ended November 30, 1997, Merrill Lynch High
Income Municipal Bond Fund, Inc. earned $0.157 per share income
dividends, representing a net annualized yield of 5.51%, based on a
month-end per share net asset value of $11.53. Over the same period,
the Fund's total investment return was +3.07%, based on a change in
per share net asset value from $11.34 to $11.53, and assuming
reinvestment of $0.158 per share income dividends.
The Municipal Market Environment
During the three months ended November 30, 1997, long-term tax-exempt
bond yields, as measured by the Bond Buyer Revenue Bond Index,
declined slightly. On a weekly basis, bond yields were buffeted by
alternating strong and weak indicators. The general financial
environment has remained one of solid economic growth with few or no
inflationary pressures. However, economic growth remained strong
enough to suggest that the Federal Reserve Board (FRB) might soon be
obligated to raise short-term interest rates. Such action would be
intended to slow economic growth and ensure that any incipient
inflationary pressures would be curtailed. Over the last three months,
long-term municipal bond yields have fallen approximately 15 basis
points (0.15%) to 5.55%.
Similarly, long-term US Treasury bond yields generally drifted lower
during most of the November quarter. However, the turmoil in the
world's equity markets during the last week in October has resulted in
a significant rally in the Treasury bond market. The US Treasury bond
market was the beneficiary of a flight to quality mainly by foreign
investors whose own domestic markets have continued to be very
volatile. Prior to the initial decline in Asian equity markets, yields
on long-term US Treasury securities had declines similar to those
experienced in the tax-exempt market. For the three-month period ended
November 30, 1997, US Treasury bond yields declined over 35 basis
points to 6.05%, their lowest level of 1997.
The tax-exempt bond market's continued underperformance as compared to
its taxable counterpart has been largely in response to its ongoing
weakening technical position. As municipal bond yields have declined,
municipalities have rushed to refinance outstanding higher-couponed
debt with new issues financed at present low rates. During the last
six months, over $120 billion in new long-term tax-exempt issues were
underwritten, an increase of nearly 30% versus the comparable period a
year ago. As interest rates have continued to decline, these
refinancings have sustained municipal bond issuance. During the past
three months, approximately $60 billion in new long-term municipal
securities were underwritten, an increase of over 25% as compared to
the November 30, 1996 quarter.
The recent trend toward larger and larger bond issues has also
continued. However, issues of such magnitude usually must be
attractively priced to ensure adequate investor interest. Obviously,
the yields of other municipal bond issues are impacted by the yield
premiums such large issuers have been required to pay. Much of the
municipal bond market's recent underperformance can be traced to
market pressures that these large issues have exerted.
In our opinion, the recent correction in world equity markets has
enhanced the near-term prospects for continued low, if not declining,
interest rates in the United States. It is likely that the recent
correction will result in slower US domestic growth in the coming
months. This decline should be generated in part by reduced US export
growth. Additionally, some decline in consumer spending can also be
expected in response to reduced consumer confidence. Perhaps more
importantly, it is likely that barring a dramatic and unexpected
resurgence in domestic growth, the FRB may be unwilling to raise
interest rates until the full impact of the equity market's
corrections can be established.
All of these factors suggest that for at least the near term, interest
rates, including tax-exempt bond yields, are unlikely to rise by any
appreciable amount. It is probable that municipal bond yields will
remain under some pressure as a result of continued strong new-issue
supply. However, the recent pace of municipal bond issuance is likely
to be unsustainable. Continued increases in bond issuance will require
lower tax-exempt bond yields to generate the economic savings
necessary for additional municipal bond refinancing. Additionally,
municipal bond investors are expected to receive approximately $23
billion in January coupon payments, bond maturities and proceeds from
early redemptions. Such assets should serve to intensify investor
demand in the near future. With tax-exempt bond yields at already
attractive yield ratios relative to US Treasury bonds (approximately
90% at the end of November), any further pressure on the municipal
market may represent an attractive investment opportunity.
Portfolio Strategy
Perhaps the most noteworthy event affecting the Fund during the
November quarter was a shift away from an emphasis on the healthcare
industry, a move that the Fund's shareholders approved in October.
Since the Fund's inception, consistent with the policy as outlined in
the Fund's prospectus, we have maintained a concentration in the
healthcare sector amounting to 25% of net assets. However, a
confluence of recent developments has forced a reassessment of this
policy. For one, in recent years the financing needs of low
investment-grade hospitals largely have been filled, limiting
potential issuance. Moreover, as competition for business between the
major bond insurers has heated up, an increasing number of issuers
have taken advantage of relatively inexpensive insurance premiums and
have come to market bearing some form of credit enhancement. As a
result, the healthcare sector has become increasingly generic,
affording few opportunities for the enhancement of total return within
the context of the Fund's original investment policy. The general
contraction in credit spreads has compounded matters further, as
yields currently available on lower-rated healthcare bonds appear
insufficient given the high level of risk and illiquidity so typical
of this sector. This imbalance between risk and reward coupled with
the lack of supply led us to reassess our investment policy.
Apart from the aforementioned policy change, the quarter ended
November 30, 1997 proved relatively uneventful as far as the
composition and activity of the Fund were concerned. Approximately
$15.4 million in high-yield tax-exempt securities were purchased,
bearing an average weighted yield of 6.06%. Looking ahead, we expect
to gradually reallocate a portion of the Fund's assets invested in
healthcare bonds toward other sectors. We expect this added
flexibility to result in a more balanced portfolio, relatively free of
the risks inherent in being overweighted in an industry whose debt we
perceive to be overvalued. In our view, other sectors in the tax-
exempt high-yield market currently offer greater value and,
consequently, the potential to enhance the Fund's total return on an
ongoing basis.
In Conclusion
We appreciate your ongoing interest 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,
/S/ARTHUR ZEIKEL
Arthur Zeikel
President
/S/VINCENT R. GIORDANO
Vincent R. Giordano
Senior Vice President
/S/THEODORE R. JAECKEL JR.
Theodore R. Jaeckel Jr.
Vice President and Portfolio Manager
/S/JOHN M. LOFFREDO
John M. Loffredo
Vice President and Portfolio Manager
December 30, 1997
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Merrill Lynch High Income Municipal Bond Fund, Inc. November 30, 1997
PROXY RESULTS
During the three-month period ended November 30, 1997, Merrill Lynch High Income Municipal Bond Fund, Inc. stockholders
voted on the following proposals. The proposals were approved at the special shareholders' meeting on October 20, 1997.
The description of each proposal and number of shares voted are as follows:
Shares Shares Withheld
Voted For From Voting
<S> <C> <C> <C>
1. To elect the Fund's Board of Directors: Ronald W. Forbes 18,129,776 318,158
Cynthia A. Montgomery 18,129,776 318,158
Charles C. Reilly 18,129,776 318,158
Kevin A. Ryan 18,129,776 318,158
Richard R. West 18,129,776 318,158
Arthur Zeikel 18,129,776 318,158
<CAPTION>
Shares Shares Voted Shares Voted
Voted For Against Abstain
<S> <C> <C> <C>
2. To ratify the selection of Deloitte & Touche LLP as the
Fund's independent auditors. 17,821,590 56,139 570,204
3. To amend the Fund's fundamental investment restriction
regarding the Fund's healthcare concentration policy. 9,373,320 265,419 690,895
</TABLE>
PORTFOLIO COMPOSITION
For the Quarter Ended November 30, 1997
Top Ten States*
New Jersey 11.35%
Pennsylvania 10.85
Texas 9.13
Massachusetts 7.39
Colorado 6.14
Illinois 6.10
Georgia 5.16
Arizona 4.52
Missouri 4.50
New York 4.29
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Total Top Ten 69.43
Total Others 30.57
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Total Portfolio 100.00%
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Net assets as of November 30, 1997 were $218,516,285.
[GRAPHIC PIE CHART OMITTED: QUALITY RATINGS]
Quality Ratings*
(Based on Nationally Recognized Rating Services)
AAA/Aaa -- 13%
A/A -- 3%
Other++ -- 1%
BBB/Baa -- 15%
B/B -- 11%
NR+ -- 41%
BB/Ba -- 16%
* Based on total market value of the portfolio as of November 30, 1997.
+ Not Rated.
++ Temporary investments in short-term municipal securities.
