MERRILL LYNCH
HIGH INCOME
MUNICIPAL BOND
FUND, INC.
[FUND LOGO]
STRATEGIC
Performance
Semi-Annual Report
February 28, 1998
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 -- 2/98
[RECYCLE LOGO]
Printed on post-consumer recycled paper
Merrill Lynch High Income Municipal Bond Fund, Inc.
DEAR SHAREHOLDER
For the six-month period ended February 28, 1998, Merrill Lynch High
Income Municipal Bond Fund, Inc. earned $0.313 per share income
dividends, representing a net annualized yield of 5.52%, based on a
month-end per share net asset value of $11.46. Over the same period,
the Fund's total investment return was +5.63%, based on a change in
per share net asset value from $11.34 to $11.46, and assuming
reinvestment of $0.346 per share income dividends and $0.166 per
share capital gains distributions.
For the three-month period ended February 28, 1998, the Fund's total
investment return was +2.48%, based on a change in per share net
asset value from $11.53 to $11.46, and assuming reinvestment of
$0.188 per share income dividends and $0.166 per share capital gains
distributions.
The Municipal Market Environment
During the three months ended February 28, 1998, long-term bond
yields generally declined. In recent months, the decline in interest
rates was driven more by the continued investor reaction to Asian
financial markets' volatility than by domestic economic
fundamentals. It was expected that, given the severity of the recent
Asian financial markets' turmoil, US economic growth would be
quickly and materially constricted. Consequently, bond yields
continued to decline to recent historic lows by mid-January 1998.
For example, US Treasury bond yields declined approximately 35 basis
points (0.35%) to 5.70%. Similarly, long-term municipal revenue bond
yields, as measured by the Bond Buyer Revenue Index, fell 30 basis
points to 5.25%. For the remainder of the quarter, however, long-
term bond yields retraced some of their earlier gains as US economic
growth remained moderate with little visible impact from Asian
markets. Over the February quarter, US Treasury bond yields declined
approximately 15 basis points to 5.92% at February 28, 1998.
Municipal bond yields fell almost 20 basis points to end the
February quarter at 5.36%. Tax-exempt bond yields have not been at
these levels since the 1970s.
During the quarter ended February 28, 1998, the municipal bond
market outperformed its taxable counterpart for the first time in
nearly a year. The performance of the tax-exempt bond market has
been particularly impressive as it did not have the "safe-haven"
attraction enjoyed by the US Treasury bond market in recent months.
Without the ability to benefit from the tax advantage inher-
ent in municipal bonds, foreign investors have not participated in
the municipal bond market to any significant extent. However, the
municipal bond market was able to perform well despite a continued
increase in new tax-exempt bond issuance. Over the last six months,
over $125 billion in new long-term municipal bonds were
underwritten, an increase of over 35% compared to the same six-month
period one year ago. As interest rates have continued to decline in
recent months, new tax-exempt bond issuance has remained strong.
Over $60 billion in long-term municipal securities were issued
during the last three months, an increase of over 40% compared to
the same three-month period ended February 28, 1997. During the past
month, over $20 billion in new long-term municipal securities were
underwritten, representing an increase of over 50% compared to the
February 1997 level and the largest February issuance ever.
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. Going forward, Asian consumer demand for
US products is likely to decline in response to diminished Asian
economic growth. Perhaps more importantly, it is likely that,
barring a dramatic and unexpected resurgence in domestic growth and
inflation, the Federal Reserve Board will be unwilling to raise
interest rates until the full impact of the recent Asian market
turmoil can be established.
All these factors suggest that over 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 relative pressure because 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 and lower tax-exempt bond yields to generate the
economic savings necessary for additional municipal bond
refinancings. Preliminary estimates of 1998 total municipal bond
issuance are presently in the $200 billion -- $225 billion range.
These estimates suggest that recent supply pressures are likely to
abate somewhat next year, or at least exert only minimal technical
pressures during 1998. Additionally, municipal bond investors
received approximately $30 billion in January and February coupon
payments, bond maturities and proceeds from early redemptions, which
should serve to support 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 February
1998), any further pressure on the municipal market may well
represent an attractive investment opportunity.
Portfolio Strategy
Despite considerable volatility in an environment of generally
declining long-term interest rates, our efforts continued to reflect
the same strategy that has been in place for some time. Rather than
try to time the market, we have sought to maintain a fully invested
strategy in order to seek to enhance the income stream generated by
the Fund's investments. We believe that performance enhancement can
best be achieved through the selective accumulation of securities
possessing attractive credit fundamentals and the potential to
outperform the market in general. We believe this approach should
provide more consistent and reliable investment returns over the
long term instead of one that attempts to predict the direction of
long-term interest rates.
The February quarter proved to be relatively quiet for the Fund as
the dramatic narrowing of credit spreads witnessed throughout 1997
in the municipal bond market continued. Demand for high-yield tax-
exempt securities continued to overwhelm the limited available
supply, leaving yield spreads relatively untouched in spite of
predictions of lower corporate earnings growth. In this environment,
we saw few new investment opportunities. As a result, new high-yield
acquisitions for the February quarter amounted to only $7.875
million in bonds bearing an average weighted yield of 6.06%. In some
instances, we took advantage of what would appear to be aggressive
bids to reduce the Fund's exposure to certain credits. Proceeds from
these sales have been typically reinvested to improve the credit
quality of the Fund's holdings at historically narrow yield spreads.
The Fund was the beneficiary of ratings upgrades on two of its
holdings this past quarter. Bonds backed by the United States Gypsum
Co. were upgraded by Standard & Poor's Corp. (S&P) two full grades
from BB+ to BBB. In addition, S&P put Continental Airlines on
"Creditwatch" with a positive outlook. At February 28, 1998, the
Fund's holdings of senior unsecured debt was rated BB- by S&P.
One of the more significant developments during the February quarter
was the defeasance of a significant portion of the Fund's holdings.
This occurred because long-term interest rates have fallen
considerably since the bonds were issued. As a result, it became
economically feasible and, in fact, desirable for the respective
issuers to refinance the outstanding debt. Proceeds from the new
refunding issues are typically invested in US Government securities,
placed in an escrow account and earmarked for the payment of
principal and interest on the newly defeased bonds. This process
consistently enhanced the market value and the credit quality
of the existing security. Since approximately 4.6% of the Fund's net
assets were advance refunded during the February quarter, defeasance
had a positive impact on the Fund's total return for the period.
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
April 2, 1998
<TABLE>
<CAPTION>
Merrill Lynch High Income Municipal Bond Fund, Inc. February 28, 1998
SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <C> <C> <C> <C> <C>
Alabama -- 1.2% B+ NR* $1,000 Brewton, Alabama, IDB, PCR, Refunding (Container
Corporation American Project), 8% due 4/01/2009 $1,134
BBB- Baa3 1,500 Mobile, Alabama, IDB, Solid Waste Disposal Revenue
Refunding Bonds (Mobile Energy Services Co. Project),
6.95% due 1/01/2020 1,685
Arizona -- 3.7% B B2 3,000 Coconino County, Arizona, Pollution Control
Corporation, Revenue Refunding Bonds (Tucson Electric
Power - Navajo), AMT, Series A, 7.125% due 10/01/2032 3,449
Pima County, Arizona, IDA, Revenue Bonds:
NR* NR* 1,235 (La Hacienda Project), 9.50% due 12/01/2016 1,292
B B2 3,500 (Tucson Electric Power Company Project), Series B,
6% due 9/01/2029 3,595
California -- 1.3% AAA Aaa 10,000 Foothill/Eastern Transportation Corridor Agency,
California, Toll Road Revenue Bonds (Senior Lien),
Series A, 6.50%** due 1/01/2028 (h) 2,090
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 (f) 825
Colorado -- 5.5% NR* NR* 1,700 Colorado Postsecondary Educational Facilities
Authority Revenue Bonds (Colorado Ocean Journey
Incorporated Project), 8.30% due 12/01/2017 1,998
Denver, Colorado, City and County Airport Revenue
Bonds:
BBB Baa1 2,000 AMT, Series D, 7.75% due 11/15/2013 2,533
AAA Baa1 1,500 Series A, 7.25% due 11/15/2002 (d) 1,722
AAA NR* 500 Series A, 7.25% due 11/15/2002 (d) 574
NR* NR* 3,000 Denver, Colorado, Urban Renewal Authority, Tax
Increment Revenue Bonds (Downtown Denver), AMT, Series
A, 7.75% due 9/01/2017 3,328
Mountain Village Metropolitan District, Colorado,
Refunding Bonds (San Miguel County), UT:
NR* NR* 1,350 8.10% due 12/01/2002 (d) 1,588
NR* NR* 650 8.10% due 12/01/2011 750
Connecticut -- 2.6% Connecticut State Health and Educational Facilities
Authority Revenue Bonds:
NR* NR* 1,500 (Edgehill Issue), Series A, 6.875% due 7/01/2027 1,613
BBB Baa2 2,205 Refunding (Hospital for Special Care Issue), Series B,
5.375% due 7/01/2017 2,198
NR* B1 1,875 New Haven, Connecticut, Facilities Revenue Bonds
(Hill Health Corporation Project), 9.25% due 5/01/2017 2,093
Florida -- 1.7% NR* NR* 1,000 Arbor Greene, Florida, Community Development District,
Special Assessment Revenue Bonds, 7.60% due 5/01/2018 1,078
NR* NR* 1,000 Grand Haven Community Development District, Florida,
Special Assessment, Series B, 6.90% due 5/01/2019 1,029
BBB NR* 960 Jacksonville, Florida, Port Authority, IDR, Refunding
(United States Gypsum Company Project), 7.25% due
10/01/2014 1,090
A1+ VMIG1+ 600 Saint Lucie County, Florida, PCR, Refunding (Florida
Power & Light Company Project), VRDN, 3.60% due
1/01/2026 (a) 600
Georgia -- 4.9% NR* Aaa 2,465 Atlanta, Georgia, Urban Residential Finance Authority,
College Facilities Revenue Bonds (Morris Brown College
Project), 9.50% due 12/01/2001 (d) 2,983
NR* NR* 1,950 Atlanta, Georgia, Urban Residential Finance Authority,
M/F Housing Mortgage Revenue Bonds (Northside Plaza
Apartments Project), 9.75% due 11/01/2020 2,105
NR* NR* 2,000 Hancock County, Georgia, COP, 8.50% due 4/01/2015 2,249
NR* NR* 1,465 Rockdale County, Georgia, Development Authority, Solid
Waste Disposal Revenue Bonds (Visy Paper Inc. Project),
AMT, 7.40% due 1/01/2016 1,590
NR* NR* 2,000 Savannah, Georgia, EDA, IDR (Stone Container Corporation
Project), AMT, 7.40% due 4/01/2026 2,252
Hawaii -- 0.9% AA+ NR* 1,750 Hawaii State Department of Budget and Finance, Special
Purpose Mortgage Revenue Bonds (Citizens Utility
Company), RIB, AMT, Series 91-B, 9.305% due 11/01/2021
(g) 2,026
Illinois -- 5.9% BBB- Baa2 4,000 Chicago, Illinois, O'Hare International Airport, Special
Facilities Revenue Refunding Bonds (American Airlines
Inc. Project), 8.20% due 12/01/2024 4,895
NR* NR* 3,195 Illinois Development Finance Authority, Acquisition
Program Revenue Bonds (Prime Health Care Centers
Facilities), 7.75% due 12/01/2016 3,542
NR* NR* 2,000 Illinois Educational Facilities Authority Revenue Bonds
(Chicago Osteopathic Health System), 7.25% due
11/15/2019 (d) 2,487
NR* Baa1 1,250 Illinois Health Facilities Authority Revenue Bonds
(Holy Cross Hospital Project), 6.75% due 3/01/2024 1,370
BBB NR* 1,000 Lansing, Illinois, Tax Increment Revenue Refunding
Bonds (Sales Tax -- Landings Redevelopment), 7% due
12/01/2008 1,116
Indiana -- 2.3% A+ NR* 1,500 Indiana Bond Bank, Special Hospital Program (Hendricks
Community Hospital), Series A, 7.125% due 4/01/2013 1,657
BBB+ NR* 1,250 Indiana Health Facilities Financing Authority,
Hospital Revenue Refunding Bonds (Schneck Memorial --
Jackson County), 5.125% due 2/15/2017 1,215
A1+ Aaa 200 Rockport, Indiana, PCR, Refunding (AEP Generating Co.
Project), VRDN, Series A, 3.75% due 7/01/2025 (a)(e) 200
NR* NR* 2,000 Wabash, Indiana, Solid Waste Disposal Revenue Bonds
(Jefferson Smurfit Corporation Project), AMT, 7.50% due
6/01/2026 2,233
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 1,995
Kentucky -- 2.1% AAA Aaa 3,900 Louisville, Kentucky, Hospital Revenue Bonds, INFLOS,
9.319% due 10/30/2001 (b)(d)(g) 4,695
Louisiana -- 3.8% NR* A3 3,500 Lake Charles, Louisiana, Harbor and Terminal District,
Port Facilities Revenue Refunding Bonds (Trunkline LNG
Company Project), 7.75% due 8/15/2022 4,039
NR* A3 1,000 Louisiana Public Facilities Authority, Hospital Revenue
Bonds (Woman's Hospital Foundation Project), 7.25% due
10/01/2002 (d) 1,143
BB NR* 3,000 Port New Orleans, Louisiana, IDR, Refunding (Continental
Grain Company Project), 7.50% due 7/01/2013 3,384
Maryland -- 2.4% NR* NR* 5,000 Maryland State Energy Financing Administration, Limited
Obligation Revenue Bonds (Cogeneration -- AES Warrior
Run), AMT, 7.40% due 9/01/2019 5,542
Massachusetts -- 7.0% NR* NR* 1,145 Boston, Massachusetts, Industrial Development Financing
Authority, Solid Waste Disposal Facility Revenue Bonds
(Jet-A-Way Project), AMT, 10.50% due 1/01/2011 1,289
NR* Ba2 265 Lawrence, Massachusetts, GO, 9.875% due 12/15/1998 275
Massachusetts State Health and Educational Facilities
Authority Revenue Bonds:
NR* B 1,765 (New England Memorial Hospital Project), Series C,
7% due 4/01/2014 1,782
NR* NR* 305 (North Adams Regional Hospital), Issue B, 8% due
7/01/1998 308
NR* B2 3,000 Refunding (New England Memorial Hospital), Series B,
6.125% due 7/01/2013 2,825
Massachusetts State Industrial Finance Agency Revenue
Bonds:
NR* B1 1,675 (Bay Cove Human Services Inc.), 8.375% due 4/01/2019 1,912
BBB Ba1 1,600 (Vinfen Corporation), 7.10% due 11/15/2018 1,776
NR* NR* 5,000 Massachusetts State Port Authority, Special Project
Revenue Bonds (Harborside Hyatt), AMT, 10% due
3/01/2026 5,638
Michigan -- 0.1% A1+ VMIG1+ 300 University of Michigan, University Hospital Revenue
Bonds, VRDN, Series A, 3.65% due 12/01/2027 (a) 300
Mississippi -- 1.1% NR* NR* 2,375 Mississippi Development Bank, Special Obligation
Refunding Bonds (Diamond Lakes Utilities), Series A,
6.25% due 12/01/2017 2,428
Missouri -- 3.3% BBB+ NR* 2,755 Joplin, Missouri, IDA, Hospital Facilities Revenue
Refunding and Improvement Bonds (Tri-State
Osteopathic), 8.25% due 12/15/2001 (d) 3,167
BB NR* 3,690 Missouri State Health and Educational Facilities
Authority Revenue Bonds (Southwest Baptist University
Project), 9.50% due 10/01/2011 4,387
New Jersey -- 11.2% Camden County, New Jersey, Improvement Authority,
Lease Revenue Bonds (Holt Hauling & Warehousing),
Series A:
NR* NR* 4,600 9.625% due 1/01/2011 5,521
NR* NR* 2,000 9.875% due 1/01/2021 2,430
B- B2 4,000 Camden County, New Jersey, Pollution Control Financing
Authority, Solid Waste Resource Recovery Revenue Bonds,
Series D, 7.25% due 12/01/2010 4,063
NR* NR* 1,500 New Jersey EDA, IDR, Refunding (Newark Airport Marriott
Hotel), 7% due 10/01/2014 1,655
NR* NR* 1,000 New Jersey EDA, Revenue Bonds (Leisure Park Project),
Series A, 5.875% due 12/01/2027 1,016
New Jersey Health Care Facilities Financing Authority
Revenue Bonds (d):
NR* NR* 4,725 (Riverwood Center Issue), Series A, 9.90% due
7/01/2001 5,631
AAA Aaa 4,700 (Saint Elizabeth Hospital), Series B, 8.25% due
7/01/2000 5,210
New Mexico -- 1.9% BB+ Ba1 3,000 Farmington, New Mexico, PCR, Refunding (Public Service
Co.), Series B, 5.80% due 4/01/2022 3,090
B B2 1,000 Farmington, New Mexico, PCR (Tucson Electric Power
Co. -- San Juan), Series A, 6.95% due 10/01/2020 1,142
New York -- 3.7% BBB+ A3 310 New York City, New York, GO, UT, Series C, Sub-Series
C-1, 7.50% due 8/01/2021 350
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 1,136
NR* NR* 2,750 5th Installment, 6.75% due 10/01/2019 3,066
Utica, New York, Public Improvement Bonds, UT:
CCC B2 635 8.50% due 8/15/2007 732
CCC B2 635 8.50% due 8/15/2008 732
CCC B2 500 8.50% due 8/15/2009 577
CCC B2 500 8.50% due 8/15/2010 577
CCC B2 500 8.50% due 8/15/2011 577
CCC B2 500 8.50% due 8/15/2012 577
Ohio -- 4.0% BB- Ba2 5,000 Cleveland, Ohio, Airport Special Revenue Refunding
Bonds (Continental Airlines, Inc.), AMT, 5.70% due
12/01/2019 4,955
NR* NR* 2,500 Franklin County, Ohio, Health Care Facilities, Revenue
Refunding Bonds (Ohio Presbyterian Services), 5.50%
due 7/01/2017 2,476
AAA Aaa 1,500 Ohio HFA, S/F Mortgage Revenue Bonds, RIB, AMT, Series
A-2, 9.791% due 3/24/2031 (c)(g) 1,689
Oregon -- 2.4% NR* Baa2 2,000 Oregon State, Economic Development Revenue Refunding
Bonds (Pacific Corp. Project), 5.70% due 12/01/2025 2,071
NR* NR* 1,000 Western Generation Agency, Oregon, Cogeneration Project
Revenue Bonds (Wauna Cogeneration Project), AMT,
Series B, 7.40% due 1/01/2016 1,101
B+ NR* 1,955 Yamhill County, Oregon, PCR, Refunding (Smurfit
Newsprint Corporation Project), 8% due 12/01/2003 2,190
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 2,096
BBB- NR* 5,000 McKean County, Pennsylvania, Hospital Authority
Revenue Bonds (Bradford Hospital Project), 8.875% due
10/01/2020 5,661
Montgomery County, Pennsylvania, IDA, Revenue Bonds
(d):
NR* NR* 1,500 (1st Mortgage -- Meadowood Corporation Project),
Series A, 10.25% due 12/01/2000 1,765
NR* Ba3 3,400 (Pennsburg Nursing and Rehabilitation Center), 7.625%
due 3/31/2004 4,033
BBB- Baa2 2,500 Pennsylvania Economic Development Financing Authority,
Exempt Facilities Revenue Bonds (MacMillan Limited
Partnership Project), AMT, 7.60% due 12/01/2020 2,802
NR* NR* 5,000 Pennsylvania Economic Development Financing Authority,
Recycling Revenue Bonds (Ponderosa Fibres Project),
AMT, Series A, 9.25% due 1/01/2022 3,350
NR* NR* 5,000 Philadelphia, Pennsylvania, Authority for IDR,
Refunding (Commercial Development -- Philadelphia
Airport), AMT, 7.75% due 12/01/2017 5,648
A1+ VMIG1+ 2,700 Philadelphia, Pennsylvania, Hospitals and Higher
Education Facilities Authority, Hospital Revenue Bonds
(Children's Hospital Project), VRDN, Series A, 3.65%
due 3/01/2027 (a) 2,700
Tennessee -- 1.1% BBB Baa2 2,500 Memphis-Shelby County, Tennessee, Airport Authority,
Special Facilities and Projects, Revenue Refunding
Bonds (Federal Express Corporation), 5.35% due
9/01/2012 2,565
Texas -- 10.0% BBB- Baa2 3,000 Dallas-Fort Worth, Texas, International Airport
Facilities Improvement Corporation Revenue Bonds
(American Airlines, Inc.), AMT, 7.25% due 11/01/2030 3,370
A1+ NR* 1,100 Harris County, Texas, Health Facilities Development
Corporation, Hospital Revenue Refunding Bonds
(Methodist Hospital), VRDN, 3.65% due 12/01/2026 (a) 1,100
BB Ba2 3,000 Houston, Texas, Airport System Revenue Bonds, Special
Facilities (Continental Airlines Airport Improvement),
AMT, Series C, 6.125% due 7/15/2027 3,137
BB Ba1 4,650 Jefferson County, Texas, Health Facilities Development
Corporation, Hospital Revenue Bonds (Baptist Healthcare
System Project), 8.875% due 6/01/2021 4,905
B+ Ba1 4,500 Lower Colorado River Authority, Texas, PCR (Samsung
Austin Semiconductor), AMT, 6.375% due 4/01/2027 4,631
BB Ba2 3,270 Odessa, Texas, Junior College District, Revenue
Refunding Bonds, Series A, 8.125% due 12/01/2018 3,804
NR* VMIG1+ 100 Port Arthur, Texas, Navigational District, PCR,
Refunding (Texaco Incorporated Project), VRDN, 3.70%
due 10/01/2024 (a) 100
A1+ VMIG1+ 200 Sabine River Authority, Texas, PCR, Refunding (Texas
Utilities Project), VRDN, Series A, 3.65% due 3/01/2026
(a)(e) 200
NR* VMIG1+ 300 Southwest Texas, Higher Education Authority
Incorporated, Revenue Refunding Bonds (Southern
Methodist University), VRDN, 3.65% due 7/01/2015 (a) 300
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 -- 3.1% AAA Aaa 3,000 Salt Lake City, Utah, Hospital Revenue Refunding Bonds
(IHC Hospitals, Incorporated), INFLOS, 9.716% due
5/15/2020 (e)(g)(i) 3,555
NR* NR* 3,200 Toole County, Utah, PCR, Refunding (Laidlaw
Environmental), AMT, Series A, 7.55% due 7/01/2027 3,543
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 1,730
Virginia -- 1.0% NR* NR* 2,000 Pittsylvania County, Virginia, IDA, Multi-Trade
Revenue Bonds, AMT, Series A, 7.50% due 1/01/2014 2,215
------------
Total Investments (Cost -- $210,886) -- 102.3% 231,955
Liabilities in Excess of Other Assets -- (2.3%) (5,174)
------------
Net Assets -- 100.0% $226,781
============
(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, 1998.
(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, 1998.
(h) FSA Insured.
(i) Escrowed to Maturity.
* 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.
PORTFOLIO ABBREVIATIONS
To simplify the listing of Merrill Lynch High Income Muni-
cipal 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
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>
<TABLE>
<CAPTION>
FINANCIAL INFORMATION
Statement of Assets and Liabilities as of February 28, 1998
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $210,886,239) (Note 1a) $231,955,177
Cash 237,185
Receivables:
Interest $4,227,703
Capital shares sold 444,077
Securities sold 301,770 4,973,550
------------
Prepaid registration fees and other assets (Note 1e) 43,400
------------
Total assets 237,209,312
------------
Liabilities: Payables:
Securities purchased 9,695,543
Dividends to shareholders (Note 1f) 336,304
Investment adviser (Note 2) 165,588
Administration (Note 2) 43,576 10,241,011
------------
Accrued expenses and other liabilities 186,986
------------
Total liabilities 10,427,997
------------
Net Assets: Net assets $226,781,315
============
Net Assets Common stock, $.10 par value, 200,000,000 shares authorized $1,978,298
Consist of: Paid-in capital in excess of par 204,457,883
Accumulated realized capital losses on investments -- net (723,804)
Unrealized appreciation on investments -- net 21,068,938
------------
Net assets -- Equivalent to $11.46 per share based on 19,782,978 shares
of capital outstanding $226,781,315
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the Six Months Ended
February 28, 1998
<S> <C> <C>
Interest Income Interest and amortization of premium and discount earned $7,641,208
(Note 1d):
Expenses: Investment advisory fees (Note 2) 1,040,623
Administrative fees (Note 2) 273,848
Professional fees 58,743
Transfer agent fees (Note 2) 56,606
Advertising 31,296
Printing and shareholder reports 29,548
Accounting services (Note 2) 29,427
Listing fees 28,577
Registration fees (Note 1e) 23,294
Directors' fees and expenses 13,982
Custodian fees 9,993
Pricing services 6,929
Other 3,733
------------
Total expenses 1,606,599
------------
Investment income -- net 6,034,609
------------
Realized & Realized gain on investments -- net 977,862
Unrealized Gain on Change in unrealized appreciation on investments -- net 5,058,844
Investments -- Net ------------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations $12,071,315
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
For the Six For the
Months Ended Year Ended
February 28, August 31,
Increase (Decrease) in Net Assets: 1998 1997
<S> <C> <C> <C>
Operations: Investment income -- net $6,034,609 $11,970,201
Realized gain on investments -- net 977,862 4,093,259
Change in unrealized appreciation on investments -- net 5,058,844 4,045,233
------------ ------------
Net increase in net assets resulting from operations 12,071,315 20,108,693
------------ ------------
Dividends & Investment income -- net (6,034,609) (11,970,201)
Distributions to Realized gain on investments -- net (3,774,166) (680,014)
Shareholders ------------ ------------
(Note 1f): Net decrease in net assets resulting from dividends and
distributions to shareholders (9,808,775) (12,650,215)
------------ ------------
Capital Share Net increase in net assets derived from capital share transactions 12,898,640 4,609,228
Transactions ------------ ------------
(Note 4):
Net Assets: Total increase in net assets 15,161,180 12,067,706
Beginning of period 211,620,135 199,552,429
------------ ------------
End of period $226,781,315 $211,620,135
============ ============
See Notes to Financial Statements.
</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,
February 28, For the Year Ended August 31,
1998 1997 1996 1995 1994
Increase (Decrease) in Net Asset Value:
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $11.34 $10.94 $10.97 $10.92 $11.44
Operating --------- --------- --------- --------- ---------
Performance: Investment income -- net .31 .65 .66 .65 .65
Realized and unrealized gain (loss) on
investments -- net .32 .44 (.03) .23 (.45)
--------- --------- --------- --------- ---------
Total from investment operations .63 1.09 .63 .88 .20
--------- --------- --------- --------- ---------
Less dividends and distributions:
Investment income -- net (.31) (.65) (.66) (.65) (.65)
Realized gain on investments -- net (.20) (.04) -- (.15) (.07)
In excess of realized gain on
investments -- net -- -- -- (.03) --
--------- --------- --------- --------- ---------
Total dividends and distributions (.51) (.69) (.66) (.83) (.72)
--------- --------- --------- --------- ---------
Net asset value, end of period $11.46 $11.34 $10.94 $10.97 $10.92
========= ========= ========= ========= =========
Total Investment Based on net asset value per share 5.63%++++ 10.20% 5.81% 8.68% 1.75%
Return:** ========= ========= ========= ========= =========
Ratios to Average Expenses 1.47%* 1.44% 1.50% 1.52% 1.48%
Net Assets: ========= ========= ========= ========= =========
Investment income -- net 5.51%* 5.83% 5.90% 6.11% 5.81%
========= ========= ========= ========= =========
Supplemental Net assets, end of period (in thousands) $226,781 $211,620 $199,552 $198,575 $212,958
Data: ========= ========= ========= ========= =========
Portfolio turnover 13.39% 43.07% 28.54% 21.28% 28.51%
========= ========= ========= ========= =========
* 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, 1998
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 financial 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 and call 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, 1998, Merrill Lynch Funds
Distributor, Inc. ("MLFD") earned early withdrawal charges of
$19,282 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, 1998 were $46,126,310 and
$28,742,385, respectively.
Net realized gains for the six months ended February 28, 1998 and
net unrealized gains as of February 28, 1998 were as follows:
Realized Unrealized
Gains Gains
Long-term investments $977,862 $21,068,938
------------ ------------
Total $977,862 $21,068,938
============ ============
As of February 28, 1998, net unrealized appreciation for Federal
income tax purposes aggregated $21,068,938, of which $23,412,369
related to appreciated securities and $2,343,431 related to
depreciated securities. The aggregate cost of investments at
February 28, 1998 for Federal income tax purposes was $210,886,239.
4. Capital Shares Transactions:
Transactions in capital shares were as follows:
For the Six Months Ended Dollar
February 28, 1998 Shares Amount
Shares sold 1,726,208 $19,798,525
Shares issued to shareholders
in reinvestment of dividends
and distributions 372,007 4,258,191
------------ ------------
Total issued 2,098,215 24,056,716
Shares tendered (970,215) (11,158,076)
------------ ------------
Net increase 1,128,000 $12,898,640
============ ============
For the Year Ended Dollar
August 31, 1997 Shares Amount
Shares sold 2,126,310 $23,757,046
Shares issued to shareholders
in reinvestment of dividends
and distributions 447,856 4,995,614
------------ ------------
Total issued 2,574,166 28,752,660
Shares tendered (2,153,158) (24,143,432)
------------ ------------
Net increase 421,008 $4,609,228
============ ============
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. Sweeney, 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
