MERRILL LYNCH
HIGH INCOME
MUNICIPAL BOND
FUND, INC.
FUND LOGO
Annual Report
August 31, 1998
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
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
Printed on post-consumer recycled paper
Merrill Lynch High Income Municipal Bond Fund, Inc.
DEAR SHAREHOLDER
For the year ended August 31, 1998, Merrill Lynch High Income
Municipal Bond Fund, Inc. earned $0.613 per share income dividends.
This represents a net annualized yield of 5.36%, based on a month-
end per share net asset value of $11.46. Over the same period, the
Fund's total investment return was +8.43%, based on a change in per
share net asset value from $11.34 to $11.46, and assuming
reinvestment of $0.645 per share income dividends and $0.166 per
share capital gains distributions.
For the three-month period ended August 31, 1998, the Fund's total
investment return was +1.75%, based on a change in per share net
asset value from $11.41 to $11.46, and assuming reinvestment of
$0.148 per share income dividends.
The Municipal Market Environment
Long-term tax-exempt bond yields declined slightly during the three
months ending August 31, 1998. Throughout most of this year, foreign
economic factors have continued to outweigh US domestic
fundamentals. Thus far this year, the near absence of inflationary
pressures in the United States continued to support low interest
rates. Consistently strong domestic economic growth has caused some
investors to fear that the Federal Reserve Board would be forced
eventually to raise short-term interest rates. This action would be
taken to ensure that the US economy's present rate of growth would
decelerate before any inflationary pressures could develop. However,
the weakening financial conditions in many Asian countries, combined
with the currency devaluation in Russia, calmed investor concerns of
Federal Reserve Board intervention, and fixed-income bond prices
again moved higher. As measured by the Bond Buyer Revenue Bond
Index, long-term uninsured municipal bond yields fell approximately
15 basis points (0.15%) to end the quarter at 5.26%. As in late 1997
and early 1998, US Treasury bond yields benefited from a "flight to
quality" as foreign investors were drawn to the relative safe haven
of US Government securities. Additionally, the sharp US equity
market correction at the end of August triggered an additional
flight into US Treasury securities. Long-term US Treasury bond
yields declined approximately 60 basis points (0.60%) to end the
quarter at 5.21%.
Thus far in 1998, the municipal bond market has experienced
unexpectedly strong supply pressures. To a large extent, these
supply pressures have prevented tax-exempt bond yields from
declining as much as US Treasury bonds. During the first eight
months of 1998, almost $150 billion in new tax-exempt bonds were
underwritten, an increase of almost 40% compared to the same period
a year ago. During the most recent three months, municipalities
issued almost $75 billion in new securities, an increase of nearly
25% compared to the same three-month period in 1997.
However, the recent pace of new municipal bond issuance is unlikely
to be maintained. 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 for 1998 total municipal bond issuance are in
the $200 billion--$225 billion range. These estimates suggest that
recent supply pressures, which have lessened recently, are likely to
abate further later in the year.
The continued impact of the Asian financial crisis on the US
domestic economy's future growth remains unclear. Current Asian
economic conditions continue to reflect ongoing weakness. Recent
trade data indicated that reduced US exports to these countries
might have lowered US economic growth in the first half of 1998 by
as much as 2%. Since further trade deterioration is likely in the
coming months, we do not believe the Federal Reserve Board will be
willing to raise interest rates, barring a dramatic and unexpected
resurgence of domestic inflation.
Merrill Lynch High Income Municipal Bond Fund, Inc.
August 31, 1998
These factors suggest that over the near term, interest rates in
general are unlikely to rise by any appreciable amount. Recent
supply pressures have caused municipal bond yield ratios to rise
relative to US Treasury bond yields. At August 31, 1998, long-term
tax-exempt bond yields were at attractive yield ratios relative to
US Treasury securities of comparable maturities (over 90%), well in
excess of their expected range of 85%--88%. Tax-exempt bond yield
ratios have rarely exceeded 90% in the 1980s and 1990s. Previous
instances have usually been associated with potential changes in
Federal tax codes, which would have adversely affected the tax-
favored status of municipal bonds. The present situation has
developed largely because of a temporary supply imbalance. These
imbalances should soon be corrected as tax-exempt bond issuance
slows from its current rapid pace later this year. Any further
pressure on the municipal market may well represent a very
attractive opportunity.
Portfolio Strategy
During the quarter ended August 31, 1998, we continued our ongoing
investment strategy of placing an emphasis on solid credit and
attentive yield spread analyses rather than speculative interest
rate calls. In an effort to preserve shareholder income, we sought
to reduce or eliminate those holdings that possessed unattractive
redemption features. The majority of these sales took place at
substantial premiums to face value, thereby alleviating the
predicament of reinvesting at lower yields. Proceeds from the sales
of these holdings were reinvested in securities that offered more
favorable call protection and the potential to perform well in a
stable or declining interest rate environment.
Throughout the 12-month period ended August 31, 1998, probably the
most significant development affecting shareholders was the impact
that recent global economic and financial turmoil has had on credit
spreads in the fixed-income marketplace. As late as last spring,
credit spreads in the tax-exempt market reached unprecedented
levels, despite mounting evidence of a reversal in the trend toward
narrower spreads in the taxable corporate bond market. At present,
with the high-yield bond market in disarray because of growing
concern over corporate earnings prospects, the municipal high-yield
market has just begun to show signs of unrest. While a more muted
reaction seems probable in the municipal high-yield arena, it is
likely that ongoing credit concerns relating to the global economic
crisis will continue to have a broad-based impact on spreads across
the entire spectrum of fixed-income securities.
Consequently, we upgraded those portions of the Fund that we
believed were especially vulnerable to commodity price deflation and
ongoing deterioration of the global economy. Looking ahead, we
expect to continue these efforts and review prospective purchases
with this strategy in mind, especially in light of persistently high
valuations. Finally, we anticipate continued pressure in the high-
yield municipal market, and will base future investment decisions
accordingly.
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,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Senior Vice President
(Theodore R. Jaeckel Jr.)
Theodore R. Jaeckel Jr.
Vice President and Portfolio Manager
(John M. Loffredo)
John M. Loffredo
Vice President and Portfolio Manager
September 28, 1998
Merrill Lynch High Income Municipal Bond Fund, Inc.
August 31, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <S> <S> <S>
Alabama--1.7% B+ NR* $ 1,000 Brewton, Alabama, IDB, PCR, Refunding (Container
Corporation American Project), 8% due 4/01/2009 $ 1,134
CCC Ca 5,500 Mobile, Alabama, IDB, Solid Waste Disposal, Revenue
Refunding Bonds (Mobile Energy Services Co. Project),
6.95% due 1/01/2020 2,860
Arizona--6.0% 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 3,380
NR* B1 4,600 Phoenix, Arizona, IDA, Airport Facilities Revenue Refunding
Bonds (America West Airlines, Inc.), AMT, 6.30% due 4/01/2023 4,820
Pima County, Arizona, IDA, Revenue Bonds:
NR* NR* 1,235 (La Hacienda Project), 9.50% due 12/01/2016 1,436
B B2 3,500 (Tucson Electric Power Company Project), Series B,
6% due 9/01/2029 3,552
Sedona, Arizona, Wastewater Municipal Property Corporation,
Excise Tax Revenue Refunding Bonds (b):
AAA Aaa 1,510 5.20%** due 7/01/2021 483
AAA Aaa 1,310 5.24%** due 7/01/2023 379
Arkansas--0.5% NR* NR* 1,200 Little Rock, Arkansas, Capital Improvement Revenue Bonds
(Parks and Recreational Projects), Series A, 5.80% due 1/01/2023 1,212
California-- AAA Aaa 10,000 Foothill/Eastern Transportation Corridor Agency, California,
1.4% Toll Road Revenue Bonds (Senior Lien), Series A, 5.775%**
due 1/01/2028 (h) 2,297
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--4.6% NR* NR* 1,700 Colorado Post-Secondary 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 2,524
AAA NR* 500 Series A, 7.25% due 11/15/2002 (d) 573
NR* NR* 3,000 Denver, Colorado, Urban Renewal Authority, Tax Increment
Revenue Bonds (Downtown Denver), AMT, Series A, 7.75%
due 9/01/2017 3,356
</TABLE>
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
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
Merrill Lynch High Income Municipal Bond Fund, Inc.
August 31, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <S> <S> <S>
Colorado Mountain Village Metropolitan District, Colorado,
(concluded) Refunding Bonds (San Miguel County), UT:
NR* NR* $ 1,350 8.10% due 12/01/2002 (d) $ 1,579
NR* NR* 650 8.10% due 12/01/2011 744
Connecticut NR* NR* 1,500 Connecticut State Health and Educational Facilities
- --1.6% Authority Revenue Bonds (Edgehill Issue), Series A,
6.875% due 7/01/2027 1,620
NR* B1 1,830 New Haven, Connecticut, Facilities Revenue Bonds
(Hill Health Corporation Project), 9.25% due 5/01/2017 2,036
Florida--2.2% NR* NR* 1,000 Arbor Greene, Florida, Community Development District,
Special Assessment Revenue Bonds, 7.60% due 5/01/2018 1,089
A1+ VMIG1++ 1,700 Dade County, Florida, IDA, PCR, Refunding (Florida Power &
Light Company Project), VRDN, AMT, 3.60% due 4/01/2020 (a) 1,700
NR* NR* 1,000 Grand Haven Community Development District, Florida,
Special Assessment, Series B, 6.90% due 5/01/2019 1,039
BBB NR* 960 Jacksonville, Florida, Port Authority, IDR, Refunding
(United States Gypsum Company Project), 7.25% due 10/01/2014 1,091
A1+ VMIG1++ 300 Manatee County, Florida, PCR, Refunding (Florida Power &
Light Co. Project), VRDN, 3.70% due 9/01/2024 (a) 300
Georgia--3.9% NR* Aaa 2,450 Atlanta, Georgia, Urban Residential Finance Authority,
College Facilities Revenue Bonds (Morris Brown College
Project), 9.50% due 12/01/2001 (d) 2,933
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 2,090
NR* NR* 1,950 Hancock County, Georgia, COP, 8.50% due 4/01/2015 2,253
NR* NR* 1,430 Rockdale County, Georgia, Development Authority, Solid Waste
Disposal Revenue Bonds (Visy Paper Inc. Project), AMT,
7.40% due 1/01/2016 1,551
Illinois--5.8% 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 4,793
NR* NR* 3,195 Illinois Development Finance Authority, Acquisition Program
Revenue Bonds (Prime Health Care Centers Facilities),
7.75% due 12/01/2016 3,586
NR* NR* 2,000 Illinois Educational Facilities Authority Revenue Bonds
(Chicago Osteopathic Health System), 7.25% due 11/15/2019 (d) 2,528
NR* Baa1 1,250 Illinois Health Facilities Authority Revenue Bonds (Holy Cross
Hospital Project), 6.75% due 3/01/2024 1,373
BBB NR* 1,000 Lansing, Illinois, Tax Increment Revenue Refunding Bonds
(Sales Tax--Landings Redevelopment), 7% due 12/01/2008 1,114
Indiana--1.9% A+ NR* 1,500 Indiana Bond Bank, Special Hospital Program (Hendricks
Community Hospital), Series A, 7.125% due 4/01/2013 1,655
AAA Aaa 2,665 Indianapolis, Indiana, Gas Utility Revenue Refunding Bonds
(Distribution Systems), Series A, 5% due 8/15/2024 (e) 2,619
A1+ Aaa 200 Rockport, Indiana, PCR, Refunding (AEP Generating Co.
Project), VRDN, Series A, 3.70% due 7/01/2025 (a)(e) 200
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 2,029
Kentucky--2.0% AAA Aaa 3,900 Louisville, Kentucky, Hospital Revenue Bonds, INFLOS,
9.161% due 10/30/2001 (b)(d)(g) 4,665
</TABLE>
Merrill Lynch High Income Municipal Bond Fund, Inc.
August 31, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <S> <S> <S>
Louisiana--3.1% 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 $ 4,022
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 5,562
Massachusetts NR* NR* 1,145 Boston, Massachusetts, Industrial Development Financing
- --6.6% Authority, Solid Waste Disposal Facility Revenue Bonds
(Jet-A-Way Project), AMT, 10.50% due 1/01/2011 1,277
NR* Ba2 265 Lawrence, Massachusetts, GO, 9.875% due 12/15/1998 269
Massachusetts State Health and Educational Facilities Authority
Revenue Bonds (New England Memorial Hospital Project):
NR* Caa 3,000 Refunding, Series B, 6.125% due 7/01/2013 2,892
NR* B 1,720 Series C, 7% due 4/01/2014 1,770
Massachusetts State Industrial Finance Agency Revenue Bonds:
NR* Ba2 1,675 (Bay Cove Human Services Inc.), 8.375% due 4/01/2019 1,984
BBB Ba1 1,600 (Vinfen Corporation), 7.10% due 11/15/2018 1,775
NR* NR* 5,000 Massachusetts State Port Authority, Special Project Revenue
Bonds (Harborside Hyatt), AMT, 10% due 3/01/2026 5,571
Mississippi-- NR* NR* 2,375 Mississippi Development Bank, Special Obligation Refunding
1.1% Bonds (Diamond Lakes Utilities), Series A, 6.25% due 12/01/2017 2,455
New Jersey-- Camden County, New Jersey, Improvement Authority, Lease
12.0% Revenue Bonds (Holt Hauling & Warehousing), Series A:
BB- NR* 4,600 9.625% due 1/01/2011 5,791
BB- NR* 2,000 9.875% due 1/01/2021 2,548
Camden County, New Jersey, Pollution Control Financing
Authority, Solid Waste Resource Recovery Revenue Bonds:
B- B2 6,000 AMT, Series A, 7.50% due 12/01/2010 6,004
B- B2 4,000 Series D, 7.25% due 12/01/2010 4,032
NR* NR* 2,000 New Jersey EDA, First Mortgage Revenue Bonds
(Franciscan Oaks Project), 5.75% due 10/01/2023 2,042
NR* NR* 1,500 New Jersey EDA, IDR, Refunding (Newark Airport Marriott Hotel),
7% due 10/01/2014 1,670
NR* NR* 3,750 New Jersey EDA, Revenue Bonds (Kapkowski Road Landfill),
Series A, 6.375% due 4/01/2031 3,750
BB- Ba2 2,000 New Jersey EDA, Special Facility Revenue Bonds (Continental
Airlines Inc. Project), AMT, 5.50% due 4/01/2028 2,012
New Mexico--2.9% Farmington, New Mexico, PCR, Refunding (Public Service Co.):
BB+ Ba1 4,500 Series B, 5.80% due 4/01/2022 4,633
BB+ Ba1 1,000 Series C, 5.80% due 4/01/2022 1,025
B B2 1,000 Farmington, New Mexico, PCR (Tucson Electric Power Co.--
San Juan), Series A, 6.95% due 10/01/2020 1,127
New York--4.4% A- 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 3,043
NR* NR* 2,000 Utica, New York, IDA, Civic Facilities Revenue Bonds
(Utica College Project), Series A, 5.75% due 8/01/2028 2,021
</TABLE>
Merrill Lynch High Income Municipal Bond Fund, Inc.
August 31, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <S> <S> <S>
New York Utica, New York, Public Improvement Bonds, UT:
(concluded) CCC B2 $ 635 8.50% due 8/15/2007 $ 744
CCC B2 635 8.50% due 8/15/2008 744
CCC B2 500 8.50% due 8/15/2009 586
CCC B2 500 8.50% due 8/15/2010 585
CCC B2 500 8.50% due 8/15/2011 585
CCC B2 500 8.50% due 8/15/2012 585
Ohio--5.2% BB- Ba2 5,000 Cleveland, Ohio, Airport Special Revenue Refunding Bonds
(Continental Airlines, Inc.), AMT, 5.70% due 12/01/2019 (j) 5,017
NR* NR* 2,500 Franklin County, Ohio, Health Care Facilities, Revenue
Refunding Bonds (Ohio Presbyterian Services), 5.50%
due 7/01/2017 2,516
AAA Aaa 1,500 Ohio HFA, S/F Mortgage Revenue Bonds, RIB, AMT, Series A-2,
9.821% due 3/24/2031 (c)(g) 1,684
NR* NR* 3,000 Ohio State Water Development Authority, Solid Waste Disposal
Revenue Bonds (Bay Shore Power Project), AMT, Series A,
5.875% due 9/01/2020 3,060
Oregon--2.3% NR* Baa2 2,000 Oregon State, Economic Development Revenue Refunding Bonds
(Georgia Pacific Corporation Project), Series 183, 5.70%
due 12/01/2025 2,081
NR* NR* 1,000 Western Generation Agency, Oregon, Cogeneration Project
Revenue Bonds (Wauna Cogeneration Project), AMT, Series B,
7.40% due 1/01/2016 1,103
B+ NR* 1,955 Yamhill County, Oregon, PCR, Refunding (Smurfit Newsprint
Corporate Project), 8% due 12/01/2003 2,187
Pennsylvania-- Lehigh County, Pennsylvania, General Purpose Authority
10.5% Revenue Bonds:
NR* NR* 2,000 Refunding (Kidspeace Obligation Group), 6% due 11/01/2023 2,000
NR* NR* 2,000 (Wiley House Kids Peace), 8.75% due 11/01/1999 (d) 2,155
BBB- NR* 5,000 McKean County, Pennsylvania, Hospital Authority Revenue Bonds
(Bradford Hospital Project), 8.875% due 10/01/2020 5,581
BBB- Baa2 2,500 Pennsylvania Economic Development Financing Authority,
Exempt Facilities Revenue Bonds (MacMillan Limited
Partnership Project), AMT, 7.60% due 12/01/2020 2,776
NR* NR* 5,000 Pennsylvania Economic Development Financing Authority,
Recycling Revenue Bonds (Ponderosa Fibres Project), AMT,
Series A, 9.25% due 1/01/2022 3,600
NR* NR* 1,625 Philadelphia, Pennsylvania, Authority for IDR, Health Care
Facilities Revenue Bonds (Pauls Run), Series A, 5.875%
due 5/15/2028 1,646
NR* NR* 5,000 Philadelphia, Pennsylvania, Authority for IDR, Refunding
(Commercial Development--Philadelphia Airport),
AMT, 7.75% due 12/01/2017 5,657
A1+ VMIG1++ 900 Philadelphia, Pennsylvania, Hospitals and Higher Education
Facilities Authority, Hospital Revenue Bonds (Children's
Hospital of Philadelphia Project), VRDN, Series A, 3.65%
due 3/01/2027 (a) 900
A1+ NR* 200 Schuylkill County, Pennsylvania, IDA, Resource Recovery
Revenue Refunding Bonds (Northeastern Power Company),
VRDN, Series A, 3.70% due 12/01/2022 (a) 200
South NR* NR* 3,200 South Carolina Jobs EDA, Health Facilities Revenue Refunding
Carolina--1.4% Bonds (First Mortgage--Lutheran Homes), 5.65% due 5/01/2018 3,190
</TABLE>
Merrill Lynch High Income Municipal Bond Fund, Inc.
August 31, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <S> <S> <S>
Texas--7.6% 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 $ 3,333
A1+ NR* 500 Harris County, Texas, Health Facilities Development Corporation,
Hospital Revenue Bonds (Methodist Hospital), VRDN, 3.65%
due 12/01/2025 (a) 500
BB Baa3 3,000 Houston, Texas, Airport System Revenue Bonds, Special Facilities
(Continental Airlines Airport Improvement), AMT, Series C,
6.125% due 7/15/2027 3,160
BB- Ba1 6,500 Lower Colorado River Authority, Texas, PCR (Samsung Austin
Semiconductor), AMT, 6.375% due 4/01/2027 6,821
BBB Aaa 3,270 Odessa, Texas, Junior College District, Revenue Refunding
Bonds, Series A, 8.125% due 6/01/2005 (d) 4,052
NR* VMIG1++ 100 Port Arthur, Texas, Navigational District, PCR, Refunding
(Texaco Incorporated Project), VRDN, 3.70% due 10/01/2024 (a) 100
Utah--3.0% AAA Aaa 3,000 Salt Lake City, Utah, Hospital Revenue Refunding Bonds
(IHC Hospitals, Incorporated), INFLOS, 9.768% due
5/15/2020 (e)(g)(i) 3,540
NR* NR* 3,200 Tooele County, Utah, PCR, Refunding (Laidlaw Environmental),
AMT, Series A, 7.55% due 7/01/2027 3,565
Vermont--0.7% 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 1,735
Virginia--5.9% NR* NR* 2,500 Dulles Town Center Community Development Authority, Virginia,
Special Assessment Tax Bonds (Dulles Town Center Project),
6.25% due 3/01/2026 2,550
NR* NR* 2,000 Pittsylvania County, Virginia, IDA, Multi-Trade Revenue Bonds,
AMT, Series A, 7.50% due 1/01/2014 2,220
Pocahontas Parkway Association, Virginia, Connector Toll Road
Revenue Bonds (Route 895):
NR* Ba1 5,500 First Tier, Sub-Series C, 6.25%** due 8/15/2027 941
NR* Ba1 9,000 First Tier, Sub-Series C, 6.25%** due 8/15/2035 941
BBB- Baa3 48,400 Senior Series B, 5.95%** due 8/15/2031 7,149
Total Investments (Cost--$221,351)--101.6% 237,350
Liabilities in Excess of Other Assets--(1.6%) (3,637)
--------
Net Assets--100.0% $233,713
========
<FN>
(a)The interest rate is subject to change periodically based upon
the prevailing market rate. The interest rate shown is the rate in
effect at August 31, 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 August 31, 1998.
(h)FSA Insured.
(i)Escrowed to maturity.
(j)This issue will begin to accrue interest on September 2, 1999.
*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>
Merrill Lynch High Income Municipal Bond Fund, Inc.
August 31, 1998
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of August 31, 1998
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$221,351,279) (Note 1a) $237,349,661
Cash 11,422
Receivables:
Interest $ 4,289,292
Capital shares sold 259,155
Securities sold 24,735 4,573,182
------------
Prepaid registration fees and other assets (Note 1e) 11,741
------------
Total assets 241,946,006
------------
Liabilities: Payables:
Securities purchased 7,528,018
Dividends to shareholders (Note 1f) 349,726
Investment adviser (Note 2) 176,825
Administration (Note 2) 46,533 8,101,102
------------
Accrued expenses and other liabilities 131,996
------------
Total liabilities 8,233,098
------------
Net Assets: Net assets $233,712,908
============
Net Assets Common stock, $.10 par value, 200,000,000 shares authorized $ 2,040,007
Consist of: Paid-in capital in excess of par 211,463,225
Undistributed realized capital gains on investments--net 4,211,294
Unrealized appreciation on investments--net 15,998,382
------------
Net assets--Equivalent to $11.46 per share based on 20,400,072 shares of
capital outstanding $233,712,908
============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch High Income Municipal Bond Fund, Inc.
August 31, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Year Ended
August 31, 1998
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 15,444,485
(Note 1d):
Expenses: Investment advisory fees (Note 2) $ 2,144,677
Administrative fees (Note 2) 564,389
Professional fees 129,192
Transfer agent fees (Note 2) 108,285
Printing and shareholder reports 85,183
Advertising 68,007
Accounting services (Note 2) 60,910
Registration fees (Note 1e) 53,341
Listing fees 42,491
Directors' fees and expenses 28,561
Custodian fees 21,965
Pricing services 16,312
Other 7,711
------------
Total expenses 3,331,024
------------
Investment income--net 12,113,461
------------
Realized & Realized gain on investments--net 5,912,960
Unrealized Change in unrealized appreciation on investments--net (11,712)
Gain (Loss) on ------------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 18,014,709
(Notes 1b, 1d & 3): ============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch High Income Municipal Bond Fund, Inc.
August 31, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year
Ended August 31,
Increase (Decrease) in Net Assets: 1998 1997
<S> <S> <C> <C>
Operations: Investment income--net $ 12,113,461 $ 11,970,201
Realized gain on investments--net 5,912,960 4,093,259
Change in unrealized appreciation on investments--net (11,712) 4,045,233
------------ ------------
Net increase in net assets resulting from operations 18,014,709 20,108,693
------------ ------------
Dividends & Investment income--net (12,113,461) (11,970,201)
Distributions to Realized gain on investments--net (3,774,165) (680,014)
Shareholders ------------ ------------
(Note 1f): Net decrease in net assets resulting from dividends
and distributions to shareholders (15,887,626) (12,650,215)
------------ ------------
Capital Share Net increase in net assets derived from capital
Transactions shares transactions 19,965,690 4,609,228
(Note 4): ------------ ------------
Net Assets: Total increase in net assets 22,092,773 12,067,706
Beginning of year 211,620,135 199,552,429
------------ ------------
End of year $233,712,908 $211,620,135
============ ============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch High Income Municipal Bond Fund, Inc.
August 31, 1998
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: 1998 1997 1996 1995 1994
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 11.34 $ 10.94 $ 10.97 $ 10.92 $ 11.44
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .61 .65 .66 .65 .65
Realized and unrealized gain (loss) on
investments--net .32 .44 (.03) .23 (.45)
-------- -------- -------- -------- --------
Total from investment operations .93 1.09 .63 .88 .20
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.61) (.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 (.81) (.69) (.66) (.83) (.72)
-------- -------- -------- -------- --------
Net asset value, end of year $ 11.46 $ 11.34 $ 10.94 $ 10.97 $ 10.92
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 8.43% 10.20% 5.81% 8.68% 1.75%
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses 1.48% 1.44% 1.50% 1.52% 1.48%
Net Assets: ======== ======== ======== ======== ========
Investment income--net 5.37% 5.83% 5.90% 6.11% 5.81%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $233,713 $211,620 $199,552 $198,575 $212,958
Data: ======== ======== ======== ======== ========
Portfolio turnover 36.45% 43.07% 28.54% 21.28% 28.51%
======== ======== ======== ======== ========
<FN>
*Total investment returns exclude the effect 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.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch High Income Municipal Bond Fund, Inc.
August 31, 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. 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
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.
* 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.
Merrill Lynch High Income Municipal Bond Fund, Inc.
August 31, 1998
(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 year ended August 31, 1998, Merrill Lynch Funds Distributor
("MLFD"), a division of Princeton Funds Distributor, Inc. ("PFD"),
which is a wholly-owned subsidiary of Merrill Lynch Group, Inc.,
earned early withdrawal charges of $50,316 relating to the tender of
the Fund's shares.
Financial Data Services, Inc. ("FDS"), 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, FDS, PFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended August 31, 1998 were $105,326,726 and
$80,873,778, respectively.
Net realized gains for the year ended August 31, 1998 and net
unrealized gains as of August 31, 1998 were as follows:
Realized Unrealized
Gains Gains
Long-term investments $5,912,960 $ 15,998,382
---------- ------------
Total $5,912,960 $ 15,998,382
========== ============
As of August 31, 1998, net unrealized appreciation for Federal
income tax purposes aggregated $15,998,382, of which $19,930,612
related to appreciated securities and $3,932,230 related to
depreciated securities. The aggregate cost of investments at August
31, 1998 for Federal income tax purposes was $221,351,279.
4. Capital Shares Transactions:
Transactions in capital shares were as follows:
For the Year Ended Dollar
August 31, 1998 Shares Amount
Shares sold 3,217,057 $ 36,818,498
Shares issued to share-
holders in reinvestment of
dividends and distributions 584,495 6,683,580
------------ ------------
Total issued 3,801,552 43,502,078
Shares tendered (2,056,458) (23,536,388)
------------ ------------
Net increase 1,745,094 $ 19,965,690
============ ============
For the Year Ended Dollar
August 31, 1997 Shares Amount
Shares sold 2,126,310 $23,757,046
Shares issued to share-
holders 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
============ ============
Merrill Lynch High Income Municipal Bond Fund, Inc.
August 31, 1998
<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, 1998, 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.
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, 1998 by correspondence with the custodian and brokers. 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,
1998, 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
October 8, 1998
</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, 1998 qualify as tax-exempt interest
dividends for Federal income tax purposes.
Additionally, the following table summarizes the taxable
distributions by the Fund during the year:
Ordinary Short-Term Long-Term
Record Payable Taxable Capital Capital
Date Date Income Gains Gains
12/22/97 12/31/97 $.000022 $.030430 $.166433*
[FN]
*Of this long-term capital gain distribution, 38.27% is subject to
the 28% tax rate and 61.73% is subject to the 20% tax rate.
Please retain this information for your records.
Merrill Lynch High Income Municipal Bond Fund, Inc.
August 31, 1998
QUALITY PROFILE (unaudited)
The quality ratings of securities in the Fund as of August 31, 1998
were as follows:
Percent of
S&P Rating/Moody's Rating Net Assets
AAA/Aaa 9.9%
A/A 2.6
BBB/Baa 15.7
BB/Ba 15.1
B/B 14.5
CCC/Caa 2.5
NR (Not Rated) 39.6
Other++ 1.7
[FN]
++Temporary investments in short-term municipal securities.
ABOUT INVERSE FLOATERS
As a part of its investment strategy, the Fund may invest in certain
securities whose potential income return is inversely related to
changes in a floating interest rate ("inverse floaters"). In
general, interest rates on inverse floaters will decrease when short-
term interest rates increase and increase when short-term interest
rates decrease. Investments in inverse floaters may be characterized
as derivative securities and may subject the Fund to the risks of
reduced or eliminated interest payments and losses of invested
principal. In addition, inverse floaters have the effect of
providing investment leverage and, as a result, the market value of
such securities will generally be more volatile than that of fixed
rate, tax-exempt securities. To the extent the Fund invests in
inverse securities, the market value of the Fund's portfolio and the
net asset value of the Fund's shares may also be more volatile than
if the Fund did not invest in such securities.
