MERRILL LYNCH
HIGH INCOME
MUNICIPAL BOND
FUND, INC.
FUND LOGO
Quarterly Report
May 31, 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
Printed on post-consumer recycled paper
Merrill Lynch High Income Municipal Bond Fund, Inc.
DEAR SHAREHOLDER
For the three-month period ended May 31, 1998, Merrill Lynch High
Income Municipal Bond Fund, Inc. earned $0.151 per share income
dividends. This represents a net annualized yield of 5.31%, based on
a month-end per share net asset value of $11.41. Over the same
period, the Fund's total investment return was +0.89%, based on a
change in per share net asset value from $11.46 to $11.41, and
assuming reinvestment of $0.152 per share income dividends.
The Municipal Market Environment
During the quarter ended May 31, 1998, long-term tax-exempt revenue
bond yields were little changed. Throughout the quarter, the near
absence of any inflationary pressures continued to support low
interest rates. Consistently strong domestic economic growth,
however, has caused some investors to worry that the Federal Reserve
Board will be forced to raise short-term interest rates by early
summer. Such action would be taken to ensure that the US economy's
present rate of growth would decelerate before any inflationary
pressures could develop. During the quarter, these concerns served
to push bond yields modestly higher by late April.
However, throughout May, renewed concerns regarding weakening Asian
financial conditions in Indonesia and South Korea as well as in
Japan calmed market fears 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
rose less than 5 basis points (0.05%) to end the May quarter at
5.39%. 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 status of US Government securities. Long-
term Treasury bond yields declined approximately 10 basis points to
end the quarter at 5.80%.
Thus far in 1998, the municipal bond market has experienced
unexpectedly strong supply pressures. These supply pressures have
prevented tax-exempt bond yields from declining as much as US
Treasury bonds. Over the last six months, more than $135 billion in
new tax-exempt bonds were underwritten, an increase of more than 45%
compared to the same period a year ago. During the May quarter,
municipalities issued more than $72 billion in new securities, an
increase of more than 45% compared to the same three-month period in
1997. Additionally, corporate issuers have also viewed current
interest rate levels as an opportunity to issue significant amounts
of higher nominal-yielding taxable securities. Thus far in 1998,
over $400 billion in investment-grade corporate bonds have been
underwritten, an increase of more than 75% compared to the same
period a year ago. This sizable corporate bond issuance has tended
to support generally higher fixed-income yields and reduce the
demand for tax-exempt bonds.
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
presently in the $200 billion to $225 billion range. These estimates
suggest that recent supply pressures are likely to abate later in
the year. Earlier this year, municipal bond investors received
approximately $30 billion in coupon payments, bond maturities and
proceeds from early redemptions. The demand generated by these
assets has helped to offset the increase in supply seen thus far
this year. Looking forward, June and July have also tended to be
periods of strong investor demand as seasonal factors generate
strong income flows similar to those seen earlier this year.
It is also possible that at least some of the recent economic
strength seen in the United States will be reversed in the coming
months. A particularly mild winter has been partially responsible
for a strong housing sector, as well as supporting other
construction industries. This past winter's economic strength may
have borrowed from future quarters' growth. This recent strong trend
may not be sustained and may lead to weaker construction growth
later this year. Additionally, strong economic growth in 1997 and
the increased use of electronic tax filings have resulted in larger
and earlier Federal and state income tax refunds to many
individuals. These refunds appear to have supported strong consumer
spending in recent months, but may be borrowing against weaker
spending later this year.
Merrill Lynch High Income Municipal Bond Fund, Inc.
May 31, 1998
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 has indicated that reduced US exports to these countries
may have lowered US economic growth by as much as 2% in the first
quarter of 1998. Since further trade deterioration is possible in
the coming months, we do not believe, barring a dramatic and
unexpected resurgence in domestic inflation, that the Federal
Reserve Board will be willing to raise interest rates until the full
impact of the Asian situation can be established.
These factors suggest that over the near term, interest rates,
including tax-exempt bond yields, 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
May 31, 1998, long-term tax-exempt bond yields were at attractive
yield ratios relative to comparable US Treasury securities (over
90%), well in excess of their expected range of 85%--88%. Any
further pressure on the municipal market may well represent a very
attractive investment opportunity.
Portfolio Strategy
During the quarter ended May 31, 1998, Merrill Lynch High Income
Municipal Bond Fund, Inc. continued to exhibit stability and
provided a competitive stream of tax-exempt income. Our investment
strategy continues to be guided by an emphasis on solid credit and
attentive yield spread analyses rather than speculative interest
rate calls. Typically, we have chosen to keep the Fund fully
invested in an effort to enhance the potential income stream; and,
clearly, this approach proved beneficial in light of the stable bond
market environment during the quarter.
In the past, we have witnessed increasingly narrow credit spreads
and the resulting lack of value in the high-yield municipal market.
Our investment approach has clearly been impacted by these
developments, as evidenced by the recent retrenchment from our
emphasis on the healthcare sector. Yield spread contraction was most
pronounced in this industry, and given the illiquidity typical of
many small healthcare issuers, we chose to reduce our exposure. As a
result, few true opportunities exist in the current marketplace and,
as a consequence, we believe a high degree of caution is mandated by
the low risk/reward ratio. While much of our focus will shift to
more liquid and widely held issues, we still expect to continue to
search the marketplace for the increasingly rare opportunity that
offers both incremental yield and upside potential.
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
June 29, 1998
Merrill Lynch High Income Municipal Bond Fund, Inc.
May 31, 1998
PORTFOLIO COMPOSITION
For the Quarter Ended May 31, 1998
Top Ten States*
Pennsylvania 11.12%
Texas 10.23
New Jersey 8.82
Massachusetts 6.88
Illinois 5.82
Arizona 5.72
Colorado 5.43
Ohio 5.28
Louisiana 4.72
Georgia 3.85
-------
Total Top Ten 67.87
Total Others 32.13
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Total Portfolio 100.00%
=======
Net assets as of May 31, 1998 were $229,384,233.
Quality Ratings*
(Based on Nationally Recognized Rating Services)
A pie chart illustrating the following percentages:
AAA/Aaa 11%
A/A 3%
BBB/Baa 15%
BB/Ba 20%
B/B 14%
NR++ 35%
Other++++ 2%
[FN]
*Based on total market value of the portfolio as of May 31, 1998.
++Not Rated.
++++Temporary investments in short-term municipal securities.
OFFICERS AND DIRECTORS
ArthurZeikel, 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
