MERRILL LYNCH
HIGH INCOME
MUNICIPAL BOND
FUND, INC.
FUND LOGO
Annual Report
August 31, 1999
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, 1999, Merrill Lynch High Income
Municipal Bond Fund, Inc. earned $0.553 per share income dividends,
representing a net annualized yield of 5.40%, based on a month-end
per share net asset value of $10.24. During the same period, the
Fund's total investment return was -3.16%, based on a change in per
share net asset value from $11.46 to $10.24, and assuming
reinvestment of $0.616 per share ordinary income dividends and
$0.263 per share capital gains distributions.
For the three-month period ended August 31, 1999, the Fund's total
investment return was -3.43%, based on a change in per share net
asset value from $10.75 to $10.24, and assuming reinvestment of
$0.140 per share income dividends.
The Municipal Market Environment
During the three months ended August 31, 1999, long-term bond yields
rose significantly. Steady US economic growth combined with
improvement in foreign economies and inflation concerns put upward
pressure on bond yields throughout the period. Continued strong US
employment growth, particularly the decline in the US unemployment
rate to 4.2% in early June, was among the reasons the Federal
Reserve Board cited for raising short-term interest rates in late
June. US Treasury bond yields reacted by climbing above 6.25% by mid-
August before improving somewhat to 6.06% by August 31, 1999. During
the last three months, yields on long-term US Treasury securities
increased approximately 25 basis points (0.25%).
Long-term tax-exempt bond yields also rose during the last three
months. Until early May, the municipal bond market had been able to
withstand much of the upward pressure on bond yields. However,
investor concerns regarding ongoing US economic strength and the
fear of additional moves by the Federal Reserve Board eventually
pushed municipal bond yields higher. During the period, yields on
long-term tax-exempt revenue bonds rose more than 40 basis points to
5.83%, as measured by the Bond Buyer Revenue Bond Index.
While the tax-exempt market has slightly underperformed its taxable
counterpart in recent months, technical conditions are helping to
support municipal bond prices. During the last six months, more than
$115 billion in long-term municipal bonds was underwritten, a
decrease of more than 20% compared to the same period a year ago.
During the past three months, almost $60 billion in municipal bonds
was underwritten. This quarterly issuance represents a decline of
approximately 20% compared to the same three-month period in 1998.
Recently, the supply of new municipal bonds slowed even further.
Total issuance in August 1999 of $14 billion was nearly 40% lower
than August 1998 levels. Additionally, in June and July, investors
received more than $40 billion in coupon income and proceeds from
bond maturities and early bond redemptions. These proceeds have
generated significant retail investor interest, easily absorbing the
recent diminished supply.
The recent relative underperformance of the municipal bond market
has generated very attractive tax-exempt bond yield ratios, similar
to those that were available at the end of 1998. In December 1998,
long-term, uninsured municipal bond yields were higher than those of
their taxable counterparts. Historically, long-term tax-exempt bond
yields have been approximately 82%--85% of long-term US Treasury
bond yields. Municipal bond yields rose at a faster rate in recent
months than US Treasury bond yields, causing the yield ratio to
increase. At May 31, 1999, long-term municipal bond yields were
approximately 92% of their taxable counterparts. At August 31, 1999,
long-term uninsured tax-exempt bond yields were approximately 96% of
US Treasury bonds. Current ratios, while lower than those available
at the end of 1998, still represent historically attractive levels.
Looking ahead, it appears to us that long-term municipal bond yields
will trade in a relatively tight range near current levels. Strong
US economic performance is being balanced by nearly negligible
inflation readings, as well as improvements in productivity in both
manufacturing and service industries. We believe that future moves
by the Federal Reserve Board have largely been discounted by bond
investors and are to a great extent reflected in present bond
yields.
Any improvement in bond prices is likely to be contingent upon
weakening in both US employment growth and consumer spending. The
100 basis point rise in US Treasury bond yields seen thus far this
year is likely to negatively affect US economic growth. The US
housing market will be among the first sectors likely to be
affected, as some declines have already been evidenced because of
higher mortgage rates. We believe it is also unrealistic to expect
double-digit returns in US equity markets to continue indefinitely.
Much of the US consumer's wealth is tied to recent stock market
appreciation. Any slowing in these incredible growth rates is likely
to reduce consumer spending. We believe that these factors suggest
that the worst of the recent increase in bond yields has passed and
stable, if not slightly improving, bond prices may be expected.
Merrill Lynch High Income Municipal Bond Fund, Inc.
August 31, 1999
Portfolio Strategy
Credit spreads within the municipal market reverted to their
historically narrow levels during the past 12 months since the
financial markets have stabilized. Corporate-related tax-exempt debt
benefited the most as a rebound in commodity prices and robust
economic growth contributed to growing optimism over earnings
prospects. The Fund remains heavily weighted in this sector because
of the diversification opportunities offered by corporate debt. In
addition, the ready availability of adequate and continuous
disclosure substantially enhances liquidity within this sector. For
these reasons, we expect the debt of corporations as well as of
investor-owned utilities to remain a significant portion of the
Fund's portfolio for the near term. Issuance in the corporate-backed
sector remains thin, mirroring the lack of supply in the overall
municipal market and exacerbating an already tight technical
situation.
In contrast to the corporate sector, healthcare-related debt has
undergone appreciable deterioration in credit fundamentals and
market liquidity. The financials of many nonprofit hospitals have
weakened in recent quarters as they struggle to cope with rising
costs, reduced reimbursement rates because of the Balanced Budget
Act and increased competition. We have maintained limited exposure
in this sector and, while we remain circumspect given the strained
environment, credit spreads have widened out to the point where much
of the bad news appears to have been discounted. As a result, we
have begun to establish small positions in credits that we believe
have been unnecessarily punished by the market and therefore
represent good value.
Extending the portfolio's average call protection remained a
strategic focus both throughout the Fund's fiscal year and, in
particular, the quarter ended August 31, 1999. Municipal securities
are typically issued with optional call features giving the issuer
the right to redeem outstanding debt prior to maturity. This usually
occurs at an inopportune time from the investor's perspective, as
interest rates are likely to be lower. In light of this ongoing
reinvestment risk, we have maintained a proactively managed call
exposure in an effort to reduce the impact on the portfolio's
overall income stream and, ultimately, seek to generate a more
stable dividend for shareholders over the long term.
Our investment strategy has become more flexible in order to allow
for more short-term trading opportunities. As a result, we have
placed a greater emphasis on liquidity and, consequently, our focus
has shifted toward larger and more widely distributed issues.
Smaller issues are typically closely held by a handful of investors.
They tend to trade infrequently and are subject to higher
transaction costs, making them unsuitable for our current investment
style. Our attempt to capitalize on short-term inefficiencies within
the tax-exempt high-yield arena will likely generate more turnover
than the portfolio has experienced in the past. However, we believe
the enhanced degree of liquidity should prove beneficial both in
terms of reducing individual credit risk as well as rendering the
portfolio more responsive to changes in our investment outlook.
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,
(Terry K. Glenn)
Terry K. Glenn
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 30, 1999
Merrill Lynch High Income Municipal Bond Fund, Inc.
August 31, 1999
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
VRDN Variable Rate Demand Notes
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Alabama--1.4% B- NR* $ 1,000 Brewton, Alabama, IDB, PCR, Refunding (Container Corporation
of America Project), 8% due 4/01/2009 $ 1,070
CCC Ca 5,285 Mobile, Alabama, IDB, Solid Waste Disposal Revenue Refunding
Bonds (Mobile Energy Services Co. Project), 6.95% due 1/01/2020 (i) 1,830
Arizona--4.9% 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 3,177
NR* B1 4,600 Phoenix, Arizona, IDA, Airport Facility Revenue Refunding Bonds
(America West Airlines Inc.), AMT, 6.30% due 4/01/2023 4,434
NR* NR* 1,235 Pima County, Arizona, IDA, Industrial Revenue Bonds
(La Hacienda Project), 9.50% due 12/01/2016 1,371
Sedona, Arizona, Wastewater Municipal Property Corporation,
Excise Tax Revenue Refunding Bonds (c):
AAA NR* 1,510 5.20%** due 7/01/2021 449
AAA NR* 1,310 5.24%** due 7/01/2023 348
California AAA NR* 10,000 Foothill/Eastern Corridor Agency, California, Toll Road Revenue
- --4.3% Bonds, Series A, 5.775%** due 1/01/2028 (a)(e) 1,965
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 (i) 930
AAA NR* 5,865 Los Angeles, California, Department of Water and Power,
Electric Plant Revenue Bonds, RIB, Series 144, 7.68% due
6/15/2025 (a)(f) 5,673
Colorado--4.9% NR* NR* 1,700 Colorado Post-Secondary Educational Facilities Authority
Revenue Bonds (Colorado Ocean Journey Inc. Project),
8.30% due 12/01/2017 1,946
BBB+ Baa1 2,000 Denver, Colorado, City and County Airport Revenue Bonds,
AMT, Series D, 7.75% due 11/15/2013 2,378
NR* NR* 3,000 Denver, Colorado, Urban Renewal Authority, Tax Increment and
Allocation Bonds, AMT, 7.75% due 9/01/2017 3,336
San Miguel County, Colorado, GO, Refunding (Mountain Village
Metropolitan District):
NR* NR* 1,350 8.10% due 12/01/2002 (d) 1,512
NR* NR* 650 8.10% due 12/01/2011 713
</TABLE>
Merrill Lynch High Income Municipal Bond Fund, Inc.
August 31, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Connecticut BB- Ba1 $6,250 Connecticut State Development Authority, PCR, Refunding
- --4.7% (Connecticut Light & Power Company), Series A, 5.85% due
9/01/2028 $ 5,862
NR* NR* 1,500 Connecticut State Health and Educational Facilities Authority
Revenue Bonds (Edgehill Issue), Series A, 6.875% due 7/01/2027 1,561
NR* B1 1,805 New Haven, Connecticut, Facility Revenue Bonds (Hill Health
Corporation Project), 9.25% due 5/01/2017 1,938
Florida--2.2% NR* NR* 970 Florida, Arbor Greene Community Development District,
Special Assessment Revenue Bonds, 7.60% due 5/01/2018 1,020
NR* NR* 1,000 Florida, Grand Haven Community Development District,
Special Assessment Bonds, Series B, 6.90% due 5/01/2019 1,011
NR* NR* 2,500 Orlando, Florida, Special Assessment Bonds (Conroy Road
Interchange Project), Series A, 5.80% due 5/01/2026 2,313
Georgia--2.1% NR* NR* 1,920 Atlanta, Georgia, Urban Residential Finance Authority,
M/F Mortgage Revenue Bonds (Northside Plaza Apartments
Project), AMT, 9.75% due 11/01/2020 2,027
NR* NR* 1,950 Hancock County, Georgia, COP, 8.50% due 4/01/2015 2,197
Illinois--5.6% BBB- Baa1 4,000 Chicago, Illinois, O'Hare International Airport, Special Facility
Revenue Refunding Bonds (American Airlines Inc. Project),
8.20% due 12/01/2024 4,536
NR* NR* 3,195 Illinois Development Finance Authority, Primary Health Care
Centers Facilities, Acquisition Program Revenue Bonds,
7.75% due 12/01/2016 3,423
NR* NR* 2,000 Illinois Educational Facilities Authority, Revenue Refunding
Bonds (Chicago Osteopathic Health System), 7.25% due
11/15/2019 (d) 2,356
BBB NR* 1,000 Lansing, Illinois, Tax Increment Revenue Refunding Bonds
(Sales Tax--Landings Redevelopment), 7% due 12/01/2008 1,069
Indiana--1.8% A+ NR* 1,500 Indiana Bond Bank Revenue Bonds, Special Hospital Program
(Hendricks Community Hospital), Series A, 7.125% due 4/01/2013 1,598
NR* NR* 2,000 Indianapolis, Indiana, M/F Revenue Bonds (Lake Nora Fox Club
Project), Series B, 7.50% due 10/01/2029 1,995
Iowa--0.9% NR* NR* 1,500 Iowa Finance Authority, Health Care Facilities Revenue Bonds
(Care Initiatives Project), 9.25% due 7/01/2025 1,897
Kentucky--3.0% NR* NR* 1,850 Kenton County, Kentucky, Airport Board, Special Facilities
Revenue Bonds (Mesaba Aviation Inc. Project), AMT, Series A,
6.70% due 7/01/2029 (j) 1,836
AAA Aaa 3,800 Louisville, Kentucky, Hospital Revenue Refunding Bonds,
INFLOS, 9.338% due 10/01/2014 (c)(f) 4,280
Louisiana--1.5% CC NR* 3,000 Port New Orleans, Louisiana, IDR, Refunding (Continental Grain
Company Project), 7.50% due 7/01/2013 3,015
Maryland--2.6% NR* NR* 5,000 Maryland State Energy Financing Administration, Limited
Obligation Revenue Bonds (Cogeneration--AES Warrior Run),
AMT, 7.40% due 9/01/2019 5,298
</TABLE>
Merrill Lynch High Income Municipal Bond Fund, Inc.
August 31, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Massachusetts NR* NR* $1,145 Boston, Massachusetts, Industrial Development Financing
- --9.2% Authority, Solid Waste Disposal Facility Revenue Bonds
(Jet-A-Way Project), AMT, 10.50% due 1/01/2011 $ 1,248
Massachusetts State Health and Educational Facilities Authority
Revenue Bonds:
NR* NR* 1,690 (New England Memorial Hospital Project), Series C, 7% due
4/01/2014 532
A NR* 4,500 (Schepens Eye Research Project), Series A, 6.50% due
7/01/2028 4,713
Massachusetts State Health and Educational Facilities Authority,
Revenue Refunding Bonds:
NR* Ca 3,000 (New England Memorial Hospital), Series B, 6.125% due
7/01/2013 945
AAA NR* 2,500 (Stonehill College), RIB, Series 80, 6.905% due 7/01/2028 (c)(f) 2,123
AAA Ba1 1,600 Massachusetts State Industrial Finance Agency Revenue Bonds
(Vinfen Corporation), 7.10% due 11/15/2003 (d) 1,791
NR* AAA 1,675 Massachusetts State Industrial Finance Agency, Revenue
Refunding Bonds (Bay Cove Human Services Inc.), 8.375%
due 4/01/2004 (d) 1,927
NR* NR* 5,000 Massachusetts State Port Authority, Special Project Revenue
Bonds (Harborside Hyatt Project), AMT, 10% due 3/01/2026 5,363
Mississippi NR* NR* 2,375 Mississippi Development Bank, Special Obligation Revenue
- --1.2% Refunding Bonds (Diamond Lakes Utilities), Series A,
6.25% due 12/01/2017 2,396
Nevada--1.0% BBB+ Baa1 2,500 Henderson, Nevada, Health Care Facility Revenue Bonds
(Catholic Healthcare West--St. Rose Dominican Hospital),
5.125% due 7/01/2028 2,052
New Jersey Camden County, New Jersey, Improvement Authority, Lease
- --12.5% Revenue Bonds (Holt Hauling & Warehousing), AMT, Series A:
BB- NR* 4,600 9.625% due 1/01/2011 5,393
BB- NR* 2,000 9.875% due 1/01/2021 2,369
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 3,904
B- B2 6,000 Camden County, New Jersey, Pollution Control Financing
Authority, Solid Waste Resource Recovery Revenue Refunding
Bonds, AMT, Series A, 7.50% due 12/01/2010 5,860
NR* NR* 3,000 New Jersey EDA, Economic Development Revenue Bonds
(Glimcher Properties LP Project), AMT, 6% due 11/01/2028 2,893
NR* NR* 1,500 New Jersey EDA, IDR, Refunding (Newark Airport Marriott Hotel),
7% due 10/01/2014 1,595
BBB- NR* 1,500 New Jersey EDA, Revenue Bonds, First Mortgage (Fellowship
Village Project), Series C, 5.50% due 1/01/2028 1,323
NR* NR* 2,000 New Jersey EDA, Revenue Refunding Bonds, First Mortgage
(Franciscan Oaks Project), 5.75% due 10/01/2023 1,900
</TABLE>
Merrill Lynch High Income Municipal Bond Fund, Inc.
August 31, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
New B B2 $1,000 Farmington, New Mexico, PCR, Refunding (Tucson Electric
Mexico--0.5% Power Co.--San Juan Project), Series A, 6.95% due 10/01/2020 $ 1,046
New York--1.9% A1+ VMIG1++ 100 Long Island Power Authority, New York, Electric System
Revenue Bonds, VRDN, Sub-Series 7, 2.80% due 4/01/2025 (c)(g) 100
Utica, New York, GO, Public Improvement:
CCC B2 635 8.50% due 8/15/2007 718
CCC B2 635 8.50% due 8/15/2008 718
CCC B2 500 8.50% due 8/15/2009 565
CCC B2 500 8.50% due 8/15/2010 565
CCC B2 500 8.50% due 8/15/2011 565
CCC B2 500 8.50% due 8/15/2012 565
Ohio--5.3% NR* A2 1,000 Butler County, Ohio, Hospital Facilities Revenue Refunding and
Improvement Bonds (Middletown Hospital), 5% due 11/15/2028 868
BB Ba2 6,800 Cleveland, Ohio, Airport Special Revenue Refunding Bonds
(Continental Airlines Inc. Project), AMT, 5.70% due
12/01/2019 (k) 6,318
NR* NR* 2,500 Franklin County, Ohio, Health Care Facilities, Revenue Refunding
Bonds (Ohio Presbyterian Services), 5.50% due 7/01/2017 2,343
AAA Aaa 1,050 Ohio HFA, S/F Mortgage Revenue Bonds, RIB, AMT, Series A,
9.973% due 3/24/2031 (b)(f) 1,131
Oregon--1.6% NR* NR* 1,000 Western Generation Agency, Oregon, Cogeneration Project
Revenue Bonds (Wauna Cogeneration Project), AMT, Series B,
7.40% due 1/01/2016 1,062
B- NR* 1,955 Yamhill County, Oregon, PCR, Refunding (Smurfit Newsprint
Corporation Project), 8% due 12/01/2003 2,084
Pennsylvania-- NR* NR* 2,000 Lehigh County, Pennsylvania, General Purpose Authority,
9.6% Revenue Refunding Bonds (Kidspeace Obligation Group), 6%
due 11/01/2023 1,874
BBB- NR* 5,000 McKean County, Pennsylvania, Hospital Authority, Hospital
Revenue Bonds (Bradford Hospital Project), 8.875% due
10/01/2020 5,344
5 Northhampton Pulp LLC (h)(i) 675
NR* NR* 3,270 Pennsylvania Economic Development Financing Authority, Exempt
Facilities Revenue Bonds (National Gypsum Company), AMT,
Series A, 6.25% due 11/01/2027 3,201
NR* NR* 5,000 Philadelphia, Pennsylvania, Authority for IDR, Commercial
Development, AMT, 7.75% due 12/01/2017 5,427
NR* NR* 3,125 Philadelphia, Pennsylvania, Authority for Industrial Development,
Health Care Facility Revenue Refunding Bonds (Paul's Run),
Series A, 5.875% due 5/15/2028 2,809
South Carolina NR* NR* 2,000 South Carolina Jobs Economic Development Authority, Health
- --1.0% Facilities Revenue Bonds, First Mortgage (Lutheran Homes
Project), 6.625% due 5/01/2028 1,929
Texas--4.7% BB Ba1 3,000 Houston, Texas, Airport System Revenue Bonds (Special
Facilities--Continental Airlines), AMT, Series C, 6.125% due
7/15/2027 2,865
BB- Ba1 6,500 Lower Colorado River Authority, Texas, PCR (Samsung Austin
Semiconductor), AMT, 6.375% due 4/01/2027 6,576
Utah--1.7% NR* NR* 3,200 Tooele County, Utah, PCR, Refunding (Laidlaw Environmental),
AMT, Series A, 7.55% due 7/01/2027 3,404
Vermont--0.8% NR* NR* 1,500 Vermont Educational and Health Buildings Financing Agency,
Revenue Refunding Bonds (College of Saint Joseph Project),
8.50% due 11/01/2024 1,671
</TABLE>
Merrill Lynch High Income Municipal Bond Fund, Inc.
August 31, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Virginia--8.5% NR* NR* $ 2,500 Dulles Town Center Community Development Authority, Virginia,
Special Assessment Tax (Dulles Town Center Project), 6.25% due
3/01/2026 $ 2,451
NR* NR* 4,560 Peninsula Ports Authority, Virginia, Revenue Refunding Bonds
(Port Facility-Zeigler Coal), 6.90% due 5/02/2022 4,492
NR* NR* 2,000 Pittsylvania County, Virginia, IDA, Revenue Refunding Bonds
(Exempt-Facility), AMT, Series A, 7.50% due 1/01/2014 2,137
Pocahontas Parkway Association, Virginia, Toll Road Revenue
Bonds:
NR* Ba1 5,500 1st Tier, Sub-Series C, 6.25%** due 8/15/2027 846
NR* Ba1 9,000 1st Tier, Sub-Series C, 6.250%** due 8/15/2035 810
BBB- Baa3 48,400 Senior Series B, 5.95%** due 8/15/2031 6,445
Total Investments (Cost--$202,052)--99.4% 200,295
Other Assets Less Liabilities--0.6% 1,279
--------
Net Assets--100.0% $201,574
========
<FN>
(a)FSA Insured.
(b)GNMA Collateralized.
(c)MBIA Insured.
(d)Prerefunded.
(e)Escrowed to maturity.
(f)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, 1999.
(g)The interest rate is subject to change periodically based upon
prevailing market rates. The interest rate shown is the rate in
effect at August 31, 1999.
(h)Represents an equity interest in the reorganization of Ponderosa
Fibres PA. The security may be offered and sold to "qualified
institutional buyers" under Rule 144A of the Securities Act of 1933.
(i)Non-income producing security.
(j)This issue will begin to accrue interest on September 21, 1999.
(k)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>
QUALITY PROFILE
The quality ratings of securities in the Fund as of August 31, 1999
were as follows:
Percent of
S&P Rating/Moody's Rating Net Assets
AAA/Aaa 3.2%
A/A 3.6
BBB/Baa 11.5
BB/Ba 15.4
B/B 13.5
CC/Ca 2.0
CCC/Caa 0.9
NR (Not Rated) 42.7
Other++ 6.6
[FN]
++Temporary investments in short-term municipal securities.
Merrill Lynch High Income Municipal Bond Fund, Inc.
August 31, 1999
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of August 31, 1999
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$202,052,157) (Note 1a) $200,295,256
Cash 149,062
Receivables:
Securities sold $ 6,732,916
Interest 3,757,959
Capital shares sold 14,504 10,505,379
------------
Prepaid registration fees and other assets (Note 1e) 17,301
------------
Total assets 210,966,998
------------
Liabilities: Payables:
Securities purchased 8,524,447
Dividends to shareholders (Note 1f) 370,750
Investment adviser (Note 2) 161,979
Administration (Note 2) 42,626 9,099,802
------------
Accrued expenses and other liabilities 293,454
------------
Total liabilities 9,393,256
------------
Net Assets: Net assets $201,573,742
============
Net Assets Common stock, $.10 par value, 200,000,000 shares authorized $ 1,968,251
Consist of: Paid-in capital in excess of par 204,513,254
Accumulated distributions in excess of realized capital
gains--net (Note 1f) (3,150,862)
Unrealized depreciation on investments--net (1,756,901)
------------
Net assets--Equivalent to $10.24 per share based on 19,682,514
shares of capital outstanding $201,573,742
============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch High Income Municipal Bond Fund, Inc.
August 31, 1999
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Year Ended
August 31, 1999
<S> <S> <C> <C>
Investment Interest and amortization of premium and discount earned $ 14,701,467
Income
(Note 1d):
Expenses: Investment advisory fees (Note 2) $ 2,138,848
Administrative fees (Note 2) 562,855
Transfer agent fees (Note 2) 113,992
Printing and shareholder reports 99,665
Professional fees 86,456
Accounting services (Note 2) 74,013
Advertising 68,007
Registration fees (Note 1e) 67,305
Directors' fees and expenses 27,231
Custodian fees 21,154
Pricing services 14,204
Other 8,476
------------
Total expenses 3,282,206
------------
Investment income--net 11,419,261
------------
Realized & Realized loss on investments--net (569,093)
Unrealized Change in unrealized appreciation/depreciation on
Loss on investments--net (17,755,283)
Investments--Net ------------
(Notes 1b, Net Decrease in Net Assets Resulting from Operations $ (6,905,115)
1d & 3): ============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch High Income Municipal Bond Fund, Inc.
August 31, 1999
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year
Ended August 31,
Increase (Decrease) in Net Assets: 1999 1998
<S> <S> <C> <C>
Operations: Investment income--net $ 11,419,261 $ 12,113,461
Realized gain (loss)on investments--net (569,093) 5,912,960
Change in unrealized appreciation/depreciation on
investments--net (17,755,283) (11,712)
------------ ------------
Net increase (decrease) in net assets resulting from
operations (6,905,115) 18,014,709
------------ ------------
Dividends & Investment income--net (11,419,261) (12,113,461)
Distributions to Realized gain on investments--net (3,642,201) (3,774,165)
Shareholders In excess of realized gain on investments--net (3,150,862) --
(Note 1f): ------------ ------------
Net decrease in net assets resulting from dividends
and distributions to shareholders (18,212,324) (15,887,626)
------------ ------------
Capital Share Net increase (decrease) in net assets derived from
Transactions capital shares transactions (7,021,727) 19,965,690
(Note 4): ------------ ------------
Net Assets: Total increase (decrease) in net assets (32,139,166) 22,092,773
Beginning of year 233,712,908 211,620,135
------------ ------------
End of year $201,573,742 $233,712,908
============ ============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch High Income Municipal Bond Fund, Inc.
August 31, 1999
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: 1999 1998 1997 1996 1995
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 11.46 $ 11.34 $ 10.94 $ 10.97 $ 10.92
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .55 .61 .65 .66 .65
Realized and unrealized gain (loss) on
investments--net (.89) .32 .44 (.03) .23
-------- -------- -------- -------- --------
Total from investment operations (.34) .93 1.09 .63 .88
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.55) (.61) (.65) (.66) (.65)
Realized gain on investments--net (.18) (.20) (.04) -- (.15)
In excess of realized gain on
investments--net (.15) -- -- -- (.03)
-------- -------- -------- -------- --------
Total dividends and distributions (.88) (.81) (.69) (.66) (.83)
-------- -------- -------- -------- --------
Net asset value, end of year $ 10.24 $ 11.46 $ 11.34 $ 10.94 $ 10.97
======== ======== ======== ======== ========
Total Investment Based on net asset value per share (3.16%) 8.43% 10.20% 5.81% 8.68%
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses 1.46% 1.48% 1.44% 1.50% 1.52%
Net Assets: ======== ======== ======== ======== ========
Investment income--net 5.07% 5.37% 5.83% 5.90% 6.11%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $201,574 $233,713 $211,620 $199,552 $198,575
Data: ======== ======== ======== ======== ========
Portfolio turnover 39.53% 36.45% 43.07% 28.54% 21.28%
======== ======== ======== ======== ========
<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, 1999
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 Fund's financial statements are prepared in
accordance with generally accepted accounting principles, which may
require the use of management accruals and estimates. 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 written
or purchased are valued at the last sale price in the case of
exchange-traded options. In the case of options traded in the over-
the-counter market, valuation is the last asked price (options
written) or the last bid price (options purchased). 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, 1999
(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. Distributions in excess
of realized capital gains are due primarily to differing tax
treatments for post-October losses.
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 .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
.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, 1999, Merrill Lynch Funds Distributor
("MLFD"), a division of Princeton Funds Distributor, Inc. ("PFD"),
which is a wholly-owned subsidary of Merrill Lynch Group, Inc.,
earned early withdrawal charges of $81,349 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, 1999 were $89,156,826 and
$104,589,469, respectively.
Net realized losses for the year ended August 31, 1999 and net
unrealized losses as of August 31, 1999 were as follows:
Realized Unrealized
Losses Losses
Long-term investments $(569,093) $(1,756,901)
--------- -----------
Total $(569,093) $(1,756,901)
========= ===========
As of August 31, 1999, net unrealized depreciation for Federal
income tax purposes aggregated $1,758,352, of which $8,193,949
related to appreciated securities and $9,952,301 related to
depreciated securities. The aggregate cost of investments at August
31, 1999 for Federal income tax purposes was $202,053,608.
4. Capital Shares Transactions:
Transactions in capital shares were as follows:
For the Year Ended Dollar
August 31, 1999 Shares Amount
Shares sold 1,231,384 $ 13,670,459
Shares issued to share-
holders in reinvestment of
dividends and distributions 732,001 7,958,787
---------- ------------
Total issued 1,963,385 21,629,246
Shares tendered (2,680,943) (28,650,973)
---------- ------------
Net decrease (717,558) $ (7,021,727)
========== ============
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
========== ============
Merrill Lynch High Income Municipal Bond Fund, Inc.
August 31, 1999
<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, 1999, 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, 1999 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,
1999, 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 5, 1999
</AUDIT-REPORT>
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid by Merrill Lynch
High Income Municipal Bond Fund, Inc. during its taxable year ended
August 31, 1999 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 Long-Term
Record Payable Taxable Capital
Date Date Income Gains*
12/22/98 12/31/98 $.064703 $.263303
[FN]
*This entire distribution is subject to the 20% tax rate.
Please retain this information for your records.
Merrill Lynch High Income Municipal Bond Fund, Inc.
August 31, 1999
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.
OFFICERS AND DIRECTORS
Terry K. Glenn, President and Director
Ronald W. Forbes, Director
Cynthia A. Montgomery, Director
Charles C. Reilly, Director
Kevin A. Ryan, Director
Richard R. West, Director
ArthurZeikel, Director
Vincent R. Giordano, Senior Vice President
Kenneth A. Jacob, Vice President
Theodore R. Jaeckel Jr., Vice President
John M. Loffredo, Vice President
Donald C. Burke, Vice President and Treasurer
William E. Zitelli, 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
