MERRILL LYNCH
HIGH INCOME
MUNICIPAL BOND
FUND, INC.
FUND LOGO
Semi-Annual Report
February 28, 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 six-month period ended February 28, 1999, Merrill Lynch High
Income Municipal Bond Fund, Inc. earned $0.277 per share income
dividends, representing a net annualized yield of 5.19%, based on a
month-end per share net asset value of $10.77. Over the same period,
the Fund's total investment return was -0.77%, based on a change in
per share net asset value from $11.46 to $10.77, and assuming
reinvestment of $0.344 per share ordinary income dividends and
$0.263 per share capital gains distributions.
For the three-month period ended February 28, 1999, the Fund's total
investment return was -0.87%, based on a change in per share net
asset value from $11.33 to $10.77, and assuming reinvestment of
$0.202 per share income ordinary dividends and $0.263 per share
capital gains distributions.
The Municipal Market Environment
During most of the six months ended February 28, 1999, fixed-income
investors concentrated on the positive elements within the current
economic framework. On an annual basis, US economic growth remained
modest, although it strengthened somewhat in recent months. More
important, continued weak foreign economic growth has been seen as
preventing US growth from overheating and generating increased
inflationary pressures. World commodity prices continued to decline
to their lowest level in over a decade, reinforcing the extremely
positive inflationary environment in the United States.
Additionally, the Federal Reserve Board lowered short-term interest
rates in September, October and November. These actions were taken
both to ensure that US domestic economic growth would not be
negatively impacted by weak foreign demand and that US financial
markets would have adequate liquidity to offset deteriorating
financial conditions in Asia, Russia and Brazil. Despite
considerable volatility, such positive factors allowed long-term
fixed-income interest rates to modestly decline into late January
1999. During the six-month period ended February 28, 1999, US
Treasury bond yields declined almost 20 basis points (0.20%) to
5.09%, and long-term tax-exempt revenue bond yields fell
approximately 10 basis points to 5.17%, as measured by the Bond
Buyer Bond Revenue Index.
However, during February investors have developed a more negative
bias toward both the prospects for US economic growth and long-term
bond yields. Economic indicators released during February did not
suggest that the US economy was materially stronger in February than
it had been in January or even in late 1998. Inflationary measures,
such as the consumer price index and the gross domestic product
price deflator, have continued to suggest that domestic price
pressures are nearly non-existent. The consensus among economists
was that Federal Reserve Board Chairman Alan Greenspan's Humphrey-
Hawkins testimony emphasized that the balance between moderate
economic growth and low inflation seen in recent quarters remains in
place and that it was unlikely that the Federal Reserve Board would
lower or raise short-term interest rates during 1999. However,
investors largely chose to ignore these interpretations and began to
anticipate that the Federal Reserve Board was likely to raise short-
term interest rates sometime during 1999. Subsequently, fixed-income
bond yields rose for the remainder of the month. In February, US
Treasury bond yields rose almost 50 basis points to 5.57%, and long-
term uninsured municipal revenue bond yields rose less than 15 basis
points to end the month at 5.29%. During the February quarter, US
Treasury bond yields rose 30 basis points, while long-term municipal
bond yields rose less than 5 basis points, as measured by the Bond
Buyer Revenue Index.
Merrill Lynch High Income Municipal Bond Fund, Inc.
February 28, 1999
Throughout most of 1998, the municipal bond market's performance was
impeded by a significant increase in annual new-issue supply.
However, in recent months, the technical position of the tax-exempt
market improved. This has led to the outperformance by long-term
municipal bonds seen thus far in 1999. Over the last 12 months, more
than $275 billion in new long-term tax-exempt bonds was
underwritten, an increase of almost 16% compared to the same period
a year ago. As municipal bond yields declined in recent years, it
has taken increasingly lower bond yields to generate the cost
savings necessary to refinance remaining higher-couponed debt.
Consequently, the rate of increases in municipal bond issuance
slowed dramatically in recent quarters. During the last six months,
over $120 billion in new tax-exempt bonds was issued, a decrease of
approximately 7% compared to the same period a year ago. During the
quarter ended February 28, 1999, less than $60 billion in new long-
term municipal bonds was underwritten, representing a decline of
nearly 10% compared to the quarter ended February 28, 1998.
The pace of tax-exempt issuance slowed further in 1999. Year-to-date
issuance was less than $33 billion, representing a decline of almost
25% compared to January 1998's volume. Additionally, investors
received over $40 billion in coupon payments, maturities and
proceeds from early redemptions in January and February.
Consequently, investor demand has been strong in recent months,
easily matching, if not at times exceeding, available supply. We
will monitor this situation closely in the coming months to
determine if the supply pressures exerted in 1998 are abating and
fostering a more balanced supply/demand environment for 1999. Such
an environment should allow the tax-exempt market's performance to
more closely mirror that of its taxable counterpart.
Foreign investors have rarely been active investors in the tax-
exempt bond market since they are unable to benefit from the
inherent tax advantage of municipal securities. Consequently, the
municipal bond market has not been able to benefit from the strong
"flight to quality" demand enjoyed by US Treasury securities since
late 1997. This inability has in large part resulted in
significantly smaller declines in municipal bond yields compared to
US Treasury securities. However, this has resulted in the
opportunity to purchase tax-exempt securities with yields very close
to or, in some instances, exceeding those of comparable US Treasury
bonds. By February 28, 1999, long-term tax-exempt bond yields were
at 95% of US Treasury bond yields. Municipal bond yield ratios have
averaged approximately 92% for the last 12 months. During 1997, tax-
exempt bond yield ratios averaged 84%. It is likely that the
combination of the annual increase in new-issue volume and the "safe-
haven" status of US Treasury securities drove municipal bond yield
ratios to their present attractive levels. Should new volume decline
and/or foreign financial markets regain stability in 1999, tax-
exempt bond yield ratios could quickly return to their more historic
levels (85%--88%).
Looking ahead, the expected combination of moderate economic growth
in the United States and continued negligible inflation suggests a
relatively stable interest rate environment into early 1999.
However, it is likely that foreign financial markets will again be a
critical factor in determining US bond yields. While some Pacific
Rim economies are expected to improve somewhat in 1999, the
economies of Japan and much of Europe are unlikely to show much
growth in the coming months. Also, economic problems in Russia and
Brazil remain unresolved suggesting that additional shocks to the
world's financial system are possible. On the other hand, the
continued robustness of the US economy has led to some back up in
interest rates. However, at present these factors suggest that there
is little immediate risk of sustained significant increases in long-
term bond yields.
Merrill Lynch High Income Municipal Bond Fund, Inc.
February 28, 1999
Portfolio Strategy
Despite an excess of high-yield tax-exempt issuance at 1998 year-
end, we chose not to participate in the majority of financings. In
our view, credit spreads remained narrow on a historical basis and,
as a consequence, we have become more circumspect in our approach to
the high-yield market. We continued to reduce exposure to the
healthcare industry as a precaution against relative price declines
brought on by deteriorating fundamentals in that sector. The
financial positions of nonprofit hospitals have weakened in recent
quarters as these hospitals struggle to cope with rising costs,
reduced reimbursement rates and increased competition. Meanwhile,
corporate-related tax-exempt debt stabilized in the face of
aggressive moves by the Federal Reserve Board to alleviate the
liquidity crisis brought on by the turmoil in global financial
markets last fall. The portfolio remains heavily weighted in this
sector in part because of the diversification opportunities it
offers. In addition, the ready availability of adequate and
continuous disclosure substantially enhances liquidity within this
sector, especially in comparison to many of the smaller low
investment-grade healthcare issuers. For these reasons, we expect
the debt of corporations and investor-owned utilities to remain a
significant portion of the investment portfolio for the foreseeable
future.
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 and Director
(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
April 6, 1999
After more than 20 years of service, Arthur Zeikel recently retired
as Chairman of Merrill Lynch Asset Management, L.P. (MLAM). Mr.
Zeikel served as President of MLAM from 1977 to 1997 and as Chairman
since December 1997. Mr. Zeikel is one of the country's most
respected leaders in asset management and presided over the growth
of Merrill Lynch's asset management business. During his tenure,
client assets under management grew from $300 million to over $500
billion. Mr. Zeikel will remain on Merrill Lynch High Income
Municical Bond Fund, Inc.'s Board of Directors. We are pleased to
announce that Terry K. Glenn has been elected President and Director
of the Fund. Mr. Glenn has held the position of Executive Vice
President of MLAM since 1983.
Mr. Zeikel's colleagues at MLAM join the Fund's Board of Directors
in wishing him well in his retirement from Merrill Lynch and are
pleased that he will continue as a member of the Fund's Board of
Directors.
Merrill Lynch High Income Municipal Bond Fund, Inc.
February 28, 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
RITR Residual Interest Trust Receipts
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--1.3% B- NR* $ 1,000 Brewton, Alabama, IDB, PCR, Refunding (Container Corporation
of America Project), 8% due 4/01/2009 $ 1,096
CCC Ca 5,500 Mobile, Alabama, IDB, Solid Waste Disposal Revenue Refunding
Bonds (Mobile Energy Services Co. Project), 6.95% due 1/01/2020 (i) 1,925
Arizona--6.2% 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 3,311
NR* B1 4,600 Phoenix, Arizona, IDA, Airport Facilities Revenue Refunding
Bonds (America West Airlines Inc.), AMT, 6.30% due 4/01/2023 4,790
NR* NR* 1,235 Pima County, Arizona, IDA, Industrial Revenue Bonds (La
Hacienda Project), 9.50% due 12/01/2016 1,406
B B2 3,500 Pima County, Arizona, IDA, Industrial Revenue Refunding Bonds
(Tucson Electric Power Company Project), Series B, 6% due
9/01/2029 3,506
Sedona, Arizona, Wastewater Municipal Property Corporation,
Excise Tax Revenue Refunding Bonds (d)(f):
AAA NR* 1,510 5.20% due 7/01/2021 483
AAA NR* 1,310 5.24% due 7/01/2023 378
Arkansas--0.5% NR* NR* 1,200 Little Rock, Arkansas, Capital Improvement Revenue Bonds
(Parks and Recreation Projects), Series A, 5.80% due 1/01/2023 1,208
California--1.4% AAA NR* 10,000 California Foothill/Eastern Corridor Agency, Toll Road Revenue
Bonds, Series A, 5.775% due 1/01/2028 (b)(f) 2,250
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) 829
Colorado--4.6% NR* NR* 1,700 Colorado Post-Secondary Educational Facilities Authority Revenue
Bonds (Colorado Ocean Journey Inc. Project), 8.30% due
12/01/2017 1,985
BBB+ Baa1 2,000 Denver, Colorado, City and County Airport Revenue Bonds, AMT,
Series D, 7.75% due 11/15/2013 2,540
NR* NR* 3,000 Denver, Colorado, Urban Renewal Authority, Tax Increment and
Allocation Bonds, AMT, 7.75% due 9/01/2017 3,398
San Miguel County, Colorado, GO, Refunding (Mountain Village
Metropolitan District):
NR* NR* 1,350 8.10% due 12/01/2002 (e) 1,565
NR* NR* 650 8.10% due 12/01/2011 732
</TABLE>
Merrill Lynch High Income Municipal Bond Fund, Inc.
February 28, 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 B+ Ba3 $ 5,000 Connecticut State Development Authority, PCR, Refunding
- --3.8% (Connecticut Light & Power Company), Series A, 5.85% due
9/01/2028 $ 5,004
NR* NR* 1,500 Connecticut State Health and Educational Facilities Authority
Revenue Bonds (Edgehill Issue), Series A, 6.875% due 7/01/2027 1,604
NR* B1 1,830 New Haven, Connecticut, Facility Revenue Bonds (Hill Health
Corporation Project), 9.25% due 5/01/2017 2,008
Florida--2.5% NR* NR* 995 Florida Arbor Greene Community Development District, Special
Assessment Revenue Bonds, 7.60% due 5/01/2018 1,078
NR* NR* 1,000 Florida Grand Haven Community Development District, Special
Assessment Bonds, Series B, 6.90% due 5/01/2019 1,035
BBB NR* 960 Jacksonville, Florida, Port Authority, IDR, Refunding (United
States Gypsum Company Project), 7.25% due 10/01/2014 1,073
NR* NR* 2,500 Orlando, Florida, Special Assessment Bonds (Conroy Road
Interchange Project), Series A, 5.80% due 5/01/2026 2,473
Georgia--3.2% NR* Aaa 2,415 Atlanta, Georgia, Urban Residential Finance Authority, College
Facilities Revenue Bonds (Morris Brown College Project), 9.50%
due 12/01/2001 (e) 2,854
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 2,068
NR* NR* 1,950 Hancock County, Georgia, COP, 8.50% due 4/01/2015 2,233
Illinois--5.9% 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 4,699
NR* NR* 3,195 Illinois Development Finance Authority, Primary Health Care
Centers Facilities, Acquisition Program Revenue Bonds, 7.75%
due 12/01/2016 3,538
NR* NR* 2,000 Illinois Educational Facilities Authority, Revenue Refunding Bonds
(Chicago Osteopathic Health System), 7.25% due 11/15/2019 (e) 2,533
NR* Baa1 1,250 Illinois Health Facilities Authority Revenue Bonds (Holy Cross
Hospital Project), 6.75% due 3/01/2024 1,353
NR* NR* 1,000 Lansing, Illinois, Tax Increment Revenue Refunding Bonds (Sales
Tax--Landings Redevelopment), 7% due 12/01/2008 1,100
Indiana--0.7% A+ NR* 1,500 Indiana Bond Bank Revenue Bonds, Special Hospital Program
(Hendricks Community Hospital), Series A, 7.125% due 4/01/2013 1,644
Iowa--0.9% NR* NR* 1,500 Iowa Finance Authority, Health Care Facilities Revenue Bonds
(Care Initiatives Project), 9.25% due 7/01/2025 1,991
Kentucky--2.0% AAA Aaa 3,800 Louisville, Kentucky, Hospital Revenue Refunding Bonds, INFLOS,
9.795% due 10/01/2014 (d)(g) 4,484
Louisiana--3.2% NR* A3 3,500 Lake Charles, Louisiana, Harbor and Terminal District, Port
Facilities Revenue Refunding Bonds (Trunkline Long Company
Project), 7.75% due 8/15/2022 3,954
B- NR* 3,000 Port New Orleans, Louisiana, IDR, Refunding (Continental Grain
Company Project), 7.50% due 7/01/2013 3,135
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 5,291
</TABLE>
Merrill Lynch High Income Municipal Bond Fund, Inc.
February 28, 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
8.5% Authority, Solid Waste Disposal Facility Revenue Bonds
(Jet-A-Way Project), AMT, 10.50% due 1/01/2011 $ 1,271
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 (i) 524
NR* NR* 4,500 (Schepens Eye Research Project), Series A, 6.50% due
7/01/2028 4,503
Massachusetts State Health and Educational Facilities
Authority, Revenue Refunding Bonds:
NR* Caa 3,000 (New England Memorial Hospital Project), Series B, 6.125%
due 7/01/2013 (i) 930
AAA NR* 2,500 RITR, 7.175% due 7/01/2028 (d)(g) 2,581
AAA Ba1 1,600 Massachusetts State Industrial Finance Agency, Revenue Bonds
(Vinfen Corporation), 7.10% due 11/15/2003 (e) 1,856
NR* Ba2 1,675 Massachusetts State Industrial Finance Agency, Revenue
Refunding Bonds (Bay Cove Human Services Inc.), 8.375% due
4/01/2004 (e) 2,007
NR* NR* 5,000 Massachusetts State Port Authority, Special Project Revenue
Bonds (Harborside Hyatt Project), AMT, 10% due 3/01/2026 5,464
Michigan--0.2% BB- NR* 500 Detroit, Michigan, Local Development Finance Authority,
Sub-Tax Increment, Tax Allocation Bonds, Series A, 5.50%
due 5/01/2021 487
Mississippi NR* NR* 2,375 Mississippi Development Bank, Special Obligation Revenue
- --1.1% Refunding Bonds (Diamond Lakes Utilities), Series A, 6.25%
due 12/01/2017 2,442
New Jersey Camden County, New Jersey, Improvement Authority, Lease
- --14.3% Revenue Bonds (Holt Hauling & Warehousing), AMT, Series A:
BB- NR* 4,600 9.625% due 1/01/2011 5,612
BB- NR* 2,000 9.875% due 1/01/2021 2,467
B- B2 4,000 Camden County, New Jersey, Pollution Control Financing
Authority, Solid Waste Resource Recovery Revenue Bonds,
Series D, 7.25% due 12/01/2010 4,004
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 5,988
New Jersey EDA, Economic Development Revenue Bonds:
NR* NR* 3,000 (Glimcher Properties LP Project), AMT, 6% due 11/01/2028 3,015
NR* NR* 3,750 (Kapkowski Road Landfill), Series A, 6.375% due 4/01/2031 3,856
BBB- NR* 1,500 New Jersey EDA, First Mortgage Revenue Bonds (Fellowship
Village Project), Series C, 5.50% due 1/01/2028 1,435
NR* NR* 2,000 New Jersey EDA, First Mortgage Revenue Refunding Bonds
(Franciscan Oaks Project), 5.75% due 10/01/2023 1,962
NR* NR* 1,500 New Jersey EDA, IDR, Refunding (Newark Airport Marriott
Hotel), 7% due 10/01/2014 1,645
BB Ba2 2,000 New Jersey EDA, Special Facility Revenue Bonds (Continental
Airlines Inc. Project), AMT, 5.50% due 4/01/2028 1,988
New Mexico Farmington, New Mexico, PCR, Refunding:
- --3.0% A1+ Ba1 1,000 (Public Service Company Project), Series C, 5.80% due
4/01/2022 996
B B2 1,000 (Tucson Electric Power Co.--San Juan Project), Series A,
6.95% due 10/01/2020 1,087
A1+ Ba1 4,500 Farmington, New Mexico, PCR, Series B, 5.80% due 4/01/2022 4,543
</TABLE>
Merrill Lynch High Income Municipal Bond Fund, Inc.
February 28, 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 York--5.3% New York City, New York, GO, Series C, Sub-Series C-1:
A- Aaa $ 250 7.50% due 8/01/2002 (e) $ 284
A- A3 60 7.50% due 8/01/2021 67
NR* NR* 4,500 Onondaga County, New York, IDA, Solid Waste Disposal Facility,
Revenue Refunding Bonds (Solvay Paperboard LLC Project),
AMT, 7% due 11/01/2030 4,639
NR* NR* 1,000 Port Authority of New York and New Jersey, Special Obligation
Revenue Refunding Bonds (Special Project--KIAC), AMT, 3rd
Installment, Series 4, 7% due 10/01/2007 1,108
Utica, New York, GO, Public Improvement:
CCC B2 635 8.50% due 8/15/2007 737
CCC B2 635 8.50% due 8/15/2008 737
CCC B2 500 8.50% due 8/15/2009 580
CCC B2 500 8.50% due 8/15/2010 580
CCC B2 500 8.50% due 8/15/2011 580
CCC B2 500 8.50% due 8/15/2012 580
NR* NR* 2,000 Utica, New York, IDA, Civic Facility Revenue Bonds (Utica
College Project), Series A, 5.75% due 8/01/2028 2,037
Ohio--6.6% NR* A2 1,000 Butler County, Ohio, Hospital Facilities Revenue Refunding and
Improvement Bonds (Middletown Hospital), 5% due 11/15/2028 964
BB Ba2 6,800 Cleveland, Ohio, Airport Special Revenue Refunding Bonds
(Continental Airlines Inc. Project), AMT, 5.70% due 12/01/2019 6,630
NR* NR* 2,500 Franklin County, Ohio, Health Care Facilities, Revenue Refunding
Bonds (Ohio Presbyterian Services), 5.50% due 7/01/2017 2,474
AAA Aaa 1,450 Ohio HFA, S/F Mortgage Revenue Bonds, RIB, AMT, Series A,
10.277% due 3/24/2031 (c)(g) 1,611
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--1.4% NR* NR* 1,000 Oregon Western Generation Agency, Cogeneration Project
Revenue Bonds (Wauna Cogeneration Project), AMT, Series B,
7.40% due 1/01/2016 1,086
B- NR* 1,955 Yamhill County, Oregon, PCR, Refunding (Smurfit Newsprint
Corporate Project), 8% due 12/01/2003 2,138
Pennsylvania NR* NR* 2,000 Lehigh County, Pennsylvania, General Purpose Authority Revenue
- --7.9% Bonds (Kidspeace Obligation Group), 6% due 11/01/2023 1,998
BBB- NR* 5,000 McKean County, Pennsylvania, Hospital Authority, Hospital
Revenue Bonds (Bradford Hospital Project), 8.875% due
10/01/2020 5,500
NR* NR* 5,000 Pennsylvania Economic Development Financing Authority,
Recycling Revenue Bonds (Ponderosa Fibres Project), AMT,
Series A, 9.25% due 1/01/2022 (i) 2,600
NR* NR* 5,000 Philadelphia, Pennsylvania, Authority for IDR, Commercial
Development, AMT, 7.75% due 12/01/2017 5,568
NR* NR* 1,625 Philadelphia, Pennsylvania, Authority for Industrial Development,
Health Care Facility Revenue Refunding Bonds (Paul's Run),
Series A, 5.875% due 5/15/2028 1,596
Philadelphia, Pennsylvania, Hospitals and Higher Education
Facilities Authority, Hospital Revenue Bonds, VRDN(h):
A1+ VMIG1++ 100 (Children's Hospital of Philadelphia Project), 3.25% due
3/01/2027 100
A1+ VMIG1++ 300 (Children's Hospital Project), Series A, 3.25% due
3/01/2027 300
</TABLE>
Merrill Lynch High Income Municipal Bond Fund, Inc.
February 28, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
South Carolina NR* NR* $ 1,700 South Carolina Jobs, EDA, Health Facilities, First Mortgage
- --0.8% Revenue Refunding Bonds (Lutheran Homes), 5.65%
due 5/01/2018 $ 1,700
Texas--4.8% A1+ NR* 500 Harris County, Texas, Health Facilities Development Corporation,
Hospital Revenue Refunding Bonds (Methodist Hospital), VRDN,
3.25% due 12/01/2025 (h) 500
BB Ba1 3,000 Houston, Texas, Airport System, Special Facilities Revenue Bonds
(Continental Airlines Inc.), AMT, Series C, 6.125% due 7/15/2027 3,064
BB- Ba1 6,500 Texas Lower Colorado River Authority, PCR (Samsung Austin
Semiconductor), AMT, 6.375% due 4/01/2027 6,762
A1+ VMIG1++ 500 Texas Sabine River Authority, PCR, Refunding (Texas Utilities
Project), VRDN, Series A, 3.20% due 3/01/2026 (a)(h) 500
Utah--1.6% NR* NR* 3,200 Tooele County, Utah, PCR, Refunding (Laidlaw Environmental),
AMT, Series A, 7.55% due 7/01/2027 3,508
Vermont--0.8% NR* NR* 1,500 Vermont Educational and Health Buildings Financing Agency
Revenue Bonds (College of Saint Joseph's Project), 8.50% due
11/01/2024 1,719
Virginia--6.2% NR* NR* 2,000 Pittsylvania County, Virginia, IDA Revenue Bonds, AMT, Series A,
7.50% due 1/01/2014 2,188
NR* NR* 2,500 Virginia Dulles Town Center Community Development Authority,
Special Assessment Tax (Dulles Town Center Project),
6.25% due 3/01/2026 2,541
Virginia Pocahontas Parkway Association, Toll Road
Revenue Bonds:
NR* Ba1 5,500 1st Tier, Sub-Series C, 6.25% due 8/15/2027 (f) 954
NR* Ba1 9,000 1st Tier, Sub-Series C, 6.25% due 8/15/2035 (f) 954
BBB- Baa3 48,400 Senior Series B, 5.95% due 8/15/2031 (f) 7,261
Total Investments (Cost--$220,565)--101.1% 226,422
Liabilities in Excess of Other Assets--(1.1%) (2,397)
--------
Net Assets--100.0% $224,025
========
<FN>
(a)AMBAC Insured.
(b)FSA Insured.
(c)GNMA Collateralized.
(d)MBIA Insured.
(e)Prerefunded.
(f)Represents a zero coupon or step bond; the interest rate shown is
the effective yield at the time of purchase by the Fund.
(g)The interest rate is subject to change periodically and inversely
based upon the prevailing market rates. The interest rate shown is
the rate in effect at February 28, 1999.
(h)The interest rate is subject to change periodically based upon
prevailing market rates. The interest rate shown is the rate in
effect at February 28, 1999.
(i)Currently the security is not accruing interest.
*Not Rated.
++Highest short-term rating by Moody's Investors Service, Inc.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch High Income Municipal Bond Fund, Inc.
February 28, 1999
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of February 28, 1999
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$220,564,950) (Note 1a) $226,421,565
Cash 123,375
Receivables:
Interest $ 4,271,033
Securities sold 502,056
Capital shares sold 84,651 4,857,740
------------
Prepaid registration fees and other assets (Note 1e) 11,741
------------
Total assets 231,414,421
------------
Liabilities: Payables:
Securities purchased 6,681,436
Dividends to shareholders (Note 1f) 303,375
Investment adviser (Note 2) 165,255
Administration (Note 2) 43,488 7,193,554
------------
Accrued expenses and other liabilities 195,773
------------
Total liabilities 7,389,327
------------
Net Assets: Net assets $224,025,094
============
Net Assets Common stock, $.10 par value, 200,000,000 shares authorized $ 2,079,498
Consist of: Paid-in capital in excess of par 215,935,041
Undistributed realized capital gains on investments--net 153,940
Unrealized appreciation on investments--net 5,856,615
------------
Net assets--Equivalent to $10.77 per share based on 20,794,984 shares
of capital outstanding $224,025,094
============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch High Income Municipal Bond Fund, Inc.
February 28, 1999
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Six Months Ended
February 28, 1999
<S> <S> <C> <C>
Interest Income Interest and amortization of premium and discount earned $ 7,433,108
(Note 1d):
Expenses: Investment advisory fees (Note 2) $ 1,092,672
Administrative fees (Note 2) 287,545
Printing and shareholder reports 61,259
Transfer agent fees (Note 2) 59,004
Professional fees 45,158
Registration fees (Note 1e) 42,393
Advertising 34,158
Accounting services (Note 2) 28,541
Directors' fees and expenses 13,599
Custodian fees 11,266
Pricing services 7,769
Other 5,077
------------
Total expenses 1,688,441
------------
Investment income--net 5,744,667
------------
Realized & Realized gain on investments--net 2,735,708
Unrealized Change in unrealized appreciation on investments--net (10,141,767)
Gain (Loss) on ------------
Investments--Net Net Decrease in Net Assets Resulting from Operations $ (1,661,392)
(Notes 1b, ============
1d & 3):
See Notes to Financial Statements.
</TABLE>
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Six For the
Months Ended Year Ended
February 28, August 31,
Increase (Decrease) in Net Assets: 1999 1998
<S> <S> <C> <C>
Operations: Investment income--net $ 5,744,667 $ 12,113,461
Realized gain on investments--net 2,735,708 5,912,960
Change in unrealized appreciation on investments--net (10,141,767) (11,712)
------------ ------------
Net increase (decrease) in net assets resulting from operations (1,661,392) 18,014,709
------------ ------------
Dividends & Investment income--net (5,744,667) (12,113,461)
Distributions to Realized gain on investments--net (6,793,063) (3,774,165)
Shareholders ------------ ------------
(Note 1f): Net decrease in net assets resulting from dividends and
distributions to shareholders (12,537,730) (15,887,626)
------------ ------------
Capital Share Net increase in net assets derived from capital share
Transactions transactions 4,511,308 19,965,690
(Note 4): ------------ ------------
Net Assets: Total increase (decrease) in net assets (9,687,814) 22,092,773
Beginning of period 233,712,908 211,620,135
------------ ------------
End of period $224,025,094 $233,712,908
============ ============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch High Income Municipal Bond Fund, Inc.
February 28, 1999
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights
<CAPTION>
The following per share data and ratios have been derived For the Six
from information provided in the financial statements. Months Ended
February 28, For the Year Ended August 31,
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 period $ 11.46 $ 11.34 $ 10.94 $ 10.97 $ 10.92
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .28 .61 .65 .66 .65
Realized and unrealized gain (loss) on
investments--net (.36) .32 .44 (.03) .23
-------- -------- -------- -------- --------
Total from investment operations (.08) .93 1.09 .63 .88
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.28) (.61) (.65) (.66) (.65)
Realized gain on investments--net (.33) (.20) (.04) -- (.15)
In excess of realized gain on
investments--net -- -- -- -- (.03)
-------- -------- -------- -------- --------
Total dividends and distributions (.61) (.81) (.69) (.66) (.83)
-------- -------- -------- -------- --------
Net asset value, end of period $ 10.77 $ 11.46 $ 11.34 $ 10.94 $ 10.97
======== ======== ======== ======== ========
Total Investment Based on net asset value per share (.77%)++ 8.43% 10.20% 5.81% 8.68%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses 1.47%* 1.48% 1.44% 1.50% 1.52%
Net Assets: ======== ======== ======== ======== ========
Investment income--net 4.99%* 5.37% 5.83% 5.90% 6.11%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $224,025 $233,713 $211,620 $199,552 $198,575
Data: ======== ======== ======== ======== ========
Portfolio turnover 15.12% 36.45% 43.07% 28.54% 21.28%
======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of the early
withdrawal charge, if any. The Fund is a continuously offered
closed-end fund, the shares of which are offered at net asset value.
Therefore, no separate market exists.
++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch High Income Municipal Bond Fund, Inc.
February 28, 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 invest-
ment 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. These
unaudited financial statements reflect all adjustments which are, in
the opinion of management, necessary to a fair statement of the
results for the interim period presented. All such adjustments are
of a normal recurring nature. The following is a summary of
significant accounting policies followed by the Fund.
(a) Valuation of investments--Municipal bonds and other portfolio
securities in which the Fund invests are traded primarily in the
over-the-counter municipal bond and money markets and are valued at
the last available bid price in the over-the-counter market or on
the basis of yield equivalents as obtained from one or more dealers
that make markets in the securities. Financial futures contracts and
options thereon, which are traded on exchanges, are valued at their
settlement prices as of the close of such exchanges. Options 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.
Merrill Lynch High Income Municipal Bond Fund, Inc.
February 28, 1999
(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 secu-rity transactions are
determined on the identified cost basis.
(e) Prepaid registration fees--Prepaid registration fees are charged
to expense as the related shares are issued.
(f) Dividends and distributions--Dividends from net investment
income are declared daily and paid monthly. Distributions of capital
gains are recorded on the ex-dividend dates.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Merrill Lynch Asset Management, L.P. ("MLAM"). The general partner
of MLAM is Princeton Services, Inc. ("PSI"), an indirect wholly-
owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is
the limited partner.
MLAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee at an annual rate of 0.95% of
the Fund's average daily net assets.
The Fund also has entered into an Administrative Services Agreement
with MLAM whereby the Fund pays a monthly fee at an annual rate of
0.25% of the Fund's average daily net assets, in return for the
performance of administrative services (other than investment advice
and related portfolio activities) necessary for the operation of the
Fund.
For the six months ended February 28, 1999, 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 $34,998 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 six months ended February 28, 1999 were $34,991,781 and
$36,297,610, respectively.
Net realized gains for the six months ended February 28, 1999 and
net unrealized gains as of February 28, 1999 were as follows:
Realized Unrealized
Gains Gains
Long-term investments $ 2,735,708 $ 5,856,615
------------ ------------
Total $ 2,735,708 $ 5,856,615
============ ============
As of February 28, 1999, net unrealized appreciation for Federal
income tax purposes aggregated $5,856,615, of which $14,038,040
related to appreciated securities and $8,181,425 related to
depreciated securities. The aggregate cost of investments at
February 28, 1999 for Federal income tax purposes was $220,564,950.
4. Capital Shares Transactions:
Transactions in capital shares were as follows:
For the Six Months Ended Dollar
February 28, 1999 Shares Amount
Shares sold 910,298 $ 10,243,550
Shares issued to share-
holders in reinvestment of
dividends and distributions 515,844 5,668,725
------------ ------------
Total issued 1,426,142 15,912,275
Shares tendered (1,031,230) (11,400,967)
------------ ------------
Net increase 394,912 $ 4,511,308
============ ============
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.
February 28, 1999
ABOUT INVERSE FLOATERS
As 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, income 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 these securities.
QUALITY PROFILE
The quality ratings of securities in the Fund as of February 28,
1999 were as follows:
Percent of
S&P Rating/Moody's Rating Net Assets
AAA/Aaa 7.5%
A/A 5.4
BBB/Baa 10.7
BB/Ba 16.0
B/B 15.6
CCC/Caa 1.3
NR (Not Rated) 44.0
Other++ 0.6
[FN]
++Temporary investments in short-term municipal securities.
Merrill Lynch High Income Municipal Bond Fund, Inc.
February 28, 1999
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
Arthur Zeikel, 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
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
Gerald M. Richard, Treasurer of Merrill Lynch High Income Municipal
Bond Fund, Inc. has recently retired. His colleagues at Merrill
Lynch Asset Management, L.P. join the Fund's Board of Directors in
wishing Mr. Richard well in his retirement.
