MERRILL LYNCH
HIGH INCOME
MUNICIPAL BOND
FUND, INC.
FUND LOGO
Annual Report
August 31, 2000
Merrill Lynch High Income Municipal Bond Fund, Inc. seeks to provide
shareholders with high current income exempt from Federal income
taxes by investing primarily in a portfolio of medium to lower grade
or unrated municipal obligations with remaining maturities of
greater than one year, the interest on which, in the opinion of bond
counsel to the issuer, is exempt from Federal income taxes.
This report, including the financial information herein, is
transmitted to shareholders of Merrill Lynch High Income Municipal
Bond Fund, Inc. for their information. It is not a prospectus. 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, 2000, Merrill Lynch High Income
Municipal Bond Fund, Inc. earned $0.550 per share income dividends.
This represents a net annualized yield of 5.81%, based on a month-
end per share net asset value of $9.45. During the same period, the
Fund's total investment return was -2.29%, based on a change in per
share net asset value from $10.24 to $9.45, and assuming
reinvestment of $0.548 per share income dividends.
For the six-month period ended August 31, 2000, the Fund's total
investment return was +1.23%, based on a change in per share net
asset value from $9.61 to $9.45, and assuming reinvestment of $0.271
per share income dividends.
The Municipal Market Environment
During the six months ended August 31, 2000, US domestic economic
growth remained robust. After growing at a 4.2% annual rate in 1999,
US domestic economic growth expanded at a 4.8% rate during the first
quarter of 2000 and at a 5.2% rate during the second quarter.
However, despite these significant growth rates and the lowest
unemployment rates since 1970, few price measure indicators have
shown any meaningful signs of future price pressures at the consumer
level. With few signs of any economic slowdown, the Federal Reserve
Board continued to raise short-term interest rates in February,
March and May 2000. The Federal Reserve Board cited both the
continued growth of US employment and the continued strength of US
equity markets as reasons for attempting to moderate US economic
growth before inflationary price pressures can occur.
However, since then fixed-income markets have largely ignored strong
economic fundamentals and concentrated on very positive technical
supply factors. Declining bond issuance - both current, and more
importantly, expected future issuance - helped push bond yields
lower into mid-April 2000. In late January and early February 2000,
the US Treasury announced its intention to reduce the amounts to be
auctioned in the quarterly Treasury note and bond auctions.
Furthermore, budgetary surpluses allowed the US Treasury to
repurchase outstanding, higher-couponed Treasury issues, primarily
in the 15-year and longer maturity sector. Both these actions
resulted in significant reduction in the outstanding supply of
longer-dated maturity US Treasury debt. Domestic and international
investors soon began to accumulate what was expected to become a
scarce commodity and bond prices quickly rose.
By mid-April 2000, US Treasury bond yields had declined nearly 50
basis points (0.50%) to 5.67%. During the remainder of the period,
US Treasury bond prices were volatile as strong economic reports and
investors' concerns of additional moves by the Federal Reserve Board
occasionally overshadowed the positive technical position of the
long-term Treasury bond market. By mid-June, long-term US Treasury
bond yields rose to more than 6.00%.
Recently, a number of economic indicators have begun to suggest that
the actions taken by the Federal Reserve Board in 1999 and early
2000 have started to affect US economic growth. Both new home sales
and consumer spending have slowed, suggesting that economic growth
may subside into a 4% - 4.5% range by late 2000. In our opinion,
this range of growth was targeted by the Federal Reserve Board as
being sustainable, given current productivity measures, without
endangering the present benign inflationary environment.
By June, investor focus returned to the dwindling supply of long-
term US Treasury securities and bond prices generally rose for the
remainder of the period. The decline in long-term US Treasury bond
yields resulted in an inverted yield curve as short-term and
intermediate-term interest rates did not fall proportionately to
long-term interest rates as the Federal Reserve Board was expected
to continue to raise short-term interest rates. The current
inversion has had as much to do with debt reduction and Treasury
buybacks as with investor expectations of slower economic growth.
Merrill Lynch High Income Municipal Bond Fund, Inc.
August 31, 2000
Tax-exempt bond yields have also declined in recent months. The
decline has largely been in response to the rally in US Treasury
securities, as well as a continued positive technical supply
environment. States such as California and Maryland have announced
that their large current and anticipated future budget surpluses
will permit the cancellation or postponement of expected bond
issuance. Additionally, some issuers also have initiated tenders to
repurchase existing debt, reducing the supply of tax-exempt bonds in
the secondary market as well. Given the decline in available long-
term Treasury securities, some investors who need longer maturity
investment vehicles have begun to consider long-term municipal bonds
as potential substitutes. This has further strengthened the overall
positive technical position of the tax-exempt market. During the
last six months, long-term revenue bond yields have declined more
than 50 basis points to 5.72%, their lowest level since late August
1999, as measured by the Bond Buyer Revenue Bond Index.
August 2000 was one of the few months in recent years in which the
tax-exempt bond market outperformed its taxable counterpart. This
has largely been a reflection of the continuing reduction in new
municipal bond issuance and a moderate increase in investor demand.
During the last six months, approximately $100 billion in long-term,
tax-exempt bonds was issued, a decline of almost 15% compared to the
same period in 1999. During the last three months, more than $50
billion in new long-term municipal bonds was underwritten, a decline
of nearly 10% compared to the same three-month period in 1999.
Recently, investor demand has been stronger, particularly among
individual retail investors. Investors received more than $45
billion in coupon payments, bond maturities and the proceeds from
early redemptions during June and July. Traditional institutional
investors, such as mutual funds, have not played a major role during
recent months as fund flows, although slowing, remained negative.
However, non-traditional buyers, hedge funds and arbitrageurs have
noticeably increased their activity as may be expected when tax-
exempt bond yield ratios exceed 100% of their taxable counterparts
as they have in recent weeks. Property/casualty insurers, after
being unprofitable for a number of years, have also begun to return
to the tax-exempt bond market.
However, tax-exempt bond yields have generally declined throughout
most of this year. Much of the resulting price appreciation has been
triggered by the significant improvement in the long-term US
Treasury market. While the technical position of the municipal bond
market has been very positive this year, it was also positive for
most of 1999 when tax-exempt bond yields rose dramatically. From
that perspective, it may be too early to become overly positive
about the extent to which the municipal bond market can continue to
improve. The US Treasury bond market has demonstrated on a number of
occasions this year that its positive technical backdrop can quickly
be subordinated by resurgent domestic economic growth.
Portfolio Strategy
During the last 12 months, the volatile nature of fixed-income
markets fostered an environment characterized by an above-average
degree of both risk and opportunity. At 1999 year-end, credit
spreads were subjected to a considerable amount of strain, as
issuers, pressured by concerns over the century date change,
attempted to float debt at a time when investors were understandably
reluctant to commit capital. Consequently, borrowers were forced to
raise yields in an effort to attract sufficient buying interest.
Since credit spreads have yet to recover, there is presently an
opportunity for investing. The current environment has afforded us
the chance to aggressively pursue an investment strategy that has
been in place for some time now. In an effort to maintain an
attractive dividend, we consistently sought to improve the average
degree of protection from early redemption with respect to the
Fund's holdings. In our opinion, as interest rates fall, it is
possible to limit the Fund's exposure to this type of reinvestment
risk and thereby avoid the potential loss of income should issuers
redeem outstanding debt. Generally speaking, with lesser-quality,
tax-exempt bonds offering some of the most attractive yields in
recent years, the gradual restructuring of the portfolio can be
accomplished without having to forgo income. Given that no such
opportunity has existed for years, we believe the argument for
aggressively pursuing this strategy becomes even more compelling.
Merrill Lynch High Income Municipal Bond Fund, Inc.
August 31, 2000
Perhaps the most adversely affected industry in the Fund was
healthcare since nonprofit hospitals have faced increased
competition from managed care, rising costs and reduced
reimbursement rates. We have been extremely cautious regarding this
sector for some time. However, even though it remains a significant
percentage of the Fund's assets, the bulk of exposure lies with long-
term care facilities and human service providers. These issuers tend
not to be subject to the same degree of competitive pressure and,
with respect to the former, stand to benefit from favorable
demographic trends while the latter receive significant support in
the form of state funding.
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
September 29, 2000
Merrill Lynch High Income Municipal Bond Fund, Inc.
August 31, 2000
<TABLE>
PROXY RESULTS
<CAPTION>
During the six-month period ended August 31, 2000, Merrill Lynch
High Income Municipal Bond Fund, Inc.'s shareholders voted on the
following proposals. The proposals were approved at a shareholders'
meeting on July 25, 2000. The description of each proposal and
number of shares voted are as follows:
Shares Voted
For
<S> <S> <C>
1. To elect the Fund's Board of Directors: Terry K. Glenn 16,926,298
Ronald W. Forbes 16,917,802
Cynthia A. Montgomery 16,927,420
Charles C. Reilly 16,907,701
Kevin A. Ryan 16,979,704
Roscoe S. Suddarth 16,980,723
Richard R. West 16,981,866
Arthur Zeikel 16,975,068
Edward D. Zinbarg 16,977,520
<CAPTION>
Shares Voted Shares Voted Shares Voted
For Against Abstain
<S> <C> <C> <C>
2. To ratify the selection of Deloitte & Touche LLP as the Fund's
independent auditors for the current fiscal year. 16,405,965 80,247 801,061
3. To convert the Fund to "master/feeder" structure. 15,463,471 452,859 1,370,943
</TABLE>
Merrill Lynch High Income Municipal Bond Fund, Inc.
August 31, 2000
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face
State Ratings Ratings Amount Issue Value
<S> <S> <S> <C> <S> <C>
Alabama--1.8% B NR* $ 1,000 Brewton, Alabama, IDB, PCR, Refunding (Container Corporation
of America--Jefferson Smurfit Corp. Project),
8% due 4/01/2009 $ 1,039
CCC Ca 5,285 Mobile, Alabama, IDB, Solid Waste Disposal Revenue Refunding
Bonds (Mobile Energy Services Co. Project), 6.95% due
1/01/2020 (e) 1,718
Arizona--7.4% B+ Ba3 3,000 Coconino County, Arizona, Pollution Control Corporation,
Revenue Refunding Bonds (Tucson Electric Power--Navajo),
AMT, Series A, 7.125% due 10/01/2032 3,059
NR* NR* 1,280 Maricopa County, Arizona, IDA, M/F Housing Revenue Bonds
(Sun King Apartments Project), Sub-Series C, 9.50% due
11/01/2031 1,307
NR* B1 4,600 Phoenix, Arizona, IDA, Airport Facility Revenue Refunding
Bonds (America West Airlines Inc. Project), AMT, 6.30% due
4/01/2023 4,146
NR* NR* 1,235 Pima County, Arizona, IDA, Industrial Revenue Bonds (La
Hacienda Project), 9.50% due 12/01/2016 1,323
B+ Ba3 500 Pima County, Arizona, IDA, Industrial Revenue Refunding Bonds
(Tucson Electric Power Company Project), Series C, 6% due
9/01/2029 460
Sedona, Arizona, Wastewater Municipal Property Corporation,
Excise Tax Revenue Refunding Bonds (d):
AAA NR* 1,410 5.20%** due 7/01/2021 447
AAA NR* 1,310 5.24%** due 7/01/2023 369
California--4.6% NR* NR* 1,500 Long Beach, California, M/F Housing Redevelopment Agency,
Revenue Bonds (Pacific Court Apartments), AMT, Issue B, 6.80%
due 9/01/2013 (e) 930
AAA NR* 5,865 Los Angeles, California, Department of Water and Power,
Electric Plant Revenue Bonds, RIB, Series 144, 6.89% due
6/15/2029 (b)(h) 5,888
</TABLE>
PORTFOLIO ABBREVIATIONS
To simplify the listings of Merrill Lynch High Income Municipal Bond
Fund, Inc.'s portfolio holdings in the Schedule of Investments, we
have abbreviated the names of many of the securities according to
the list below and at right.
AMT Alternative Minimum Tax (subject to)
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
Merrill Lynch High Income Municipal Bond Fund, Inc.
August 31, 2000
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
S&P Moody's Face
State Ratings Ratings Amount Issue Value
<S> <S> <S> <C> <S> <C>
Colorado--6.4% NR* NR* $ 1,700 Colorado Post--Secondary Educational Facilities Authority
Revenue Bonds (Colorado Ocean Journey Inc. Project), 8.30%
due 12/01/2017 $ 1,857
A A2 2,000 Denver, Colorado, City and County Airport Revenue Bonds, AMT,
Series D, 7.75% due 11/15/2013 2,394
NR* NR* 3,000 Denver, Colorado, Urban Renewal Authority, Tax Increment and
Allocation Bonds, AMT, 7.75% due 9/01/2017 3,204
San Miguel County, Colorado (Mountain Village Metropolitan
District), GO, Refunding:
NR* NR* 1,350 8.10% due 12/01/2002 (f) 1,466
NR* NR* 650 8.10% due 12/01/2011 693
Connecticut--% NR* NR* 1,900 Connecticut State Development Authority, IDR (AFCO Cargo
3.2 BDL--LLC Project), AMT, 8% due 4/01/2030 1,942
NR* NR* 1,080 Connecticut State Health and Educational Facilities Authority
Revenue Bonds (Edgehill Issue), Series A, 6.875% due 7/01/2027 1,057
NR* B1 1,745 New Haven, Connecticut, Facility Revenue Bonds (Hill Health
Corporation Project), 9.25% due 5/01/2017 1,808
Florida--5.4% NR* NR* 940 Arbor Greene Community Development District, Florida, Special
Assessment Revenue Bonds, 7.60% due 5/01/2018 991
NR* NR* 975 Grand Haven Community Development District, Florida, Special
Assessment Bonds, Series B, 6.90% due 5/01/2019 977
NR* NR* 3,000 Orlando, Florida, Special Assessment Bonds (Conroy Road
Interchange Project), Series A, 5.80% due 5/01/2026 2,654
NR* NR* 3,400 Parkway Center, Florida, Community Development District
Special Assessment Refunding Bonds, Series B, 8% due 5/01/2010 3,388
Georgia--1.3% NR* NR* 1,895 Atlanta, Georgia, Urban Residential Finance Authority, M/F
Mortgage Revenue Bonds (Northside Plaza Apartments Project),
AMT, 9.75% due 11/01/2020 1,941
Illinois--7.5% 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 4,383
NR* NR* 3,195 Illinois Development Finance Authority, Primary Health Care
Centers Facilities, Acquisition Program Revenue Bonds, 7.75%
due 12/01/2016 3,468
NR* NR* 2,000 Illinois Educational Facilities Authority, Revenue Refunding
Bonds (Chicago Osteopathic Health System), 7.25% due
11/15/2019 (f) 2,383
BBB NR* 1,000 Lansing, Illinois, Tax Increment Revenue Refunding Bonds
(Sales Tax--Landings Redevelopment), 7% due 12/01/2008 1,058
Indiana--2.4% A+ NR* 1,500 Indiana Bond Bank Revenue Bonds, Special Hospital Program
(Hendricks Community Hospital), Series A, 7.125% due 4/01/2013 1,571
NR* NR* 2,000 Indianapolis, Indiana, M/F Revenue Bonds (Lake Nora Fox Club
Project), Series B, 7.50% due 10/01/2029 1,970
Iowa--1.2% NR* NR* 1,500 Iowa Finance Authority, Health Care Facilities Revenue Refunding
Bonds (Care Initiatives Project), 9.25% due 7/01/2025 1,798
</TABLE>
Merrill Lynch High Income Municipal Bond Fund, Inc.
August 31, 2000
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
S&P Moody's Face
State Ratings Ratings Amount Issue Value
<S> <S> <S> <C> <S> <C>
Kentucky--3.9% 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 $ 1,758
AAA Aaa 3,700 Louisville, Kentucky, Hospital Revenue Refunding Bonds,
INFLOS, 8.578% due 10/01/2014 (d)(h) 4,001
Louisiana--2.0% CC NR* 3,000 Port New Orleans, Louisiana, IDR, Refunding (Continental
Grain Company Project), 7.50% due 7/01/2013 3,039
Maryland--3.4% NR* NR* 5,000 Maryland State Energy Financing Administration, Limited
Obligation Revenue Bonds (Cogeneration--AES Warrior Run),
AMT, 7.40% due 9/01/2019 5,087
Massachusetts-- NR* NR* 1,145 Boston, Massachusetts, Industrial Development Financing
6.1% Authority, Solid Waste Disposal Facility Revenue Bonds
(Jet-A-Way Project), AMT, 10.50% due 1/01/2011 1,195
NR* NR* 1,475 Massachusetts State Health and Educational Facilities Authority
Revenue Bonds (New England Memorial Hospital Project),
Series C, 7% due 4/01/2014 (e) 371
NR* Ca 2,745 Massachusetts State Health and Educational Facilities Authority,
Revenue Refunding Bonds (New England Memorial Hospital),
Series B, 6.125% due 7/01/2013 (e) 549
NR* AAA 1,580 Massachusetts State Industrial Finance Agency, Revenue
Refunding Bonds (Bay Cove Human Services Inc.), 8.375% due
4/01/2004 (f) 1,766
NR* NR* 5,000 Massachusetts State Port Authority, Special Project Revenue
Bonds (Harborside Hyatt Project), AMT, 10% due 3/01/2026 5,182
Mississippi--1.5% NR* NR* 2,275 Mississippi Development Bank, Special Obligation Revenue
Refunding Bonds (Diamond Lakes Utilities), Series A, 6.25%
due 12/01/2017 2,179
Nevada--1.4% BBB+ Baa1 2,500 Henderson, Nevada, Health Care Facility Revenue Bonds
(Catholic Healthcare West--Saint Rose Dominican Hospital),
5.375% due 7/01/2026 2,046
New Jersey--15.0% Camden County, New Jersey, Improvement Authority, Lease
Revenue Bonds (Holt Hauling & Warehousing), AMT, Series A:
CCC+ NR* 4,600 9.625% due 1/01/2011 4,559
CCC+ NR* 2,000 9.875% due 1/01/2021 1,980
CCC 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 3,790
CCC 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 5,789
NR* NR* 3,000 New Jersey EDA, Economic Development Revenue Bonds
(Glimcher Properties LP Project), AMT, 6% due 11/01/2028 2,721
</TABLE>
Merrill Lynch High Income Municipal Bond Fund, Inc.
August 31, 2000
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
S&P Moody's Face
State Ratings Ratings Amount Issue Value
<S> <S> <S> <C> <S> <C>
New Jersey NR* NR* $ 1,500 New Jersey EDA, IDR, Refunding (Newark Airport Marriott
(concluded) Hotel), 7% due 10/01/2014 $ 1,532
BBB- Baa3 2,000 New Jersey Health Care Facilities Financing Authority, Revenue
Refunding Bonds (Trinitas Hospital Obligation Group), 7.375%
due 7/01/2015 2,061
New Mexico-- B+ Ba3 1,000 Farmington, New Mexico, PCR, Refunding (Tucson Electric
0.7% Power Co.--San Juan Project), Series A, 6.95% due 10/01/2020 1,011
New York--2.4% Utica, New York, GO, Public Improvement:
BB Ba3 635 8.50% due 8/15/2007 709
BB Ba3 635 8.50% due 8/15/2008 708
BB Ba3 500 8.50% due 8/15/2009 558
BB Ba3 500 8.50% due 8/15/2010 558
BB Ba3 500 8.50% due 8/15/2011 558
BB Ba3 500 8.50% due 8/15/2012 558
Ohio--0.7% AAA Aaa 1,050 Ohio HFA, S/F Mortgage Revenue Bonds, RIB, AMT, Series A,
9.061% due 3/24/2031 (c)(h) 1,105
Oregon--1.7% NR* NR* 1,000 Western Generation Agency, Oregon, Cogeneration Project
Revenue Bonds (Wauna Cogeneration Project), AMT, Series B,
7.40% due 1/01/2016 1,036
B NR* 1,455 Yamhill County, Oregon, PCR, Refunding (Smurfit Newsprint
Corporation Project), 8% due 12/01/2003 1,503
Pennsylvania-- NR* NR* 1,000 Lehigh County, Pennsylvania, General Purpose Authority,
6.2% Revenue Refunding Bonds (Kidspeace Obligation Group),
6% due 11/01/2023 828
5 Northhampton Pulp LLC (a)(e)(g) 671
NR* NR* 5,000 Philadelphia, Pennsylvania, Authority for IDR, Commercial
Development, AMT, 7.75% due 12/01/2017 5,278
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 2,511
South Carolina-- BBB NR* 2,000 South Carolina Jobs, EDA, Economic Development Revenue
1.7% Bonds (Westminster Presbyterian Center), 7.75% due 11/15/2030 2,065
NR* NR* 500 South Carolina Jobs, EDA, Health Facilities Revenue Bonds,
First Mortgage (Lutheran Homes Project), 6.625% due 5/01/2028 467
Texas--1.8% BB Ba1 3,000 Houston, Texas, Airport System Revenue Bonds (Special
Facilities--Continental Airlines), AMT, Series C, 6.125%
due 7/15/2027 2,674
Utah--0.1% NR* NR* 3,200 Tooele County, Utah, PCR, Refunding (Laidlaw Environmental),
AMT, Series A, 7.55% due 7/01/2027 (e) 123
Vermont--1.1% NR* NR* 1,450 Vermont Educational and Health Buildings Financing Agency,
Revenue Refunding Bonds (College of Saint Joseph Project),
8.50% due 11/01/2024 1,602
</TABLE>
Merrill Lynch High Income Municipal Bond Fund, Inc.
August 31, 2000
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face
State Ratings Ratings Amount Issue Value
<S> <S> <S> <C> <S> <C>
Virginia--7.5% NR* NR* $ 4,560 Peninsula Ports Authority, Virginia, Revenue Refunding Bonds
(Port Facility--Zeigler Coal), 6.90% due 5/02/2022 $ 2,234
NR* NR* 2,000 Pittsylvania County, Virginia, IDA Revenue Refunding Bonds,
Exempt--Facility, AMT, Series A, 7.50% due 1/01/2014 2,075
Pocahontas Parkway Association, Virginia, Toll Road Revenue
Bonds:
NR* Ba1 5,500 1st Tier, Sub-Series C, 6.25%** due 8/15/2027 729
NR* Ba1 9,000 1st Tier, Sub-Series C, 6.25%** due 8/15/2035 655
BBB- Baa3 48,400 Senior Series B, 5.95%** due 8/15/2031 5,468
Total Investments (Cost--$159,332)--98.4% 146,978
Other Assets Less Liabilities--1.6% 2,416
--------
Net Assets--100.0% $149,394
========
(a)Escrowed to maturity.
(b)FSA Insured.
(c)GNMA Collateralized.
(d)MBIA Insured.
(e)Non-income producing security.
(f)Prerefunded.
(g)These shares represent 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.
(h)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, 2000.
*Not Rated.
**Represents a zero coupon; the interest rate shown is the effective
yield at the time of purchase by the Fund.
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, 2000
were as follows:
Percent of
S&P Rating/Moody's Rating Net Assets
AAA/Aaa 9.1%
A/A 2.7
BBB/Baa 11.4
BB/Ba 8.2
B/B 12.1
CCC/Caa 5.5
CC/Ca 2.4
NR (Not Rated) 47.0
Merrill Lynch High Income Municipal Bond Fund, Inc.
August 31, 2000
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of August 31, 2000
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$159,332,391) $146,977,887
Cash 45,213
Receivables:
Interest $ 3,033,650
Capital shares sold 35,604 3,069,254
------------
Prepaid registration fees and other assets 16,090
------------
Total assets 150,108,444
------------
Liabilities: Payables:
Dividends to shareholders 330,936
Investment adviser 98,603
Administration 25,948 455,487
------------
Accrued expenses and other liabilities 259,179
------------
Total liabilities 714,666
------------
Net Assets: Net assets $149,393,778
============
Net Assets Common stock, $.10 par value, 200,000,000 shares authorized $ 1,580,429
Consist of: Paid-in capital in excess of par 167,925,839
Accumulated realized capital loss on investments--net (4,607,124)
Accumulated distributions in excess of realized capital gains--net (3,150,862)
Unrealized depreciation on investments--net (12,354,504)
------------
Net assets--Equivalent to $9.45 per share based on 15,804,289 shares of
capital outstanding $149,393,778
============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch High Income Municipal Bond Fund, Inc.
August 31, 2000
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Year Ended
August 31, 2000
<S> <S> <C> <C>
Investment Interest and amortization of premium and discount earned $ 12,534,559
Income:
Expenses: Investment advisory fees $ 1,661,213
Administrative fees 437,161
Professional fees 95,905
Transfer agent fees 86,338
Advertising 76,715
Registration fees 68,616
Printing and shareholder reports 44,266
Accounting services 34,636
Directors' fees and expenses 29,133
Custodian fees 15,648
Pricing services 7,711
Other 10,389
------------
Total expenses 2,567,731
------------
Investment income--net 9,966,828
------------
Realized & Realized loss on investments--net (4,607,124)
Unrealized Change in unrealized depreciation on investments--net (10,597,603)
Loss on ------------
Investments--Net: Net Decrease in Net Assets Resulting from Operations $ (5,237,899)
============
See Notes to Financial Statements.
<CAPTION>
Statements of Changes in Net Assets
For the Year
Ended August 31,
Increase (Decrease) in Net Assets: 2000 1999
<S> <S> <C> <C>
Operations: Investment income--net $ 9,966,828 $ 11,419,261
Realized losson investments--net (4,607,124) (569,093)
Change in unrealized appreciation/depreciation on
investments--net (10,597,603) (17,755,283)
------------ ------------
Net decrease in net assets resulting from operations (5,237,899) (6,905,115)
------------ ------------
Dividends & Investment income--net (9,966,828) (11,419,261)
Distributions to Realized gain on investments--net -- (3,642,201)
Shareholders: In excess of realized gain on investments--net -- (3,150,862)
------------ ------------
Net decrease in net assets resulting from dividends
and distributions to shareholders (9,966,828) (18,212,324)
------------ ------------
Capital Share Net decrease in net assets derived from capital
Transactions: shares transactions (36,975,237) (7,021,727)
------------ ------------
Net Assets: Total decrease in net assets (52,179,964) (32,139,166)
Beginning of year 201,573,742 233,712,908
------------ ------------
End of year $149,393,778 $201,573,742
============ ============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch High Income Municipal Bond Fund, Inc.
August 31, 2000
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: 2000 1999 1998 1997 1996
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 10.24 $ 11.46 $ 11.34 $ 10.94 $ 10.97
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .55 .55 .61 .65 .66
Realized and unrealized gain (loss) on
investments--net (.79) (.89) .32 .44 (.03)
-------- -------- -------- -------- --------
Total from investment operations (.24) (.34) .93 1.09 .63
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.55) (.55) (.61) (.65) (.66)
Realized gain on investments--net -- (.18) (.20) (.04) --
In excess of realized gain on
investments--net -- (.15) -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.55) (.88) (.81) (.69) (.66)
-------- -------- -------- -------- --------
Net asset value, end of year $ 9.45 $ 10.24 $ 11.46 $ 11.34 $ 10.94
======== ======== ======== ======== ========
Total Investment Based on net asset value per share (2.29%) (3.16%) 8.43% 10.20% 5.81%
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses 1.46% 1.46% 1.48% 1.44% 1.50%
Net Assets: ======== ======== ======== ======== ========
Investment income--net 5.68% 5.07% 5.37% 5.83% 5.90%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $149,394 $201,574 $233,713 $211,620 $199,552
Data: ======== ======== ======== ======== ========
Portfolio turnover 13.42% 39.53% 36.45% 43.07% 28.54%
======== ======== ======== ======== ========
*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, 2000
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 accounting principles generally accepted in the
United States of America, 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 investment strategies to increase or decrease the level of
risk to which the Fund is exposed more quickly and efficiently than
transactions in other types of instruments. 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, 2000
(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 future transactions and post-October losses.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Merrill Lynch Investment Managers, L.P. ("MLIM"). The general
partner of MLIM is Princeton Services, Inc. ("PSI"), an indirect
wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."),
which is the limited partner.
MLIM 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 MLIM 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, 2000, FAM Distributors, Inc. ("FAMD"),
which is a wholly-owned subsidary of Merrill Lynch Group, Inc.,
earned early withdrawal charges of $29,619 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 MLIM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of MLIM, PSI, FDS, FAMD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended August 31, 2000 were $23,001,843 and $61,684,225,
respectively.
Net realized losses for the year ended August 31, 2000 and net
unrealized losses as of August 31, 2000 were as follows:
Realized Unrealized
Losses Losses
Long-term investments $(4,607,124) $(12,354,504)
----------- ------------
Total $(4,607,124) $(12,354,504)
=========== ============
As of August 31, 2000, net unrealized depreciation for Federal
income tax purposes aggregated $12,355,955, of which $4,901,791
related to appreciated securities and $17,257,746 related to
depreciated securities. The aggregate cost of investments at August
31, 2000 for Federal income tax purposes was $159,333,842.
4. Capital Shares Transactions:
Transactions in capital shares were as follows:
For the Year Ended Dollar
August 31, 2000 Shares Amount
Shares sold 420,954 $ 4,098,154
Shares issued to share-
holders in reinvestment of
dividends 410,736 3,963,637
------------ ------------
Total issued 831,690 8,061,791
Shares tendered (4,709,915) (45,037,028)
------------ ------------
Net decrease (3,878,225) $(36,975,237)
============ ============
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)
============ ============
5. Capital Loss Carryforward:
At August 31, 2000, the Fund had a net capital loss carryforward of
approximately $2,052,000, all of which expires in 2008. This amount
will be available to offset like amounts of any future taxable
gains.
Merrill Lynch High Income Municipal Bond Fund, Inc.
August 31, 2000
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, 2000, 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 auditing standards
generally accepted in the United States of America. 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, 2000 by
correspondence with the custodian. 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,
2000, the results of its operations, the changes in its net assets,
and the financial highlights for the respective stated periods in
conformity with accounting principles generally accepted in the
United States of America.
Deloitte & Touche LLP
Princeton, New Jersey
October 5, 2000
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, 2000 qualify as tax-exempt interest dividends for Federal
income tax purposes.
Additionally, there were no long-term capital gains distributions
paid by the Fund during the year.
Please retain this information for your records.
Merrill Lynch High Income Municipal Bond Fund, Inc.
August 31, 2000
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, 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 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
Roscoe S. Suddarth, Director
Richard R. West, Director
ArthurZeikel, Director
Edward D. Zinbarg, 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
Jodi M. Pinedo, 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
