SC TO-I

As filed with the Securities and Exchange Commission on January 12, 2001

Securities Act File No. 333-39839
Investment Company Act File No. 811-6156

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

SCHEDULE TO

ISSUER TENDER OFFER STATEMENT

(Pursuant to Section 13(e)(1) of the

Securities Exchange Act of 1934)

(Amendment No.     )

Merrill Lynch High Income Municipal Bond Fund, Inc.

(Name of Issuer)

Merrill Lynch High Income Municipal Bond Fund, Inc.

(Names of Person(s) Filing Statement)

Shares of Common Stock, Par Value $.10 per share

(Title of Class of Securities)

589945 10 4

(CUSIP Number of Class of Securities)

Terry K. Glenn
Merrill Lynch High Income Municipal Bond Fund, Inc.
800 Scudders Mill Road
Plainsboro, New Jersey 08536
(609) 282-2800

(Name, Address and Telephone Number of Person Authorized to
Receive Notices and Communications on Behalf of Person(s) Filing Statement)

Copies to:

Thomas R. Smith, Jr., Esq.
Brown & Wood LLP
One World Trade Center
New York, New York 10048-0557
     Michael J. Hennewinkel, Esq.
Merrill Lynch Invesment Managers, L.P.
P.O. Box 9011
Princeton, New Jersey 08543-9011

CALCULATION OF FILING FEE
Transaction Valuation: $46,450,000*	Amount of Filing Fee: $9,290**

*	Calculated as the aggregate maximum purchase price to be paid for 5,000,000 shares in the offer, based upon the net asset value per share ($9.29) at January 10, 2001.
**	Calculated as 1/50th of 1% of the Transaction Valuation.
|   |	Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
	Amount Previously Paid: _______________	Filing Party:__________________
	Form or Registration No.:_______________	Date Filed:___________________
|   |	Check the box if the filing relates solely to preliminary communications made before the commencement of a tender offer.
	Check the appropriate boxes below to designate any transactions to which the statement relates:

|   |	third-party tender offer subject to Rule 14d-1.
|X|	issuer tender offer subject to Rule 13e-4.
|   |	going-private transaction subject to Rule 13e-3.
|   |	amendment to Schedule 13D under Rule 13d-2.
Check the following box if the filing is a final amendment reporting the results of the tender offer: |   |

Item 1.   Summary Term Sheet.

     Reference is made to the Summary Term Sheet of the Offer to Purchase that is attached as Exhibit (a)(1)(ii) and is incorporated herein by reference.

Item 2.   Subject Company Information.

     (a) The name of the issuer is Merrill Lynch High Income Municipal Bond Fund, Inc., a closed-end investment company organized as a Maryland corporation (the “Fund”). The principal executive offices of the Fund are located at 800 Scudders Mill Road, Plainsboro, New Jersey 08536. The Fund’s telephone number is 1-800-637-7455, ext. 4228.

     (b) The title of the securities being sought is shares of common stock, par value $0.10 per share of the Fund (the “Shares”). As of December 31, 2000 there were approximately 14.9 million Shares issued and outstanding. The Fund has been informed that no Director, officer or affiliate of the Fund intends to tender Shares pursuant to the Offer (defined below).

     (c) The Shares are not currently traded on an established secondary trading market.

Item 3.   Identity and Background of Filing Person.

     (a) The Fund is tendering for its own shares. The information required by this Item is set forth in Item 2(a) above.

     (b)-(d) Not applicable.

Item 4.  Terms of the Transaction.

(a)(1)      (i)    The Fund is seeking tenders for 5,000,000 Shares (the “Offer”).

(ii) For each Share tendered, the security holder will receive a cash amount equal to the net asset value per Share (the “NAV”) calculated on the day the tender offer terminates, less any “Early Withdrawal Charge,” upon the terms and subject to the conditions set forth in the Offer to Purchase dated January 12, 2001 (the “Offer to Purchase”). A copy of each of the Offer to Purchase and the related Letter of Transmittal is attached hereto as Exhibit (a)(1)(ii) and Exhibit (a)(1)(iii), respectively. Reference is hereby made to the Cover Page and Section 1 “Price; Number of Shares” of the Offer to Purchase, which are incorporated herein by reference.

(iii) The Offer is scheduled to expire on February 12, 2001, unless extended. Reference is hereby made to the Cover Page, Section 1 “Price; Number of Shares,” Section 4 “Withdrawal Rights” and Section 14 “Extension of Tender Period; Termination; Amendments” of the Offer to Purchase, which are incorporated herein by reference.

(iv) Not applicable.

(v) Reference is hereby made to Section 1 “Price; Number of Shares” and Section 14 “Extension of Tender Period; Termination; Amendments” of the Offer to Purchase, which are incorporated herein by reference.

(vi) Reference is hereby made to Section 4 “Withdrawal Rights” of the Offer to Purchase, which is incorporated herein by reference.

(vii) Reference is hereby made to the Cover Page, Section 2 “Procedure for Tendering Shares” and Section 4 “Withdrawal Rights” of the Offer to Purchase, which are incorporated herein by reference.

(viii) Reference is hereby made to Section 2 “Procedure for Tendering Shares” of the Offer to Purchase, which is incorporated herein by reference.

(ix) Reference is hereby made to the Cover Page and Section 1 “Price; Number of Shares” of the Offer to Purchase, which are incorporated herein by reference.

(x) Reference is hereby made to Section 8 “Certain Effects of the Offer” of the Offer to Purchase, which is incorporated herein by reference.

(xi) Reference is hereby made to Section 2 “Procedure for Tendering Shares” and Section 13 “Certain Federal Income Tax Consequences” of the Offer to Purchase, which are incorporated herein by reference.

 

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(xii) Reference is hereby made to Section 13 “Certain Federal Income Tax Consequences” of the Offer to Purchase, which is incorporated herein by reference.

(a)(2) Not applicable.

(b) The Fund has been informed that no Directors, officers or affiliates of the Fund intend to tender Shares pursuant to the Offer.

(c)-(f) Not applicable.

Item 5.   Past Contracts, Transactions, Negotiations and Agreements.

     (a)-(d) Not applicable.

     (e) The Fund does not know of any contract, agreement, arrangement, understanding or relationship, whether contingent or otherwise or whether or not legally enforceable, between the Fund, any of the Fund’s executive officers or directors, any person controlling the Fund or any executive officer or director of any corporation ultimately in control of the Fund and any person with respect to any securities of the Fund (including, but not limited to, any contract, agreement, arrangement, understanding or relationship concerning the transfer or the voting of any such securities, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss, or the giving or withholding of proxies, consents or authorizations).

Item 6.  Purposes of the Transaction and Plans and Proposals.

     (a) Reference is hereby made in Section 7 “Purpose of the Offer” of the Offer to Purchase, which is incorporated herein by reference.

     (b) Reference is hereby made to Section 8 “Certain Effects of the Offer” of the Offer to Purchase, which is incorporated herein by reference.

     (c) Reference is hereby made to Section 9 “Source and Amount of Funds” of the Offer to Purchase, which is incorporated herein by reference. The Fund is currently engaged in a public offering, from time to time, of its Shares. The Fund otherwise has no plans, proposals or negotiations that relate to or would result in (1) an extraordinary transaction, such as a merger, reorganization or liquidation, involving the Fund; (2) a purchase, sale or transfer of a material amount of assets of the Fund; (3) any material change in the present dividend rate or policy, or indebtedness or capitalization of the Fund; (4) any change in the present board of directors or management of the subject company, including but not limited to, any plans or proposal to change the number or the term of directors or to fill any existing vacancies on the board or to change any material term of the employment contract of any executive officer, except that on December 31, 2000 Arthur Zeikel retired as a Director of the Fund, leaving a vacancy on the Fund’s Board of Directors. As of the date of the Offer, the vacancy has not been filled nor has the Board made a plan to fill the vacancy; (5) any other material change in the Fund’s corporate structure or business, including any plans or proposals to make any changes in its investment policy for which a vote would be required by Section 13 of the Investment Company Act of 1940, as amended; (6) any class of equity securities of the Fund to be delisted from a national securities exchange or cease to be authorized to be quoted in an automated quotation system operated by a national securities association; (7) any class of equity securities of the Fund becoming eligible for termination of registration under Section 12(g)(4) of the Securities Exchange Act of 1934 (the “1934 Act”); (8) the suspension of the Fund’s obligation to file reports under 15(d) of the 1934 Act; (9) the acquisition by any person of additional securities of the Fund or the disposition of securities of the Fund; or (10) any changes in the Fund’s charter, bylaws or other governing instruments or other actions that could impede the acquisition of control of the Fund.

Item 7.   Source and Amount of Funds or Other Considerations.

     (a)-(d) Reference is hereby made to Section 9 “Source and Amount of Funds” of the Offer to Purchase, which is incorporated herein by reference.

Item 8.   Interest in Securities of the Subject Company.

     (a) The Fund does not hold any Shares in treasury.

     (b) Reference is made to Section 11 “Certain Information about the Fund” of the Offer to Purchase, which is incorporated herein by reference. Except as set forth therein, there have not been any transactions involving the Shares that were effected during the past 60 days by the Fund, any executive officer or director of the Fund, any

 

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person controlling the Fund, any executive or director of any corporation ultimately in control of the Fund or by any associate or subsidiary of any of the foregoing, including any executive officer or director of any such subsidiary. Within the last 60 business days pursuant to the offering of its Shares, the Fund has sold approximately 125,000 Shares at a price equal to the NAV on the date of each such sale.

Item 9.   Persons/Assets, Retained, Employed, Compensated or Used.

     (a) No persons have been directly or indirectly employed, retained, or are to be compensated by or on behalf of the Fund to make solicitations or recommendations in connection with the Offer.

     (b) Not applicable.

Item 10.   Financial Statements.

     This information has been audited by Deloitte & Touche LLP, whose reports, along with the Fund’s financial statements, are included in the Fund’s annual reports to shareholders, which are incorporated herein by reference for the fiscal year ended August 31, 1999 and the fiscal year ended August 31, 2000.

     (b) Not applicable.

     (c) Reference is hereby made to Section 10 “Summary of Selected Financial Information” of the Offer to Purchase, which is incorporated herein by reference.

Item 11.   Additional Information.

(a)	(1)	None.
	(2)	None.
	(3)	Not applicable.
	(4)	Not applicable.
	(5)	None.
(b)		The Offer to Purchase, attached hereto as Exhibit (a)(1)(ii), is incorporated herein by reference in its entirety.

Item 12.   Exhibits.

(a)(1)	(i)	Advertisement to be printed in The Wall Street Journal.
	(ii)	Offer to Purchase.
	(iii)	Form of Letter of Transmittal.
	(iv)	Letter to Stockholders.
(a)(2)-(4)		Not applicable.
(a)(5)	(i)	Audited Financial Statements of the Fund for the fiscal year ended August 31, 1999.*
	(ii)	Audited Financial Statements of the Fund for the fiscal year ended August 31, 2000.
	(iii)	Consent of Deloitte & Touche LLP.

 

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(b)	Not applicable.
(d)	Not applicable.
(g)	Not applicable.
(h)	Not applicable.

  * Previously filed as an exhibit to the Fund’s Issuer Tender Offer Statement on Schedule 13E-4 as filed with the Securities and Exchange Commission via EDGAR on January 18, 2000.

Item 13.   Information Required by Schedule 13E-3.

     Not applicable.

 

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SIGNATURE

     After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.

MERRILL LYNCH HIGH INCOME MUNICIPAL
	BOND FUND, INC.
By	/s/ TERRY K. GLENN
	(Terry K. Glenn, President)

January 12, 2001

 

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EXHIBIT INDEX

Exhibit
	(a)(1)(i)	Advertisement to be printed in The Wall Street Journal.
	(a)(1)(ii)	Offer to Purchase.
	(a)(1)(iii)	Form of Letter of Transmittal.
	(a)(1)(iv)	Letter to Stockholders.
	(a)(5)(ii)	Audited Financial Statements of the Fund for the fiscal year ended August 31, 2000.
	(a)(5)(iii)	Consent of Deloitte & Touche LLP.

  EX-99.(A)(1)(I) 2 0002.htm ADVERTISEMENT TO BE PRINTED IN THE WSJ

EXHIBIT (a)(1)(i)

EXHIBIT (a)(1)(i)

This announcement is not an offer to purchase or a solicitation of an offer to sell shares. The Offer is made
only by the Offer to Purchase dated January 12, 2001, and the related Letter of Transmittal. The Offer is
not being made to, nor will tenders be accepted from or on behalf of, holders of Shares in any
jurisdiction in which making or accepting the Offer would violate that jurisdiction’s laws.

Merrill Lynch High Income Municipal Bond Fund, Inc.

Notice of Offer to Purchase for Cash 5,000,000
of its Issued and Outstanding Shares
at Net Asset Value Per Share

THE EXPIRATION DATE AND THE WITHDRAWAL DEADLINE ARE 4:00 P.M.,
EASTERN TIME, ON MONDAY, FEBRUARY 12, 2001, UNLESS EXTENDED.

     Merrill Lynch High Income Municipal Bond Fund, Inc. (the “Fund”) is offering to purchase 5,000,000 of its issued and outstanding shares of common stock par value $.10 per share (the “Shares”) at a price equal to their net asset value (“NAV”) less any applicable early withdrawal charge as of the close of the New York Stock Exchange on the Expiration Date, February 12, 2001, unless extended, upon the terms and conditions set forth in the Offer to Purchase dated January 10, 2001 (the “Offer”). The NAV on January 10, 2001, was $9.29 per Share. The purpose of the Offer is to provide liquidity to stockholders since the Fund is unaware of any secondary market that exists for the Shares. The Offer is not conditioned upon the tender of any minimum number of Shares.

     If more than 5,000,000 Shares are duly tendered prior to the expiration of the Offer, assuming no changes in the factors originally considered by the Board of Directors when it determined to make the Offer, the Fund will either (1) extend the Offer period, if necessary, and increase the number of Shares that the Fund is offering to purchase to an amount that it believes will be sufficient to accommodate the excess Shares tendered, as well as any Shares tendered during the extended Offer period, or (2) purchase 5,000,000 Shares (or such larger number of Shares sought) on a pro rata basis.

     Shares tendered pursuant to the Offer may be withdrawn at any time prior to 4:00 p.m., Eastern time, on Monday, February 12, 2001, unless the Offer is extended, and, if not yet accepted for payment by the Fund, Shares may also be withdrawn after March 12, 2001.

     The information required to be disclosed by paragraph (d)(1) of Rule 13e-4 under the Securities Exchange Act of 1934, as amended, is contained in the Offer to Purchase and is incorporated herein by reference.

     The Offer to Purchase and the related Letter of Transmittal contain important information that should be read carefully before any decision is made with respect to the Offer.

     Questions and requests for assistance, for current NAV quotations or for copies of the Offer to Purchase, Letter of Transmittal, and any other tender offer documents, may be directed to the Merrill Lynch Response Center at the address and telephone number below. Copies will be furnished promptly at no expense to you and also may be obtained by completing and returning the coupon below to the Merrill Lynch Response Center. Stockholders who do not own Shares directly should effect a tender through their broker, dealer or nominee. For example, stockholders who purchased Shares through Merrill Lynch, Pierce, Fenner & Smith Incorporated should effect tenders through their Financial Consultant.

1-800-MERRILL, ext. 42281-800-637-7455

Mail to: Merrill Lynch Response Center
P.O. Box 30200, New Brunswick, NJ 08989-0200

[  ] Please send me Merrill Lynch High Income Municipal Bond Fund, Inc. Tender Offer Materials

Name:___________________________	Address:_____________________________________
Business Phone:___________________	City: ________________________________________
Home Phone:_____________________	State:_________________________	Zip: _________

Merrill Lynch clients, please give the name and office address of  your Financial Consultant:
____________________________________________________________________________________

4228

[LOGO]   Merrill Lynch

January 12, 2001

EX-99.(A)(1)(I)

 Exhibit (a)(1)(i)

EX-99.(A)(1)(II)

EXHIBIT (a)(1)(ii)

EXHIBIT (a)(1)(ii)

MERRILL LYNCH HIGH INCOME MUNICIPAL BOND FUND, INC.

800 Scudders Mill Road
Plainsboro, New Jersey 08536

OFFER TO PURCHASE FOR CASH 5,000,000
OF ITS ISSUED AND OUTSTANDING SHARES
AT NET ASSET VALUE PER SHARE

SUMMARY TERM SHEET

THIS SUMMARY HIGHLIGHTS CERTAIN INFORMATION IN THIS OFFER TO PURCHASE. TO UNDERSTAND THE OFFER FULLY AND FOR A MORE COMPLETE DESCRIPTION OF THE TERMS OF THE OFFER, YOU SHOULD READ CAREFULLY THIS ENTIRE OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL. WE HAVE INCLUDED SECTION REFERENCES TO DIRECT YOU TO A MORE COMPLETE DESCRIPTION OF THE TOPICS IN THIS SUMMARY.

• WHAT SECURITIES IS MERRILL LYNCH HIGH INCOME MUNICIPAL BOND FUND, INC. OFFERING TO PURCHASE? The Fund is offering to purchase up to 5,000,000 Shares of its common stock from you and other stockholders. If more than 5,000,000 Shares are surrendered (or “tendered”) by stockholders in response to this Offer, the Fund expects either to extend the Offer period and increase the number of Shares it is offering to purchase or to purchase the Shares tendered on a pro rata basis. This Offer is not conditioned upon the tender of any minimum number of Shares. See Section 1 “Price; Number of Shares”.

• HOW DO I TENDER MY SHARES? See Section 2 “Procedure for Tendering Shares”.

• If your Shares are registered in the name of your broker, dealer, commercial bank, trust company or other nominee, you must contact that entity and request that your shares be tendered to the Fund.

• If you wish to tender your Shares and your Shares are registered in your name, you may send your Share certificates, a properly completed and executed Letter of Transmittal and any additional documents required by the Letter of Transmittal to the Transfer Agent. The Transfer Agent must receive these documents prior to the expiration date of the offer (currently Monday, February 12, 2001).

• HOW MUCH IS THE FUND OFFERING TO PAY ME FOR MY SHARES? The Fund will pay you cash in an amount equal to the Fund’s net asset value per Share (“NAV”) as of the close of business of the New York Stock Exchange, less any applicable early withdrawal charge, on the expiration date (currently Monday, February 12, 2001). As of January 10, 2001, the Fund’s NAV, which fluctuates on a daily basis, was $9.29 per Share. See Section 1 “Price; Number of Shares” and Section 3 “Early Withdrawal Charge”.

• WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I TENDER MY SHARES? The Fund will assess an early withdrawal charge on your shares if you have held your Shares for less than three years. The maximum charge is 3% of the value of the tendered Shares, scaled down for each year you held your Shares, reaching zero after three years. The charge is not imposed on Shares you may have acquired through reinvestment of dividends nor on the value of your Shares attributable to capital appreciation. If you are a Merrill Lynch customer, Merrill Lynch may charge you a $5.35 processing fee to confirm the Fund’s purchase of your Shares. If you tender your Shares through a broker, dealer or other nominee, that broker, dealer or other nominee may charge you a fee for processing the transaction on your behalf. See Section 2 “Procedure for Tendering Shares” and Section 3 “Early Withdrawal Charge”.

• WILL THERE BE ANY TAX CONSEQUENCES TO ME IF I TENDER MY SHARES? If your tendered Shares are accepted, it will be a taxable transaction either in the form of a “sale or exchange” or under certain circumstances as a “dividend”. You should consult your tax advisor regarding the tax consequences to you of tendering your Shares. See Section 13 “Certain Federal Income Tax Consequences”.

• WHEN WILL THE OFFER EXPIRE? HOW WILL I KNOW IF THE OFFERING PERIOD IS EXTENDED OR IF THE OFFER IS TERMINATED? The Offer expires Monday, February 12, 2001 unless the Fund makes a public announcement either extending or terminating the Offer. If the Offer period is extended, the Fund’s public announcement will be made no later than 9:00 a.m. on the next business day after the previously scheduled expiration date. See Section 1 “Price; Number of Shares” and Section 14 “Extension of Tender Period; Termination; Amendments”.

• MAY I WITHDRAW MY TENDERED SHARES? You may withdraw your tendered Shares at any time prior to the expiration date, which, unless extended, is currently Monday, February 12, 2001. Additionally, if the Fund has not yet accepted your tendered Shares for payment, you may withdraw your tendered Shares at any time after March 12, 2001. To withdraw your tendered Shares, you should contact your Merrill Lynch Financial Consultant or other nominee, or you should submit proper written notice to the Fund’s Transfer Agent. See Section 4 “Withdrawal Rights”.

• DOES THE FUND HAVE THE FINANCIAL RESOURCES TO PAY ME FOR MY SHARES? Assuming that the Fund purchases 5,000,000 Shares at the January 10, 2001 NAV of $9.29 per Share, the Fund’s total cost, not including fees and expenses incurred in connection with the Offer, will be approximately $46.5 million. The Fund believes that it will not need to borrow money to finance the purchase of the tendered Shares, although the Fund has the authority to do so if necessary. See Section 9 “Source and Amount of Funds”.

• WHY IS THE FUND MAKING AN OFFER TO PURCHASE SHARES OF ITS COMMON STOCK? No established secondary trading market currently exists for the Fund’s Shares. As a result, the Fund’s Board of Directors decided to provide liquidity for stockholders by making this Offer. The Fund’s Board of Directors currently intends to consider making similar Offers each quarter. However, the Fund cannot assure you that you will be provided with sufficient liquidity, or that the Fund will make a similar offer in the future. Neither the Fund nor its Board of Directors makes any recommendation as to whether or not you should tender your Shares. See Section 7 “Purpose of the Offer”.

• WHAT ARE THE MOST SIGNIFICANT CONDITIONS TO THE OFFER? This Offer is not conditioned upon the tender of any minimum number of Shares. The Fund is not required to accept or pay for any Shares tendered. Under certain circumstances, the Fund may terminate or amend the Offer or postpone the acceptance of Shares for payment. See Section 6 “Certain Conditions of the Offer”.

• IF I DECIDE NOT TO TENDER MY SHARES, HOW WILL THE OFFER AFFECT MY SHARES? If you do not tender your Shares, you may be subject to certain risks resulting from the Fund reducing its assets to pay for tendered Shares. These risks include increased volatility in the Fund’s NAV and higher expenses. These risks should be reduced to the extent that the Fund sells new Shares. See Section 8 “Certain Effects of the Offer”.

 

• WHO SHOULD I CALL IF I NEED MORE INFORMATION? Questions and requests for assistance may be directed to your Merrill Lynch Financial Consultant or other nominee, or to the Transfer Agent at the address and telephone number set forth below. Requests for additional copies of this Offer to Purchase and the Letter of Transmittal should be directed to the Merrill Lynch Response Center.

		Transfer Agent:
Merrill Lynch Response Center		Financial Data Services, Inc.
P.O. Box 30200           New Brunswick, New Jersey 08989-0200           Attn: Merrill Lynch High Income			P.O. Box 45289 Jacksonville, Florida 32232-5289 Attn: Merrill Lynch High Income          Municipal Bond Fund, Inc.
	Municipal Bond Fund, Inc.
(800) 637-7455, ext. 4228			(800) 637-3863

 

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MERRILL LYNCH HIGH INCOME MUNICIPAL BOND FUND, INC.

800 Scudders Mill Road
Plainsboro, New Jersey 08536

OFFER TO PURCHASE FOR CASH 5,000,000
OF ITS ISSUED AND OUTSTANDING SHARES
AT NET ASSET VALUE PER SHARE

THE EXPIRATION DATE AND THE WITHDRAWAL DEADLINE IS 4:00 P.M.,
EASTERN TIME, ON MONDAY, FEBRUARY 12, 2001, UNLESS EXTENDED.

To the Holders of Shares of
MERRILL LYNCH HIGH INCOME MUNICIPAL BOND FUND, INC.:

     The Fund is offering to purchase up to 5,000,000 of its shares of common stock, par value $.10 per share (the “Shares”), for cash at a price equal to their net asset value (“NAV”), less any applicable Early Withdrawal Charge, as of the close of business of the New York Stock Exchange on Monday, February 12, 2001, the Expiration Date, unless extended, upon the terms and conditions set forth in this Offer to Purchase (the “Offer”) and the related Letter of Transmittal. The Shares are not currently traded on an established secondary market. The NAV on January 10, 2001 was $9.29 per Share. You can obtain current NAV quotations from your Merrill Lynch Financial Consultant or the Merrill Lynch, Pierce, Fenner & Smith Incorporated Response Center (the “Merrill Lynch Response Center”). See Section 1 “Price; Number of Shares”. The Fund presently intends each quarter to consider making a tender offer for its Shares at a price equal to their then current NAV.

     If more than 5,000,000 Shares are duly tendered prior to the expiration of the Offer, assuming no changes in the factors originally considered by the Board of Directors when it determined to make the Offer, the Fund will either (1) extend the Offer period, if necessary, and increase the number of Shares that the Fund is offering to purchase to an amount which it believes will be sufficient to accommodate the excess Shares tendered as well as any Shares tendered during the extended Offer period, or (2) purchase 5,000,000 Shares (or such greater number of Shares sought) on a pro rata basis.

THIS OFFER IS BEING MADE TO ALL STOCKHOLDERS OF THE FUND AND IS NOT
CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES BEING TENDERED.

IMPORTANT

     If you desire to tender all or any portion of your Shares, you should either (1) request your broker, dealer, commercial bank, trust company or other nominee to effect the transaction for you, or (2) if you own your Shares directly, complete and sign the Letter of Transmittal and mail or deliver it along with any Share certificate(s) and any other required documents to the Fund’s transfer agent, Financial Data Services, Inc. (the “Transfer Agent”). If your Shares are registered in the name of a broker, dealer, commercial bank, trust company or other nominee, you must contact such broker, dealer, commercial bank, trust company or other nominee if you desire to tender your Shares. Shares held in your Merrill Lynch, Pierce, Fenner & Smith Incorporated (“Merrill Lynch”) brokerage account are registered in the name of Merrill Lynch and are not held by you directly. Merrill Lynch may charge its customers a $5.35 processing fee to confirm a repurchase of Shares from such customers pursuant to the Offer.

     NEITHER THE FUND NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION TO ANY STOCKHOLDER AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING SHARES. EACH STOCKHOLDER MUST MAKE HIS OR HER OWN DECISION WHETHER TO TENDER SHARES, AND IF SO, HOW MANY SHARES TO TENDER.

     NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY RECOMMENDATION ON BEHALF OF THE FUND AS TO WHETHER STOCKHOLDERS SHOULD TENDER SHARES PURSUANT TO THE OFFER. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER OTHER THAN THOSE CONTAINED HEREIN OR IN THE LETTER OF TRANSMITTAL. IF GIVEN OR MADE, SUCH RECOMMENDATION

AND SUCH INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND. THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

     Questions and requests for assistance may be directed to your Merrill Lynch Financial Consultant or other nominee, or to the Transfer Agent at the address and telephone number set forth below. Requests for additional copies of this Offer to Purchase and the Letter of Transmittal should be directed to the Merrill Lynch Response Center.

January 12, 2001	MERRILL LYNCH HIGH INCOME
		MUNICIPAL BOND FUND, INC.

Merrill Lynch Response Center
    P.O. Box 30200
    New Brunswick, New Jersey 08989-0200
    Attn: Merrill Lynch High Income
            Municipal Bond Fund, Inc.
    (800) 637-7455, ext. 4228
Transfer Agent:
    Financial Data Services, Inc.
    P.O. Box 45289
    Jacksonville, Florida 32232-5289
    Attn: Merrill Lynch High Income
            Municipal Bond Fund, Inc.
    (800) 637-3863

TABLE OF CONTENTS

Section		Page
1.	Price; Number of Shares		3
2.	Procedure for Tendering Shares		3
3.	Early Withdrawal Charge		4
4.	Withdrawal Rights		4
5.	Payment for Shares		5
6.	Certain Conditions of the Offer		5
7.	Purpose of the Offer		6
8.	Certain Effects of the Offer		6
9.	Source and Amount of Funds		6
10.	Summary of Selected Financial Information		6
11.	Certain Information About the Fund		7
12.	Additional Information		8
13.	Certain Federal Income Tax Consequences		8
14.	Extension of Tender Period; Termination; Amendments		9
15.	Miscellaneous		9

 

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     1.   Price; Number of Shares.  The Fund will, upon the terms and subject to the conditions of the Offer, purchase up to 5,000,000 of its issued and outstanding Shares which are tendered and not withdrawn prior to 4:00 p.m., Eastern time, on February 12, 2001 (such time and date being hereinafter called the “Initial Expiration Date”), unless it determines to accept none of them. The Fund reserves the right to extend the Offer. See Section 14 “Extension of Tender Period; Termination; Amendments”. The later of the Initial Expiration Date or the latest time and date to which the Offer is extended is hereinafter called the “Expiration Date”. The purchase price of the Shares will be their NAV as of the close of the New York Stock Exchange on the Expiration Date. An Early Withdrawal Charge to recover distribution expenses will be assessed on Shares accepted for purchase which have been held for less than the applicable holding period. See Section 3 “Early Withdrawal Charge”.

     The Offer is being made to all stockholders of the Fund and is not conditioned upon any number of Shares being tendered. If more than 5,000,000 Shares are duly tendered prior to the expiration of the Offer, assuming no changes in the factors originally considered by the Board of Directors when it initially determined to make the Offer, the Fund will either (1) extend the Offer period, if necessary, and increase the number of Shares that the Fund is offering to purchase to an amount which it believes will be sufficient to accommodate the excess Shares tendered as well as any Shares tendered during the extended Offer period, or (2) purchase 5,000,000 Shares (or greater number of Shares sought) on a pro rata basis.

     As of December 31, 2000, there were approximately 14.9 million Shares issued and outstanding and there were 339 holders of record of Shares (in addition, Merrill Lynch maintains accounts for 4,582 beneficial owners of Shares). The Fund has been informed that none of the Directors, officers or affiliates of the Fund intends to tender any Shares pursuant to the Offer. The Shares currently are not traded on any established secondary market. Current NAV quotations for the Shares can be obtained from your Merrill Lynch Financial Consultant or from the Merrill Lynch Response Center at (800) 637-7455, ext. 4228.

     2.   Procedure for Tendering Shares.   In order for you to tender any of your Shares pursuant to the Offer, you may either: (a) request your broker, dealer, commercial bank, trust company or other nominee to effect the transaction for you, in which case a Letter of Transmittal is not required, or (b) if the Shares are registered in your name, send to the Transfer Agent, at the address set forth on page 2, any certificate(s) for such Shares, a properly completed and executed Letter of Transmittal and any other documents required therein. Please contact the Merrill Lynch Response Center at (800) 637-7455, ext. 4228 as to any additional documents which may be required.

A.    Procedures for Beneficial Owners Holding Shares Through Merrill Lynch or Other Brokers or Nominees.

     If your Shares are registered in the name of a broker, dealer, commercial bank, trust company or other nominee, you must contact such broker, dealer, commercial bank, trust company or other nominee if you desire to tender your Shares. You should contact such broker, dealer, commercial bank, trust company or other nominee in sufficient time to permit notification of your desire to tender to reach the Transfer Agent by the Expiration Date. No brokerage commission will be charged on the purchase of Shares by the Fund pursuant to the Offer. However, a broker or dealer may charge a fee for processing the transaction on your behalf. Merrill Lynch may charge its customers a $5.35 processing fee to confirm a purchase of Shares pursuant to the Offer.

B.    Procedures for Registered Stockholders.

     If you will be mailing or delivering the Letter of Transmittal and any other required documents to the Transfer Agent in order to tender your Shares, they must be received on or prior to the Expiration Date by the Transfer Agent at its address set forth on page 2 of this Offer to Purchase.

     Signatures on the Letter of Transmittal MUST be guaranteed by a member firm of a registered national securities exchange, or a commercial bank or trust company having an office, branch or agency in the United States, the existence and validity of which may be verified by the Transfer Agent through the use of industry publications. Notarized signatures are not sufficient.

     Payment for Shares tendered and purchased will be made only after receipt by the Transfer Agent on or before the Expiration Date of a properly completed and duly executed Letter of Transmittal and any other required documents. If your Shares are evidenced by certificates, those certificates also must be received by the Transfer Agent on or prior to the Expiration Date.

 

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     The method of delivery of any documents, including certificates for shares, is at the election and risk of the party tendering the shares. If documents are sent by mail, it is recommended that they be sent by registered mail, properly insured, with return receipt requested.

C.    Determinations of Validity.

     All questions as to the validity, form, eligibility (including time of receipt) and acceptance of tenders will be determined by the Fund, in its sole discretion, whose determination shall be final and binding. The Fund reserves the absolute right to reject any or all tenders determined by it not to be in appropriate form or the acceptance of or payment for which would, in the opinion of counsel for the Fund, be unlawful. The Fund also reserves the absolute right to waive any of the conditions of the Offer or any defect in any tender with respect to any particular Shares or any particular stockholder, and the Fund’s interpretations of the terms and conditions of the Offer will be final and binding. Unless waived, any defects or irregularities in connection with tenders must be cured within such times as the Fund shall determine. Tenders will not be deemed to have been made until the defects or irregularities have been cured or waived. Neither the Fund, its investment adviser and administrator, Merrill Lynch Investment Managers, L.P. (“MLIM”), nor the Transfer Agent, nor any other person shall be obligated to give notice of any defects or irregularities in tenders, nor shall any of them incur any liability for failure to give such notice.

D.    Tender Constitutes an Agreement.

     A tender of Shares made pursuant to any one of the procedures set forth above will constitute an agreement between the tendering stockholder and the Fund in accordance with the terms and subject to the conditions of the Offer.

     3.   Early Withdrawal Charge.  The Fund will assess an Early Withdrawal Charge on Shares accepted for purchase which have been held for less than three years. The charge will be paid to FAM Distributors, Inc. (the “Distributor”), an affiliate of MLIM and the distributor of the Shares, to recover distribution expenses. The Early Withdrawal Charge will be imposed on those Shares accepted for tender based on an amount equal to the lesser of the then current net asset value of the Shares or the cost of the Shares being tendered. Accordingly, the Early Withdrawal Charge is not imposed on increases in the net asset value above the initial purchase price. In addition, the Early Withdrawal Charge is not imposed on Shares derived from reinvestments of ordinary income or capital gain dividends. The Early Withdrawal Charge imposed will vary depending on the length of time the Shares have been owned since purchase (separate purchases shall not be aggregated for these purposes), as set forth in the following table:

Year of Tender After Purchase	Early Withdrawal Charge
First	3.0%
Second	2.0%
Third	1.0%
Fourth and following	0.0%

     In determining whether an Early Withdrawal Charge is applicable to a tender of Shares, the calculation will be determined in the manner that results in the lowest possible amount being charged. Therefore, it will be assumed that the tender is first of Shares acquired through dividend reinvestment and of Shares held for over three years and then of Shares held longest during the three-year period. The Early Withdrawal Charge may be waived on Shares tendered following the death of all beneficial owners of such Shares, provided the Shares are tendered within one year of death (a death certificate and other applicable documents may be required) or if later, reasonably promptly following completion of probate, or in connection with involuntary termination of an account in which Fund Shares are held. At the time of acceptance of the Offer, the record or succeeding beneficial owner must notify the Transfer Agent either directly or indirectly through the Distributor that the Early Withdrawal Charge should be waived. Upon confirmation of the owner’s entitlement, the waiver will be granted; otherwise, the waiver will be lost.

     4.   Withdrawal Rights.  You may withdraw Shares tendered at any time prior to the Expiration Date and, if the Shares have not yet been accepted for payment by the Fund, at any time after March 12, 2001.

 

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     Stockholders whose accounts are maintained through Merrill Lynch should notify their Merrill Lynch Financial Consultant prior to the Expiration Date if they wish to withdraw Shares. Stockholders whose accounts are maintained through another broker, dealer, commercial bank, trust company or other nominee should notify such nominee prior to the Expiration Date. Stockholders whose accounts are maintained directly through the Transfer Agent should submit written notice to the Transfer Agent.

     To be effective, any notice of withdrawal must be timely received by the Transfer Agent at the address set forth on page 2 of this Offer to Purchase. Any notice of withdrawal must specify the name of the person having deposited the Shares to be withdrawn, the number of Shares to be withdrawn, and, if the certificates representing such Shares have been delivered or otherwise identified to the Transfer Agent, the name of the registered holder(s) of such Shares as set forth in such certificates and the number of Shares to be withdrawn. If the certificates have been delivered to the Transfer Agent, then, prior to the release of such certificate, you must also submit the certificate numbers shown on the particular certificates evidencing such Shares and the signature on the notice of the withdrawal must be guaranteed by an Eligible Institution. All questions as to the form and validity (including time of receipt) of notices of withdrawal will be determined by the Fund in its sole discretion, whose determination shall be final and binding. Shares properly withdrawn shall not thereafter be deemed to be tendered for purposes of the Offer. However, withdrawn Shares may be retendered by following one of the procedures described in Section 2 “Procedure for Tendering Shares”.

     5.   Payment for Shares.  For purposes of the Offer, the Fund will be deemed to have accepted for payment (and thereby purchased) Shares which are tendered as, if and when it gives oral or written notice to the Transfer Agent of its election to purchase such Shares.

     Payment for Shares will be made promptly by the Transfer Agent to tendering stockholders as directed by the Fund. Certificates for Shares not purchased (see Section 1 “Price; Number of Shares” and Section 6 “Certain Conditions of the Offer”), or for Shares not tendered included in certificates forwarded to the Transfer Agent, will be returned promptly following the termination, expiration or withdrawal of the Offer, without expense to the tendering stockholder.

     The Fund will pay all transfer taxes, if any, payable on the transfer to it of Shares purchased pursuant to the Offer. If tendered certificates are registered in the name of any person other than the person signing the Letter of Transmittal, the amount of any such transfer taxes (whether imposed on the registered holder or such other person) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the payment of such taxes, or exemption therefrom, is submitted. The Fund will not pay any interest on the purchase price under any circumstances.

     As noted above, Merrill Lynch may charge its customers a $5.35 processing fee to confirm a purchase of Shares from such customers pursuant to the Offer.

     6.   Certain Conditions of the Offer.  The Fund shall not be required to accept for payment or pay for any Shares tendered, and may terminate or amend the Offer or may postpone the acceptance for payment of or payment for Shares tendered, if: (1) such purchases would impair the Fund’s status as a regulated investment company under the Internal Revenue Code of 1986, as amended (the “Code”) (which would cause the Fund’s income to be taxed at the corporate level in addition to the taxation of stockholders who receive dividends from the Fund); (2) the Fund would not be able to liquidate portfolio securities in a manner which is orderly and consistent with the Fund’s investment objective and policies in order to purchase Shares tendered pursuant to the Offer; or (3) there is, in the Board of Directors’ judgment, any (a) legal action or proceeding instituted or threatened challenging the Offer or otherwise materially adversely affecting the Fund, (b) declaration of a banking moratorium by Federal or state authorities or any suspension of payment by banks in the United States or New York State, which is material to the Fund, (c) limitation imposed by Federal or state authorities on the extension of credit by lending institutions, (d) commencement of war, armed hostilities or other international or national calamity directly or indirectly involving the United States, which is material to the Fund, or (e) other event or condition which would have a material adverse effect on the Fund or its stockholders if Shares tendered pursuant to the Offer were purchased.

     If the Fund determines to amend the Offer or to postpone the acceptance for payment of or payment for Shares tendered, it will, to the extent necessary, extend the period of time during which the Offer is open.

 

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Moreover, in the event any of the foregoing conditions are modified or waived in whole or in part at any time, the Fund will promptly make a public announcement of such waiver and may, depending on the materiality of the modification or waiver, extend the Offer period. See Section 14 “Extension of Tender Period; Terminating; Amendments”.

     7.   Purpose of the Offer.  The Fund does not currently believe there will be an active secondary market for its Shares. The Board of Directors has determined that it would be in the best interest of stockholders for the Fund to take action to attempt to provide liquidity to stockholders. To that end, the Directors presently intend each quarter to consider the making of a tender offer to purchase the Shares at NAV. The Fund will at no time be required to make any such tender offer.

     8.   Certain Effects of the Offer.  The purchase of Shares pursuant to the Offer will have the effect of increasing the proportionate interest in the Fund of stockholders who do not tender their Shares. If you retain your Shares, however, you will be subject to any increased risks that may result from the reduction in the Fund’s aggregate assets resulting from payment for the Shares, including, for example, the potential for greater volatility due to decreased diversification and higher expenses. However, the Fund believes that those risks will be reduced to the extent new Shares of the Fund are sold. All Shares purchased by the Fund pursuant to the Offer will be retired by the Fund’s Board of Directors.

     9.   Source and Amount of Funds.  The price to be paid by the Fund for shares tendered in the Offer will equal their NAV as of the close of the New York Stock Exchange on the Expiration Date, less any applicable Early Withdrawal Charge. Based on the NAV on January 10, 2001 the aggregate purchase price if 5,000,000 Shares are tendered and accepted for payment pursuant to the Offer would be approximately $46.5 million. The Fund anticipates that the purchase price for any Shares acquired pursuant to the Offer will first be derived from cash on hand, and then from the proceeds from the sale of cash equivalents held by the Fund. Although the Fund is authorized to borrow money to finance the purchase of Shares pursuant to tender offers, the Board of Directors believes that the Fund currently has sufficient liquidity to repurchase the Shares without such borrowing. However, if, in the judgment of the Directors, there is not sufficient liquidity of the assets of the Fund to pay for tendered Shares, the Fund may, within the limits set forth in the Prospectus, borrow money as described above or may terminate the Offer.

     10.   Summary of Selected Financial Information. Set forth on the next page is a summary of selected financial information for the Fund for the fiscal years ended August 31, 1999 and 2000. The financial information for fiscal years 1999 and 2000 has been excerpted from the Fund’s audited financial statements. The Fund’s audited financial statements for the fiscal years ended August 31, 1999 and 2000 are included in the Fund’s 1999 and 2000 annual reports to stockholders, respectively, which are incorporated by reference herein. You may request a copy of either or both Annual Reports at no charge by calling 1-800-637-3863 between 8:00 a.m. and 8:00 p.m. on any business day. The summary of selected financial information on the next page is qualified in its entirety by reference to such Annual Reports and the financial information, the notes thereto and related matter contained therein.

 

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SUMMARY OF SELECTED FINANCIAL INFORMATION
(in 000’s except per share data and ratios)

	For the Year Ended August 31, 2000		For the Year Ended August 31, 1999
INCOME STATEMENT
Investment income	$   12,535		$   14,701
Total expenses	2,568		3,282
Investment income—net	$     9,967		$   11,419
REALIZED AND UNREALIZED GAIN (LOSS) ON     INVESTMENTS—NET
Realized loss on investments—net	$   (4,607	)	$      (569	)
Change in unrealized depreciation on        investments—net	$ (10,598	)	$ (17,755	)
ASSETS AND LIABILITIES
Total assets	$150,109		$210,967
Total liabilities	715		9,393
Net assets	$149,394		$201,574
Net asset value per share	$      9.45		$    10.24
Shares of common stock outstanding	15,804		19,683
FINANCIAL HIGHLIGHTS
Per Share Operating Performance:
Investment income—net	$        .55		$        .55
Dividends from investment income—net	$       (.55	)	$       (.55	)
Distributions from realized gain on investments—net	$         —		$       (.18	)
Distributions in excess of realized gain on investments—net	$         —		$       (.15	)
Ratios to Average Net Assets:
Expenses	1.46	%	1.46	%
Investment income—net	5.68	%	5.07	%

     11.   Certain Information About the Fund.  The Fund was incorporated under the laws of the State of Maryland on August 16, 1990 and is a non-diversified, continuously offered, closed-end, management investment company registered under the 1940 Act. The investment objective of the Fund is to provide stockholders with high current income exempt from Federal income taxes by investing primarily in a portfolio of medium to lower grade or unrated municipal obligations the interest on which is exempt from Federal income taxes in the opinion of bond counsel to the issuer. The Fund seeks to achieve its objective by investing at least 80% of its assets, except during temporary defensive periods, in a portfolio of obligations issued by or on behalf of states, territories and possessions of the United States and their political subdivisions, agencies or instrumentalities paying interest that, in the opinion of bond counsel to the issuer, is exempt from Federal income taxes. FAM, an affiliate of Merrill Lynch, acts as investment adviser and administrator for the Fund.

     There have not been any transactions involving the Shares of the Fund that were effected during the past 60 business days by the Fund, any executive officer or Director of the Fund, any person controlling the Fund, any executive officer or director of any corporation ultimately in control of the Fund or by any associate or subsidiary of any of the foregoing including any executive officer or director of any such subsidiary, except that within the past 60 business days pursuant to the public offering of its Shares the Fund has sold approximately 125,000 Shares at a price equal to NAV on the date of each such sale.

     The principal executive offices of the Fund are located at 800 Scudders Mill Road, Plainsboro, New Jersey 08536.

 

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     12.   Additional Information.  The Fund has filed an issuer tender offer statement on Schedule TO with the SEC which includes certain additional information relating to the Offer. Such material may be inspected and copied at prescribed rates at the SEC’s public reference facilities at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549; Seven World Trade Center, New York, New York 10048; and Room 3190, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material may also be obtained by mail at prescribed rates from the Public Reference Branch of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. The SEC maintains a web site (http://www.sec.gov) that contains the Fund’s Schedule TO and other information regarding the Fund.

     13.   Certain Federal Income Tax Consequences.  The following discussion is a general summary of the Federal income tax consequences of a sale of Shares pursuant to the Offer. You should consult your own tax adviser for a complete description of the tax consequences to you of a sale of Shares pursuant to the Offer.

     The sale of Shares pursuant to the Offer will be a taxable transaction for Federal income tax purposes, either as a “sale or exchange”, or under certain circumstances, as a “dividend”. In general, the transaction should be treated as a sale or exchange of the Shares under Section 302 of the Code, if the receipt of cash (a) is “substantially disproportionate” with respect to the stockholder, (b) results in a “complete redemption” of the stockholder’s interest in the Fund, or (c) is “not essentially equivalent to a dividend” with respect to the stockholder. A “substantially disproportionate” distribution generally requires a reduction of at least 20% in the stockholder’s proportionate interest in the Fund after all shares are tendered. A “complete redemption” of a stockholder’s interest generally requires that all Shares directly owned or attributed to such stockholder under Section 318 of the Code be disposed of. A distribution “not essentially equivalent to a dividend” requires that there be a “meaningful reduction” in the stockholder’s interest, which should be the case if the stockholder has a minimal interest in the Fund, exercises no control over Fund affairs and suffers a reduction in his proportionate interest in the Fund.

     If the sale of your Shares meets any of these three tests for “sale or exchange” treatment, you will recognize gain or loss equal to the difference between the amount of cash received pursuant to the Offer and the adjusted tax basis of the Shares sold. Such gain or loss will be a capital gain or loss if the Shares sold have been held by you as a capital asset. In general, capital gain or loss with respect to Shares sold will be long-term capital gain or loss if the holding period for such Shares is more than one year. The maximum capital gains rate applicable to such a sale of Shares would be 20%.

     If none of the Code Section 302 tests described above is met, you may be treated as having received, in whole or in part, a dividend, return of capital or capital gain, depending on (i) whether the Fund has sufficient earnings and profits to support a dividend and (ii) your tax basis in the Shares. The tax basis in the Shares tendered to the Fund will be transferred to any remaining Shares held by you. In addition, if the sale of Shares pursuant to the Offer is treated as a “dividend” to a tendering stockholder, a constructive dividend under Code Section 305(c) may result to a non-tendering stockholder whose proportionate interest in the earnings and assets of the Fund has been increased as a result of such tender.

     Accordingly, the differentiation between “dividend” and “sale or exchange” treatment is important with respect to the amount and character of income that tendering stockholders are deemed to receive. In addition, while the marginal tax rates for dividends and capital gains remain the same for corporate stockholders, under the Code the top income tax rate on ordinary income of individuals (39.6%) will exceed the maximum tax rate on capital gains (20%).

     In the event that the sale of Shares by a corporate stockholder pursuant to the Offer is treated as a dividend, the corporate stockholder may be entitled to claim a “dividends received deduction” on the cash received, which ordinarily would be 70% of such dividend. However, corporate stockholders should consult their tax advisers about certain provisions of the Code that may affect the dividends received deduction.

     The Transfer Agent will be required to withhold 31% of the gross proceeds paid to a stockholder or other payee pursuant to the Offer unless either: (a) the stockholder has provided the stockholder’s taxpayer identification number/social security number, and certifies under penalties of perjury: (i) that such number is correct, and (ii) either that (A) the stockholder is exempt from backup withholding, (B) the stockholder is not otherwise subject to backup withholding as a result of a failure to report all interest or dividends, or (C) the Internal Revenue Service has notified the stockholder that the stockholder is no longer subject to backup withholding; or (b) an exception

 

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applies under applicable law and Treasury regulations. Foreign stockholders may be required to provide the Transfer Agent with a completed Form W-8BEN, available from the Transfer Agent, in order to avoid 31% backup withholding.

     Unless a reduced rate of withholding or a withholding exemption is available under an applicable tax treaty, a stockholder who is a nonresident alien or a foreign entity may be subject to a 30% United States withholding tax on the gross proceeds received by such stockholder, if the proceeds are treated as a “dividend” under the rules described above. Foreign stockholders should consult their tax advisers regarding application of these withholding rules.

     14.   Extension of Tender Period; Termination; Amendments.  The Fund reserves the right, at any time and from time to time, to extend the period of time during which the Offer is pending by making a public announcement thereof. In the event that the Fund so elects to extend the tender period, the NAV for the Shares tendered will be determined as of the close of business of the New York Stock Exchange on the Expiration Date, as extended. During any such extension, all Shares previously tendered and not purchased or withdrawn will remain subject to the Offer. The Fund also reserves the right, at any time and from time to time up to and including the Expiration Date, to (a) terminate the Offer and not to purchase or pay for any Shares, and (b) amend the Offer in any respect by making a public announcement. Such public announcement will be issued no later than 9:00 a.m., Eastern time, on the next business day after the previously scheduled Expiration Date and will disclose the approximate number of Shares tendered as of that date. Without limiting the manner in which the Fund may choose to make a public announcement of extension, termination or amendment, except as provided by applicable law (including Rule 13e-4(e)(2) under the 1934 Act), the Fund shall have no obligation to publish, advertise or otherwise communicate any such public announcement, other than by making a press release to the Dow Jones News Service.

     15.   Miscellaneous.  The Offer is not being made to, nor will tenders be accepted from, stockholders in any jurisdiction in which the Offer or its acceptance would not comply with the securities laws of such jurisdiction. The Fund is not aware of any jurisdiction in which the Offer or tenders pursuant thereto would not be in compliance with the laws of such jurisdiction. However, the Fund reserves the right to exclude stockholders from the Offer in any jurisdiction in which it is asserted that the Offer cannot lawfully be made. The Fund believes such exclusion is permissible under applicable tender offer rules, provided the Fund makes a good faith effort to comply with any state law deemed applicable to the Offer. In any jurisdiction the securities laws of which require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on the Fund’s behalf by Merrill Lynch.

MERRILL LYNCH HIGH INCOME
MUNICIPAL BOND FUND, INC.

January 12, 2001

 

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  EX-99.(A)(1)(III) 4 0004.htm FORM OF LETTER OF TRANSMITTAL

EXHIBIT (a)(1)(iii)

EXHIBIT (a)(1)(iii)

LETTER OF TRANSMITTAL

to be Used to Tender Shares of

MERRILL LYNCH HIGH INCOME MUNICIPAL BOND FUND, INC.

Pursuant to the Offer to Purchase

Dated January 12, 2001

THE EXPIRATION DATE AND THE WITHDRAWAL DEADLINE IS 4:00 P.M., EASTERN TIME, ON MONDAY, FEBRUARY 12, 2001, UNLESS EXTENDED

Transfer Agent:
Financial Data Services, Inc.
Attention: Merrill Lynch High Income Municipal Bond Fund, Inc.
P.O. Box 45289 Jacksonville, Florida 32232-5289
Telephone Information Number: (800) 637-3863

Delivery to an address other than that shown above does not constitute valid delivery.

     This Letter of Transmittal is to be used only if the stockholder is a record owner of Shares who desires to effect the tender offer transaction himself or herself by transmitting the necessary documents to the Fund’s Transfer Agent and does not intend to request his or her broker or dealer to effect the transaction for him or her. A stockholder who holds Shares in a Merrill Lynch account or through another broker, dealer, commercial bank, trust company or other nominee is not the record owner and should instruct his or her Merrill Lynch Financial Consultant or such other nominee to effect the tender on his or her behalf.

PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY

Ladies and Gentlemen:

     The undersigned hereby tenders to Merrill Lynch High Income Municipal Bond Fund, Inc., a closed-end investment company incorporated under the laws of the State of Maryland (the “Fund”), the shares described below of its common stock, par value $.10 per share (the “Shares”), at a price equal to the net asset value per Share (“NAV”) calculated on the Expiration Date (as defined in the Offer to Purchase), in cash, less any applicable Early Withdrawal Charge, upon the terms and conditions set forth in the Offer to Purchase dated January 12, 2001 receipt of which is hereby acknowledged, and in this Letter of Transmittal (which together constitute the “Offer”).

     The undersigned hereby sells to the Fund all Shares tendered hereby that are purchased pursuant to the Offer and hereby irrevocably constitutes and appoints the Transfer Agent as attorney in fact of the undersigned, with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to present such Shares and any Share certificates for cancellation of such Shares on the Fund’s books. The undersigned hereby warrants that the undersigned has full authority to sell the Shares tendered hereby and that the Fund will acquire good title thereto, free and clear of all liens, charges, encumbrances, conditional sales agreements or other obligations relating to the sale thereof, and not subject to any adverse claim, when and to the extent the same are purchased by it. Upon request, the undersigned will execute and deliver any additional documents necessary to complete the sale in accordance with the terms of the Offer.

     The undersigned recognizes that under certain circumstances set forth in the Offer to Purchase, the Fund may not be required to purchase any of the Shares tendered hereby. In that event, the undersigned understands that, in the case of Shares evidenced by certificates, certificate(s) for any Shares not purchased will be returned to the undersigned at the address indicated above. In the case of Shares not evidenced by certificates and held in an Investment Account, the Transfer Agent will cancel the tender order and no Shares will be withdrawn from the Account.

     The check for the purchase price for the tendered Shares purchased will be issued to the order of the undersigned and mailed to the address indicated in the “Description of Shares Tendered” table below.

     All authority herein conferred or agreed to be conferred shall survive the death or incapacity of the undersigned and the obligation of the undersigned hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned. Except as stated in the Offer, this tender is irrevocable.

INSTRUCTIONS

Forming Part of the Terms and Conditions of the Offer

     1.   Guarantee of Signatures. All signatures on this Letter of Transmittal must be guaranteed by a member firm of a registered national securities exchange, or a commercial bank or trust company having an office, branch or agency in the United States. This Letter of Transmittal is to be used only if you may effect the tender offer transaction yourself and do not intend to request your broker or dealer to effect the transaction for you.

     2.   Delivery of Letter of Transmittal and Certificates.  Certificates for all tendered Shares, together with a properly completed and duly executed Letter of Transmittal, should be mailed or delivered to the Transfer Agent on or prior to the Expiration Date at the appropriate address set forth herein and must be received by the Transfer Agent prior to the Expiration Date.

     The method of delivery of all documents, including certificates for Shares, is at the election and risk of the tendering stockholder.

     3.   Inadequate Space.  If the space provided is inadequate, the certificate numbers and number of Shares should be listed on a separate signed schedule attached hereto.

     4.   Partial Tenders.  If fewer than all of the Shares in your Investment Account or evidenced by any certificate submitted are to be tendered, fill in the number of Shares which are to be tendered in the column entitled “No. of Shares Tendered”. If applicable, a new certificate for the remainder of the Shares evidenced by your old certificate(s) will be sent to you as soon as practicable after the Expiration Date of the Offer. All Shares represented by certificate(s) listed or in your Investment Account are deemed to have been tendered unless otherwise indicated.

     5.   Signatures on Letter of Transmittal, Authorization and Endorsements.

     (a) If the Letter of Transmittal is signed by the registered holder of the Shares tendered hereby, the
signature(s) must correspond with the name(s) in which the Shares are registered.

     (b) If the Shares are held of record by two or more joint holders, all such holders must sign this Letter of Transmittal.

     (c) If any tendered Shares are registered in different names it will be necessary to complete, sign and submit as many separate Letters of Transmittal as there are different registrations of Shares.

     (d) When this Letter of Transmittal is signed by the registered holder(s) of the Shares listed and, if applicable, of the certificates transmitted hereby, no endorsements of certificates or separate authorizations are required.

     (e) If this Letter of Transmittal or any certificates or authorizations are signed by trustees, executors, administrators, guardians, attorneys in fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and must submit proper evidence satisfactory to the Fund of their authority so to act.

     6.   Transfer Taxes.  The Fund will pay all the taxes, if any, payable on the transfer to it of Shares purchased pursuant to the Offer. If tendered certificates are registered in the name of any person other than the person(s) signing this Letter of Transmittal, the amount of any transfer taxes (whether imposed on the registered holder or such other person) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the payment of such taxes, or exemption therefrom, is submitted.

     7.   Irregularities. All questions as to the validity, form, eligibility (including time of receipt) and acceptance of any tender of Shares will be determined by the Fund in its sole discretion, whose determination shall be final and binding. The Fund reserves the absolute right to reject any or all tenders determined by it not to be in appropriate form or the acceptance of or payment for which would, in the opinion of counsel for the Fund, be unlawful. The Fund also reserves the absolute right to waive any of the conditions of the Offer or any defect in any tender with respect to any particular Shares or any particular stockholder, and the Fund’s interpretations of the terms and conditions of the Offer (including these instructions) will be final and binding. Unless waived, any defects or irregularities in connection with tenders must be cured within such time as the Fund shall determine. Tenders will not be deemed to have been made until all defects and irregularities have been cured or waived. Neither the Fund, Merrill Lynch Investment Managers, L.P. nor the Transfer Agent, nor any other person shall be obligated to give notice of defects or irregularities in tenders, nor shall any of them incur any liability for failure to give any such notice.

     8.   Important Tax Information.  Under Federal income tax law, a stockholder whose tendered Shares are accepted for payment is required by law to provide the Transfer Agent (as payer) with his correct taxpayer identification number, which is accomplished by completing and signing the Signature Form.

DESCRIPTION OF SHARES TENDERED
(See Instructions 3 and 4)

Name(s) and Address(es) of Registered Holder(s) (Please Fill in Exactly the Name(s) in Which Shares Are Registered)	Shares Tendered (Attach additional schedules if necessary)
	Certificate No.(s)*	No. of Shares listed on Certificate*	No. of Shares Tendered**
Account No.	Total Shares Tendered

* Need not be completed by stockholders whose Shares are not evidenced by certificates.

** To be completed by all tendering stockholders, whether or not your Shares are evidenced by certificates. If you desire to tender fewer than all Shares held in your account or evidenced by a certificate listed above, please indicate in this column the number of Shares you wish to tender. Otherwise all Shares evidenced by such certificate or held in your account will be deemed to have been tendered.

SIGNATURE FORM
—SIGN HERE—
(See Instructions 1, 5 and 8)

Social Security No.
or Taxpayer Identification No. . . . . . . . . . . .

Under penalty of perjury, I certify (1) that the number set forth above is my correct Social Security No. or Taxpayer Identification No. and (2) that I am not subject to backup withholding either because (a) I am exempt from backup withholding, (b) I have not been notified by the Internal Revenue Service (the “IRS”) that I am subject thereto as a result of failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject thereto.
Instruction: You must strike out the language in (2) above if you have been notified that you are subject to backup withholding due to underreporting and you have not received a notice from the IRS that backup withholding has been terminated.

...................................................................................................................................................

...................................................................................................................................................

(Signature(s) of Owner(s) Exactly as Registered)

Date  ......................................, 2000

Name (s)  ......................................................................................................................................

Address(es)  .................................................................................................................................

..............................................................................................................................................
(Please Print)

Telephone Number (    )  ......................................

Signature (s) Guaranteed  ................................................................................................................

                                  ........................... ....................................................................................

EX-99.(A)(1)(III)

 Exhibit (a)(1)(iii)

EX-99.(A)(1)(IV)

EXHIBIT (a)(1)(iv)

EXHIBIT (a)(1)(iv)

Merrill Lynch, Pierce, Fenner & Smith
                          Incorporated
Response Center
P.O. Box 30200
New Brunswick, NJ 08989-0200

[LOGO]   Merrill Lynch

Dear Stockholder:

     As you requested, we are enclosing a copy of the Merrill Lynch High Income Municipal Bond Fund, Inc. (the “Fund”) Offer to Purchase dated January 12, 2001 (the “Offer to Purchase”) 5,000,000 issued and outstanding Shares (the “Shares”). The Offer to Purchase is for cash at net asset value (“NAV”) per share as of the expiration date of the Offer, less any Early Withdrawal Charge. Together with the Offer to Purchase we are sending you a form Letter of Transmittal (the “Letter”) for use by holders of record of Shares which you should read carefully. Certain selected financial information with respect to the Fund is set forth in the Offer to Purchase.

     If, after reviewing the information set forth in the Offer to Purchase and Letter, you wish to tender Shares for purchase by the Fund, please either contact your Merrill Lynch Financial Consultant or other broker, dealer or nominee to effect the tender for you or, if you are the record owner of the Shares, you may follow the instructions contained in the Offer to Purchase and Letter.

     Neither the Fund nor its Board of Directors makes any recommendation to any holder of Shares as to whether or not to tender Shares. Each stockholder is urged to consult his or her broker or tax advisor before deciding whether to tender any Shares.

     The Fund’s annualized distribution rate for the period November 17, 2000 through January 1, 2001, based on the amounts actually distributed by the Fund, was 5.75%, based on the January 1, 2001 NAV of $9.26 per Share. For the Fund’s fiscal quarter ended November 30, 2000, the Fund’s highest NAV was $9.46 per Share and its lowest NAV was $9.22 per Share. The Fund’s NAV on January 10, 2001 was $9.29 per Share. The Fund publishes its NAV each week in Barron’s. It appears in the “Investment Company Institute List” under the sub-heading “Closed-End Bond Funds” within the listings of mutual funds and closed-end funds.

     Requests for current NAV quotations or for additional copies of the Offer to Purchase, the Letter and any other tender offer documents may be directed to the Merrill Lynch Response Center at (800) 637-7455, ext. 4228.

     Should you have any other questions on the enclosed material, please do not hesitate to contact your Merrill Lynch Financial Consultant or other broker or dealer or call the Fund’s Transfer Agent, Financial Data Services, Inc., at (800) 637-3863. We appreciate your continued interest in Merrill Lynch High Income Municipal Bond Fund, Inc.

Yours truly,

MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED

  EX-99.(A)(5)(II) 6 0006.txt AUDITED FINANCIAL STATEMENTS F/Y/E 08/31/2000 EXHIBIT (a)(5)(ii) EXHIBIT (a)(5)(ii) 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 PROXY RESULTS

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 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

Shares Voted Shares Voted Shares Voted For Against Abstain 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

Merrill Lynch High Income Municipal Bond Fund, Inc. August 31, 2000 SCHEDULE OF INVESTMENTS (in Thousands)

S&P Moody's Face State Ratings Ratings Amount Issue Value 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

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 SCHEDULE OF INVESTMENTS (continued) (in Thousands)

S&P Moody's Face State Ratings Ratings Amount Issue Value 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--3.2% NR* NR* 1,900 Connecticut State Development Authority, IDR (AFCO Cargo 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

Merrill Lynch High Income Municipal Bond Fund, Inc. August 31, 2000 SCHEDULE OF INVESTMENTS (continued) (in Thousands)

S&P Moody's Face State Ratings Ratings Amount Issue Value 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

Merrill Lynch High Income Municipal Bond Fund, Inc. August 31, 2000 SCHEDULE OF INVESTMENTS (continued) (in Thousands)

S&P Moody's Face State Ratings Ratings Amount Issue Value 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

Merrill Lynch High Income Municipal Bond Fund, Inc. August 31, 2000 SCHEDULE OF INVESTMENTS (concluded) (in Thousands)

S&P Moody's Face State Ratings Ratings Amount Issue Value 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.

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 Statement of Assets and Liabilities as of August 31, 2000 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. Merrill Lynch High Income Municipal Bond Fund, Inc. August 31, 2000 FINANCIAL INFORMATION (continued) Statement of Operations

For the Year Ended August 31, 2000 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.

Statements of Changes in Net Assets For the Year Ended August 31, Increase (Decrease) in Net Assets: 2000 1999 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.

Merrill Lynch High Income Municipal Bond Fund, Inc. August 31, 2000 FINANCIAL INFORMATION (concluded) Financial Highlights

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 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.

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 Arthur Zeikel, 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 EX-99.(A)(5)(III) 7 0007.htm INDEPENDENT AUDITORS CONSENT

EXHIBIT (a)(5)(iii)

EXHIBIT (a)(5)(iii)

INDEPENDENT AUDITORS’ CONSENT

We consent to the incorporation by reference in this Schedule TO Issuer Tender Offer Statement in Registration Statement No. 333-39839 of our reports dated October 5, 1999 and October 5, 2000 appearing in the Annual Reports of Merrill Lynch High Income Municipal Bond Fund, Inc. for the years ended August 31, 1999 and August 31, 2000, respectively. Our report dated October 5, 2000 is also included in Exhibit (a)(5)(ii) to the Registration Statement.

/s/ Deloitte & Touche LLP

Princeton, New Jersey
January 12, 2001

  -----END PRIVACY-ENHANCED MESSAGE-----

EX-99.(A)(5)(II)

                                                    EXHIBIT (a)(5)(ii)






                                                    EXHIBIT (a)(5)(ii)

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



PROXY RESULTS

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
                                                                               
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

                                                                     Shares Voted   Shares Voted    Shares Voted
                                                                         For          Against         Abstain
                                                                                            
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


Merrill Lynch High Income Municipal Bond Fund, Inc.
August 31, 2000


SCHEDULE OF INVESTMENTS                                                                             (in Thousands)

                 S&P    Moody's   Face
State          Ratings  Ratings  Amount                       Issue                                            Value
                                                                                                
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



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

SCHEDULE OF INVESTMENTS (continued)                                                                 (in Thousands)

                 S&P    Moody's   Face
State          Ratings  Ratings  Amount                       Issue                                            Value
                                                                                                
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--3.2% NR*     NR*    1,900   Connecticut State Development Authority, IDR (AFCO Cargo
                                         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




Merrill Lynch High Income Municipal Bond Fund, Inc.
August 31, 2000

SCHEDULE OF INVESTMENTS (continued)                                                                 (in Thousands)

                 S&P    Moody's   Face
State          Ratings  Ratings  Amount                       Issue                                            Value
                                                                                                
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



Merrill Lynch High Income Municipal Bond Fund, Inc.
August 31, 2000

SCHEDULE OF INVESTMENTS (continued)                                                                 (in Thousands)

                 S&P    Moody's   Face
State          Ratings  Ratings  Amount                       Issue                                            Value
                                                                                                
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




Merrill Lynch High Income Municipal Bond Fund, Inc.
August 31, 2000

SCHEDULE OF INVESTMENTS (concluded)                                                                 (in Thousands)

                 S&P    Moody's   Face
State          Ratings  Ratings  Amount                       Issue                                            Value
                                                                                                
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.




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


Statement of Assets and Liabilities as of August 31, 2000
                                                                                                   
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.



Merrill Lynch High Income Municipal Bond Fund, Inc.
August 31, 2000


FINANCIAL INFORMATION (continued)


Statement of Operations

                                                                                                      For the Year Ended
                                                                                                         August 31, 2000
                                                                                                   
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.


Statements of Changes in Net Assets

                                                                                                  For the Year
                                                                                                 Ended August 31,
Increase (Decrease) in Net Assets:                                                           2000               1999
                                                                                                   
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.




Merrill Lynch High Income Municipal Bond Fund, Inc.
August 31, 2000


FINANCIAL INFORMATION (concluded)


Financial Highlights

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
                                                                                              
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.



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
Arthur Zeikel, 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

EX-99.(A)(5)(III)

 Exhibit (a)(5)(iii)