MERRILL LYNCH HIGH INCOME MUNICIPAL BOND FUND INC, N-2/A, 1994-11-25

MERRILL LYNCH HIGH INCOME MUNICIPAL BOND FUND INC
N-2/A, 1994-11-25

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 25, 1994

SECURITIES ACT FILE NO. 33-50861
INVESTMENT COMPANY ACT FILE NO. 811-6156

POST-EFFECTIVE AMENDMENT TO REGISTRATION STATEMENT AS STATED BELOW
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM N-2

<TABLE>
<S> <C> <C>
X REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
/ / PRE-EFFECTIVE AMENDMENT NO.
X POST-EFFECTIVE AMENDMENT NO. 1
AND/OR
X REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
X AMENDMENT NO. 6
</TABLE>

-------------------
MERRILL LYNCH HIGH INCOME MUNICIPAL BOND FUND, INC.
(Exact name of registrant as specified in its charter)

800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, including Area Code: (609) 282-2800

ARTHUR ZEIKEL
MERRILL LYNCH HIGH INCOME MUNICIPAL BOND FUND, INC.
800 SCUDDERS MILL ROAD, PLAINSBORO, NEW JERSEY
MAILING ADDRESS: P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(Name and address of agent for service)
-------------------

COPIES TO:

<TABLE>
<S> <C>
PHILIP L. KIRSTEIN, ESQ. THOMAS R. SMITH, JR., ESQ.
MERRILL LYNCH ASSET MANAGEMENT, L.P. BROWN & WOOD
P.O. BOX 9011 ONE WORLD TRADE CENTER
PRINCETON, NEW JERSEY 08543-9011 NEW YORK, NEW YORK 10048-0557
</TABLE>

-------------------

APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the effective date of this Registration Statement.
-------------------

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. X
-------------------

PURSUANT TO RULE 429 UNDER THE SECURITIES ACT OF 1933, THE PROSPECTUS IN
THIS REGISTRATION STATEMENT IS A COMBINED PROSPECTUS AND RELATES TO REGISTRATION
STATEMENT NO. 33-36472, AS AMENDED, PREVIOUSLY FILED BY THE REGISTRANT ON FORM
N-2 ON NOVEMBER 12, 1992 AND DECLARED EFFECTIVE ON DECEMBER 29, 1992. THIS
REGISTRATION STATEMENT ALSO CONSTITUTES POST-EFFECTIVE AMENDMENT NO. 4 TO
REGISTRATION STATEMENT NO. 33-36472, AND SUCH POST-EFFECTIVE AMENDMENT SHALL
HEREAFTER BECOME EFFECTIVE CONCURRENTLY WITH THE EFFECTIVENESS OF THIS
REGISTRATION STATEMENT AND IN ACCORDANCE WITH SECTION 8(C) OF THE SECURITIES ACT
OF 1933. THE REGISTRATION STATEMENT AND THE REGISTRATION STATEMENT AMENDED
HEREBY ARE COLLECTIVELY REFERRED TO HEREUNDER AS THE "REGISTRATION STATEMENT".

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- --------------------------------------------------------------------------------
<PAGE>
CROSS REFERENCE SHEET
PURSUANT TO RULE 404(C)

<TABLE>
<CAPTION>
ITEM NUMBER, FORM N-2 CAPTION IN PROSPECTUS
------------------------------------------- -------------------------------------------

<S> <C> <C>
PART A--INFORMATION REQUIRED IN A PROSPECTUS

1. Outside Front Cover Page................... Cover Page
2. Inside Front and Outside Back Cover Cover Page
Pages......................................
3. Fee Table and Synopsis..................... Prospectus Summary; Fund Expenses
4. Financial Highlights....................... Financial Highlights
5. Plan of Distribution....................... Prospectus Summary; Purchase of Shares
6. Selling Shareholders....................... Not Applicable
7. Use of Proceeds............................ Investment Objective and Policies
8. General Description of the Registrant...... The Fund; Prospectus Summary
9. Management................................. Directors and Officers; Investment Advisory
and Administrative Arrangements
10. Capital Stock, Long-Term Debt and Other Description of Capital Stock; Automatic
Securities................................. Dividend Reinvestment Plan
11. Defaults and Arrears on Senior Not Applicable
Securities.................................
12. Legal Proceedings.......................... Not Applicable
13. Table of Contents of the Statement of Not Applicable
Additional Information.....................

PART B--INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION

14. Cover Page................................. Not Applicable
15. Table of Contents.......................... Not Applicable
16. General Information and History............ The Fund
17. Investment Objective and Policies.......... Investment Objective and Policies;
Investment Restrictions
18. Management................................. Directors and Officers; Investment Advisory
and Administrative Arrangements
19. Control Persons and Principal Holders of... Investment Advisory and Administrative
Arrangements Securities
20. Investment Advisory and Other Services..... Investment Advisory and Administrative
Arrangements; Custodian; Transfer Agent,
Dividend Disbursing Agent and Shareholder
Servicing Agent; Experts
21. Brokerage Allocation and Other Practices... Portfolio Transactions
22. Tax Status................................. Taxes
23. Financial Statements....................... Financial Statements
</TABLE>

PART C--OTHER INFORMATION

Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
<PAGE>

SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED NOVEMBER 25, 1994

PROSPECTUS
DECEMBER , 1994

MERRILL LYNCH HIGH INCOME MUNICIPAL BOND FUND, INC.
COMMON STOCK
-------------------

Merrill Lynch High Income Municipal Bond Fund, Inc. (the "Fund") is a
continuously offered, non-diversified, closed-end management investment company
seeking 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 is exempt from Federal income taxes in the opinion
of bond counsel to the issuer. The Fund may invest in certain tax-exempt
securities which are classified as "private activity bonds" which may subject
certain investors in the Fund to an alternative minimum tax. At times, the Fund
may seek to hedge its portfolio through the use of options and futures
transactions. There can be no assurance that the investment objective of the
Fund will be realized.

INVESTMENTS IN MEDIUM TO LOWER RATED MUNICIPAL OBLIGATIONS GENERALLY PROVIDE
A HIGHER YIELD THAN HIGHER RATED MUNICIPAL OBLIGATIONS OF SIMILAR MATURITY BUT
ARE SUBJECT TO GREATER MARKET RISK AND ARE ALSO SUBJECT TO A GREATER DEGREE OF
RISK WITH RESPECT TO THE ABILITY OF THE ISSUER TO MEET ITS PRINCIPAL AND
INTEREST OBLIGATIONS. As a result, an investment in the Fund may be speculative
in that it involves a high degree of risk and should not constitute a complete
investment program. In addition, the Fund should be considered a long-term
investment and not a vehicle for trading purposes. See "Risk Factors".

Shares of Common Stock of the Fund are offered on a best efforts basis at a
price equal to the next determined net asset value per share without a front-end
sales charge. As of the date of this Prospectus, net asset value per share is
$ . Shares may be purchased directly from Merrill Lynch Funds Distributor,
Inc. (the "Distributor"), P.O. Box 9011, Princeton, New Jersey 08543-9011 (609)
282-2800, or from securities dealers which have entered into dealer agreements
with the Distributor, including Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch"). Merrill Lynch may charge its customers a
processing fee (presently $4.85) for confirming purchases and repurchases.
Purchases directly through the Fund's transfer agent are not subject to the
postage and handling charge. The minimum initial purchase is $1,000 and the
minimum subsequent purchase in the continuous offering is $50. See "Purchase of
Shares". In connection with an exemption the Fund has obtained from the
Securities and Exchange Commission relating to its tender offers, the Fund will
not offer its shares during the five business days preceding the termination of
a tender offer. See "Tender Offers".

No market presently exists for the Fund's Common Stock and it is not
currently expected that a secondary market will develop. Since the Fund's Common
Stock may not be considered readily marketable, the Board of Directors of the
Fund presently intends to consider the making of tender offers on a quarterly
basis to purchase all or a portion of the Common Stock of the Fund from
shareholders at the net asset value per share. In the event that tender offers
are not made, however, shareholders may find that their shares of Common Stock
are not marketable. See "Tender Offers". Shares of Common Stock purchased by the
Fund pursuant to tender offers which have been held for less than three years
will be subject to an "Early Withdrawal Charge" which will not exceed 3.0% of
the original purchase amount for such Common Stock, which will be paid to the
Fund's distributor. See "Early Withdrawal Charge".

Merrill Lynch Asset Management, L.P., an affiliate of Merrill Lynch, acts as
investment adviser and administrator for the Fund. The address of the Fund is
800 Scudders Mill Road, Plainsboro, New Jersey 08536, and its telephone number
is (609) 282-2800. This Prospectus sets forth concisely information about the
Fund that a prospective investor ought to know before purchasing shares.
Investors are advised to read this Prospectus carefully and retain it for future
reference.

-------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
PRICE TO SALES PROCEEDS TO
PUBLIC(1) LOAD(2) FUND(3)
<S> <C> <C> <C>
Per Share....................... $ None $
Total(3)........................ $ None $
</TABLE>

(1) The Common Stock is offered on a best efforts basis at a price equal to net
asset value, which from November 2, 1990 (commencement of operations) to the
date of this prospectus, has ranged from $10.00 to $11.60 per share.

(2) Because Merrill Lynch Funds Distributor, Inc. will pay all offering expenses
(other than registration fees) and sales commissions to selected dealers
(primarily Merrill Lynch) from its own assets, all of the proceeds of the
offering will be available to the Fund for investment in portfolio
securities. See "Purchase of Shares".
(3) These amounts (a) do not take into account (i) organizational expenses of
the Fund, in the amount of $138,404, which are being amortized over a
five-year period from November 9, 1990 and charged as expenses against the
income of the Fund or (ii) prepaid registration fees, in the amount of
$ , which will be charged to income as the related shares are issued, and
(b) assume all shares currently registered are sold pursuant to a continuous
offering.
-------------------
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.--DISTRIBUTOR
<PAGE>

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE.

<PAGE>
PROSPECTUS SUMMARY

The following summary is qualified in its entirety by reference to the more
detailed information included elsewhere in this Prospectus.

THE FUND

Merrill Lynch High Income Municipal Bond Fund, Inc. (the "Fund") is a
continuously offered, non-diversified, closed-end fund. See "The Fund".

THE OFFERING

Shares of Common Stock of the Fund may be offered by Merrill Lynch Funds
Distributor, Inc. (the "Distributor"), and other securities dealers which have
entered into selected dealer agreements with the Distributor, including Merrill
Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch").

The Fund will offer its Common Stock at a price equal to the next determined
net asset value per share without a front-end sales charge. The minimum initial
purchase is $1,000 and the minimum subsequent purchase is $50. The Fund reserves
the right to waive or modify the initial and subsequent minimum investment
requirements at any time. See "Purchase of Shares".

INVESTMENT OBJECTIVE

The investment objective of the Fund is 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 is exempt
from Federal income taxes in the opinion of bond counsel to the issuer. See
"Investment Objective and Policies".

INVESTMENT ADVISER AND ADMINISTRATOR

Merrill Lynch Asset Management, L.P. (the "Investment Adviser") is the
Fund's investment adviser and is responsible for the management of the Fund's
investment portfolio and for providing administrative services to the Fund. For
its advisory services, the Fund pays the Investment Adviser a monthly fee at the
annual rate of 0.95 of 1% of the Fund's average daily net assets. For
administrative services, the Fund pays the Investment Adviser a monthly fee at
the annual rate of 0.25 of 1% of the Fund's average daily net assets. While the
aggregate of the advisory and administrative fees is higher than that paid by
most other investment companies, it is similar to that paid by other
continuously offered closed-end funds. The Investment Adviser is owned and
controlled by Merrill Lynch & Co., Inc. As of September 30, 1994, the Investment
Adviser or its affiliate, Fund Asset Management, L.P. had a total of
approximately $167 billion in investment company and other portfolio assets
under management, including accounts of certain affiliates of the Investment
Adviser. See "Investment Advisory and Administrative Arrangements".

2
<PAGE>
DISTRIBUTIONS

The Fund intends to declare dividends daily and to pay dividends monthly and
to distribute substantially all of its net investment income to holders of
Common Stock. Net capital gains, if any, will be distributed at least annually
to holders of Common Stock.

TENDER OFFERS

No market presently exists for the Fund's Common Stock and it is not
currently anticipated that a secondary market will develop. In view of this, the
Board of Directors of the Fund intends to consider the making of tender offers
on a quarterly basis to purchase Common Stock of the Fund from shareholders at a
price per share equal to the net asset value per share of the Common Stock
determined at the close of business on the day an offer terminates. The Board of
Directors is under no obligation to authorize the making of a tender offer and
no assurance can be given that in any particular quarter a tender offer will be
made. If a tender offer is not made, shareholders may be unable to sell their
shares. Shares of Common Stock which have been held for less than three years
and which are purchased by the Fund pursuant to tender offers will be subject to
an early withdrawal charge. See "Early Withdrawal Charge". In addition, Merrill
Lynch charges its customers a processing fee (presently, $4.85) to confirm a
repurchase of shares from such customers pursuant to a Tender Offer. Tenders
made directly through the Fund's Transfer Agent are not subject to the postage
and handling charge.

SPECIAL CONSIDERATIONS AND RISK FACTORS

The Fund invests in medium to lower grade or unrated municipal obligations
and has been structured as a "non-diversified" closed-end investment company. In
addition, the Fund will concentrate its investments in obligations of issuers in
the health care industry. As a result, investment in the Fund involves special
considerations. See "Risk Factors".

The Fund expects that there will be no secondary market for its Common
Stock. Moreover, Merrill Lynch and other selected dealers are prohibited under
applicable law from making a market in the Fund's Common Stock while the Fund is
making either a public offering of or a tender offer to purchase its Common
Stock. To the extent a secondary market does develop, however, investors should
be aware that the shares of closed-end funds frequently trade in the secondary
market at a discount. Should there be a secondary market for the Fund's shares
of Common Stock, the market price of the shares may vary from net asset value.

Because of the lack of a secondary market and the early withdrawal charge,
the Fund is designed primarily for long-term investors and should not be
considered a vehicle for trading purposes.

The Fund's Articles of Incorporation include provisions that could have the
effect of limiting the ability of other entities or persons to acquire control
of the Fund or to change the composition of its Board of Directors and could
have the effect of depriving holders of Common Stock an opportunity to sell
their shares at a premium over prevailing market prices by discouraging a third
party from seeking to obtain control of the Fund. See "Description of Capital
Stock--Certain Provisions of the Articles of Incorporation".

The Fund is authorized to borrow money in amounts of up to 33% of the value
of its total assets at the time of such borrowings to finance the purchase of
its own shares pursuant to tender offers, if any, or for temporary,
extraordinary or emergency purposes. Borrowings by the Fund (commonly known as

3
<PAGE>
"leveraging") create an opportunity for greater total return but, at the same
time, may increase the Fund's expenses. See "Risk Factors".

RISK FACTORS

Emphasis on Health Care Industry. At least 25% of the Fund's assets will be
concentrated in obligations of issuers in the health care industry. Accordingly,
the Fund will be more susceptible to factors affecting that industry than will
be a municipal bond mutual fund that does not concentrate its investments in
such industry. In view of this, an investment in the Fund should be made with an
understanding of the characteristics of investments in the health care industry
and the risks that such investments may entail. See "Investment Objective and
Policies--Description of Municipal Bonds".

Lower-Rated Securities. Investment in the Fund's shares involves special
risk considerations because a substantial portion of the portfolio will consist
of high yielding, medium to lower grade and unrated securities ("high yield
securities"). See "Investment Objective and Policies". Because investments in
high yield securities entail a somewhat higher risk of loss of income or
principal than investments in higher rated securities, an investment in the Fund
should not constitute a complete investment program and may not be appropriate
for all investors.

The market values of high yield securities tend to reflect individual issuer
developments to a greater extent than do higher rated securities, which react
primarily to fluctuations in the general level of interest rates. High yield
securities also tend to be more sensitive to economic conditions and generally
will involve more credit risk than securities in the higher rating categories.
Securities rated in the medium and lower rating categories by Standard & Poor's
Corporation ("S&P"), Moody's Investors Service, Inc. ("Moody's") and Fitch
Investors Service, Inc. ("Fitch"), sometimes referred to as "junk" bonds, are
considered, on balance, to be predominantly speculative with respect to capacity
to pay interest and repay principal in accordance with the terms of the
obligation. Even securities rated BBB by S&P or by Fitch or Baa by Moody's,
ratings which are considered investment grade, may possess some speculative
characteristics.

Issuers of high yield securities may be highly leveraged and may not have
available to them more traditional methods of financing. Therefore, the risk
associated with acquiring the securities of such issuers generally is greater
than is the case with higher rated securities. For example, during an economic
downturn or a sustained period of rising interest rates, issuers of high yield
securities may be more likely to experience financial stress, especially if such
issuers are highly leveraged. In addition, the market for high yield securities
is relatively new and has not weathered a major economic recession, and it is
unknown what effect such a recession might have on such securities. During such
periods, such issuers may not have sufficient revenues to meet their interest
payment obligations. The issuer's ability to serve its debt obligations also may
be adversely affected by specific issuer developments, or the issuer's inability
to meet specific projected business forecasts, or the unavailability of
additional financing. The risk of loss due to default by the issuer is
significantly greater for the holders of high yield securities because such
securities may be unsecured and may be subordinated to other creditors of the
issuer. In its selection of high yield securities, however, the Investment
Adviser will give preference to securities that are secured and not subordinated
to other creditors.

High yield securities may have call or redemption features which would
permit an issuer to repurchase the securities from the Fund. If a call were
exercised by the issuer during a period of

4
<PAGE>
declining interest rates, the Fund likely would have to replace such called
securities with lower yielding securities, thus decreasing the net investment
income to the Fund and dividends to shareholders. Under ordinary circumstances,
the Investment Adviser will give preference to securities which have, at a
minimum, ten year call protection.

The Fund may have difficulty disposing of certain high yield securities
because there may be a thin trading market for such securities. Because not all
dealers maintain markets in all high yield securities, there is no established
retail secondary market for many of these securities, and the Fund anticipates
that such securities could be sold only to a limited number of dealers or
institutional investors. To the extent that a secondary trading market for high
yield securities does exist, it is generally not as liquid as the secondary
market for higher rated securities. Reduced secondary market liquidity may have
an adverse impact on market price and the Fund's ability to dispose of
particular issues when necessary to meet the Fund's liquidity needs or in
response to a specific economic event such as a deterioration in the
creditworthiness of the issuer. Reduced secondary market liquidity for certain
high yield securities also may make it more difficult for the Fund to obtain
accurate market quotations for purposes of valuing the Fund's portfolio. Market
quotations are generally available on many high yield securities only from a
limited number of dealers and may not necessarily represent firm bids of such
dealers or prices for actual sales.

The Fund acquires a significant portion of its high yield securities upon
issuance, which involves special risks because the securities so acquired are
new issues. In such instances the Fund may be a substantial purchaser of the
issue and therefore have the opportunity to participate in structuring the terms
of the offering. Although this may enable the Fund to seek to protect itself
against certain of such risks, the special considerations discussed herein would
nevertheless remain applicable.

Adverse publicity and investor perceptions, which may not be based on
fundamental analysis, also may decrease the value and liquidity of high yield
securities, particularly in a thinly traded market. Factors adversely affecting
the market value of high yield securities are likely to affect adversely the
Fund's net asset value. In addition, the Fund may incur additional expenses to
the extent it is required to seek recovery upon a default on a portfolio holding
or participate in the restructuring of the obligation.

The following table sets forth the dollar weighted average ratings of all
municipal obligations held by the Fund as of August 31, 1994:

RATED OBLIGATIONS............................ 77.4%

Standard & Poors'-- (or Moody's Equivalent Rating if not rated
by Standard & Poors')

AAA: 8.0%; A: 5.0%; BBB: 32.9%; BB: 26.7%; B: 3.4%.

Commercial paper: A: 0.1%; A1: 1.3%.

UNRATED OBLIGATIONS.......................... 22.6%

- ------------
5
<PAGE>
Non-Diversified Status. The Fund has registered as a "non-diversified"
investment company so that it will be able to invest more than 5% of the value
of its assets in the obligations of a single issuer subject to the
diversification requirements of subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"), applicable to the Fund. To the extent the Fund
invests a relatively high percentage of its assets in obligations of a limited
number of issuers, the Fund may be more susceptible than a more widely
diversified fund to any single economic, political or regulatory occurrence or
to changes in an issuer's financial condition or in the market's assessment of
the issuers.

Leverage. The Fund is authorized to borrow money in amounts of up to 33% of
the value of its total assets at the time of such borrowings to finance the
purchase of its own shares pursuant to tender offers, if any, or for temporary,
extraordinary or emergency purposes. Borrowings by the Fund (commonly known as
"leveraging") create an opportunity for greater total return but, at the same
time, such borrowings may increase the Fund's expenses. The Fund may be required
to maintain specified minimum available balances in cash or cash equivalents in
connection with borrowings (which may be higher than the Fund would otherwise
maintain) or to pay a commitment or other fee to maintain a line of credit;
either of these requirements will increase the cost of borrowing over the stated
interest rate. As a result, the use of leverage may diminish the investment
performance of the Fund compared with what it would have been without leverage.
The Fund's willingness to borrow, as opposed to selling portfolio securities,
may depend on several factors, including market conditions and interest rates.

6
<PAGE>
FEE TABLE

The following table is intended to assist Fund investors in understanding
the various costs and expenses associated with investing in the Fund.

<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES(A)
- ----------------------------------------------------------------------------------
Sales Load (as a percentage of offering price).................................... None
Dividend Reinvestment Plan Fees................................................... None

ANNUAL EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)(B)
- ----------------------------------------------------------------------------------
Investment Advisory Fee........................................................... 0.95%
Administrative Fee................................................................ 0.25
Other Expenses.................................................................... 0.28
-----
Total Annual Expenses............................................................. 1.48%
-----
-----
</TABLE>

- ------------

<TABLE>
<C> <S>
(a) Shareholders tendering shares within three years of their purchase may be subject to
the Early Withdrawal Charge. See "Early Withdrawal Charge"--page 24.
(b) See "Investment Advisory and Administrative Arrangements"--page 26.
</TABLE>

<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a $1,000
investment assuming (1) total annual expenses of 1.48%,
(2) a 5% annual return throughout the periods and
(3) tender at the end of the period........................ $ 45* $57* $81 $177

An investor would pay the following expenses on a $1,000
investment assuming no tender at the end of the period..... $ 15 $47 $81 $177

</TABLE>

- ------------

* Reflects the Early Withdrawal Charge.

The foregoing Fee Table is intended to assist investors in understanding the
costs and expenses that a shareholder in the Fund will bear directly or
indirectly. The expenses set forth under "Other expenses" are based on estimated
amounts through the end of the Fund's current fiscal year. The Example set forth
above assumes reinvestment of all dividends and distributions and utilizes a 5%
annual rate of return as mandated by Securities and Exchange Commission
regulations. The Example should not be considered a representation of future
expenses or annual rate of return, and actual expenses or annual rate of return
may be more or less than those assumed for purposes of the Example. Merrill
Lynch may charge its customers a processing fee (presently $4.85) for confirming
purchases and repurchases. Purchases and repurchases directly through the
Transfer Agent are not subject to the processing fee.

7
<PAGE>
FINANCIAL HIGHLIGHTS

The financial information in the table below has been audited in conjunction
with the annual audits of the financial statements of the Fund by Deloitte &
Touche LLP, independent auditors. Financial statements for the year ended August
31, 1994 and the independent auditors' report thereon are set forth herein under
"Financial Statements".

The following per share data and ratios have been derived from information
provided in the financial statements.

<TABLE>
<CAPTION>
FOR THE
PERIOD
FOR THE YEAR ENDED NOVEMBER 2,
AUGUST 31, 1990+ TO
-------------------------------- AUGUST 31,
INCREASE (DECREASE) IN NET ASSET VALUE: 1994 1993 1992 1991
- --------------------------------------------- -------- -------- -------- -----------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period..... $ 11.44 $ 10.74 $ 10.29 $ 10.00
-------- -------- -------- -----------
Investment income--net................... .65 .68 .71 .63
Realized and unrealized gain (loss) on
investments--net............................. (.45) .75 .50 .29
-------- -------- -------- -----------
Total from investment operations......... .20 1.43 1.21 .92
-------- -------- -------- -----------
Less Dividends and Distributions:
Investment income--net................... (.65) (.68) (.71) (.63)
Realized gain on investments............. (.07) (.05) (.05) --
-------- -------- -------- -----------
Total dividends and distributions........ (.72) (.73) (.76) (.63)
-------- -------- -------- -----------
Net asset value, end of period........... $ 10.92 $ 11.44 $ 10.74 $ 10.29
-------- -------- -------- -----------
-------- -------- -------- -----------
Total Investment Return*:
Based on net asset value per share....... 1.75% 13.83% 12.29% 9.43%++
-------- -------- -------- -----------
-------- -------- -------- -----------
Ratios to Average Net Assets:
Expenses, net of reimbursement........... 1.48% 1.37% 1.30% .84%**
-------- -------- -------- -----------
-------- -------- -------- -----------
Expenses................................. 1.48% 1.47% 1.55% 1.76%**
-------- -------- -------- -----------
-------- -------- -------- -----------
Investment income--net................... 5.81% 6.17% 6.85% 7.43%**
-------- -------- -------- -----------
-------- -------- -------- -----------
Supplemental Data:
Net assets, end of period (in
thousands)................................... $212,958 $216,922 $170,735 $ 114,628
-------- -------- -------- -----------
-------- -------- -------- -----------
Portfolio turnover....................... 28.51% 28.74% 31.74% 75.92%
-------- -------- -------- -----------
-------- -------- -------- -----------
</TABLE>

- ------------

* Total investment returns exclude the effects of the Early Withdrawal Charge,
if any. The Fund is a continuously offered closed-end Fund, the shares of
which are offered at net asset value; no separate market exists for such
shares.

** Annualized.

+ Commencement of Operations.

++ Aggregate total investment return.

8
<PAGE>
THE FUND

Merrill Lynch High Income Municipal Bond Fund, Inc. (the "Fund") is a
continuously offered non-diversified, closed-end, management investment company.
The Fund was incorporated under the laws of the State of Maryland on August 16,
1990, and has registered as an investment company under the Investment Company
Act of 1940, as amended (the "1940 Act"). The Fund's principal office is located
at 800 Scudders Mill Road, Plainsboro, New Jersey 08536, and its telephone
number is (609) 282-2800.

INVESTMENT OBJECTIVE AND POLICIES

The investment objective of the Fund is 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, the
interest on which is exempt from Federal income taxes in the opinion of bond
counsel to the issuer. The Fund will seek to achieve its objective by investing
at least 80% of its assets, except during temporary defensive periods, in a
portfolio of obligations with remaining maturities of greater than one year
issued by or on behalf of states, territories and possessions of the United
States and their political subdivisions, agencies or instrumentalities paying
interest which, in the opinion of bond counsel to the issuer, is exempt from
Federal income taxes ("Municipal Bonds"). The Fund at all times, except during
temporary defensive periods, will maintain at least 75% of its assets in
Municipal Bonds which are rated in any one of the medium and lower rating
categories of a nationally recognized statistical rating organization or are
unrated. In the case of Moody's Investors Service ("Moody's"), Standard & Poor's
Corporation ("S&P") or Fitch Investors Service, Inc. ("Fitch"), these ratings
are currently Baa (Moody's) or BBB (S&P or Fitch) or lower, respectively. These
are fundamental policies of the Fund and, therefore, may not be changed without
a vote of a majority of the outstanding shares of the Fund. The Fund presently
contemplates that it will not invest more than 25% of its total assets (taken at
market value) in Municipal Bonds whose issuers are located in the same state.
There can be no assurance that the investment objective of the Fund will be
realized.

Investment in shares of the Fund offers several benefits. The Fund offers
investors the opportunity to receive income exempt from Federal income taxes by
investing in a professionally managed portfolio of high-yielding Municipal
Bonds. Additionally, investment research and credit analysis relating to the
municipal securities in which the Fund seeks to invest are not readily
available. Moreover, many of these securities are not widely traded and the
execution of transactions in such securities requires expertise. Consequently,
the professional portfolio management which is provided by the Investment
Adviser is particularly important in the sector of the municipal securities
market in which the Fund invests. The Fund also relieves the investor of the
burdensome administrative details involved in managing a portfolio of Municipal
Bonds. The benefits are at least partially offset by the expenses involved in
operating an investment company. Such expenses primarily consist of the advisory
and administrative fees and operational costs.

Investments in lower rated Municipal Bonds generally provide a higher yield
than higher rated tax-exempt securities of similar maturity but are subject to
greater market risk and are also subject to a greater degree of risk with
respect to the ability of the issuer to meet its principal and interest
obligations. See the Appendix to this Prospectus for a description of Moody's,
S&P's and Fitch's ratings of Municipal Bonds.

9
<PAGE>
The Fund will seek to reduce risk through diversification, credit analysis
and monitoring of current developments and trends in both the economy and
financial markets. The Investment Adviser will use various means to research the
stability and/or potential for improvement of various municipal issuers in
connection with the proposed purchase of their securities by the Fund.
Evaluation of each Municipal Bond may include the analysis of financial
performance, debt structure, economic factors and the administrative structure
of the issuer. Additionally, the priority of liens and the overall structure of
the particular issue may be factors which will determine suitability for
purchase. Further investigation may be performed and may include, among other
things, discussions with project management, corporate officers and industry
experts as well as site inspections, area analysis, and project and financial
projection analysis. All purchases and sales also may be subject to the review
of market data, economic projections and the performance of the financial
markets. Certain economic indicators also may be monitored. Additionally, the
Investment Adviser will vary the average maturity of the Fund's portfolio
securities based upon the Investment Adviser's assessment of economic and market
conditions.

The Fund expects that there will be no secondary market for its Common
Stock. Moreover, Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch") and other selected dealers are prohibited under applicable law from
making a market in the Fund's Common Stock while the Fund is making either a
public offering of or a tender offer to purchase its Common Stock. To the extent
a secondary market does develop, however, investors should be aware that the
shares of closed-end investment companies frequently trade at a discount from
their net asset value. The net asset value of the shares of a closed-end
investment company, such as the Fund, which invests primarily in fixed income,
tax-exempt securities, changes as the general levels of interest rates
fluctuate. When interest rates decline, the value of a fixed income portfolio
can be expected to rise. Conversely, when interest rates rise, the value of a
fixed income portfolio can be expected to decline.

The Fund is classified as non-diversified within the meaning of the 1940
Act, which means that the Fund is not limited by such Act in the proportion of
its assets that it may invest in securities of a single issuer. However, the
Fund's investments will be limited so as to qualify the Fund as a "regulated
investment company" for purposes of the Code. See "Taxes". To qualify, among
other requirements, the Fund will limit its investments so that, at the close of
each quarter of the taxable year, (i) not more than 25% of the market value of
the Fund's total assets will be invested in the securities (other than U.S.
Government securities) of a single issuer and (ii) with respect to 50% of the
market value of its total assets, not more than 5% of the market value of its
total assets will be invested in the securities (other than U.S. Government
securities) of a single issuer. A fund which elects to be classified as
"diversified" under the 1940 Act must satisfy the foregoing 5% requirement with
respect to 75% of its total assets. To the extent that the Fund assumes large
positions in the securities of a small number of issuers, the Fund's net asset
value may fluctuate to a greater extent than that of a diversified company as a
result of changes in the financial condition or in the market's assessment of
the issuers.

DESCRIPTION OF MUNICIPAL BONDS

Municipal Bonds include primarily debt obligations issued to obtain funds
for various public purposes, including construction and equipping of a wide
range of public facilities, refunding of outstanding obligations and obtaining
funds for general operating expenses and loans to other public or private
institutions for the construction of facilities. In addition, certain types of
industrial development bonds are issued by or on behalf of public authorities to
finance various privately-operated facilities and certain local facilities,
including pollution control facilities. For purposes of this Prospectus, such

10
<PAGE>
obligations are Municipal Bonds if the interest paid thereon is exempt from
Federal income tax, even though such bonds may be "private activity bonds" as
discussed below.

The two principal classifications of Municipal Bonds are "general
obligation" and "revenue" or "special obligation" bonds. General obligation
bonds are secured by the issuer's pledge of faith, credit, and taxing power for
the payment of principal and interest. The taxing power of any governmental
entity may be limited, however, by provisions of state constitutions or laws,
and an entity's credit will depend on many factors, including potential erosion
of the tax base due to population declines, natural disasters, declines in the
state's industrial base or inability to attract new industries, economic limits
on the ability to tax without eroding the tax base, state legislative proposals
or voter initiatives to limit ad valorem real property taxes, and the extent to
which the entity relies on Federal or state aid, access to capital markets or
other factors beyond the state's or entity's control. Revenue or special
obligation bonds are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source such as from the user of the
facility being financed. Industrial development bonds are in most cases revenue
bonds and generally are not secured by a pledge of the credit or taxing power of
the issuer of such bonds. The payment of the principal and interest on such
industrial development bonds depends solely on the ability of the user of the
facility financed by the bonds to meet its financial obligations, and the
pledge, if any, of real and personal property so financed as security for such
payment. Municipal Bonds also may include "moral obligation" bonds which
normally are issued by special purpose public authorities. If an issuer of moral
obligation bonds is unable to meet its obligations, the repayment of such bonds
becomes a moral commitment but not a legal obligation of the state or
municipality in question.

The Fund may purchase Municipal Bonds classified as "private activity bonds"
(in general, bonds that benefit non-governmental entities). Interest received on
certain tax-exempt securities which are classified as "private activity bonds"
may subject certain investors in the Fund to an alternative minimum tax. There
is no limitation on the percentage of the Fund's assets that may be invested in
Municipal Bonds which may subject certain investors to an alternative minimum
tax. See "Taxes".

Federal tax legislation has limited the types and volume of bonds qualifying
for the Federal income tax exemption of interest. As a result, this legislation
and legislation which may be enacted in the future may affect the availability
of Municipal Bonds for investment by the Fund.

The Fund may invest a relatively high percentage of its assets in Municipal
Bonds issued by entities which may be located in the same geographic area, or
which may pay their interest obligations from the revenues derived from similar
projects such as hospitals, multi-family housing, nursing homes, continuing care
facilities, commercial facilities (including hotels), electric utility systems
or industrial companies. This may make the Fund more susceptible to similar
economic, political, or regulatory occurrences. As the similarity in issuers
increases, the potential for fluctuation of the net asset value of shares of the
Fund also increases. Also, it is anticipated that a significant percentage of
the Municipal Bonds in the Fund's portfolio will be issued by entities or
secured by facilities with a relatively short operating history. Therefore,
investors should also be aware of the risks which these investments might
entail, as discussed below. See also "Industrial Development Bonds" below.

Health Care Revenue Bonds. These securities include Municipal Bonds issued
to finance hospitals, nursing homes and continuing care facilities and which are
generally secured by the revenues of particular facilities. The ability of the
issuers of such securities to meet their obligations is dependent upon, among
other things, the revenues, costs and occupancy levels of the subject facilities
and the

11
<PAGE>
competitive nature of these industries. In addition, a major portion of hospital
and nursing home revenues typically is derived from Federal or state programs
such as Medicare and Medicaid and from various insurers. Changes in the
compensation and reimbursement formulae of these governmental programs or in the
rates paid by insurers may reduce revenues available for the payment of
principal of or interest on such bonds. New governmental legislation or
regulations and other factors, such as the inability to obtain sufficient
malpractice insurance, may also adversely affect the revenues or costs of these
issuers. Moreover, in the case of life care facilities, since a portion of
housing, medical care and other services may be financed by an initial lump-sum
deposit paid by occupants of the facility, there may be risk if the facility
does not maintain adequate financial resources to secure estimated actuarial
liabilities.

A number of legislative proposals concerning health care have been
introduced in Congress in recent years or have been reported to be under
consideration. These proposals span a wide range of topics, including cost
controls, national health insurance, incentives for competition in the provision
of health care services, tax incentives and penalties related to health care
insurance premiums, and promotion of prepaid health care plans. The Fund is
unable to predict the effect of any of these proposals, if enacted.

Single Family Housing Bonds and Multifamily Housing Bonds. Single family
housing bonds and multifamily housing bonds are obligations of state and local
housing authorities that have been issued in connection with a variety of single
and multifamily housing projects. Economic developments, including fluctuations
in interest rates, increasing construction and operating costs, increasing real
estate taxes and declining occupancy rates, and real estate investment risks may
have an adverse effect upon the revenues of such projects and such housing
authorities. Multifamily housing bonds may be subject to mandatory redemption
prior to maturity, including redemption from non-completion of the project or
upon receipt of FHA or certain other insurance proceeds. Bonds issued by state
or local units or authorities and payable from revenues from single family
residential mortgages may be subject to mandatory redemption prior to maturity,
including redemption from mortgage loan prepayments and undisbursed bond
proceeds reserved for the purpose of purchasing mortgage loans. Housing bonds
may also be subject to changes in creditworthiness due to potential weaknesses
of mortgage insurance companies providing various policies; fluctuations in the
valuation of invested funds and the strengths of banks and other entities which
may provide investment agreements; and smaller than expected mortgage portfolios
due to the inability to originate mortgages. To the extent the Fund invests in
housing bonds issued by an entity or entities located in the same geographic
area, the Fund may be subject to the risks associated with the general economy
of such area.

Public Power Revenue Bonds. General problems of the electric utility
industry include difficulty in financing large construction programs during an
inflationary period; restrictions on operations and increased costs and delays
attributable to environmental considerations; the difficulty of the capital
markets in absorbing utility debt and equity securities; the availability of
fuel for electric generation at reasonable prices, including among other
considerations the potential rise in fuel costs and the costs associated with
conversion to alternate fuel sources such as coal; technical cost factors and
other problems associated with construction, licensing, regulation and operation
of nuclear facilities for electric generation, including among other
considerations the problems associated with the use of radioactive materials and
the disposal of radioactive waste; and the effects of energy conservation.
Certain of the issuers of these bonds may own or operate nuclear generating
facilities. Federal, state and municipal governmental authorities may from time
to time review and revise existing requirements and

12
<PAGE>
impose additional requirements governing the licensing, construction and
operation of nuclear power plants. In addition, the licensing of certain nuclear
power plants nearing completion of construction or constructed has been delayed
indefinitely by the refusal of state and local officials to cooperate in
emergency planning exercises that are a prerequisite to licensing. Each of the
problems referred to above could adversely affect the ability of the issuer of
public power revenue bonds to make payments of principal and/or interest on such
bonds. Certain municipal utilities or agencies may have entered into contractual
arrangements with investor-owned utilities and large industrial users and
consequently may be dependent in varying degrees on the performance of such
contracts for payment of bond debt service. Also, the enforceability against
municipalities of "take-and-pay" and "take-or-pay" contracts which contracts
secure bonds issued by other municipal issuers has been successfully challenged
in recent years.

Transportation Revenue Bonds. Bonds in this category include bonds issued
for airport facilities, bridges, turnpikes, port facilities, railroad systems,
or mass transit systems. Generally, airport facility revenue bonds are payable
from and secured by the revenues derived from the ownership and operation of a
particular airport. Payment on other transportation bonds is often dependent
primarily or solely on revenues from financed facilities, including user fees,
charges, tolls and rents. Such revenues may be adversely affected by increased
construction and maintenance costs or taxes, decreased use, competition from
alternative facilities, scarcity of fuel, reduction or loss of rents or the
impact of environmental considerations. Other transportation bonds may be
dependent primarily or solely on Federal, state or local assistance including
motor fuel and motor vehicle taxes, fees and licenses, and therefore may be
subject to fluctuations in such assistance.

Water and Sewage Revenue Bonds. Bonds in this category include securities
issued to finance public water supply, treatment and distribution facilities,
and sewage collection, treatment and disposal facilities. Repayment of these
bonds is dependent primarily on revenues derived from the billing of
residential, commercial and industrial customers for water and sewer services,
as well as, in some instances, connection fees and hook-up charges. Such revenue
bonds may be adversely affected by the lack of availability of Federal and state
grants and by decisions of Federal and state regulatory bodies and courts.

Solid Waste and Resource Recovery Revenue Bonds. Bonds in this category
include securities issued to finance facilities for removal and disposal of
solid waste. Repayment of these bonds is dependent on factors which may include
revenues from appropriations from a governmental entity, the financial condition
of the private project corporation* and revenues derived from the collection of
charges for disposal of solid waste. In addition, construction of such
facilities may be subject to cost overruns and the actual costs of operating
such facilities may exceed the costs anticipated at the time the bonds were
issued. Repayment of resource recovery bonds may also be dependent to various
degrees on revenues from the sale of electric energy or steam. Bonds in this
category may be subject to mandatory redemption in the event of project
noncompletion, if the project is rendered uneconomical, if the project fails to
meet certain performance criteria, or if it is considered an environmental
hazard.

Pollution Control Facility Revenue Bonds. Bonds in the pollution control
facilities category include securities issued on behalf of private corporations
including utilities, to provide facilities for the treatment of air, water and
solid waste pollution. Repayment of these bonds is dependent upon income

- ------------

* For purposes of the description of users of facilities, all references to
"corporations" shall be deemed to include any other nongovernmental person or
entity.

13
<PAGE>
from the specified pollution control facility and/or the financial condition of
the project corporation. In addition, governmental entities may from time to
time impose additional restrictions or regulations which could adversely affect
the cost or operation of the facility. The Fund will not acquire more than 5% of
the outstanding voting securities of more than one public utility company as
defined by the Public Utility Holding Company Act of 1935.

Educational Facility Revenue Bonds. Educational facility revenue bonds
include debt of state and private colleges, universities and systems, and
parental and student loan obligations for dormitories, classrooms, libraries,
research and training facilities and student aid. The ability of universities
and colleges to meet their obligations is dependent on various factors,
including the revenues, costs and enrollment levels of the institutions. In
addition, their ability may be affected by declines in Federal, state and alumni
financial support, fluctuations in interest rates and construction costs,
increased maintenance and energy costs, failure or inability to raise tuition or
room charges and adverse results of endowment fund investments.

Tax Increment Bonds. Tax increment bonds are issued to finance various
public improvements and redevelopment projects in blighted areas. Interest on
such bonds is payable from increases in real property taxes attributable to
increases in assessed value resulting from the redevelopment of the blighted
project area. Repayment risks include, among other things, a reduction in
taxable value in the project areas, reduction in tax rates, delinquencies in tax
payments or a general shortfall in forecasted tax revenues.

Commercial Facility Revenue Bonds. The Fund may also invest in bonds for
other commercial facilities (including hotels) and industrial enterprises. The
viability of such facilities depends on, among other things, general economic
factors affecting those industries and affecting those geographic areas in which
such facilities are situated, as well as the ability of the individual
management of those facilities to maximize earnings and to remain competitive
within its service area.

Industrial Development Bonds ("IDBs"). The Fund reserves the right to invest
a portion of its assets in IDBs. IDBs are tax-exempt securities issued by
states, municipalities or public authorities and are issued to provide funds,
usually through a loan or lease arrangement, to a private corporation for the
purpose of financing construction or improvement of a facility to be used by the
corporation. Such bonds are secured primarily by revenues derived from loan
repayments or lease payments due from the corporation which may or may not be
guaranteed by a parent company or otherwise secured. In view of this, an
investor should be aware that repayment of such bonds depends on the revenues of
a private corporation and be aware of the risks that such an investment may
entail. Continued ability of a corporation to generate sufficient revenues for
the payment of principal and interest on such bonds will be affected by many
factors including the size of the corporation, capital structure, demand for
products or services, competition, general economic conditions, government
regulation and the corporation's dependence for revenues on the operation of the
particular facility being financed.

IDBs are often issued to provide funds for corporations from the industries
described above and, consequently, are subject to similar risks. IDBs are also
issued to provide funds to industrial companies. Investment in particular
industries may expose the Fund to risks associated with such industries.

Also included within the general category of Municipal Bonds are
participation certificates issued by government authorities or entities to
finance the acquisition or construction of equipment, land and/or facilities.
The certificates represent participations in a lease, an installment purchase
contract or

14
<PAGE>
a conditional sales contract (hereinafter collectively called "lease
obligations") relating to such equipment, land or facilities. Although lease
obligations do not constitute general obligations of the issuer for which the
issuer's unlimited taxing power is pledged, a lease obligation is frequently
backed by the issuer's covenant to budget for, appropriate and make the payments
due under the lease obligation. However, certain lease obligations contain
"non-appropriation" clauses which provide that the issuer has no obligation to
make lease or installment purchase payments in future years unless money is
appropriated for such purpose on a yearly basis. Although "non-appropriation"
lease obligations are secured by the leased property, disposition of the
property in the event of foreclosure might prove difficult. These securities
represent a relatively new type of financing that has not yet developed the
depth of marketability associated with more conventional securities.

The Fund may also invest in securities not issued by or on behalf of a state
or territory or by an agency or instrumentality thereof, if the Fund
nevertheless believes such securities to be exempt from Federal income taxation
("Non-Municipal Tax-Exempt Securities"). Non-Municipal Tax-Exempt Securities
could include trust certificates or other instruments evidencing interests in
one or more long-term municipal securities. Non-Municipal Tax-Exempt Securities
also may include securities issued by other investment companies that invest in
municipal bonds, to the extent such investments are permitted by the 1940 Act.

OTHER INVESTMENT POLICIES

The Fund has the authority to invest as much as 25% of its assets in
Municipal Bonds in the higher rating categories of nationally recognized
statistical rating organizations (ratings of A or higher by Moody's, S&P or
Fitch). In addition, the Fund reserves the right to temporarily invest more than
20% of its assets in short-term municipal securities, or short-term taxable
money market securities (including commercial paper, certificates of deposit and
repurchase agreements) for defensive purposes when, in the opinion of the
Investment Adviser, prevailing market or financial conditions warrant. Taxable
commercial paper must be rated A-1 or A-2 by S&P, Prime-1 or Prime-2 by Moody's,
F-1+ or F-1 by Fitch or have credit characteristics equivalent to such ratings
in the opinion of the Investment Adviser. The short-term tax-exempt municipal
obligations will also be in the highest rating categories as determined either
by Moody's (currently, MIG1 and MIG2 for notes and P-1 for commercial paper),
S&P (currently, SP-1 or SP-2 for notes and A-1 for commercial paper), or Fitch
(currently, F-1 and F-2 for notes and F-1 for commercial paper). Certificates of
deposit must be issued by depository institutions with total assets of at least
$1 billion, except that the Fund may invest in certificates of deposit of
smaller institutions if such certificates of deposit are Federally insured. In
connection with an exemption the Fund has obtained from the Securities and
Exchange Commission relating to its tender offers, the Fund will not purchase
non-investment grade or unrated Municipal Bonds in secondary market transactions
during the five business days preceding the termination of a tender offer. See
"Tender Offers".

The Fund also has adopted certain other policies as set forth below:

15
<PAGE>
offset or exceed the return earned on the securities which otherwise may have
been sold by the Fund. See "Risk Factors".

When-Issued Securities and Delayed Delivery Transactions. The Fund may
purchase or sell Municipal Bonds on a delayed delivery basis or when-issued
basis at fixed purchase or sale terms. These transactions arise when securities
are purchased or sold by the Fund with payment and delivery taking place in the
future. The purchase will be recorded on the date the Fund enters into the
commitment and the value of the obligation will thereafter be reflected in the
calculation of the Fund's net asset value. The value of the obligation on the
delivery date may be more or less than its purchase price. A separate account of
the Fund will be established with its custodian consisting of cash, cash
equivalents or liquid, high grade Municipal Bonds having a market value at all
times at least equal to the amount of the forward commitment.

Repurchase Agreements. The Fund may invest in Municipal Bonds and U.S.
Government securities pursuant to repurchase agreements. Repurchase agreements
may be entered into only with a member bank of the Federal Reserve System or a
primary dealer in U.S. Government securities. Under such agreements, the bank or
primary dealer agrees, upon entering into the contract, to repurchase the
security at a mutually agreed upon time and price, thereby determining the yield
during the term of the agreement. This results in a fixed rate of return
insulated from market fluctuations during such period. The Fund may not invest
more than 10% of its total assets in repurchase agreements maturing in more than
seven days. In the event of default by the seller under a repurchase agreement,
the Fund may suffer time delays and incur costs or possible losses in connection
with the disposal of the collateral. Income from repurchase agreements
distributed to shareholders will be taxable as ordinary income to shareholders.

OPTIONS AND FUTURES TRANSACTIONS

The Fund may hedge all or a portion of its portfolio investments against
fluctuations in interest rates through the use of options and certain financial
futures contracts. While the Fund's use of hedging strategies is intended to
reduce the volatility of the net asset value of Fund shares, the Fund's net
asset value will fluctuate. There can be no assurance that the Fund's hedging
transactions will be effective. Furthermore, the Fund will engage in hedging
activities from time to time and may not necessarily be engaging in hedging
activities when movements in interest rates occur.

Certain Federal income tax requirements may limit the Fund's ability to
engage in hedging transactions. Gains from transactions in options and futures
contracts distributed to shareholders will be taxable as ordinary income or, in
certain circumstances, as long-term capital gains to shareholders. See
"Taxes--Tax Treatment of Options and Futures Transactions".

The following is a description of the options and futures transactions in
which the Fund may engage, limitations on the use of such transactions and risks
associated therewith. The investment policies with respect to the hedging
transactions of the Fund are not fundamental policies and may be modified by the
Board of Directors of the Fund without the approval of the Fund's shareholders.

Writing Covered Call Options. The Fund may write (i.e., sell) covered call
options with respect to Municipal Bonds it owns, thereby giving the holder of
the option the right to buy the underlying security covered by the option from
the Fund at the stated exercise price until the option expires. The Fund writes
only covered options, which means that so long as the Fund is obligated as the
writer of a call

16
<PAGE>
option, it will own the underlying securities subject to the option. The Fund
may not write covered call options on underlying securities in an amount
exceeding 15% of the market value of its total assets.

The Fund will receive a premium from writing a call option, which increases
the Fund's return on the underlying security in the event the option expires
unexercised or is closed out at a profit. By writing a call, the Fund limits its
opportunity to profit from an increase in the market value of the underlying
security above the exercise price of the option for as long as the Fund's
obligation as a writer continues. Covered call options serve as a partial hedge
against a decline in the price of the underlying security. The Fund may engage
in closing transactions in order to terminate outstanding options that it has
written.

Purchase of Options. The Fund may purchase put options in connection with
its hedging activities. By buying a put the Fund has a right to sell the
underlying security at the exercise price, thus limiting the Fund's risk of loss
through a decline in the market value of the security until the put expires. The
amount of any appreciation in the value of the underlying security will be
partially offset by the amount of the premium paid for the put option and any
related transaction costs. Prior to its expiration, a put option may be
terminated by entering into a closing sale transaction. In certain
circumstances, the Fund may purchase call options on securities held in its
portfolio on which it has written call options, or on securities which it
intends to purchase. The Fund will not purchase options on securities if, as a
result of such purchase, the aggregate cost of all outstanding options on
securities held by the Fund would exceed 5% of the market value of the Fund's
total assets.

Financial Futures Contracts and Options. The Fund is authorized to purchase
and sell certain financial futures contracts ("financial futures contracts") and
options thereon solely for the purpose of hedging its investments in Municipal
Bonds against declines in value and to hedge against increases in the cost of
securities it intends to purchase. A financial futures contract obligates the
seller of a contract to deliver and the purchaser of a contract to take delivery
of the type of financial instrument covered by the contract, or in the case of
index-based futures contracts to make and accept a cash settlement, at a
specific future time for a specified price. A sale of financial futures
contracts may provide a hedge against a decline in the value of portfolio
securities because such depreciation may be offset, in whole or in part, by an
increase in the value of the position in the financial futures contracts. A
purchase of financial futures contracts may provide a hedge against an increase
in the cost of securities intended to be purchased, because such appreciation
may be offset, in whole or in part, by an increase in the value of the position
in the futures contracts. Distributions, if any, of net long-term capital gains
from certain transactions in futures or options are taxable at long-term capital
gains rates for Federal income tax purposes, regardless of the length of time
the shareholder has owned Fund shares. See "Taxes".

The purchase or sale of a futures contract differs from the purchase or sale
of a security in that no price or premium is paid or received. Instead, an
amount of cash or U.S. Treasury bills equal to approximately 5% of the contract
amount must be deposited with the broker. This amount is known as initial
margin. Subsequent payments to and from the broker, called variation margin, are
made on a daily basis as the price of the futures contract fluctuates making the
long and short positions in the futures contract more or less valuable.

The Fund may purchase and sell financial futures contracts based on The Bond
Buyer Municipal Bond Index, a price-weighted measure of the market value of 40
large recently issued tax-exempt bonds, and purchase and sell put and call
options on such futures contracts for the purpose of hedging Municipal Bonds
which the Fund holds or anticipates purchasing against adverse changes in
interest

17
<PAGE>
rates. The Fund also may purchase and sell financial futures contracts on U.S.
Government securities and purchase and sell put and call options on such futures
contracts for such hedging purposes. With respect to U.S. Government securities,
currently there are financial futures contracts based on long-term U.S. Treasury
bonds, Treasury notes, GNMA Certificates and three-month U.S. Treasury bills.

Subject to policies adopted by the Directors, the Fund also may engage in
transactions in other financial futures contracts transactions and options
thereon, such as financial futures contracts or options on other municipal bond
indices which may become available if the Investment Adviser and the Directors
of the Fund should determine that there is normally a sufficient correlation
between the prices of such futures contracts and the Municipal Bonds in which
the Fund invests to make such hedging appropriate.

Over-the-Counter Options. The Fund may engage in options and futures
transactions on exchanges and in the over-the-counter markets. In general,
exchange-traded contracts are third-party contracts (i.e., performance of the
parties' obligations is guaranteed by an exchange or clearing corporation) with
standardized strike prices and expiration dates. Over-the-counter options ("OTC
options") transactions are two-party contracts with price and terms negotiated
by the buyer and seller. See "Restrictions on OTC Options" below for information
as to restrictions on the use of OTC options.

Restrictions on OTC Options. The Fund will engage in OTC options only with
member banks of the Federal Reserve System and primary dealers in United States
Government securities or with affiliates of such banks or dealers which have
capital of at least $50 million or whose obligations are guaranteed by an entity
having capital of at least $50 million. OTC options and assets used to cover OTC
options written by the Fund are considered by the staff of the Securities and
Exchange Commission to be illiquid. The illiquidity of such options or assets
may prevent a successful sale of such options or assets, result in a delay of
sale, or reduce the amount of proceeds that might otherwise be realized. As a
result, the Fund will acquire only those OTC options for which the Investment
Adviser believes the Fund can receive on each business day at least two
independent bids or offers (one of which will be from an entity other than a
party to the option).

Risk Factors in Options and Futures Transactions. Utilization of futures
transactions involves the risk of imperfect correlation in movements in the
price of futures contracts and movements in the price of the security which is
the subject of the hedge. If the price of the futures contract moves more or
less than the price of the security that is the subject of the hedge, the Fund
will experience a gain or loss which will not be completely offset by movements
in the price of such security. There is a risk of imperfect correlation where
the securities underlying futures contracts have different maturities, ratings,
geographic compositions or other characteristics than the security being hedged.
In addition, the correlation may be affected by additions to or deletions from
the index which serves as a basis for a financial futures contract. Finally, in
the case of futures contracts on U.S. Government securities and options on such
futures contracts, the anticipated correlation of price movements between the
U.S. Government securities underlying the futures or options and Municipal Bonds
may be adversely affected by economic, political, legislative or other
developments which have a disparate impact on the respective markets for such
securities.

Under regulations of the Commodity Futures Trading Commission ("CFTC"), the
futures trading activities described herein will not result in the Fund being
deemed a "commodity pool", as defined under such regulations, provided that the
Fund adheres to certain restrictions. In particular, the Fund may purchase and
sell futures contracts and options thereon only for bona fide hedging purposes,
as

18
<PAGE>
defined under CFTC regulations, and may not purchase or sell any such futures
contracts or options if, immediately thereafter, the sum of the amount of
initial margin deposits on the Fund's existing futures position and premiums
paid for outstanding options would exceed 5% of the market value of its net
assets. Margin deposits may consist of cash or securities acceptable to the
broker and the relevant contract market.

When the Fund purchases a futures contract, or writes a put option or
purchases a call option thereon, it will maintain an amount of cash, cash
equivalents (e.g., commercial paper and daily tender adjustable notes) or
short-term high-grade fixed-income securities in a segregated account with the
Fund's custodian, so that the amount so segregated plus the amount of initial
and variation margin held in the account of its broker equals the market value
of the futures contract, thereby ensuring that the use of such futures contract
is unleveraged. It is not anticipated that transactions in futures contracts
will have the effect of increasing portfolio turnover.

Although certain risks are involved in options and futures transactions, the
Investment Adviser believes that, because the Fund will engage in options and
futures transactions only for hedging purposes, the options and futures
portfolio strategies of the Fund will not subject the Fund to certain risks
frequently associated with speculation in options and futures transactions. The
Fund must meet certain Federal income tax requirements under the Code in order
to qualify for the special tax treatment afforded regulated investment
companies, including a requirement that less than 30% of its gross income be
derived from the sale or other disposition of securities held for less than
three months. Additionally, the Fund is required to meet certain diversification
requirements under the Code.

The volume of trading in the exchange markets with respect to Municipal Bond
options may be limited, and it is impossible to predict the amount of trading
interest that may exist in such options. In addition, there can be no assurance
that viable exchange markets will continue.

The Fund intends to enter into options and futures transactions, on an
exchange or in the over-the-counter market, only if there appears to be a liquid
secondary market for such options or futures or, in the case of OTC options, the
Investment Adviser believes the Fund can receive on each business day at least
two independent bids or offers. There can be no assurance, however, that a
liquid secondary market will exist at any specific time. Thus, it may not be
possible to close an options or futures transaction. The inability to close
options and futures positions also could have an adverse impact on the Fund's
ability to effectively hedge its portfolio. There is also the risk of loss by
the Fund of margin deposits or collateral in the event of bankruptcy of a broker
with whom the Fund has an open position in an option or futures contract.

The liquidity of a secondary market in a futures contract may be adversely
affected by "daily price fluctuation limits" established by commodity exchanges
which limit the amount of fluctuation in a futures contract price during a
single trading day. Once the daily limit has been reached in the contract, no
trades may be entered into at a price beyond the limit, thus preventing the
liquidation of open futures positions. Prices have in the past moved beyond the
daily limit on a number of consecutive trading days.

19
<PAGE>
The successful use of these transactions also depends on the ability of the
Investment Adviser to forecast correctly the direction and extent of interest
rate movements within a given time frame. To the extent these rates remain
stable during the period in which a futures contract is held by the Fund or move
in a direction opposite to that anticipated, the Fund may realize a loss on the
hedging transaction which is not fully or partially offset by an increase in the
value of portfolio securities. As a result, the Fund's total return for such
period may be less than if it had not engaged in the hedging transaction.
Furthermore, the Fund will only engage in hedging transactions from time to time
and may not necessarily be engaging in hedging transactions when movements in
interest rates occur.

INVESTMENT RESTRICTIONS

The following are fundamental investment restrictions of the Fund and may
not be changed without the approval of the holders of a majority of the Fund's
outstanding voting securities (which for this purpose and under the 1940 Act
means the lesser of (i) 67% of the shares represented at a meeting at which more
than 50% of the outstanding shares are represented or (ii) more than 50% of the
outstanding shares). The Fund may not:

1. Make investments for the purpose of exercising control or management.

2. Purchase securities of other investment companies, except in
connection with a merger, consolidation, acquisition or reorganization, or
by purchase in the open market of securities of closed-end investment
companies where no underwriter's or dealer's commission or profit, other
than customary broker's commission, is involved and only if immediately
thereafter not more than 10% of the Fund's total assets would be invested in
such securities.

3. Purchase or sell real estate, commodities or commodity contracts;
provided that the Fund may invest in securities secured by real estate or
interests therein or issued by companies which invest in real estate or
interests therein and the Fund may purchase and sell financial futures
contracts and options thereon.

4. Issue senior securities or borrow money, except as permitted by
Section 18 of the 1940 Act.

5. Underwrite securities of other issuers except insofar as the Fund may
be deemed an underwriter under the Securities Act of 1933 in selling
portfolio securities.

6. Make loans to other persons except that the Fund may purchase
Municipal Bonds and other debt securities and enter into repurchase
agreements in accordance with its investment objective, policies and
limitations.

7. Purchase any securities on margin, except that the Fund may obtain
such short-term credit as may be necessary for the clearance of purchases
and sales of portfolio securities (the deposit or payment by the Fund of
initial or variation margin in connection with financial futures contracts
and options thereon is not considered the purchase of a security on margin).

8. Make short sales of securities or maintain a short position or invest
in put, call, straddle or spread options, except that the Fund may write,
purchase and sell options and futures on Municipal Bonds, United States
Government obligations and related indices or otherwise in connection with
bona fide hedging activities.

20
<PAGE>
9. Invest more than 25% of its total assets (taken at market value at
the time of each investment) in securities of issuers in a single industry,
except that the Fund will invest 25% or more of its assets in Municipal
Bonds issued to finance projects in the health care industry. (For purposes
of this restriction, states, municipalities and their political subdivisions
are not considered to be part of any industry.)

Additional investment restrictions adopted by the Fund, which may be changed
by the Board of Directors, provide that the Fund may not:

1. Invest more than 25% of its total assets (taken at market value at
the time of each investment) in the Municipal Bonds of any one state.

2. Mortgage, pledge, hypothecate or in any manner transfer, as security
for indebtedness, any securities owned or held by the Fund except as may be
necessary in connection with borrowings mentioned in(4) above or except as
may be necessary in connection with transactions in financial futures
contracts and options thereon.

If a percentage restriction on investment policies or the investment or use
of assets set forth above is adhered to at the time a transaction is effected,
later changes in percentage resulting from changing values will not be
considered a violation.

The Investment Adviser of the Fund and Merrill Lynch share a common parent,
Merrill Lynch & Co., Inc. Because of the affiliation of Merrill Lynch with the
Fund, the Fund is prohibited from engaging in certain transactions involving
Merrill Lynch except pursuant to an exemptive order of the Securities and
Exchange Commission or otherwise in compliance with the provisions of the 1940
Act and the rules and regulations thereunder. Included among such restricted
transactions will be purchases from or sales to Merrill Lynch of securities in
transactions in which it acts as principal. An exemptive order has been obtained
which permits the Fund to effect principal transactions with Merrill Lynch in
high quality, short-term, tax-exempt securities subject to conditions set forth
in such order. The Fund does not presently intend to request an order permitting
other principal transactions with Merrill Lynch. See "Portfolio Transactions".

PURCHASE OF SHARES

Merrill Lynch Funds Distributor, Inc. (the "Distributor"), an affiliate of
both the Investment Adviser and Merrill Lynch, acts as the distributor of shares
of Common Stock of the Fund. The Fund is engaged in a continuous offering of its
shares of Common Stock through the Distributor and other securities dealers
which have entered into selected dealer agreements with the Distributor,
including Merrill Lynch. Shares of the Fund may be purchased from the
Distributor or selected dealers, including Merrill Lynch, or by mailing a
purchase order directly to the Transfer Agent. The minimum initial purchase is
$1,000 and the minimum subsequent purchase is $50. In connection with an
exemption the Fund has obtained from the Securities and Exchange Commission
relating to its tender offers, the Fund will not offer its shares during the
five business days preceding the termination of a tender offer. See "Tender
Offers".

To permit the Fund to invest the net proceeds from the sale of its shares of
Common Stock in an orderly manner, the Fund may, from time to time, suspend the
sale of its shares of Common Stock, except for sales to existing holders of
Common Stock and dividend reinvestments.

21
<PAGE>
Due to the administrative complexities associated with the continuous
offering, administrative errors may result in the Distributor or an affiliate
inadvertently acquiring nominal numbers (in no event in excess of 5% of the
shares of Common Stock) of shares of Common Stock which it may wish to resell.
Such shares of Common Stock will not be subject to any investment restriction
and may be resold pursuant to this Prospectus.

The Fund offers its shares at a public offering price equal to the next
determined net asset value per share without a front-end sales charge. The
applicable offering price for purchase orders is based on the net asset value of
the Fund next determined after receipt of the purchase order by the Distributor.
As to purchase orders received by securities dealers prior to 4:15 P.M., New
York time, which includes orders received after the determination of net asset
value on the previous day, the applicable offering price will be based on the
net asset value determined as of 4:15 P.M. on the day the order is placed with
the Distributor, provided the order is received by the Distributor prior to 4:30
P.M., New York time, on that day. If the purchase orders are not received by the
Distributor prior to 4:30 P.M., New York time, such orders shall be deemed
received on the next business day. Any order may be rejected by the Distributor
or the Fund. The Fund or the Distributor may suspend the continuous offering of
the Fund's shares to the general public at any time in response to conditions in
the securities markets or otherwise and may thereafter resume such offering from
time to time. Neither the Distributor nor the dealers are permitted to withhold
placing orders to benefit themselves by a price change. The Distributor is
required to advise the Fund promptly of all purchase orders and cause payments
for shares of Common Stock to be delivered promptly to the Fund. Merrill Lynch
charges its customers a postage and handling charge (presently $4.85) to confirm
a purchase of shares by such customers. Purchases directly through the Fund's
Transfer Agent are not subject to the postage and handling charge.

The Distributor compensates Merrill Lynch and other selected dealers at a
rate of 3.0% of amounts purchased. If the shares remain outstanding after one
year from the date of their original purchase, the Distributor will compensate
Merrill Lynch and such dealers at an annual rate equal to 0.25% of the value of
Fund shares sold by Merrill Lynch and such dealers and remaining outstanding.
These amounts do not represent an expense to the Fund and its shareholders since
the payments made by the Distributor will be made from its own assets, which may
include amounts received by the Distributor as early withdrawal charges. See
"Early Withdrawal Charge". The compensation paid to selected dealers and the
Distributor, including the compensation paid at the time of purchase, the
quarterly payments mentioned above and the early withdrawal charge, if any, will
not in the aggregate exceed the applicable limit (presently, 8%), as determined
from time to time by the National Association of Securities Dealers, Inc.
("NASD"). For the years ended August 31, 1992, 1993 and 1994, the Distributor
paid approximately $4.8 million, $1.4 million and $971,952 million,
respectively, to Merrill Lynch in connection with the sale of shares of Common
Stock of the Fund.

Upon the transfer of shares out of a Merrill Lynch brokerage account, an
investment account in the transferring shareholder's name will be opened
automatically, without charge, at the Fund's transfer agent, dividend disbursing
agent and shareholder servicing agent. Shareholders should be aware that it will
not be possible to transfer their shares from Merrill Lynch to another brokerage
firm or financial institution. Shareholders interested in transferring their
brokerage accounts from Merrill Lynch and who do not wish to have an account
maintained for such shares at the Fund's transfer agent must tender the shares
for repurchase by the Fund as described under "Tender Offers" so that the cash
proceeds can be transferred to the account at the new firm.

22
<PAGE>
Shares of the Fund's Common Stock may be purchased by residents of Texas
only if such investors have (i) a net worth of not less than $75,000 or (ii) a
net worth of not less than $40,000 and an annual gross income of not less than
$40,000.

TENDER OFFERS

In recognition of the possibility that a secondary market for the Fund's
shares will not exist, the Fund may take actions which will provide liquidity to
shareholders. The Fund may from time to time make offers to purchase its shares
of Common Stock from all beneficial holders of the Fund's Common Stock at a
price per share equal to the net asset value per share of the Common Stock
determined at the close of business on the day an offer terminates ("Tender
Offer"). Commencing with the second quarter of Fund operations, the Board of
Directors has considered the making of Tender Offers on a quarterly basis, and
the Board of Directors intends to continue this practice. There can be no
assurance, however, that the Board of Directors will decide to undertake the
making of a Tender Offer. Subject to the Fund's investment restriction with
respect to borrowings, the Fund may borrow money to finance the repurchase of
shares pursuant to any Tender Offers. See "Investment Restrictions".

The Fund expects that ordinarily there will be no secondary market for the
Fund's Common Stock and that periodic tenders will be the only source of
liquidity for Fund shareholders. Nevertheless, if a secondary market develops
for the Common Stock of the Fund, the market price of the shares may vary from
net asset value from time to time. Such variance may be affected by, among other
factors, relative demand and supply of shares and the performance of the Fund,
especially as it affects the yield on and net asset value of the Common Stock of
the Fund. A Tender Offer for shares of Common Stock of the Fund at net asset
value is expected to reduce any spread between net asset value and market price
that may otherwise develop. However, there can be no assurance that such action
would result in the Fund's Common Stock trading at a price which equals or
approximates net asset value.

Although the Board of Directors believes that the Tender Offers generally
would be beneficial to holders of the Fund's Common Stock, the acquisition of
shares of Common Stock by the Fund will decrease the total assets of the Fund
and therefore have the likely effect of increasing the Fund's expense ratio
(assuming such acquisition is not offset by the issuance of additional shares of
Common Stock). Furthermore, if the Fund borrows to finance the making of Tender
Offers, interest on such borrowing will reduce the Fund's net investment income.

It is the Board's announced policy, which may be changed by the Board, not
to purchase shares pursuant to a Tender Offer if (1) such purchases would impair
the Fund's status as a regulated investment company under the Code (which would
make the Fund a taxable entity, causing the Fund's income to be taxed at the
corporate level in addition to the taxation of shareholders 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 Common Stock tendered
pursuant to the Tender Offer; or (3) there is, in the Board's judgment, any (a)
legal action or proceeding instituted or threatened challenging the Tender 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 shareholders if
shares

23
<PAGE>
of Common Stock tendered pursuant to the Tender Offer were purchased. Thus,
there can be no assurance that the Board will proceed with any Tender Offer. The
Board of Directors may modify these conditions in light of circumstances
existing at the time. If the Board of Directors determines to purchase the
Fund's shares of Common Stock pursuant to a Tender Offer, such purchases could
significantly reduce the asset coverage of any borrowing or outstanding senior
securities. The Fund may not purchase shares of Common Stock to the extent such
purchases would result in the asset coverage with respect to such borrowing or
senior securities being reduced below the asset coverage requirement set forth
in the 1940 Act. Accordingly, in order to purchase all shares of Common Stock
tendered, the Fund may have to repay all or part of any then outstanding
borrowing or redeem all or part of any then outstanding senior securities to
maintain the required asset coverage. See "Other Investment Policies--
Leverage". In addition, the amount of shares of Common Stock for which the Fund
makes any particular Tender Offer may be limited for the reasons set forth above
or in respect of other concerns related to liquidity of the Fund's portfolio.

The Fund has been granted an exemption by the Securities and Exchange
Commission relating to Tender Offers which is based on representations by the
Fund that no secondary market for shares of the Fund's Common Stock is expected
to develop. The exemption is conditioned on (1) the absence of a secondary
market, (2) the Fund suspending the offering of its shares during the five
business days preceding the termination of a Tender Offer and (3) the Fund
refraining from purchasing non-investment grade and unrated Municipal Bonds in
secondary market transactions during such five business day period. In the event
that circumstances arise under which the Fund does not conduct the Tender Offers
regularly, the Board of Directors would consider alternative means of providing
liquidity for holders of Common Stock. Such action would include an evaluation
of any secondary market that then existed and a determination of whether such
market provided liquidity for holders of Common Stock. If the Board of Directors
determines that such market, if any, fails to provide liquidity for the holders
of Common Stock, the Board expects that it will consider all then available
alternatives to provide such liquidity. Among the alternatives which the Board
of Directors may consider is the listing of the Fund's Common shares on a major
domestic stock exchange or on the NASDAQ National Market System in order to
provide such liquidity. The Board of Directors also may consider causing the
Fund to repurchase its shares from time to time in open-market or private
transactions when it can do so on terms that represent a favorable investment
opportunity. In any event, the Board of Directors expects it will cause the Fund
to take whatever action it deems necessary or appropriate to provide liquidity
for the holders of Common Stock in light of the facts and circumstances existing
at such time.

To consummate a Tender Offer in order to repurchase its shares of Common
Stock, the Fund may be required to liquidate portfolio securities, and realize
gains or losses, at a time when the Investment Adviser would otherwise consider
it disadvantageous to do so. In such event gains may be realized on securities
held for less than three months. In order to qualify as a regulated investment
company under the Code, the Fund must limit such gains and, accordingly, the
amount of gain that the Fund could realize in the ordinary course of its
portfolio management from sales of other securities held for less than three
months would be reduced. This may adversely affect the Fund's yield. See
"Taxes".

Each Tender Offer will be made and shareholders notified in accordance with
the requirements of the Securities Exchange Act of 1934 and the 1940 Act, either
by publication or mailing or both. The offering documents will contain such
information as is prescribed by such laws and the rules and regulations
promulgated thereunder. The repurchase of tendered shares by the Fund is a
taxable event. See "Taxes". The Fund will pay all costs and expenses associated
with the making of any Tender Offer. An Early Withdrawal Charge will be imposed
on most shares accepted for tender which have been held

24
<PAGE>
for less than three years. See "Early Withdrawal Charge". In addition, Merrill
Lynch charges its customers a postage and handling charge (presently, $4.85) to
confirm a repurchase of shares from such customers pursuant to a Tender Offer.
Tenders made directly through the Fund's Transfer Agent are not subject to the
postage and handling charge.

EARLY WITHDRAWAL CHARGE

An Early Withdrawal Charge to recover distribution expenses incurred by the
Distributor will be charged against the shareholder's investment account and
paid to the Distributor in connection with most shares of Common Stock held for
less than three years which are accepted by the Fund for repurchase pursuant to
a Tender Offer in the manner described below. The Early Withdrawal Charge will
be imposed on those shares of Common Stock accepted for tender based on an
amount equal to the lesser of the then current net asset value of the shares of
Common Stock or the cost of the shares of Common Stock 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 dividends or
capital gains distributions. The Early Withdrawal Charge imposed will vary
depending on the length of time the Common Stock has been owned since purchase
(separate purchases shall not be aggregated for these purposes), as set forth in
the following table:

<TABLE>
<CAPTION>
YEAR OF REPURCHASE AFTER PURCHASE EARLY WITHDRAWAL CHARGE
- -------------------------------------------------------------- -----------------------
<S> <C>
First......................................................... 3.0%
Second........................................................ 2.0%
Third......................................................... 1.0%
Fourth and following.......................................... 0%
</TABLE>

In determining whether an Early Withdrawal Charge is applicable to a tender
of shares of Common Stock, 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 of Common Stock held for over three
years and shares of Common Stock acquired pursuant to reinvestment of dividends
or distributions and then of shares of Common Stock held longest during the
three-year period. The Early Withdrawal Charge will not be applied to dollar
amounts representing an increase in the net asset value since the time of
purchase.

EXAMPLE:

Assume an investor purchased 1,000 shares of Common Stock (at a cost of
$10,000) and in the second year after purchase, the net asset value per share is
$12.00 and, during such time, the investor has acquired 100 additional shares of
Common Stock upon dividend reinvestment. If at such time the investor makes his
first redemption of 500 shares of Common Stock (proceeds of $6,000), 100 shares
will not be subject to the Early Withdrawal Charge because of dividend
reinvestment. With respect to the remaining 400 shares of Common Stock, the
Early Withdrawal Charge is applied only to the original cost of $10 per share
and not to the increase in net asset value of $2.00 per share. Therefore, $4,000
of the $6,000 redemption proceeds will be charged at a rate of 2.0% (the
applicable rate in the second year after purchase).

For the years ended August 31, 1992, 1993 and 1994, the amount paid to the
Distributor in Early Withdrawal Charges aggregated $225,127, $246,377 and
$191,033, respectively.

25
<PAGE>
DIRECTORS AND OFFICERS

The Directors and executive officers of the Fund and their principal
occupations during the last five years are set forth below. Unless otherwise
noted, the address of each Director and executive officer is 800 Scudders Mill
Road, Plainsboro, New Jersey 08536.

ARTHUR ZEIKEL--President and Director(1)(2)--President of the Investment
Adviser (which term as used herein includes the Investment Adviser's corporate
predecessor) since 1977 and Director and Chief Investment Officer since 1976;
President, Director and Chief Investment Officer of Fund Asset Management, L.P.
("FAM") (which term as used herein includes FAM's corporate predecessor), since
1977; President and Director of Princeton Services, Inc. ("Princeton Services")
since 1993; an Executive Vice President of Merrill Lynch & Co., Inc. ("ML&Co.")
since 1990; an Executive Vice President of Merrill Lynch since 1990 and a Senior
Vice President from 1985 to 1990; Director of the Distributor.

RONALD W. FORBES--Director(2)--1400 Washington Avenue, Albany, New York
12222. Professor of Finance, School of Business, State University of New York at
Albany, since 1989, and Associate Professor prior thereto; Member, Task Force on
Municipal Securities Markets, Twentieth Century Fund.

CYNTHIA A. MONTGOMERY--Director(2)--Harvard Business School, Soldiers Field
Road, Boston, Massachusetts 20163. Professor, Harvard Business School since
1989; Associate Professor J.L. Kellogg Graduate School of Management,
Northwestern University from 1985 to 1989; Assistant Professor, Graduate School
of Business Administration, the University of Michigan from 1979 to 1985;
Director UNUM Corporation.

CHARLES C. REILLY--Director(2)--9 Hampton Harbor Road, Hampton Bays, N.Y.
11946. Self-employed financial consultant since 1990; President and Chief
Investment Officer of Verus Capital, Inc. from 1979 to 1990; Senior Vice
President of Arnhold and S. Bleichroeder, Inc. from 1973 to 1990; Adjunct
Professor, Columbia University Graduate School of Business since 1990; Adjunct
Professor, Wharton School, University of Pennsylvania, 1990; Director, Harvard
Business School Alumni Association; Director, Small Cities CableVision.

KEVIN A. RYAN--Director(2)--127 Commonwealth Avenue, Chestnut Hill,
Massachusetts 02167. Founder and current Director and Professor of The Boston
University Center for the Advancement of Ethics and Character, Professor of
Education at Boston University from 1982 to 1994; formerly taught on the
faculties of the University of Chicago, Stanford University and The Ohio State
University.

RICHARD R. WEST--Director(2)--482 Tepi Drive, Southbury, Connecticut 06488.
Professor of Finance, and Dean from 1984 to 1993, New York University Leonard N.
Stern School of Business Administration since 1984; Professor of Finance at the
Amos Tuck School of Business Administration from 1976 to 1984 and Dean from 1976
to 1983; Director of Vornado, Inc. (real estate investment trust), Bowne & Co.,
Inc. (financial printer), Smith-Corona Corporation (manufacturer of typewriters
and word processors), Alexander's Inc. (real estate company) and RE Capital
Corp. (reinsurance holding company).

TERRY K. GLENN--Executive Vice President(1)(2)--Executive Vice President of
the Investment Adviser and FAM since 1983 and Director since 1991; Executive
Vice President and Director of Princeton Services, Inc. since 1993; President
and Director of the Distributor since 1986.

DONALD C. BURKE--Vice President(1)(2)--Vice President and Director of
Taxation of MLAM since 1990; employee of Deloitte & Touche from 1982 to 1990.

26
<PAGE>

VINCENT R. GIORDANO--Vice President(1)(2)--Senior Vice President of the
Investment Adviser and FAM since 1984; Portfolio Manager of the Investment
Adviser and FAM since 1977 and Vice President of the Investment Adviser from
1980 to 1984.

GERALD M. RICHARD--Treasurer(1)(2)--Senior Vice President and Treasurer of
the Investment Adviser and FAM since 1984; Vice President of the Distributor
since 1981 and Treasurer since 1984; Senior Vice President and Treasurer of
Princeton Services since 1993; employee of the Distributor since 1978.

ROBERT HARRIS--Secretary(1)(2)--Vice President of the Investment Adviser
since 1984 and attorney associated with the Investment Adviser since 1980;
Secretary of the Distributor since 1982.

- ------------

(1) Interested person, as defined in the 1940 Act, of the Fund.

(2) Such Director or officer is a director, officer or member of the advisory
board of one or more investment companies for which the Investment Adviser
acts as investment adviser.

The Fund pays each Director not affiliated with the Investment Adviser an
annual fee of $2,000 per year plus $400 per meeting attended, together with such
Director's actual out-of-pocket expenses relating to attendance at meetings. The
Fund also pays members of its audit committee, which consists of all of the
Directors not affiliated with the Investment Adviser, an annual fee of $1,000;
the chairman of the audit committee receives an additional annual fee of $1,000.
For the year ended August 31, 1994, fees and expenses paid to the unaffiliated
Directors of the Fund aggregated $25,613.

INVESTMENT ADVISORY AND ADMINISTRATIVE ARRANGEMENTS

Merrill Lynch Asset Management, L.P. (the "Investment Adviser"), which is
owned and controlled by ML & Co., a financial services holding company and the
parent of Merrill Lynch, provides the Fund with investment advisory and
administrative services. The Investment Adviser or FAM, acts as the investment
adviser for more than 100 registered investment companies and also offers
investment advisory services to individuals and institutions. As of September
30, 1994, the Investment Adviser and FAM had a total of approximately $167
billion in investment company and other assets under management, including
accounts of certain affiliates of the Investment Adviser. The Investment Adviser
is a limited partnership the partners of which are ML & Co., Merrill Lynch
Investment Management, Inc. and Princeton Services. The principal business
address of the Investment Adviser is 800 Scudders Mill Road, Plainsboro, New
Jersey 08536.

The investment advisory agreement with the Investment Adviser (the
"Investment Advisory Agreement") provides that, subject to the direction of the
Board of Directors of the Fund, the Investment Adviser is responsible for the
actual management of the Fund's portfolio. The responsibility for making
decisions to buy, sell or hold a particular security rests with the Investment
Adviser, subject to review by the Board of Directors.

The Investment Adviser provides the portfolio management for the Fund. Such
portfolio management will consider analyses from various sources, make the
necessary investment decisions, and place orders for transactions accordingly.
The Investment Adviser also will be responsible for the performance of certain
management services for the Fund. The portfolio manager for the Fund is Vincent
R. Giordano.

For the services provided by the Investment Adviser under the Investment
Advisory Agreement, the Fund pays a monthly fee at an annual rate of 0.95 of 1%
of the Fund's average daily net assets (i.e.,

27
<PAGE>
the average daily value of the total assets of the Fund, minus the sum of
accrued liabilities of the Fund and accumulated dividends on the shares of
preferred stock, if any). For purposes of this calculation, average daily net
assets is determined at the end of each month on the basis of the average net
assets of the Fund for each day during the month.

Under the terms of an administration agreement with the Fund (the
"Administration Agreement"), the Investment Adviser also performs or arranges
for the performance of the administrative services (i.e., services other than
investment advice and related portfolio activities) necessary for the operation
of the Fund, including paying all compensation of and furnishing office space
for officers and employees of the Fund connected with investment and economic
research, trading and investment management of the Fund, as well as the
compensation of all Directors of the Fund who are affiliated persons of the
Investment Adviser or any of its affiliates. The Fund pays all other expenses
incurred in the operation of the Fund, including, among other things, expenses
for legal and auditing services, taxes, costs of printing proxies, listing fees,
if any, stock certificates and shareholder reports, charges of the Custodian and
the Transfer Agent, Dividend Disbursing Agent and Shareholder Servicing Agent,
expenses of registering the shares under Federal and state securities laws, fees
and expenses with respect to any issuance of preferred shares or any borrowing,
Securities and Exchange Commission fees, fees and expenses of unaffiliated
Directors, accounting and pricing costs, insurance, interest, brokerage costs,
litigation and other extraordinary or non-recurring expenses, mailing and other
expenses properly payable by the Fund. Accounting services are provided to the
Fund by the Investment Adviser, and the Fund reimburses the Investment Adviser
for its costs in connection with such services. For the years ended August 31,
1992, 1993 and 1994, the reimbursement for such services aggregated $36,233,
$53,421 and $39,397, respectively.

For the administrative services rendered to the Fund and the facilities
furnished, the Fund pays the Investment Adviser a monthly fee at an annual rate
of 0.25 of 1% of the Fund's average daily net assets determined in the same
manner as the fee payable by the Fund under the Investment Advisory Agreement.
The combined advisory and administration fees are greater than the advisory fees
paid by most funds, but are similar in amount to the fees paid by other
continuously offered, closed-end funds.

For the year ended August 31, 1992, the fee paid by the Fund to the
Investment Adviser pursuant to the Investment Advisory Agreement was $1,347,792
and the fee paid by the Fund to the Investment Adviser pursuant to the
Administration Agreement was $354,682 (based on average daily net assets of
approximately $142.7 million). The Investment Adviser voluntarily reimbursed to
the Fund $351,832 of the combined advisory and administration fees payable by
the Fund which resulted in an effective fee rate of 0.95% for the period. For
the year ended August 31, 1993, the fee paid by the Fund to the Investment
Adviser pursuant to the Investment Advisory Agreement was $1,791,108 and the fee
paid by the Fund to the Investment Adviser pursuant to the Administration
Agreement was $471,341 (based on average daily net assets of approximately
$188.5 million). The Investment Adviser voluntarily reimbursed the Fund $188,538
of the combined advisory and administration fees payable by the Fund which
resulted in an effective fee rate of 1.10% for the period. For the year ended
August 31, 1994, the fee paid by the Fund to the Investment Adviser pursuant to
the Investment Advisory Agreement was $2,111,003 and the fee paid by the Fund
pursuant to the Administration Agreement was $555,227 (based on average daily
net assets of approximately $222.2 million). The Investment Adviser voluntarily
reimbursed to the Fund $3,563 of such amount.

Certain states impose limitations on the expenses of the Fund. California's
limitations require that the Investment Adviser reimburse the Fund in an amount
necessary to prevent the ordinary operating

28
<PAGE>
expenses of the Fund (excluding interest, taxes, distribution fees, brokerage
fees and commissions and extraordinary charges such as litigation costs) from
exceeding 2.5% of the Fund's first $30 million of average daily net assets, 2.0%
of the next $70 million of average daily net assets and 1.5% of the remaining
average daily net assets. Under Ohio's limitations, the Investment Adviser must
reimburse the Fund in an amount necessary to prevent the Fund's aggregate annual
expenses (subject to the exclusions set forth above with the exception of
distribution fees) from exceeding 2.0% of the Fund's average daily net assets.
The Investment Adviser's obligation to reimburse the Fund is limited to the
amount of the investment advisory fee. No fee payment will be made to the
Investment Adviser during any fiscal year which will cause such expenses to
exceed the most restrictive expense limitation applicable at the time of such
payment.

Unless earlier terminated as described below, the Investment Advisory and
Administrative Agreements will remain in effect from year to year if approved
annually (a) by the Board of Directors of the Fund or by a majority of the
outstanding shares of the Fund and (b) by a majority of the Directors who are
not parties to such contract or interested persons (as defined in the 1940 Act)
of any such party. Such contracts are not assignable and may be terminated
without penalty on 60 days' written notice at the option of either party thereto
or by the vote of the shareholders of the Fund.

Securities held by the Fund may also be held by, or be appropriate
investments for, other funds or investment advisory clients for which the
Investment Adviser or its affiliate act as an adviser. Because of different
objectives or other factors, a particular security may be bought for one or more
clients when one or more clients are selling the same security. If purchases or
sales of securities by the Investment Adviser for the Fund or other funds for
which it acts as investment adviser or for advisory clients arise for
consideration at or about the same time, transactions in such securities will be
made, insofar as feasible, for the respective funds and clients in a manner
deemed equitable to all. To the extent that transactions on behalf of more than
one client of the Investment Adviser or its affiliate during the same period may
increase the demand for securities being purchased or the supply of securities
being sold, there may be an adverse effect on price.

Transfer Agency Services. Financial Data Services, Inc. (the "Transfer
Agent"), which is a wholly-owned subsidiary of Merrill Lynch & Co., Inc., acts
as the Fund's transfer agent pursuant to a transfer agency, dividend disbursing
agency and shareholder servicing agency agreement (the "Transfer Agency
Agreement"). Pursuant to the Transfer Agency Agreement, the Transfer Agent is
responsible for the issuance, transfer and tender of shares and the opening and
maintenance of shareholder accounts. Pursuant to the Transfer Agency Agreement,
the Fund pays the Transfer Agent an annual fee of $14.00 per shareholder
account, and the Transfer Agent is entitled to certain nominal miscellaneous
charges and reimbursement for out-of-pocket expenses incurred by it under the
Transfer Agency Agreement. For the year ended August 31, 1994, the Fund's
payments to the Transfer Agent pursuant to the Transfer Agency Agreement,
including reimbursement for out-of-pocket expenses, aggregated $109,848. At
September 30, 1994, the Fund had 7,518 shareholder accounts. At this level of
accounts, the annual fee payable to the Transfer Agent would aggregate
approximately $105,252, plus out-of-pocket expenses.

PORTFOLIO TRANSACTIONS

Subject to policies established by the Board of Directors of the Fund, the
Investment Adviser is primarily responsible for the execution of the Fund's
portfolio transactions. In executing such transactions, the Investment Adviser
seeks to obtain the best results for the Fund, taking into account such

29
<PAGE>

factors as price (including the applicable brokerage commission or dealer
spread), size of order, difficulty of execution and operational facilities of
the firm involved and the firm's risk in positioning a block of securities.
While the Investment Adviser generally seeks reasonably competitive commission
rates, the Fund does not necessarily pay the lowest commission or spread
available. For the years ended August 31, 1992, 1993 and 1994, the Fund did not
pay any brokerage commissions.

The Fund has no obligation to deal with any broker or dealer in the
execution of transactions in portfolio securities. Subject to obtaining the best
price and execution, securities firms which provide supplemental investment
research to the Investment Adviser, including Merrill Lynch, may receive orders
for transactions by the Fund. Information so received will be in addition to and
not in lieu of the services required to be performed by the Investment Adviser
under the Investment Advisory Agreement and the expenses of the Investment
Adviser will not necessarily be reduced as a result of the receipt of such
supplemental information.

The securities in which the Fund will invest are traded in the
over-the-counter markets, and the Fund intends to deal directly with the dealers
who make markets in the securities involved, except in those circumstances where
better prices and execution are available elsewhere. Under the 1940 Act, except
as permitted by exemptive order, persons affiliated with the Fund are prohibited
from dealing with the Fund as principal in the purchase and sale of securities.
Since transactions in the over-the-counter market usually involve transactions
with dealers acting as principals for their own accounts, the Fund will not deal
with affiliated persons, including Merrill Lynch and its affiliates, in
connection with such transactions except that, pursuant to an exemptive order
obtained by the Investment Adviser, the Fund may engage in principal
transactions with Merrill Lynch in high quality, short-term, tax-exempt
securities. See "Investment Restrictions". For the years ended August 31, 1992,
1993 and 1994, the Fund engaged in no transactions pursuant to such order.
However, affiliated persons of the Fund may serve as its brokers in
over-the-counter transactions conducted on an agency basis.

PORTFOLIO TURNOVER

Generally, the Fund does not purchase securities for short-term trading
profits. However, the Fund may dispose of securities without regard to the time
they have been held when such action, for defensive or other reasons, appears
advisable to its Investment Adviser. While it is not possible to predict
turnover rates with any certainty, at present it is anticipated that the Fund's
annual portfolio turnover rate, under normal circumstances after the Fund's
portfolio is invested in accordance with its investment objective, will be less
than 100%. The portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the particular fiscal year by the
monthly average of the value of the portfolio securities owned by the Fund
during the particular fiscal year. For purposes of determining this rate, all
securities whose maturities at the time of acquisition are one year or less are
excluded. For the years ended August 31, 1992, 1993 and 1994, the Fund's
portfolio turnover rate was 31.74%, 28.74% and 28.51%, respectively.

DIVIDENDS AND DISTRIBUTIONS

The Fund intends to continue to distribute all its net investment income.
Dividends from such net investment income are paid monthly. All net realized
long- or short-term capital gains, if any, will be distributed to the Fund's
shareholders at least annually. See "Automatic Dividend Reinvestment Plan" for
information concerning the manner in which dividends and distributions may be
automatically reinvested in shares of the Fund. Dividends and distributions are
taxable to shareholders as discussed below whether they are reinvested in shares
of the Fund or received in cash.

30
<PAGE>
TAXES

GENERAL

The Fund intends to continue to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Internal Revenue Code
of 1986, as amended (the "Code"). If it so qualifies, in any taxable year in
which it distributes at least 90% of its taxable net income and 90% of its
tax-exempt net income (see below), the Fund (but not its shareholders) will not
be subject to Federal income tax to the extent that it distributes its net
investment income and net realized capital gains. The Fund intends to distribute
substantially all of its net investment income and net realized capital gains.

The Code requires a RIC to pay a nondeductible 4% excise tax to the extent
the RIC does not distribute, during each calendar year, 98% of its ordinary
income, determined on a calendar year basis, and 98% of its capital gains,
determined, in general, on an October 31 year end, plus certain undistributed
amounts from previous years. The required distributions, however, are based only
on the taxable income of a RIC. The excise tax, therefore, generally will not
apply to the tax-exempt income of a RIC, such as the Fund, that pays
exempt-interest dividends.

The Fund intends to qualify to pay "exempt-interest" dividends as defined in
Section 852(b)(5) of the Code. Under such section, if, at the close of each
quarter of its taxable year, at least 50% of the value of its total assets
consists of obligations exempt from Federal income tax ("tax-exempt
obligations") under Section 103(a) of the Code (relating generally to
obligations of a state or local governmental unit), the Fund will be qualified
to pay exempt-interest dividends to its shareholders. Exempt-interest dividends
are dividends or any part thereof paid by the Fund which are attributable to
interest on tax-exempt obligations and designated by the Fund as exempt-interest
dividends in a written notice mailed to the Fund's shareholders within sixty
days after the close of its taxable year. To the extent that the dividends
distributed to the Fund's shareholders are derived from interest income exempt
from Federal income tax under Code Section 103(a), and are properly designated
as exempt-interest dividends, they will be excludable from a shareholder's gross
income for Federal income tax purposes. Exempt-interest dividends are included,
however, in determining the portion, if any, of a person's social security
benefits and railroad retirement benefits subject to Federal income taxes.
Interest on indebtedness incurred or continued to purchase or carry shares of an
investment company paying exempt-interest dividends, such as the Fund, will not
be deductible by the investor for Federal income tax purposes, to the extent
attributable to exempt-interest dividends. The Fund will inform shareholders
annually as to the portion of the Fund's distributions which constitutes
exempt-interest dividends. Shareholders are advised to consult their tax
advisers with respect to whether exempt-interest dividends retain the exclusion
under Code Section 103(a) if such shareholder would be treated as a "substantial
user" or "related person" under Code Section 147(a) with respect to property
financed with the proceeds of an issue of industrial development bonds or
private activity bonds, if any, held by the Fund.

To the extent that the Fund's distributions are derived from interest on its
taxable investments or from an excess of net short-term capital gains over net
long-term capital losses ("ordinary income dividends"), such distributions are
considered ordinary income for Federal income tax purposes. Such distributions
are not eligible for the dividends-received deduction for corporations.
Distributions, if any, of net long-term capital gains from the sale of
securities or from certain transactions in futures or options ("capital gain
dividends") are taxable as long-term capital gains for Federal income tax
purposes, regardless of the length of time the shareholder has owned Fund
shares. Under the Revenue Reconciliation Act of 1993, all or a portion of the
Fund's gain from the sale or redemption of tax-exempt obligations purchased at a
market discount will be treated as ordinary income rather than

31
<PAGE>

capital gain. This rule may increase the amount of ordinary income dividends
received by shareholders. Any loss upon the sale or exchange of shares held for
six months or less will be treated as long-term capital loss to the extent of
any capital gain dividends received by the shareholder. In addition, such loss
will be disallowed to the extent of any exempt-interest dividends received by
the shareholder. Distributions in excess of the Fund's earnings and profits will
first reduce the adjusted tax basis of a holder's shares and, after such
adjusted tax basis is reduced to zero, will constitute capital gains to such
holder (assuming the shares are held as a capital asset). If the Fund pays a
dividend in January which was declared in the previous October, November or
December to shareholders of record on a specified date in one of such months,
then such dividend will be treated for tax purposes as being paid by the RIC and
received by its shareholders on December 31 of the year in which such dividend
was declared.

The Code subjects interest received on certain otherwise tax-exempt
securities to an alternative minimum tax. This alternative minimum tax applies
to interest received on "private activity bonds" issued after August 7, 1986.
Private activity bonds are bonds which, although tax-exempt, are used for
purposes other than those generally performed by governmental units and which
benefit non-governmental entities (e.g., bonds used for industrial development
or housing purposes). Income received on such bonds is classified as an item of
"tax preference," which could subject investors in such bonds, including
shareholders of the Fund, to an alternative minimum tax. The Fund intends to
purchase such "private activity bonds" and will report to shareholders within 60
days after its taxable year end the portion of its dividends declared during the
year which constitutes an item of tax preference for alternative minimum tax
purposes. The Code further provides that corporations are subject to an
alternative minimum tax based, in part, on certain differences between taxable
income as adjusted for other tax preferences and the corporation's "adjusted
current earnings" (which more closely reflect a corporation's economic income).
Because an exempt-interest dividend paid by the Fund will be included in
adjusted current earnings, a corporate shareholder may be required to pay
alternative minimum tax on exempt-interest dividends paid by the Fund.

The Revenue Reconciliation Act of 1993 has added new marginal tax brackets
of 36% and 39.6% for individuals and has created a graduated structure of 26%
and 28% for the alternative minimum tax applicable to individual taxpayers.
These rate increases may affect an individual investor's after-tax return from
an investment in the Fund as compared with such investor's return from taxable
investments.

A loss realized on a sale or exchange of shares of the Fund will be
disallowed if other Fund shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30 days
before and ending 30 days after the date that the shares are disposed of. In
such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.

The value of shares acquired pursuant to the Fund's dividend reinvestment
plan will generally be excluded from gross income to the extent that the cash
amount reinvested would be excluded from gross income. If, when the Fund's
shares are trading at a premium over net asset value, the Fund issues shares
pursuant to the dividend reinvestment plan which have a greater fair market
value than the amount of cash reinvested, it is possible that all or a portion
of such discount (which may not exceed 5% of the fair market value of the Fund's
shares) could be viewed as a taxable distribution. If the discount is viewed as
a taxable distribution, it is also possible that the taxable character of this
discount would be allocable to all the shareholders, including shareholders who
do not participate in the dividend reinvestment plan. Thus, shareholders who do
not participate in the dividend reinvestment plan might be required to report as
ordinary income a portion of their distributions equal to their allocable share
of the discount.

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<PAGE>

Ordinary income dividends paid to shareholders who are nonresident aliens or
foreign entities will be subject to a 30% United States withholding tax under
existing provisions of the Code applicable to foreign individuals and entities
unless a reduced rate of withholding or a withholding exemption is provided
under applicable treaty law. Nonresident shareholders are urged to consult their
own tax advisers concerning the applicability of the United States withholding
tax.

Under certain Code provisions, some taxpayers may be subject to a 31%
withholding tax on certain ordinary income dividends and on capital gain
dividends and redemption payments ("backup withholding"). Generally,
shareholders subject to backup withholding will be those for whom no certified
taxpayer identification number is on file with the Fund or who, to the Fund's
knowledge, have furnished an incorrect number. When establishing an account, an
investor must certify under penalty of perjury that such number is correct and
that he is not otherwise subject to backup withholding.

The Code provides that every person required to file a tax return must
include on such return the amount of exempt-interest dividends received from all
sources (including the Fund) during the taxable year.

OFFERS TO PURCHASE SHARES

Under current law, a holder of Common Stock, who, pursuant to any Tender
Offer, tenders all shares of Common Stock owned by such shareholder and any
shares considered owned by such shareholder under attribution rules contained in
the Code will realize a taxable gain or loss depending upon such shareholder's
basis in the shares. Such gain or loss will be treated as capital gain or loss
if the shares are held as capital assets and will be long-term or short-term
depending upon the shareholder's holding period for the shares. Different tax
consequences may apply to tendering and nontendering holders of Common Stock in
connection with a Tender Offer, and these consequences will be disclosed in the
related offering documents. For example, if a tendering holder of Common Stock
tenders less than all shares owned by or attributed to such shareholder, and if
the distribution to such shareholder does not otherwise qualify as a sale or
exchange, the proceeds received will be treated as a taxable dividend, a return
of capital or capital gain, depending on the Fund's earnings and profits and the
shareholder's basis in the tendered shares. Also, there is a remote risk that
non-tendering holders of Common Stock may be considered to have received a
deemed distribution which may be a taxable dividend in whole or in part. Holders
of Common Stock may wish to consult their tax advisers prior to tendering. If
holders of Common Stock whose shares are acquired by the Fund in the open market
sell less than all shares owned by or attributed to them, a risk exists that
these shareholders will be subject to taxable dividend treatment and a remote
risk exists that the remaining shareholders may be considered to have received a
deemed distribution.

ENVIRONMENTAL TAX

The Code imposes a deductible tax (the "Environmental Tax") on a
corporation's modified alternative minimum taxable income (computed without
regard to the alternative tax net operating loss deduction and the deduction for
the Environmental Tax) at a rate of $12 per $10,000 (0.12%) of alternative
minimum taxable income in excess of $2,000,000. The Environmental Tax is imposed
for taxable years beginning after December 31, 1986, and before January 1, 1996.
The Environmental Tax is imposed even if the corporation is not required to pay
an alternative minimum tax because the corporation's regular income tax
liability exceeds its minimum tax liability. The Code provides, however, that a
RIC, such as the Fund, is not subject to the Environmental Tax. However, exempt-

33
<PAGE>
interest dividends paid by the Fund that create alternative minimum tax
preferences for corporate shareholders (as described above) may subject
corporate shareholders of the Fund to the Environmental Tax.

TAX TREATMENT OF OPTIONS AND FUTURES TRANSACTIONS

The Fund may purchase or sell municipal bond index futures contracts and
interest rate futures contracts on U.S. Government securities ("financial
futures contracts"). The Fund may also purchase and write call and put options
on such financial futures contracts.. In general, unless an election is
available to the Fund or an exception applies, such options and futures
contracts that are "Section 1256 contracts" will be "marked to market" for
Federal income tax purposes at the end of each taxable year, i.e., each such
option or financial futures contract will be treated as sold for its fair market
value on the last day of the taxable year, and any gain or loss attributable to
such Section 1256 contracts will be 60% long-term and 40% short-term capital
gain or loss. The mark-to-market rules outlined above, however, will not apply
to certain transactions entered into by the Fund solely to reduce the risk of
changes in price or interest rates with respect to its investments. Application
of the mark-to-market rules to Section 1256 contracts held by the Fund may alter
the timing and character of distributions to shareholders.

Code Section 1092, which applies to certain "straddles," may affect the
taxation of the Fund's transactions in financial futures contracts and related
options. Under Section 1092, the Fund may be required to postpone recognition
for tax purposes of losses incurred in certain closing transactions in financial
futures contracts and the related options.

One of the requirements for qualification as a RIC is that less than 30% of
the Fund's gross income be derived from gains from the sale or other disposition
of securities held for less than three months. Accordingly, the Fund may be
restricted in effecting closing transactions within three months after entering
into an option or financial futures contract.

STATE AND LOCAL TAXES

The exemption from Federal income tax for exempt-interest dividends does not
necessarily result in an exemption for such dividends under the income or other
tax laws of any state or local taxing authority. Shareholders are advised to
consult their own tax advisers concerning state and local tax matters.

-------------------

The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
the Treasury regulations promulgated thereunder. The Code and the Treasury
regulations are subject to change by legislative or administrative action either
prospectively or retroactively.

Shareholders are urged to consult their tax advisers regarding specific
questions as to Federal, foreign, state or local taxes.

34
<PAGE>
AUTOMATIC DIVIDEND REINVESTMENT PLAN

All dividends and capital gains distributions are reinvested automatically
in full and fractional shares of the Fund at the net asset value per share next
determined on the payable date of such dividend or distribution. A shareholder
may at any time, by request to his Merrill Lynch financial consultant or by
written notification to the Transfer Agent, elect to have subsequent dividends
or capital gains distributions, or both, paid in cash, rather than reinvested,
in which event payment will be mailed on or about the payment date.

The automatic reinvestment of dividends and distributions will not relieve
participants of any Federal income tax that may be payable (or required to be
withheld) on such dividends or distributions. See "Taxes".

NET ASSET VALUE

Net asset value per share of Common Stock is determined once daily as of
4:15 P.M., New York time, on each day during which the New York Stock Exchange
is open for trading. For purposes of determining the net asset value of a share
of Common Stock, the value of the securities held by the Fund plus any cash or
other assets (including interest accrued but not yet received) minus all
liabilities (including accrued expenses) is divided by the total number of
shares of Common Stock outstanding at such time. Expenses, including the fees
payable to the Investment Adviser, are accrued daily.

The Municipal Bonds in which the Fund invests are traded primarily in the
over-the-counter markets. In determining net asset value, the Fund utilizes the
valuations of portfolio securities furnished by a pricing service approved by
the Board of Directors. The pricing service typically values portfolio
securities at the bid price or the yield equivalent when quotations are readily
available. Municipal Bonds for which quotations are not readily available are
valued at fair market value on a consistent basis as determined by the pricing
service using a matrix system to determine 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. The Board of Directors
has determined in good faith that the use of a pricing service is a fair method
of determining the valuation of portfolio securities. Obligations with remaining
maturities of 60 days or less are valued at amortized cost, unless this method
no longer produces fair valuations. Positions in futures contracts are valued at
closing prices for such contracts established by the exchange on which they are
traded, or if market quotations are not readily available, are valued at fair
value on a consistent basis using methods determined in good faith by the Board
of Directors.

DESCRIPTION OF CAPITAL STOCK

The Fund is authorized to issued 200,000,000 shares of capital stock, par
value $.10 per share, all of which shares are initially classified as Common
Stock. The Board of Directors is authorized, however, to classify and reclassify
any unissued shares of each class or series of capital stock by setting or
changing in any one or more respects the designation and number of shares of any
such class or series, and the nature, rates, amounts and times at which and the
conditions under which dividends shall be payable on, and the voting,
conversion, redemption and liquidation rights of, such class or series and any
other preferences, rights, restrictions and qualifications applicable thereto.

35
<PAGE>
Shares of Common Stock when issued and outstanding, will be fully paid and
non-assessable. Shareholders are entitled to share pro rata in the net assets of
the Fund available for distribution to shareholders upon liquidation of the
Fund. Shareholders are entitled to one vote for each share held.

The Fund will send unaudited reports at least semi-annually and audited
financial statements to all of its shareholders of record. The following table
sets forth the authorized shares of the Fund, the number of shares held by the
Fund for its own account and the total number of shares outstanding as of
October 31, 1994, exclusive of that held by the Fund.

<TABLE>
<CAPTION>
AMOUNT OUTSTANDING
AS OF OCTOBER 31,
1994 (EXCLUSIVE OF
AMOUNT HELD AMOUNT HELD BY
AMOUNT BY FUND ON FUND FOR OWN
CLASS OF SHARES AUTHORIZED OWN ACCOUNT ACCOUNT)
- ---------------------------------------- ----------- ----------- -------------------
<S> <C> <C> <C>
Common Stock............................ 200,000,000 -- 19,863,926
</TABLE>

CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION

The Fund's Articles of Incorporation include provisions that could have the
effect of limiting the ability of other entities or persons to acquire control
of the Fund or to change the composition of its Board of Directors and could
have the effect of depriving shareholders of an opportunity to sell their shares
at a premium over prevailing market prices by discouraging a third party from
seeking to obtain control of the Fund. A Director elected by holders of capital
stock may be removed from office only for cause by vote of the holders of at
least 66 2/3% of the shares of capital stock of the Fund entitled to be voted on
the matter.

In addition, the Articles of Incorporation require the favorable vote of the
holders of at least 66 2/3% of the Fund's shares of capital stock, then entitled
to be voted, voting as a single class, to approve, adopt or authorize the
following:

(i) a merger or consolidation or statutory share exchange of the Fund
with other corporations;

(ii) a sale of all or substantially all of the Fund's assets (other than
in the regular course of the Fund's investment activities); or

(iii) a liquidation or dissolution of the Fund,

unless such action has been approved, adopted or authorized by the affirmative
vote of two-thirds of the total number of Directors fixed in accordance with the
by-laws, in which case the affirmative vote of a majority of the Fund's shares
of capital stock is required.

The Board of Directors has determined that the 66 2/3% voting requirements
described in the foregoing paragraph and under "Certain Provisions of the
Articles of Incorporation", which are greater than the minimum requirements
under Maryland law or the 1940 Act, are in the best interests of shareholders
generally. Reference should be made to the Articles of Incorporation on file
with the Securities and Exchange Commission for the full text of these
provisions.

36
<PAGE>
PERFORMANCE DATA

From time to time the Fund may include its yield and/or total return for
various specified time periods in advertisements or information furnished to
present or prospective shareholders.

The yield of the Fund refers to the income generated by an investment in the
Fund over a stated period. Yield is calculated by annualizing the distribution
over a stated period and dividing the product by the average per share net asset
value. For the year ended August 31, 1994, the Fund earned $0.650 per share
income dividends, representing a net annualized yield of 5.95%, based on a
month-end per share net asset value of $10.92.

The Fund also may quote annual total return and aggregate total return
performance data. Total return quotations for the specified periods will be
computed by finding the rate of return (based on net investment income and any
capital gains or losses on portfolio investments over such periods) that would
equate the initial amount invested to the value of such investment at the end of
the period. For the year ended August 31, 1994, the annual total return of the
Fund was 1.75%, based on the change in per share net asset value from $11.44 to
$10.92, and assuming reinvestment of $0.091 per share income dividends and
$0.026 per share capital gains distributions.

The calculation of yield and total return does not reflect the imposition of
any Early Withdrawal Charges or the amount of any shareholder's tax liability.

Yield and total return figures are based on the Fund's historical
performance and are not intended to indicate future performance. The Fund's
yield is expected to fluctuate, and its total return will vary depending on
market conditions, the Municipal Bonds and other securities comprising the
Fund's portfolio, the Fund's operating expenses and the amount of net realized
and unrealized capital gains or losses during the period.

On occasion, the Fund may compare its yield and tax-equivalent yield to
yield data published by Lipper Analytical Services, Inc. or performance data
published by Morningstar Publications, Inc., Money Magazine, U.S. News & World
Report, Business Week, CDA Investment Technology, Inc., Forbes Magazine and
Fortune Magazine. Yield comparisons should not be considered representative of
the Fund's yield and tax-equivalent yield or relative performance for any future
period.

CUSTODIAN

The Fund's securities and cash are held under a Custody Agreement with The
Bank of New York, 90 Washington Street, New York, New York 10286.

TRANSFER AGENT, DIVIDEND DISBURSING AGENT
AND SHAREHOLDER SERVICING AGENT

The Transfer Agent for the shares of the Fund is Financial Data Services,
Inc., 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484, a wholly
owned subsidiary of Merrill Lynch & Co., Inc.

Shareholder Reports. Only one copy of each shareholder report and certain
shareholder communications will be mailed to each identified shareholder
regardless of the number of accounts such

37
<PAGE>
shareholder has. If a shareholder wishes to receive separate copies of each
report and communication for each of the shareholder's related accounts the
shareholder should notify in writing:

Financial Data Services, Inc.
Attn.: TAMFO
P.O. Box 45289
Jacksonville, Florida 32232-5289

The written notification should include the shareholder's name, address, tax
identification number and Merrill Lynch and/or mutual fund account numbers. If
you have any questions regarding this please call your Merrill Lynch financial
consultant or Financial Data Services, Inc. at 800-637-3863.

LEGAL OPINIONS

Certain legal matters in connection with the Common Stock offered hereby
will be passed on for the Fund by Brown & Wood, One World Trade Center, New
York, New York 10048-0557.

EXPERTS

Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey 08540, have
been selected as the independent auditors of the Fund. The selection of
independent auditors is subject to ratification by the shareholders of the Fund.
The independent auditors are responsible for auditing the financial statements
of the Fund.

38
<PAGE>
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, 1994, 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
three-year period then ended and the period November 2, 1990 (commencement of
operations) to August 31, 1991. These financial statements and the financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and the financial
highlights based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at August
31, 1994 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Merrill Lynch High
Income Municipal Bond Fund, Inc. as of August 31, 1994, the results of its
operations, the changes in its net assets, and the financial highlights for the
respective stated periods in conformity with generally accepted accounting
principles.

DELOITTE & TOUCHE LLP
Princeton, New Jersey
September 30, 1994

39
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Alabama--0.5% B+ NR $1,000 Brewton, Alabama, Industrial Development Board, PCR,
Refunding (Container Corporation American Project), 8% due
4/01/2009 $ 1,006
Arizona--2.7% NR Ba 3,000 Arizona Health Facilities Authority, Hospital Systems Revenue
Refunding Bonds (Saint Luke's Health Systems), 7.25% due
11/01/2014 3,009
BB Ba2 1,000 Maricopa County, Arizona, Pollution Control Corporation, PCR,
Refunding (Public Service Company--Palo Verde), 6.375% due
8/15/2023 917
NR NR 1,280 Pima County, Arizona, IDA, Revenue Bonds (La Hacienda
Project), 9.50% due 12/01/2016 1,254
Pinal County, Arizona, IDA, PCR (Magma--Copper/Newmont
Mining Corporation) (a):
A1+ P1 200 DATES, 2.35% due 12/01/2009 200
AA P1 300 VRDN, 3.25% due 12/01/2009 300

California--0.7% NR NR 1,500 Long Beach, California, Redevelopment Agency, M/F Housing
Revenue Refunding Bonds (Pacific Court Apartments), AMT,
Issue B, 6.80% due 9/01/2013 1,470

Colorado--7.1% BBB+ Baa1 2,000 Colorado Health Facilities Authority, Hospital Revenue Bonds
(P/SL Healthcare System Project), Series A, 6.875% due
2/15/2023 1,991
BBB- NR 1,000 Colorado Health Facilities Financial Authority, Revenue
Refunding Bonds (National Jewish Center Immunization Project),
6.875% due 2/15/2012 994
Denver, Colorado, City and County Airport Revenue Bonds:
BB Baa 2,000 AMT, Series A, 7.50% due 11/15/2023 1,931
BB Baa 900 AMT, Series A, 8% due 11/15/2025 909
BB Baa 2,000 AMT, Series B, 7.50% due 11/15/2025 1,957
BB Baa 2,000 AMT, Series D, 7.75% due 11/15/2013 2,012
BB Baa 1,250 Series A, 7.50% due 11/15/2012 1,250
BB Baa 2,000 Series A, 7.25% due 11/15/2025 1,949
NR NR 2,000 Mountain Village Metropolitan District, Colorado, Refunding
Bonds (San Miguel County), UT, 8.10% due 12/01/2011 2,179

Connecticut--1.0% NR NR 1,950 New Haven, Connecticut, Facilities Revenue Bonds (Hill Health
Corporation Project), 9.25% due 5/01/2017 2,134

District of BBB NR 3,000 District of Columbia, COP, GO, 7.30% due 1/01/2013 3,067
Columbia--1.4%
</TABLE>

PORTFOLIO ABBREVIATIONS

To simplify the listing of Merrill Lynch High Income Municipal Bond
Fund, Inc.'s portfolio holdings in the Schedule of Investments, we
have abbreviated the names of many of the securities according to
the list below and at right.

AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
CPCR Collateralized Pollution Control Revenue Bonds
DATES Daily Adjustable Tax-Exempt Securities
GO General Obligation Bonds
HFA Housing Finance Authority
IDA Industrial Development Authority
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
UT Unlimited Tax
VRDN Variable Rate Demand Notes

40
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Florida--0.7% BB- NR $ 960 Jacksonville, Florida, Port Authority, IDA, Revenue Refunding
Bonds (United States Gypsum Corporate Project), 7.25% due
10/01/2014 $ 947
A1 VMIG1 400 Pinellas County, Florida, Health Facilities Authority,
Revenue Refunding Bonds (Pooled Hospital Loan Project), DATES,
3.25% due 12/01/2015 (a) 400
A1 VMIG1 200 Saint Lucie County, Florida, PCR, Refunding (Florida Power
and Light Company Project), VRDN, 3.25% due 1/01/2026 (a) 200

Georgia--2.2% NR NR 2,535 Atlanta, Georgia, Urban Residential Finance Authority, College
Facilities Revenue Bonds (Morris Brown College Project),
9.50% due 6/01/2011 2,484
NR NR 2,000 Atlanta, Georgia, Urban Residential Finance Authority, M/F
Mortgage Revenue Bonds (Northside Plaza Apartments Project),
9.75% due 11/01/2020 2,110

Hawaii--0.8% AAA NR 1,750 Hawaii State Department of Budget and Finance, Special
Purpose Mortgage Revenue Bonds (Citizens Utility Company),
RIB, Series 91-B, 9.689% due 11/01/2021 (g) 1,811

Illinois--2.3% BB Baa2 470 Chicago, Illinois, O'Hare International Airport, Special
Facilities Revenue Bonds (United Airlines), AMT, Series B,
8.95% due 5/01/2018 512
BBB+ NR 2,000 Illinois Educational Facilities Authority Revenue Bonds
(Chicago Osteopathic Health System), 7.25% due 5/15/2022 2,032
NR Baa1 1,250 Illinois Health Facilities Authority Revenue Bonds (Holy Cross
Hospital Project), 6.75% due 3/01/2024 1,222
BBB NR 1,000 Lansing, Illinois, Tax Increment Revenue Refunding Bonds, 7%
due 12/01/2008 1,038

Indiana--0.7% A NR 1,500 Indiana Bond Bank, Special Hospital Program Revenue Bonds
(Hendricks Community Hospital), Series A, 7.125% due 4/01/2013 1,570

Iowa--0.7% NR NR 1,500 Iowa Finance Authority, Health Care Facilities Revenue Bonds
(Mercy Health Initiatives Project), 9.95% due 7/01/2019 1,579

Kentucky--4.1% Jefferson County, Kentucky, First Mortgage Revenue Bonds
(Christian Church Homes):
BBB NR 600 6.125% due 11/15/2013 556
BBB NR 1,165 6.125% due 11/15/2018 1,034
AAA Aaa 4,000 Louisville, Kentucky, Hospital Revenue Bonds, INFLOS, 9.612%
due 10/01/2014 (b)(g) 4,235
NR NR 3,000 Perry County, Kentucky, Solid Waste Disposal Revenue Bonds,
AMT, 7% due 6/01/2024 2,977
Louisiana--5.2% NR Baa3 3,500 Lake Charles, Louisiana, Harbor and Terminal District, Port
Facilities Revenue Refunding Bonds (Trunkline LNG Company
Project), 7.75% due 8/15/2022 3,773
BBB+ Baa1 1,000 Louisiana Public Facilities Authority, Hospital Revenue Bonds
(Woman's Hospital Foundation Project), 7.25% due 10/01/2022 1,016
NR A 1,000 Louisiana Public Facilities Authority, Student Loan Revenue
Bonds, AMT, Series A-3, 7% due 9/01/2006 1,041
BB- NR 3,000 Port New Orleans, Louisiana, IDA, Revenue Refunding Bonds
(Continental Grain Company Project), 7.50% due 7/01/2013 3,017
BBB- NR 2,000 West Feliciana Parish, Louisiana, PCR (Gulf States Utilities),
Series II, 7.70% due 12/01/2014 2,171

41
</TABLE>

<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Massachusetts--8.1% NR NR $1,200 Boston, Massachusetts, Industrial Development Financing
Authority, Solid Waste Disposal Facility Revenue Bonds
(Jet-A-Way Project), AMT, 10.50% due 1/01/2011 $ 1,326
NR Ba 1,325 Lawrence, Massachusetts, GO, 9.875% due 12/15/1998 1,546
AAA Aaa 3,500 Massachusetts Health and Educational Facilities Authority
Revenue Bonds (Beth Israel Hospital), INFLOS, 8.472% due
7/01/2025 (e)(g) 3,325
NR NR 1,205 Massachusetts Health and Educational Facilities Authority
Revenue Bonds (North Adams Regional Hospital), Series B,
8% due 7/01/1998 1,301
NR B1 1,675 Massachusetts Industrial Finance Agency Revenue Bonds (Bay
Cove Human Services Inc.), 8.38% due 4/01/2019 1,717
NR NR 1,000 Massachusetts Industrial Finance Agency, Solid Waste
Disposal Revenue Bonds (Molten Metal Technology Project),
AMT, 8.25% due 8/01/2014 1,000
BB+ Ba1 1,600 Massachusetts Industrial Finance Authority Revenue Bonds
(Vinfen Corporate Issue), 7.10% due 11/15/2018 1,512
NR NR 5,000 Massachusetts Port Authority Revenue Bonds (Harborside Hyatt
Project), AMT, 10% due 3/01/2026 5,450

Michigan--2.3% BBB Ba1 2,900 Detroit, Michigan, GO, UT, Series A, 8.70% due 4/01/2010 3,276
A1+ VMIG1 1,700 Grand Rapids, Michigan, Water Supply System, Revenue
Refunding Bonds, VRDN, 3.30% due 1/01/2020 (a)(h) 1,700
Minnesota--3.1% Saint Paul, Minnesota, Housing and Redevelopment Authority,
Hospital Revenue Bonds (Healtheast Project):
BBB- Baa 1,000 Series B, 6.625% due 11/01/2017 955
BBB- Baa 4,820 Series D, 9.75% due 11/01/2017 5,583

Mississippi--0.5% NR Baa 1,000 Mississippi Hospital Equipment and Facilities Authority
Revenue Bonds (Riley Memorial Hospital), Series B, 7.125%
due 5/01/2022 1,004

Missouri--5.2% BBB- NR 3,000 Joplin, Missouri, IDA, Hospital Facilities Revenue Refunding
and Improvement Bonds (Tri-State Osteopathic Project), 8.25%
due 12/15/2014 3,254
Missouri Health and Educational Facilities Authority Revenue
Bonds (Southwest Baptist University Project):
BB NR 905 9.50% due 10/01/2001 1,041
BB NR 3,690 9.50% due 10/01/2011 4,367
AAA Aaa 2,000 Phelps County, Missouri, Hospital Revenue Bonds (Phelps
County Regional Medical Center), 8.30% due 3/01/2000 (d) 2,343

Montana--0.9% NR NR 2,000 Montana State Investment Board, Resource Recovery Revenue
Bonds (Yellowstone Energy Light & Power Project), AMT, 7%
due 12/31/2019 1,944

Nevada--1.3% BBB+ NR 3,000 Las Vegas, Nevada, Downtown Redevelopment Agency, Tax
Increment Revenue Bonds (Fremont Street Project), Series A,
6.10% due 6/15/2014 2,854

New BBB+ Baa1 1,845 New Hampshire Higher Educational and Health Facilities
Hampshire--2.6% Authority Revenue Bonds (Saint Joseph Hospital), 7.50% due
1/01/2016 1,906
BB+ Baa3 3,450 New Hampshire, IDA, PCR (Public Service Company New
Hampshire Project), Series B, 7.50% due 5/01/2021 3,575

New Jersey--5.8% BBB+ Baa1 2,000 Camden County, New Jersey, Pollution Control Financing
Authority, Solid Waste Resource Recovery Revenue Bonds,
Series D, 7.25% due 12/01/2010 2,014
New Jersey Health Care Facilities, Financing Authority
Revenue Bonds:
NR NR 4,800 (Riverwood Center), Series A, 9.90% due 7/01/2021 5,304
BBB- Baa 4,700 (Saint Elizabeth Hospital), Series B, 8.25% due 7/01/2020 5,075

42
</TABLE>

<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
New Mexico--1.3% BB Ba2 $2,000 Farmington, New Mexico, PCR, Refunding (Public Service
Company--San Juan Project), Series A, 6.40% due 8/15/2023 $ 1,840
A A3 1,000 Lordsburg, New Mexico, PCR, Refunding (Phelps Dodge
Corporate Project), 6.50% due 4/01/2013 1,016

New York--3.8% New York City, New York, GO, UT:
A- Aaa 1,850 Series B, 8.25% due 6/01/2001 (d) 2,213
A- Baa1 5,260 Series C, 7.50% due 8/01/2021 5,683
A1+ NR 200 New York City, New York, IDA, IDR (Japan Airlines Company
Ltd. Project), AMT, VRDN, 2.75% due 11/01/2015 (a) 200

North NR VMIG1 100 Person County, North Carolina, Industrial Facilities and
Carolina--0.0% Pollution Control Financing Authority, Solid Waste Disposal
Revenue Bonds (Carolina Power and Light Company), AMT, DATES,
3.30% due 11/01/2016 (a) 100

Ohio--4.1% NR NR 1,725 Cincinnati, Ohio, Student Loan Funding Corporation, Revenue
Refunding Bonds, AMT, Series B, 6.75% due 1/01/2007 1,761
AAA Aaa 2,000 Ohio, HFA, S/F Mortgage Revenue Bonds, Series A2, AMT, RIB,
10.287% due 3/24/2031 (c)(g) 2,040
BB Baa3 2,500 Ohio State Air Quality Development Authority, CPCR, Refunding
(Cleveland Electric Company), AMT, 6.85% due 7/01/2023 2,406
BB Ba2 2,500 Ohio State Water Development Authority, Pollution Control
Facilities Revenue Bonds (Toledo Edison Company Project),
Series A, AMT, 7.40% due 11/01/2022 2,528

Oklahoma--0.5% BB- NR 985 Blaine County, Oklahoma, Industrial Authority, IDA, Revenue
Bonds (United States Gypsum Corp. Project), 7.25% due
10/01/2010 989

Oregon--1.4% NR NR 1,000 Western Generation Agency, Oregon, Cogeneration Project
Revenue Bonds (Wauna Cogeneration Project), Series B, AMT,
7.40% due 1/01/2016 1,011
B+ NR 1,955 Yamhill County, Oregon, PCR, Refunding (Smurfit Newsprint
Corporate Project), 8% due 12/01/2003 1,984
Pennsylvania--10.8% BB+ Baa3 1,750 Allegheny County, Pennsylvania, IDA, Revenue Refunding Bonds
(Environmental Improvement), Series A, 6.70% due 12/01/2020 1,751
BBB- NR 5,000 McKean County, Pennsylvania, Hospital Authority Revenue
Bonds (Bradford Hospital Project), 8.875% due 10/01/2020 5,920
BBB NR 1,710 Montgomery County, Pennsylvania, Higher Education and Health
Authority, Hospital Revenue Bonds (Jeanes Health System
Project), 8.625% due 7/01/2000 (d) 2,045
Montgomery County, Pennsylvania, IDA, Revenue Refunding
Bonds:
NR NR 1,500 (1st Mortgage-Meadowood Corporation Project), Series A,
10.25% due 12/01/2020 1,635
NR Ba 3,500 (Pennsburg Nursing and Rehabilitation Center), 7.625% due
7/01/2018 3,498
BB Ba 1,500 Pennsylvania Convention Center Authority, Revenue Refunding
Bonds, Series A, 6.75% due 9/01/2019 1,477
NR NR 2,000 Pennsylvania Economic Development Financing Authority, IDR
(GEHL Company Inc. Project), AMT, Series F, 9% due 9/01/2010 2,054
BBB- NR 1,500 Pennsylvania Economic Development Financing Authority,
Resource Recovery Revenue Bonds (Colver Project), AMT,
Series D, 7.15% due 12/01/2018 1,510
NR NR 3,000 Washington County, Pennsylvania, Hospital Authority Revenue
Refunding Bonds (Canonsburg General Hospital Project), 7.35%
due 6/01/2013 3,035

43
</TABLE>

<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Rhode Island--1.5% BBB+ NR $1,500 Rhode Island Health and Educational Building Corporation,
Hospital Revenue Bonds (South County Hospital), 7.25% due
11/01/2011 $ 1,544
NR Ba 1,615 West Warwick, Rhode Island, GO, UT, Series A, 6.80% due
7/15/1998 1,670

South Carolina--0.7% NR Baa1 1,500 Horry County, South Carolina, Hospital Facilities Revenue
Refunding Bonds (Conway Hospital, Inc.), 6.75% due 7/01/2012 1,508

South Dakota--0.5% BBB Baa 1,000 South Dakota Health and Educational Facilities Authority,
Revenue Refunding Bonds (Prairie Lakes Health Care), 7.25%
due 4/01/2022 1,012

Tennessee--3.3% NR NR 4,265 Knox County, Tennessee, Health, Educational and Housing
Facilities Board, Hospital Facilities Revenue Bonds (Baptist
Health Systems of East Tennessee), 8.60% due 4/15/2016 4,516
BBB- Baa1 2,500 McMinn County, Tennessee, Industrial Development Board,
Solid Waste Disposal Revenue Bonds (Calhoun Newsprint), AMT,
7.40% due 12/01/2022 2,594
Texas--8.5% BBB Baa2 1,250 Brazos River Authority, Texas, PCR (Texas Utilities
Electric Company), AMT, Series A, 8.125% due 2/01/2020 1,367
Dallas-Fort Worth, Texas, International Airport Facilities
Improvement Corporation Revenue Bonds:
BB+ Baa2 3,000 (American Airlines, Inc.), AMT, 7.25% due 11/01/2030 2,892
BB Ba1 3,375 (Delta Airlines Incorporated), 6.25% due 11/01/2013 3,047
BBB A 1,500 Ector County, Texas, Hospital Revenue Bonds (Ector County
Hospital), 7.30% due 4/15/2012 1,550
NR NR 1,000 Gulf Coast, Texas, Waste Disposal Authority, PCR and Solid
Waste Disposal Revenue Bonds (Diamond Shamrock Corporation
Project), 6.75% due 6/01/2009 1,000
BBB- Baa 4,920 Jefferson County, Texas, Health Facilities Development
Corporation, Hospital Revenue Bonds (Baptist Healthcare
Systems Project), 8.875% due 6/01/2021 5,489
BBB NR 1,500 Midland County, Texas, Hospital District Revenue Bonds
(Midland Memorial Hospital), 7.50% due 6/01/2016 1,572
NR NR 1,845 Swisher County, Texas, Jail Facilities Financing Corporation
Revenue Bonds (Criminal Detention Center), 9.75% due
8/01/2009 (f) --
BBB Baa2 1,000 West Side Calhoun County, Texas, Navigation District, Solid
Waste Revenue Bonds (Union Carbide Chemical and Plastics),
AMT, 8.20% due 3/15/2021 1,091

Utah--1.5% AAA Aaa 3,000 Salt Lake City, Utah, Hospital Revenue Refunding Bonds (IHC
Hospitals, Inc.), INFLOS, 10.123% due 5/15/2020 (e)(g) 3,176

Wisconsin--1.1% NR B1 2,350 Walworth, Wisconsin, IDA, Revenue Refunding Bonds (United
States Gypsum Corp. Project), 7.25% due 5/01/2010 2,360

Total Investments (Cost--$202,857)--98.9% 210,710

Other Assets Less Liabilities--1.1% 2,248
--------
Net Assets--100.0% $212,958
========

<FN>
(a)The interest rate is subject to change periodically based upon
the prevailing market rate. The interest rate shown is the rate in
effect at August 31, 1994.
(b)MBIA Insured.
(c)GNMA Collateralized.
(d)Prerefunded.
(e)AMBAC Insured.
(f)Non-income producing security.
(g)The interest rate is subject to change periodically and inversely
to the prevailing market rate. The interest rate shown is the rate
in effect at August 31, 1994.
(h)FGIC Insured.
NR--Not Rated.

Ratings of issues shown have not been audited by Deloitte & Touche
LLP.

See Notes to Financial Statements.

44
</TABLE>
<PAGE>
FINANCIAL INFORMATION

<TABLE>
Statement of Assets and Liabilities as of August 31, 1994
<CAPTION>
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$202,856,604) (Note 1a) $210,709,836
Cash 8,513
Receivables:
Interest $ 4,070,376
Securities sold 2,647,647
Capital shares sold 264,576 6,982,599
------------
Deferred organization expenses (Note 1e) 51,074
Prepaid registration fees and other assets (Note 1e) 10,703
------------
Total assets 217,762,725
------------

Liabilities: Payables:
Securities purchased 3,954,072
Dividends to shareholders (Note 1g) 455,273
Investment adviser (Note 2) 173,804
Administration (Note 2) 45,738
Capital shares redeemed 366 4,629,253
------------
Accrued expenses and other liabilities 175,093
------------
Total liabilities 4,804,346
------------

Net Assets: Net assets $212,958,379
============

Net Assets Common stock, $.10 par value, 200,000,000 shares authorized $ 1,950,625
Consist of: Paid-in capital in excess of par 200,357,571
Undistributed realized capital gains--net 2,796,951
Unrealized appreciation on investments--net 7,853,232
------------
Net assets--Equivalent to $10.92 per share based on 19,506,250 shares
of capital outstanding $212,958,379
============
See Notes to Financial Statements.

45
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)

<TABLE>
Statement of Operations
<CAPTION>
For the Year Ended
August 31, 1994
<S> <S> <C>
Investment Interest and amortization of premium and discount earned $ 16,203,513
Income
(Note 1d):

Expenses: Investment advisory fees (Note 2) 2,111,003
Administrative fees (Note 2) 555,527
Transfer agent fees (Note 2) 109,848
Professional fees 94,021
Listing fees 89,348
Printing and shareholder reports 77,621
Advertising 55,909
Registration fees (Note 1e) 52,694
Amortization of organization expenses (Note 1e) 43,665
Accounting services (Note 2) 39,397
Directors' fees and expenses 25,613
Custodian fees 23,853
Pricing services 11,524
Other 5,946
------------
Total expenses before reimbursement 3,295,969
Reimbursement of expenses (Note 2) (3,563)
------------
Total expenses after reimbursement 3,292,406
------------
Investment income--net 12,911,107
------------

Realized & Realized gain on investments--net 3,571,349
Unrealized Change in unrealized appreciation on investments--net (12,998,193)
Gain (Loss) on ------------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 3,484,263
(Notes 1d & 3): ============
See Notes to Financial Statements.

</TABLE>

<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>

For the Year Ended August 31,
Increase (Decrease) in Net Assets: 1994 1993
<S> <S> <C> <C>
Operations: Investment income--net $ 12,911,107 $ 11,632,598
Realized gain on investments--net 3,571,349 1,137,534
Change in unrealized appreciation on investments--net (12,998,193) 12,041,409
------------ ------------
Net increase in net assets resulting from operations 3,484,263 24,811,541
------------ ------------

Dividends & Investment income--net (12,911,107) (11,632,598)
Distributions Realized gain on investments--net (1,365,806) (851,810)
To Shareholders ------------ ------------
(Note 1g): Net decrease in net assets resulting from dividends and
distributions to shareholders (14,276,913) (12,484,408)
------------ ------------

Capital Share Net increase in net assets derived from capital share
Transactions transactions 6,828,611 33,860,084
(Note 4): ------------ ------------

Net Assets: Total increase (decrease) in net assets (3,964,039) 46,187,217
Beginning of year 216,922,418 170,735,201
------------ ------------
End of year $212,958,379 $216,922,418
============ ============

See Notes to Financial Statements.

47
</TABLE>

<PAGE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights
<CAPTION>
For the
Period
The following per share data and ratios have been derived Nov. 2,
from information provided in the financial statements. 1990++ to
For the Year Ended August 31, Aug, 31,
Increase (Decrease) in Net Asset Value: 1994 1993 1992 1991
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 11.44 $ 10.74 $ 10.29 $ 10.00
Operating --------- --------- --------- ---------
Performance: Investment income--net .65 .68 .71 .63
Realized and unrealized gain (loss) on
investments--net (.45) .75 .50 .29
--------- --------- --------- ---------
Total from investment operations .20 1.43 1.21 .92
--------- --------- --------- ---------
Less dividends and distributions:
Investment income--net (.65) (.68) (.71) (.63)
Realized gain on investments--net (.07) (.05) (.05) --
--------- --------- --------- ---------
Total dividends and distributions (.72) (.73) (.76) (.63)
--------- --------- --------- ---------
Net asset value, end of period $ 10.92 $ 11.44 $ 10.74 $ 10.29
========= ========= ========= =========

Total Investment Based on net asset value per share 1.75% 13.83% 12.29% 9.43%+++
Return:** ========= ========= ========= =========

Ratios to Expenses, net of reimbursement 1.48% 1.37% 1.30% .84%*
Average ========= ========= ========= =========
Net Assets: Expenses 1.48% 1.47% 1.55% 1.76%*
========= ========= ========= =========
Investment income--net 5.81% 6.17% 6.85% 7.43%*
========= ========= ========= =========

Supplemental Net assets, end of period (in thousands) $ 212,958 $ 216,922 $ 170,735 $ 114,628
Data: ========= ========= ========= =========
Portfolio turnover 28.51% 28.74% 31.74% 75.92%
========= ========= ========= =========
<FN>
++Commencement of Operations.
+++Aggregate total investment return.
*Annualized.
**Total investment returns exclude the effects of
sales loads. 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.

48
</TABLE>
<PAGE>
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 following is a summary of significant
accounting policies followed by the Fund.

(a) Valuation of investments--Municipal bonds are traded primarily
in the over-the-counter markets and are valued at the most recent
bid price or yield equivalent as obtained by the Fund's pricing
service from dealers that make markets in such securities. Financial
futures contracts, which are traded on exchanges, are valued at
their closing prices as of the close of such exchanges. Options,
which are traded on exchanges, are valued at their last sale price
as of the close of such exchanges or, lacking any sales, at the last
available bid price. Securities with remaining maturities of sixty
days or less are valued at amortized cost, which approximates market
value. Securities 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.

(b) Financial futures contracts--The Fund may purchase or sell
certain financial futures contracts and options thereon 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.

(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.

(e) Deferred organization expenses and prepaid registration fees--
Deferred organization expenses are amortized on a straight-line
basis over a five-year period. Prepaid registration fees are charged
to expense as the related shares are issued.

(f) Non-income producing investments--Written and purchased options
are non-income producing investments.

(g) Dividends and distributions--Dividends from net investment
income are declared daily and paid monthly. Distributions of capital
gains are recorded on the ex-dividend dates.

2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Merrill Lynch Asset Management, L.P. ("MLAM" or "Adviser").
Effective January 1, 1994, the investment advisory business of MLAM
was reorganized from a corporation to a limited partnership. Both
prior to and after the reorganization, ultimate control of MLAM was
vested with Merrill Lynch & Co., Inc. ("ML & Co."). The general
partner of MLAM is Princeton Services, Inc. ("PSI"), an indirect
wholly-owned subsidiary of ML & Co. The limited partners are ML &
Co. and Merrill Lynch Investment Management, Inc. ("MLIM"), which is
also an indirect wholly-owned subsidiary of ML & Co. The Fund has
also entered into a Distribution Agreement with Merrill Lynch Funds
Distributor, Inc. ("MLFD" or "Distributor"), an indirect wholly-
owned subsidiary of ML & Co.

MLAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services

49
<PAGE>
necessary to the operations of the Fund. For such services, the Fund
pays a monthly fee at an annual rate of 0.95% of the Fund's average
daily net assets.

The Fund also has entered into an Administrative Services Agreement
with MLAM whereby MLAM will receive a fee equal to an annual rate of
0.25% of the Fund's average daily net assets, in return for the
performance of administrative services (other than investment advice
and related portfolio activities) necessary for the operation of the
Fund. The Investment Advisory Agreement obligates MLAM to reimburse
the Fund to the extent the Fund's expenses (excluding interest,
taxes, brokerage fees and commissions, and extraordinary items)
exceed (a) 2.0% of the Fund's average daily net assets or (b) 2.5%
of the Fund's first $30 million of average daily net assets, 2.0% of
the next $70 million of average daily net assets, and 1.5% of the
average daily net assets in excess thereof. MLAM's obligation to
reimburse the Fund is limited to the amount of the investment
advisory fee. No fee payment will be made to the Investment Adviser
during any fiscal year which will cause such expenses to exceed the
most restrictive expense limitation applicable at the time of such
payment. MLAM has voluntarily agreed to waive a portion of the
combined investment advisory and administrative fees. For the year
ended August 31, 1994, MLAM earned fees of $2,111,003, of which
$3,563 was waived.

Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.

Accounting services are provided to the Fund by MLAM at cost.

Certain officers and/or directors of the Fund are officers and/or
directors of MLIM, MLFD, FDS, PSI, MLPF&S, and/or ML & Co.

3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended August 31, 1994 were $59,834,412 and $57,064,356,
respectively.

Net realized and unrealized gains as of August 31, 1994 were as
follows:

Realized Unrealized
Gains Gains

Long-term investments $ 2,846,080 $ 7,853,232
Financial futures contracts 725,269 --
----------- ------------
Total $ 3,571,349 $ 7,853,232
=========== ============

As of August 31, 1994, net unrealized appreciation for Federal
income tax purposes aggregated $7,853,232, of which $10,724,635
related to appreciated securities and $2,871,403 related to depreci-
ated securities. The aggregate cost of investments at August 31,
1994 for Federal income tax purposes was $202,856,604.

4. Capital Share Transactions:
Transactions in capital shares were as follows:

For the Year Ended Dollar
August 31, 1994 Shares Amount

Shares sold 2,811,953 $ 31,764,655
Shares issued to share-
holders in reinvest-
ment of dividends 526,098 5,902,562
----------- ------------
Total issued 3,338,051 37,667,217
Shares tendered (2,797,604) (30,838,606)
----------- ------------
Net increase 540,447 $ 6,828,611
=========== ============

For the Year Ended Dollar
August 31, 1993 Shares Amount

Shares sold 4,347,002 $ 48,160,844
Shares issued to share-
holders in reinvestment
of dividends 465,531 4,748,066
----------- ------------
Total issued 4,812,533 52,908,910
Shares tendered (1,739,446) (19,048,826)
----------- ------------
Net increase 3,073,087 $ 33,860,084
=========== ============

<PAGE>
APPENDIX

RATINGS OF MUNICIPAL OBLIGATIONS

DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S
("MOODY'S") MUNICIPAL BOND RATINGS

Aaa--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.

A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.

Baa--Bonds which are rated Baa are considered to be medium grade
obligations; i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.

Ba--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payment or of maintenance of
other terms of the contract over any long period of time may be small.

Caa--Bonds which are rated Caa are of poor standing. Such bonds may be in
default or there may be present elements of danger with respect to principal or
interest.

Ca--Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.

C--Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.

Rating Refinements: Moody's may apply numerical modifiers, 1, 2 and 3 in
each generic rating classification from Aa through B in its municipal bond
rating system. The modifier 1 indicates that the

51
<PAGE>
security ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and a modifier 3 indicates that the issue ranks
in the lower end of its generic rating category.

Short-term Notes: The four ratings of Moody's for short-term notes are MIG
1, MIG 2, MIG 3 and MIG 4; MIG 1 denotes "best quality, enjoying strong
protection from established cash flows"; MIG 2 denotes "high quality" with
"ample margins of protection"; MIG 3 notes are of "favorable quality. . . but
lacking the undeniable strength of the preceding grades"; MIG 4 notes are of
"adequate quality, carrying specific risk but having protection. . . and not
distinctly or predominantly speculative".

DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS

Moody's Commercial Paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's employs the following three designations, all
judged to be investment grade, to indicate the relative repayment capacity of
rated issuers:

Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics:

--Leading market positions in well established industries

--High rates of return on funds employed

-- Conservative capitalization structures with moderate reliance on debt
and ample asset protection

-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation

-- Well established access to a range of financial markets and assured
sources of alternate liquidity.

Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.

Issuers rated Prime-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.

Issuers rated Not Prime do not fall within any of the Prime rating
categories.

If an issuer represents to Moody's that its Commercial Paper obligations are
supported by the credit of another entity or entities, then the name or names of
such supporting entity or entities are listed within parentheses beneath the
name of the issuer, or there is a footnote referring the reader to another page
for the name or names of the supporting entity or entities. In assigning ratings
to such issuers, Moody's evaluates the financial strength of the indicated
affiliated corporations, commercial

52
<PAGE>
banks, insurance companies, foreign governments or other entities, but only as
one factor in the total rating assessment. Moody's makes no representations and
gives no opinion on the legal validity or enforceability of any support
arrangement. You are cautioned to review with your counsel any questions
regarding particular support arrangements.

DESCRIPTION OF STANDARD & POOR'S CORPORATION ("S&P") MUNICIPAL DEBT RATINGS

A S&P municipal debt rating is a current assessment of the creditworthiness
of an obligor with respect to a specific obligation. This assessment may take
into consideration obligors such as guarantors, insurers, or lessees.

The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.

The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources S&P considers reliable. S&P does not perform
an audit in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended or withdrawn as a
result of changes in, or unavailability of, such information, or for other
reasons.

The ratings are based, in varying degrees, on the following considerations:

I.--Likelihood of default capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with the
terms of the obligation;

II.--Nature of and provisions of the obligation;

III.--Protection afforded to, and relative position of, the obligation in
the event of bankruptcy, reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.

AAA--Debt rated "AAA" has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.

AA--Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest high-rated issues only in small degree.

A--Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.

BBB--Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher-rated categories.

Debt rated BB, B, CCC, CC and C are regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest degree
of speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.

53
<PAGE>

BB--Debt rated "BB" has less near-term vulnerability to default than other
speculative grade debt. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.

B--Debt rated "B" has a greater vulnerability to default but presently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions would likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB- rating.

CCC--Debt rated "CCC" has a current identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions to
meet timely payments of interest and repayments of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.

CC--The rating "CC" is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC rating.

C--The rating "C" is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating. The C rating may be used
to cover a situation where a bankruptcy petition has been filed but debt service
payments are continued.

CI--The rating "CI" is reserved to income bonds on which no interest is
being paid.

D--Debt rated "D" is in default. The D rating category is also used when
interest payments or principal repayments are expected to be in default at the
payment date, and payment of interest and/or repayment of principal is in
arrears. The D rating also will be used upon the filing of a bankruptcy petition
if debt service payments are jeopardized.

Plus (+) or Minus ( - ): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
ratings categories.

Provisional ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the debt being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion of the project, makes no comment on the
likelihood or risk of default upon failure of such completion. The investor
should exercise judgment with respect to such likelihood and risk.

L: The letter "L" indicates that the rating pertains to the principal amount
of those bonds to the extent that the underlying deposit collateral is insured
by the Federal Savings & Loan Insurance Corp. or the Federal Deposit Insurance
Corp. and interest is adequately collateralized.

*: Continuance of the rating is contingent upon S&P's receipt of an executed
copy of the escrow agreement or closing documentation confirming investments and
cash flows.

NR: Indicates that no rating has been requested, that there is insufficient
information on which to base a rating or that Standard & Poor's does not rate a
particular type of obligation as a matter of policy.

54
<PAGE>
Debt Obligations of Issuers outside the United States and its territories
are rated on the same basis as domestic corporate and municipal issues. The
ratings measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.

Bond Investment Quality Standards: Under present commercial bank regulations
issued by the Comptroller of the Currency, bonds rated in the top four
categories ("AAA", "AA", "A", "BBB", commonly known as "investment grade"
ratings) are generally regarded as eligible for bank investment. In addition,
the laws of various states governing legal investments impose certain rating or
other standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.

DESCRIPTION OF S&P COMMERCIAL PAPER RATINGS

A S&P Commercial Paper Rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
Ratings are graded into four categories, ranging from "A" for the highest
quality obligations to "D" for the lowest. Ratings are applicable to both
taxable and tax-exempt commercial paper. The four categories are as follows:

A--Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined with
the designation 1, 2 and 3 to indicate the relative degree of safety.

A-1--This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.

A-2--Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated "A-1".

A-3--Issues carrying this designation have a satisfactory capacity for
timely payment. They are, however, somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.

The Commercial Paper Rating is not a recommendation to purchase or sell a
security. The ratings are based on current information furnished to S&P by the
issuer and obtained by S&P from other sources it considers reliable. The ratings
may be changed, suspended, or withdrawn as a result of changes in, or
unavailability of, such information.

Commencing on July 27, 1984, S&P instituted a new rating category with
respect to certain municipal note issues with a maturity of less than three
years. The new note ratings and symbols are:

SP-1--A very strong, or strong, capacity to pay principal and interest.
Issues that possess overwhelming safety characteristics will be given a "+"
designation.

SP-2--A satisfactory capacity to pay principal and interest.

SP-3--A speculative capacity to pay principal and interest.

S&P may continue to rate note issues with a maturity greater than three
years in accordance with the same rating scale currently employed for municipal
bond ratings.

55
<PAGE>
Unrated: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.

Should no rating be assigned, the reason may be one of the following:

1. An application for rating was not received or accepted.

2. The issue or issuer belongs to a group of securities that are not
rated as a matter of policy.

3. There is a lack of essential data pertaining to the issue or issuer.

4. The issue was privately placed, in which case the rating is not
published in S&P publications.

Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date information to permit a judgment to be formed;
if a bond is called for redemption; or for other reasons.

DESCRIPTION OF FITCH INVESTORS SERVICE, INC.'S ("FITCH") INVESTMENT GRADE BOND
RATINGS

Fitch investment grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The rating
represents Fitch's assessment of the issuer's ability to meet the obligations of
a specific debt issue or class of debt.

The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current financial condition
and operative performance of the issuer and of any guarantor, as well as the
political and economic environment that might affect the issuer's future
financial strength and credit quality.

Bonds that have the same rating are of similar but not necessarily identical
credit quality since the rating categories do not fully reflect small
differences in the degrees of credit risk.

AAA--Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.

AA--Bonds considered to be investment grade and of very high quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA". Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-1+".

A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.

BBB--Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and therefore,
impair timely payment.

Plus (+) Minus ( - ): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the "AAA" category.

56
<PAGE>
Trend Indicator: Trend indicators show whether credit fundamentals are
improving, stable, declining, or uncertain, as follows:

Improving
Stable
Declining
Uncertain

Trend indicators are not predictions that any rating change will occur.

NR: Indicates that Fitch does not rate the specific issue.

Conditional: A conditional rating is premised on the successful completion
of a project or the occurrence of a specific event.

Withdrawn: A rating may be withdrawn at Fitch's discretion when an issuer
fails to furnish proper and timely information, when an issue matures, or is
called or refinanced.

FitchAlert: Ratings are placed on FitchAlert to notify investors of the
occurrence of an event that is likely to result in a rating change and the
likely direction of such change. These are designated as "Positive" indicating a
potential upgrade; "Negative" for potential downgrade, or "Evolving" where
ratings may be raised or lowered. FitchAlert is relatively short-term, and
should be resolved within three to 12 months. Once Fitch completes its analysis
of the event, appropriate rating action will be taken and the issue will be
removed from FitchAlert. Ratings will also be placed on FitchAlert to notify
investors of an upcoming event that is likely to result in a rating change
(e.g., court or regulatory action that could result in material liability of an
issuer or impair the enforceability of debt obligations). In these instances,
FitchAlert will indicate the effect that various possible results might have on
the rating.

DESCRIPTION OF FITCH HIGH YIELD BOND RATINGS

Fitch high yield bond ratings provide a guide to investors in determining
the credit risk associated with a security. The rating is an assessment of the
likelihood of timely payment of principal and interest in accordance with the
terms of obligation for bond issues not in default. Bonds in default are rated
"DDD", "DD", or "D".

The rating takes into consideration special features of the issue, the
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the issuer's
future financial strength.

It should be noted that issues that have the same rating are of similar but
not necessarily identical credit quality since rating categories cannot fully
reflect the differences in degrees of credit risk.

BB--Bonds are considered speculative. The obligor's ability to pay interest
and repay principal may be affected over time by adverse economic changes.
However, business and financial alternatives can be identified that could assist
the obligor in satisfying its debt service requirements.

B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.

CCC--Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.

57
<PAGE>
CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.

C--Bonds are in imminent default in payment of interest or principal.

DDD, DD, and D--Bonds are in actual or imminent default of interest and/or
principal payments. Such bonds are extremely speculative and should be valued on
the basis of their ultimate recovery value in liquidation or reorganization of
the obligor. "DDD" represents the highest potential for recovery on these bonds,
and "D" represents the lowest potential recovery.

DESCRIPTION OF FITCH SHORT-TERM RATINGS

Fitch short-term ratings apply to debt obligations that are payable on
demand or have original maturities of up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.

Although the credit analysis is similar to Fitch's bond rating analysis, the
investment grade short-term rating places greater emphasis than bond ratings on
the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.

Fitch short-term ratings are as follows:

F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.

F-1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
"F-1+".

F-2--Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as great
as the "F-1+" and "F-1" categories.

F-3--Fair Credit Quality. Issues carrying this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate, however,
near-term adverse change is likely to cause these securities to be rated below
investment grade.

F-4--Weak Credit Quality. Issues carrying this rating have characteristics
suggesting a minimal degree of assurance for timely payment and are vulnerable
to near-term adverse changes in financial and economic conditions.

D--Default. Issues carrying this rating are in actual or imminent payment
default.

LOC--The symbol, LOC, indicates that the rating is based on a letter of
credit.

INS--The symbol, INS, indicates that the rating is based on an insurance
policy or financial guaranty issued by an insurance company.

58
<PAGE>
MERRILL LYNCH HIGH INCOME MUNICIPAL FUND, INC.--AUTHORIZATION FORM
- --------------------------------------------------------------------------------

1. SHARE PURCHASE APPLICATION
I, being of legal age, wish to purchase ........... shares of Merrill Lynch
High Income Municipal Bond Fund, Inc. and establish an Investment Account as
described in the Prospectus.
Basis for establishing an Investment Account:
I enclose a check for $ .... payable to Financial Data Services, Inc., as
an initial investment (minimum $1,000). (Subsequent investments $50 or more.)
I understand that this purchase will be executed at the applicable offering
price next to be determined after this Application is received by you.
Until you are notified by me in writing, the following options with
respect to dividends and distributions are elected:

<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Distribution ELECT / / reinvest dividends ELECT / / reinvest capital gains
Options
ONE / / pay dividends in cash ONE / / pay capital gains in cash
</TABLE>

If no election is made, dividends and capital gains will be reinvested
automatically at net asset value without a sales charge.
-------------------
(PLEASE PRINT)

Name ...........................................................................
First Name Initial Last Name

Name of Co-Owner (if any) ......................................................

First Name Initial Last Name

Address ........................................................................

.... , 19 ...
...............................................................................
(Zip Code)
Date

Occupation ................................. Name and Address of Employer .....
........................................
........................................

/ / / / / / / / / / / / / /
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 (as discussed in the Prospectus under "Taxes")
either because I have not been notified that I am subject thereto as a result of
a failure to report all interest or dividends, or the Internal Revenue Service
("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
IF YOU HAVE NOT RECEIVED A NOTICE FROM THE IRS THAT BACKUP WITHHOLDING HAS BEEN
TERMINATED. THE UNDERSIGNED AUTHORIZES THE FURNISHING OF THIS CERTIFICATION TO
OTHER MERRILL LYNCH-SPONSORED INVESTMENT COMPANIES.

If I am a resident of Texas, I further certify that I have (i) a net worth of
not less than $75,000 or (ii) a net worth of less than $40,000 and an annual
gross income of not less than $40,000.

Signature of Owner ........................ Signature of Co-Owner (if any) ....
In the case of co-owners, a joint tenancy with right of survivorship will be
presumed unless otherwise specified.
- --------------------------------------------------------------------------------
2. FOR DEALER ONLY We guarantee the shareholder's signature.

Branch Office, Address, Stamp.

.........................................
Dealer Name and Address
By .......................................
Authorized Signature of Dealer

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

Branch Code F/C No. F/C Last Name

Dealer's Customer A/C No.

This form when completed should be mailed to:

Merrill Lynch High Income Municipal Bond Fund, Inc.
c/o Financial Data Services, Inc.
P.O. Box 45289
Jacksonville, Florida 32232-5289

59
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING OF ANY SECURITIES
OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER TO ANY
PERSON IN ANY STATE OR JURISDICTION OF THE UNITED STATES OR ANY COUNTRY
WHERE SUCH OFFER WOULD BE UNLAWFUL.

-------------------

TABLE OF CONTENTS

PAGE
----
Prospectus Summary..................... 2
Risk Factors........................... 4
Fee Table.............................. 7
Financial Highlights................... 8
The Fund............................... 9
Investment Objective and Policies...... 9

Investment Restrictions................ 20
Purchase of Shares..................... 21
Tender Offers.......................... 23
Early Withdrawal Charge................ 25
Directors and Officers................. 26
Investment Advisory and Administrative
Arrangements......................... 27
Portfolio Transactions................. 29
Dividends and Distributions............ 30
Taxes.................................. 31
Automatic Dividend Reinvestment Plan... 35
Net Asset Value........................ 35
Description of Capital Stock........... 35
Performance Data....................... 37
Custodian.............................. 37
Transfer Agent, Dividend Disbursing
Agent and Shareholder Servicing
Agent.................................. 37
Legal Opinions......................... 38
Experts................................ 38
Independent Auditors' Report........... 39
Financial Statements................... 40
Appendix--Ratings of Municipal
Distributor:
Obligations.......................... 51
Authorization Form..................... 59

MERRILL LYNCH
HIGH INCOME
MUNICIPAL BOND
FUND, INC.

[INSERT A R T HERE]

Prospectus

December , 1994

Shares of Common Stock

Distributor
Merrill Lynch
Funds Distributor, Inc.

This Prospectus should be
retained for future
reference.
Code # 11263-1294

<PAGE>
PART C
OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.

(1) Financial Statements

Schedule of Investments as of August 31, 1994.

Statement of Assets and Liabilities as of August 31, 1994.

Statement of Operations for the year ended August 31, 1994.

Statements of Changes in Net Assets for the years ended August 31, 1993
and 1994.

Financial Highlights for the period November 2, 1990 (commencement of
operations) to August 31, 1991 and the years ended August 31, 1992, 1993 and
1994.

(2) Exhibits:

<TABLE>
<S> <C>
(a) --Articles of Incorporation of Registrant. (a)
(b) --Form of By-Laws of Registrant. (a)
(c) --Not applicable.
(d)(1) --Portions of the Articles of Incorporation and By-Laws of the Registrant defining
the rights of holders of shares of the Registrant. (d)
(2) --Specimen certificate for shares of Common Stock of Registrant. (a)
(e) --Dividend Reinvestment Plan.
(f) --Not applicable.
(g)(1) --Investment Advisory Agreement between Registrant and Merrill Lynch Asset
Management, Inc. (a)
(2) --Administration Agreement between Registrant and Merrill Lynch Asset Management,
Inc. (a)
(h)(1) --Distribution Agreement between Registrant and Merrill Lynch Funds Distributor,
Inc. (a)
(2) --Selected Dealer Agreement. (a)
(i) --Not applicable.
(j) --Custodian Contract between Registrant and The Bank of New York. (b)
(k)(1) --Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing Agency
Agreement between Registrant and Financial Data Services, Inc. (a)
(2) --Agreement between Merrill Lynch & Co., Inc. and Registrant relating to the use by
Registrant of the Merrill Lynch Name. (b)
(l) --Opinion and consent of Brown & Wood, counsel to Registrant. (e)
(m) --Not applicable.
(n) --Consent of Deloitte & Touche LLP, independent auditors for Registrant.
(o) --Not applicable.
(p) --Certificate of Merrill Lynch Asset Management, Inc. (c)
(q) --Not applicable.
(r) --Financial data schedule.
</TABLE>

- ------------

<TABLE>
<S> <S>
(a) Incorporated by reference to an exhibit to Registrant's Registration Statement on Form
N-2 under the Securities Act of 1933, Securities Act File No. 33-36472.
</TABLE>

(Footnotes continued on following page)

C-1
<PAGE>
(Footnotes continued from preceding page)

<TABLE>
<S> <S>
(b) Incorporated by reference to an exhibit to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-2 under the Securities Act of 1933,
Securities Act File No. 33-36472.
(c) Incorporated by reference to an exhibit to Pre-Effective Amendment No. 2 to the
Registration Statement on Form N-2 under the Securities Act of 1933, Securities Act
File No. 33-36472.
(d) Reference is made to Article V, Article VI (Sections 2, 3, 4, 5 and 6), Article VII,
Article VIII, Article X, Article XI, Article XII and Article XIII of the Registrant's
Articles of Incorporation, previously filed as Exhibit (a) to the Registration
Statement; and to Article II, Article III (Sections 1, 3, 5, and 17), Article VI,
Article VII, Article XII, Article XIII and Article XIV of the Registrant's By-Laws,
previously filed as Exhibit (b) to the Registration Statement on Form N-2 under the
Securities Act of 1933, File No. 33-36472.
(e) Filed as an exhibit to Registrant's Registration Statement on Form N-2 under the
Securities Act of 1933, Securities Act File No. 33-50861.
</TABLE>

ITEM 25. MARKETING ARRANGEMENTS.

Previously provided as Exhibits 7(a) and 7(b) of Registrant's Registration
Statement on Form N-2 under the Securities Act of 1933, File No. 33-36472.

ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

Previously provided in connection with Pre-Effective Amendment No. 2 to
Registrant's Registration Statement on Form N-2 under the Securities Act of
1933, File No. 33-36472.

ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.

None.

ITEM 28. NUMBER OF HOLDERS OF SECURITIES.

<TABLE>
<CAPTION>
NUMBER OF RECORD HOLDERS
TITLE OF CLASS AT OCTOBER 31, 1994
- --------------------------------------------------------------------- ------------------------
<S> <C>
Shares of common stock, par value $0.10 per share.................... 320
</TABLE>

ITEM 29. INDEMNIFICATION.

Reference is made to Article VI of Registrant's Articles of Incorporation,
Article VI of Registrant's By-Laws, Section 2-418 of the Maryland General
Corporation Law and Section 9 of the Distribution Agreement.

Article VI of the By-Laws provides that each officer and director of the
Registrant shall be indemnified by the Registrant to the full extent permitted
under the General Laws of the State of Maryland, except that such indemnity
shall not protect any such person against any liability to the Registrant or any
stockholder thereof to which such person would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office. Absent a court determination that
an officer or director seeking indemnification was not liable on the merits or
guilty of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office, the decision by the
Registrant to indemnify

C-2
<PAGE>
such person must be based upon the reasonable determination of independent
counsel or non-party independent directors, after review of the facts, that such
officer or director is not guilty of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.

The Registrant may purchase insurance on behalf of an officer or director
protecting such person to the full extent permitted under the General Laws of
the State of Maryland from liability arising from his activities as officer or
director of the Registrant. The Registrant, however, may not purchase insurance
on behalf of any officer or director of the Registrant that protects or purports
to protect such person from liability to the Registrant or to its stockholders
to which such officer or director would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of his office.

Insofar as the conditional advancing of indemnification moneys for actions
based upon the Investment Company Act of 1940 may be concerned, such payments
will be made only on the following conditions: (i) the advances must be limited
to amounts used, or to be used, for the preparation or presentation of a defense
to the action, including costs connected with the preparation of a settlement;
(ii) advances may be made only upon receipt of a written promise by, or on
behalf of, the recipient to repay that amount of the advance which exceeds the
amount to which it is ultimately determined that he is entitled to receive from
the Registrant by reason of indemnification; and (iii) (a) such promise must be
secured by a surety bond, other suitable insurance or an equivalent form of
security which assures that any repayments may be obtained by the Registrant
without delay or litigation, which bond, insurance or other form of security
must be provided by the recipient of the advance, or (b) a majority of a quorum
of the Registrant's disinterested, non-party Directors, or an independent legal
counsel in a written opinion shall determine, based upon a review of readily
available facts, that the recipient of the advance ultimately will be found
entitled to indemnification.

In Section 9 of the Distribution Agreement relating to the securities being
offered hereby, the Registrant agrees to indemnify the Distributor and each
person, if any, who controls the Distributor within the meaning of the
Securities Act of 1933 (the "Act"), against certain types of civil liabilities
arising in connection with the Registration Statement or Prospectus and
Statement of Additional Information.

Insofar as indemnification for liabilities arising under the Act may be
permitted to Directors, officers and controlling persons of the Registrant and
the principal underwriter pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a Director, officer, or controlling person of the Registrant
and the principal underwriter in connection with the successful defense of any
action, suit or proceeding) is asserted by such Director, officer or controlling
person or the principal underwriter in connection with the shares being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

C-3
<PAGE>
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.

Merrill Lynch Asset Management (the "Investment Adviser") acts as investment
adviser for the following registered investment companies: Convertible Holdings,
Inc., Merrill Lynch Adjustable Rate Securities Fund, Inc., Merrill Lynch
Americas Income Fund, Inc., Merrill Lynch Asset Growth Fund, Inc., Merrill Lynch
Asset Income Fund, Inc., Merrill Lynch Balanced Fund for Investment and
Retirement, Merrill Lynch Capital Fund, Inc., Merrill Lynch Developing Capital
Markets Fund, Inc., Merrill Lynch Dragon Fund, Inc., Merrill Lynch EuroFund,
Merrill Lynch Fundamental Growth Fund, Inc., Merrill Lynch Fund For Tomorrow,
Inc., Merrill Lynch Global Bond Fund for Investment and Retirement, Merrill
Lynch Global Allocation Fund, Inc., Merrill Lynch Global Convertible Fund, Inc.,
Merrill Lynch Global Holdings, Inc., Merrill Lynch Global SmallCap Fund, Inc.,
Merrill Lynch Global Utility Fund, Inc., Merrill Lynch Growth Fund for
Investment and Retirement, Merrill Lynch Healthcare Fund., Inc., Merrill Lynch
Institutional Intermediate Fund, Merrill Lynch International Equity Fund,
Merrill Lynch Latin America Fund, Inc., Merrill Lynch Municipal Series Trust,
Merrill Lynch Natural Resources Trust, Merrill Lynch Pacific Fund, Inc., Merrill
Lynch Ready Assets Trust, Merrill Lynch Retirement Series Trust, Merrill Lynch
Senior Floating Rate Fund, Inc., Merrill Lynch Series Fund, Inc., Merrill Lynch
Short-Term Global Income Fund, Inc., Merrill Lynch Strategic Dividend Fund,
Merrill Lynch Technology Fund, Inc., Merrill Lynch U.S. Treasury Money Fund,
Merrill Lynch U.S.A. Government Reserves, Merrill Lynch Utility Income Fund,
Inc. and Merrill Lynch Variable Series Funds, Inc. Fund Asset Management, L.P.
("FAM"), an affiliate of the Investment Adviser, acts as the investment adviser
for the following registered investment companies: Apex Municipal Fund, Inc.,
CBA Money Fund, CMA Government Securities Fund, CMA Money Fund, CMA Multi-State
Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The Corporate
Fund Accumulation Program, Inc., Corporate High Yield Fund, Inc., Corporate High
Yield Fund II, Inc., Emerging Tigers Fund, Inc., Financial Institutions Series
Trust, Income Opportunities Fund 1999, Inc., Income Opportunities Fund 2000,
Inc., Merrill Lynch Basic Value Fund., Inc., Merrill Lynch California Municipal
Series Trust, Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch Federal
Securities Trust, Merrill Lynch Funds for Institutions Series, Merrill Lynch
Institutional Tax-Exempt Fund, Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust, Merrill Lynch Multi-State Municipal Series Trust,
Merrill Lynch Municipal Bond Fund, Inc., Merrill Lynch Phoenix Fund, Inc.,
Merrill Lynch Special Value Fund, Inc., Merrill Lynch World Income Fund, Inc.,
Muni Assets Fund, Inc., MuniBond Income Fund, Inc., The Municipal Fund
Accumulation Program, Inc., MuniEnhanced Fund, Inc., MuniInsured Fund, Inc.,
MuniVest Fund, Inc., MuniVest Fund II, Inc., MuniVest California Insured Fund,
Inc., MuniVest Florida Fund, MuniVest Michigan Insured Fund, Inc., MuniVest New
Jersey Fund, Inc., MuniVest New York Insured Fund, Inc., MuniVest Pennsylvania
Insured Fund, MuniYield Arizona Fund, Inc., MuniYield Arizona Fund II, Inc.,
MuniYield California Fund, Inc., MuniYield California Insured Fund, Inc.,
MuniYield California Insured Fund II, Inc., MuniYield Florida Fund, MuniYield
Florida Insured Fund, MuniYield Fund, Inc., MuniYield Insured Fund, Inc.,
MuniYield Insured Fund II, Inc., MuniYield Michigan Fund, Inc., MuniYield
Michigan Insured Fund, Inc., MuniYield New Jersey Fund, Inc., MuniYield New
Jersey Insured Fund, Inc., MuniYield New York Insured Fund, Inc., MuniYield New
York Insured Fund II, Inc., MuniYield New York Insured Fund III, Inc., MuniYield
Pennsylvania Fund, MuniYield Quality Fund, Inc., MuniYield Quality Fund II,
Senior High Income Portfolio, Inc., Senior High Income Portfolio II, Inc.,
Senior Strategic Income Fund, Inc., Taurus MuniCalifornia Holdings, Inc., Taurus
MuniNewYork Holdings, Inc. and WorldWide DollarVest Fund, Inc. The address of
each of these investment companies is P.O. Box 9011, Princeton, New Jersey
08543-9011, except that the address of Merrill

C-4
<PAGE>

Lynch Funds for Institutions Series, Merrill Lynch Institutional Tax-Exempt Fund
and Merrill Lynch Institutional Itermediate Fund is One Financial Center, Boston
Massachusetts 02110-2646. The address of the Investment Adviser and FAM is also
P.O. Box 9011, Princeton, New Jersey 08543-9011. The address of Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and Merrill Lynch & Co.,
Inc. ("ML&Co.") is North Tower, World Financial Center, 250 Vesey Street, New
York, New York 10281.

Set forth below is a list of each executive officer and director of the
Investment Adviser indicating each business, profession, vocation or employment
of a substantial nature in which each such person has been engaged since
September 1, 1992 for his own account or in the capacity of director, officer,
partner or trustee. In addition, Mr. Zeikel is President, Mr. Glenn is Executive
Vice President and Mr. Richard is Treasurer of all or substantially all of the
investment companies described in the preceding paragraph and Mr. Zeikel is a
director of substantially all such companies and Mr. Glenn is a director of
certain of such companies. Messrs. Durnin, Giordano, Harvey, Hewitt and Monagle
are directors or officers of one or more of such companies.

<TABLE>
<CAPTION>
POSITION WITH OTHER SUBSTANTIAL BUSINESS,
NAME INVESTMENT ADVISER PROFESSION, VOCATION OR EMPLOYMENT
- ------------------------ -------------------------- ---------------------------------------
<S> <C> <C>
Merrill Lynch & Co., Limited Partner Financial Services Holding Company
Inc. ("ML & Co.").......
Merrill Lynch Investment Limited Partner Investment Advisory Services; Limited
Management, Inc......... Partner of FAM
Princeton Services, General Partner General Partner of FAM
Inc., ("Princeton
Services")..............
Arthur Zeikel........... President and Director President of FAM; President and
Director of Princeton Services;
Director of Merrill Lynch Funds
Distributor, Inc., ("MLFD"),
Executive Vice President of ML & Co.;
Executive Vice President of Merrill
Lynch
Terry K. Glenn.......... Executive Vice President Executive Vice President of FAM;
Executive Vice President and Director
of Princeton Services; President and
Director of MLFD; Director of
Financial Data Services, Inc.;
President of Princeton Administrators
Bernard J. Durnin....... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
Vincent R. Giordano..... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
Elizabeth Griffin....... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Services
Norman R. Harvey........ Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
N. John Hewitt.......... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
Philip L. Kirstein...... Senior Vice President, Senior Vice President, General Counsel
and Secretary of FAM; Senior Vice
President, Secretary General Counsel,
Director and Secretary of Princeton
Services; Director of MLFD
</TABLE>

C-5
<PAGE>

<TABLE>
<CAPTION>
POSITION WITH OTHER SUBSTANTIAL BUSINESS,
NAME INVESTMENT ADVISER PROFESSION, VOCATION OR EMPLOYMENT
- ------------------------ -------------------------- ---------------------------------------
<S> <C> <C>
Ronald M. Kloss......... Senior Vice President and Senior Vice President and Controller of
Controller FAM; Senior Vice President and
Controller of Princeton Services
Stephen M.M. Miller..... Senior Vice President Executive Vice President of Princeton
Administrators
Joseph T. Monagle, Senior Vice President Senior Vice President of FAM; Senior
Jr...................... Vice President of Princeton Services
Gerald M. Richard....... Senior Vice President and Senior Vice President and Treasurer of
Treasurer FAM; Senior Vice President and
Treasurer of Princeton Services; Vice
President and Treasurer of MLFD
Richard L. Rufener...... Senior Vice President Senior Vice President of FAM; Vice
President of MLFD; Senior Vice
President of Princeton Services
Ronal L. Welburn........ Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
Anthony Wiseman......... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
</TABLE>

ITEM 31. LOCATION OF ACCOUNTS AND RECORDS.

All accounts, books and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940 and the Rules thereunder will be
maintained at the offices of the Registrant and its Transfer Agent.

ITEM 32. MANAGEMENT SERVICES.

Not Applicable.

ITEM 33. UNDERTAKINGS.

The undersigned registrant hereby undertakes:

(1) To file during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement.

(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which individually or in the aggregate
represent a fundamental change in the information set forth in the
Registration Statement; and

(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new Registration Statement relating to the securities offered
therein and the offering of such securities at that time shall be deemed to
be the initial bona fide offering hereof.

(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

C-6
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Township of Plainsboro, and State of New Jersey, on the 21st
day of November, 1994.

MERRILL LYNCH HIGH INCOME
MUNICIPAL BOND FUND, INC.
(Registrant)

By /s/ ARTHUR ZEIKEL

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

(Arthur Zeikel, President)

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- --------------------------------------------- ------------------------- ------------------

<S> <C> <C>
/s/ ARTHUR ZEIKEL President (Principal November 21, 1994
............................................. Executive Officer) and
(Arthur Zeikel) Director

/s/ GERALD M. RICHARD Treasurer (Principal November 21, 1994
............................................. Financial and Accounting
(Gerald M. Richard) Officer)

RONALD W. FORBES* Director
.............................................
(Ronald W. Forbes)

CYNTHIA MONTGOMERY* Director
.............................................
(Cynthia Montgomery)

CHARLES C. REILLY* Director
.............................................
(Charles C. Reilly)

KEVIN A. RYAN* Director
.............................................
(Kevin A. Ryan)

RICHARD R. WEST* Director
.............................................
(Richard R. West)

*By /s/ ARTHUR ZEIKEL November 21, 1994
.........................................
(Arthur Zeikel, Attorney-in-Fact)
</TABLE>

C-7
<PAGE>
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NUMBER PAGE
- --------------- ----

<C> <S> <C>
(n) --Consent of Deloitte & Touche LLP, independent auditors for Registrant...

27 --Financial data schedule.................................................
</TABLE>

<ARTICLE> 6
<CIK> 0000867189
<NAME> MERRILL LYNCH HIGH INCOME MUNICIPAL BOND FUND, INC.

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1994
<PERIOD-START> SEP-01-1993
<PERIOD-END> AUG-31-1994
<INVESTMENTS-AT-COST> 202856604
<INVESTMENTS-AT-VALUE> 210709836
<RECEIVABLES> 6982599
<ASSETS-OTHER> 70290
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 217762725
<PAYABLE-FOR-SECURITIES> 3954072
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 850274
<TOTAL-LIABILITIES> 4804346
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 202308196
<SHARES-COMMON-STOCK> 19506250
<SHARES-COMMON-PRIOR> 18965803
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2796951
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7853232
<NET-ASSETS> 212958379
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 16203513
<OTHER-INCOME> 0
<EXPENSES-NET> 3292406
<NET-INVESTMENT-INCOME> 12911107
<REALIZED-GAINS-CURRENT> 3571349
<APPREC-INCREASE-CURRENT> (12998193)
<NET-CHANGE-FROM-OPS> 3484263
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 12911207
<DISTRIBUTIONS-OF-GAINS> 1365806
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2811953
<NUMBER-OF-SHARES-REDEEMED> 2797604
<SHARES-REINVESTED> 526098
<NET-CHANGE-IN-ASSETS> (3964039)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 591408
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2111003
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3295969
<AVERAGE-NET-ASSETS> 222210849
<PER-SHARE-NAV-BEGIN> 11.44
<PER-SHARE-NII> .65
<PER-SHARE-GAIN-APPREC> (.45)
<PER-SHARE-DIVIDEND> .65
<PER-SHARE-DISTRIBUTIONS> .07
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.92
<EXPENSE-RATIO> 1.48
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

EXHIBIT (N)
<PAGE>
EXHIBIT N

INDEPENDENT AUDITORS' CONSENT

MERRILL LYNCH HIGH INCOME MUNICIPAL BOND FUND, INC.:

We consent to the use in Post-Effective Amendment No. 1 to Registration
Statement No. 33-50861 of our report dated September 30, 1994 and to the
references to us under the captions "Experts" and "Financial Highlights," all of
which appear in the Prospectus, which is a part of such Registration Statement.

DELOITTE & TOUCHE LLP
Princeton, New Jersey
November 17, 1994