WESTERN ASSET MUNICIPAL HIGH INCOME FUND INC.

Regulatory Filings • Sep 26, 2007

N-Q 1 a07-22493_2nq.htm N-Q

*UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549*

*FORM N-Q*

*QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED MANAGEMENT INVESTMENT COMPANY*

| Investment
Company Act file number | |
| --- | --- |
| Western
Asset Municipal High Income Fund Inc. | |
| (Exact name of registrant as specified in charter) | |
| 125 Broad Street, New York, NY | 10004 |
| (Address of principal executive offices) | (Zip code) |
| Robert I. Frenkel, Esq. Legg Mason & Co., LLC 300 First Stamford Place Stamford, CT 06902 | |
| (Name and address of agent for service) | |
| Registrant's
telephone number, including area code: | 1-800-451-2010 |
| Date of
fiscal year end: | October 31 |
| Date of
reporting period: | July 31,
2007 |

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WESTERN ASSET MUNICIPAL HIGH INCOME FUND INC.

FORM N-Q

JULY 31, 2007

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ITEM 1. SCHEDULE OF INVESTMENTS

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*Western Asset Municipal High Income Fund Inc.*

Schedule of Investments (unaudited)

July 31, 2007

Face Amount	Security	Value
MUNICIPAL
BONDS — 97.7%
Alaska
— 1.7%
$ 1,055,000	Alaska
Industrial Development & Export Authority Revenue, Williams Lynxs Alaska
Cargoport, 8.125% due 5/1/31 (a)	$ 1,146,595
1,650,000	Alaska
State Housing Financial Corp., General Housing, Series B, MBIA-Insured,
5.250% due 12/1/30	1,736,345
	Total
Alaska	2,882,940
Arizona
— 2.7%
1,500,000	Casa
Grande, AZ, IDA, Hospital Revenue, Casa Grande Regional Medical Center,
Series A, 7.625% due 12/1/29	1,639,380
1,760,000	Phoenix,
AZ, IDA, MFH Revenue, Ventana Palms Apartments Project, Series B, 8.000% due
10/1/34	1,945,064
1,000,000	Yuma
& La Paz Counties, Arizona Community College District, Arizona Western
College, FSA-Insured, 5.000% due 7/1/24	1,041,720
	Total
Arizona	4,626,164
Arkansas
— 1.0%
	Arkansas
State Development Financing Authority:
1,000,000	Hospital
Revenue, Washington Regional Medical Center, Call 2/1/10 @ 100, 7.375% due
2/1/29 (b)	1,083,320
600,000	Industrial
Facilities Revenue, Potlatch Corp. Projects, Series A, 7.750% due 8/1/25 (a)	670,242
	Total
Arkansas	1,753,562
California
— 11.1%
1,500,000	Barona,
CA, Band of Mission Indians, GO, 8.250% due 1/1/20	1,542,465
2,000,000	California
Health Facilities Financing Authority Revenue, Refunding, Cedars-Sinai
Medical Center, 5.000% due 11/15/27	2,028,300
5,000,000	California
State Department of Water Resources & Power Supply Revenue, Series A,
MBIA-IBC-Insured, Call 5/1/12 @ 101, 5.375% due 5/1/21 (b)	5,391,750
2,500,000	California
State, GO, Various Purpose, 5.000% due 9/1/35	2,561,875
1,500,000	California
Statewide CDA Revenue, East Valley Tourist Project, Series A, 9.250% due
10/1/20	1,620,630
	Golden
State Tobacco Securitization Corp., California Tobacco Settlement Revenue:
2,000,000	Asset
Backed, Series A-4, Call 6/1/13 @ 100, 7.800% due 6/1/42 (b)	2,401,800
1,000,000	Enhanced
Asset Backed, Series B, Call 6/1/13 @ 100, 5.625% due 6/1/38 (b)	1,088,550
600,000	Redding,
CA, Redevelopment Agency, Tax Allocation, Shastec Redevelopment Project,
5.000% due 9/1/29	605,670
1,865,000	Vallejo,
CA, COP, Touro University, 7.375% due 6/1/29	1,938,071
	Total
California	19,179,111
Colorado
— 3.2%
500,000	Beacon
Point Metropolitan District, GO, Series A, 6.250% due 12/1/35	524,060
	Colorado
Educational & Cultural Facilities Authority Revenue:
	Charter
School:
1,230,000	Bromley
School Project, Refunding, XLCA-Insured, 5.125% due 9/15/25	1,298,855
805,000	Peak
to Peak Project, Call 8/15/11 @ 100, 7.500% due 8/15/21 (b)	892,149
785,000	Elbert
County Charter, 7.375% due 3/1/35	834,589
810,000	Unrefunded,
University of Denver Project, Series B, FGIC-Insured, 5.250% due 3/1/23	876,768
500,000	High
Plains, CO, Metropolitan District, GO, Series A, 6.250% due 12/1/35	527,470
500,000	Southlands,
CO, Metropolitan District No. 1, GO, Call 12/1/14 @ 100, 7.125% due 12/1/34
(b)	541,270
	Total
Colorado	5,495,161

**See Notes to Schedule of Investments.****

1

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*Western Asset Municipal High Income Fund Inc.*

Schedule of Investments (unaudited) (continued)

July 31, 2007

Face Amount	Security	Value
District
of Columbia — 1.2%
$ 1,895,000	District
of Columbia COP, District Public Safety & Emergency, AMBAC-Insured,
5.500% due 1/1/20	$ 2,025,547
Florida
— 10.0%
955,000	Beacon
Lakes, FL, Community Development District, Special Assessment, Series A,
6.900% due 5/1/35	1,028,248
1,500,000	Bonnet
Creek Resort Community Development District, Special Assessment, 7.500% due
5/1/34	1,621,515
2,000,000	Capital
Projects Finance Authority, FL, Continuing Care Retirement Glenridge on
Palmer Ranch, Series A, Call 6/1/12 @ 102, 8.000% due 6/1/32 (b)	2,351,460
2,000,000	Capital
Projects Finance Authority, FL, Student Housing Revenue, Capital Projects
Loan Program, Florida University, Series A, Call 8/15/10 @ 103, 7.850% due
8/15/31 (b)	2,281,000
950,000	Century
Parc Community Development District, Special Assessment, 7.000% due 11/1/31	996,417
1,000,000	Highlands
County, FL, Health Facilities Authority Revenue, Adventist Health Systems,
Series D, Call 11/15/12 @ 100, 6.000% due 11/15/25 (b)	1,095,830
2,000,000	Martin
County, FL, IDA Revenue, Indiantown Cogeneration Project, Series A, 7.875%
due 12/15/25 (a)	2,006,460
1,000,000	Orange
County, FL, Health Facilities Authority Revenue, First Mortgage, GF, Orlando
Inc. Project, 9.000% due 7/1/31	1,114,910
400,000	Palm
Beach County, FL, Health Facilities Authority Revenue, John F. Kennedy
Memorial Hospital Inc. Project, 9.500% due 8/1/13 (c)	464,396
2,000,000	Reunion
East Community Development District, Special Assessment, Series A, 7.375% due
5/1/33	2,224,760
1,000,000	Santa
Rosa, FL, Bay Bridge Authority Revenue, 6.250% due 7/1/28	1,008,280
1,000,000	University
of Central Florida, COP, Series A, FGIC-Insured, 5.000% due 10/1/25	1,035,850
	Total
Florida	17,229,126
Georgia
— 4.0%
	Atlanta,
GA, Airport Revenue:
1,000,000	Series
B, FGIC-Insured, 5.625% due 1/1/30 (a)	1,035,070
1,000,000	Series
G, FSA-Insured, 5.000% due 1/1/26	1,034,360
2,500,000	Atlanta,
GA, Tax Allocation, Atlantic Station Project, 7.900% due 12/1/24	2,735,675
1,000,000	Gainesville
& Hall County, GA, Development Authority Revenue, Senior Living
Facilities, Lanier Village Estates, Series C, 7.250% due 11/15/29	1,070,230
1,005,000	Walton
County, GA, IDA Revenue, Walton Manufacturing Co. Project, 8.500% due 9/1/07	1,005,824
	Total
Georgia	6,881,159
Illinois
— 1.8%
2,000,000	Chicago,
IL, GO, Neighborhoods Alive 21 Program, FGIC-Insured, Call 1/1/11 @ 100,
5.500% due 1/1/31 (b)	2,105,780
1,000,000	Illinois
Finance Authority Revenue, Refunding, Chicago Charter School Project, 5.000%
due 12/1/26	992,590
	Total
Illinois	3,098,370
Indiana
— 0.5%
	County
of St Joseph, IN, EDR, Holy Cross Village Notre Dame Project, Series A:
285,000	6.000%
due 5/15/26	298,606
550,000	6.000%
due 5/15/38	571,582
	Total
Indiana	870,188

**See Notes to Schedule of Investments.****

2

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*Western Asset Municipal High Income Fund Inc.*

Schedule of Investments (unaudited) (continued)

July 31, 2007

Face Amount	Security	Value
Kansas
— 0.7%
$ 1,150,000	Salina,
KS, Hospital Revenue, Refunding & Improvement Salina Regional Health,
5.000% due 10/1/22	$ 1,183,316
Louisiana
— 0.6%
1,000,000	Epps,
LA, COP, 8.000% due 6/1/18	1,029,630
Maryland
— 1.5%
1,500,000	Maryland
State Economic Development Corp. Revenue, Chesapeake Bay, Series A, Call
12/1/09 @ 101, 7.730% due 12/1/27 (b)	1,643,775
1,000,000	Maryland
State Health & Higher EFA Revenue, Refunding, Edenwald, Series A, 5.400%
due 1/1/31	1,025,540
	Total
Maryland	2,669,315
Massachusetts
— 3.2%
915,000	Boston,
MA, Industrial Development Financing Authority Revenue, Roundhouse
Hospitality LLC Project, 7.875% due 3/1/25 (a)	918,550
1,000,000	Massachusetts
State DFA Revenue, Briarwood, Series B, Call 12/1/10 @ 101, 8.250% due
12/1/30 (b)	1,143,570
1,000,000	Massachusetts
State HEFA Revenue, Caritas Christi Obligation, Series B, 6.750% due 7/1/16	1,104,280
1,830,000	Massachusetts
State IFA Revenue, Assisted Living Facilities, Marina Bay LLC Project, Call
12/1/07 @ 103, 7.500% due 12/1/27 (a)(b)	1,904,572
355,000	Massachusetts
State Port Authority Revenue, 13.000% due 7/1/13 (c)	461,220
	Total
Massachusetts	5,532,192
Michigan
— 6.9%
2,130,000	Allen
Academy, COP, 7.500% due 6/1/23	2,158,542
	Cesar
Chavez Academy, COP:
1,000,000	6.500%
due 2/1/33	1,045,580
1,000,000	8.000%
due 2/1/33	1,119,870
1,000,000	Gaudior
Academy, COP, 7.250% due 4/1/34	999,990
1,750,000	Kalamazoo
Advantage Academy, COP, 8.000% due 12/1/33	1,891,417
3,000,000	Michigan
State Hospital Finance Authority, Refunding Hospital, Sparrow Obligated,
5.000% due 11/15/31	2,999,760
1,000,000	Star
International Academy, COP, 7.000% due 3/1/33	1,018,710
700,000	William
C. Abney Academy, COP, 6.750% due 7/1/19	701,603
	Total
Michigan	11,935,472
Mississippi
— 0.9%
1,480,000	Jackson, MS, Public School District, FSA-Insured, 5.000% due 10/1/20	1,548,894
Missouri
— 0.8%
1,300,000	Missouri State HEFA Revenue, Refunding, St Lukes Episcopal, 5.000%
due 12/1/21	1,320,254
Montana
— 1.4%
2,450,000	Montana
State Board of Investment, Resource Recovery Revenue, Yellowstone Energy LP
Project, 7.000% due 12/31/19 (a)	2,469,085
New
Hampshire — 0.9%
1,600,000	New Hampshire HEFA Revenue, Covenant Health System, 5.500% due 7/1/34	1,658,480
New
Jersey — 9.5%
1,500,000	Casino
Reinvestment Development Authority Revenue, Series A, MBIA-Insured, 5.250%
due 6/1/20	1,602,000
1,000,000	New
Jersey EDA, Retirement Community Revenue, SeaBrook Village Inc., Series A,
Call 11/15/10 @ 101, 8.250% due 11/15/30 (b)	1,141,890
5,000,000	New
Jersey EDA Revenue, Refunding, Series B, 6.875% due 1/1/37 (a)	5,312,450

**See Notes to Schedule of Investments.****

3

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*Western Asset Municipal High Income Fund Inc.*

Schedule of Investments (unaudited) (continued)

July 31, 2007

Face Amount	Security	Value
New
Jersey — 9.5% (continued)
	New
Jersey Health Care Facilities Financing Authority Revenue, Trinitas Hospital
Obligation Group:
$ 3,000,000	Call
7/1/10 @ 101, 7.500% due 7/1/30 (b)	$ 3,326,400
3,000,000	Series
A, 5.250% due 7/1/30	2,985,210
1,750,000	Tobacco
Settlement Financing Corp., Call 6/1/13 @ 100, 6.750% due 6/1/39 (b)	2,006,655
	Total
New Jersey	16,374,605
New
Mexico — 1.3%
160,000	Albuquerque,
NM, Hospital Revenue, Southwest Community Health Services, Call 8/1/08 @ 100,
10.000% due 8/1/12 (b)	167,832
1,000,000	Otero
County, NM, Jail Project Revenue, 7.500% due 12/1/24	1,082,670
1,000,000	Sandoval
County, NM, Incentive Payment Revenue, Refunding, 5.000% due 6/1/20	1,039,310
	Total
New Mexico	2,289,812
New
York — 9.8%
700,000	Brookhaven,
NY, IDA Civic Facilities Revenue, Memorial Hospital Medical Center Inc.,
Series A, Call 11/15/10 @ 101, 8.250% due 11/15/30 (b)	800,961
2,000,000	Metropolitan
Transportation Authority of New York, Series A, AMBAC-Insured, 5.000% due
7/1/30	2,057,740
1,000,000	Monroe
County, NY, IDA, Civic Facilities Revenue, Woodland Village Project, Call
11/15/10 @ 102, 8.550% due 11/15/32 (b)	1,163,920
	New
York City, NY, IDA, Civic Facilities Revenue:
1,290,000	Community
Residence for the Developmentally Disabled Project, 7.500% due 8/1/26	1,317,142
860,000	Special
Needs Facilities Pooled Program, Series A-1, Call 7/1/10 @ 102, 8.125% due
7/1/19 (b)	955,598
1,000,000	New
York City, NY, Municipal Water Finance Authority, Water & Sewer System
Revenue, Series C, MBIA-Insured, 5.000% due 6/15/27	1,043,540
	New
York State Dormitory Authority Revenue:
2,090,000	Cornell
University, Series A, 5.000% due 7/1/21	2,206,789
1,500,000	Mental
Health Services Facilities Improvement, Series B, AMBAC-Insured, 5.000% due
2/15/35	1,548,420
1,450,000	Montefiore
Hospital, FGIC/FHA-Insured, 5.000% due 8/1/29	1,502,214
2,500,000	New
York University Hospitals Center, Series A, 5.000% due 7/1/26	2,457,875
	Suffolk
County, NY, IDA:
910,000	Civic
Facilities Revenue, Eastern Long Island Hospital Association, Series A, Call
1/1/12 @ 101, 7.750% due 1/1/22 (b)	978,223
1,000,000	Continuing
Care Retirement Revenue, Refunding, Jeffersons Ferry Project, 5.000% due
11/1/28	1,004,330
	Total
New York	17,036,752
North
Carolina — 0.6%
935,000	North
Carolina Medical Care Community, Health Care Facilities Revenue, First
Mortgage, DePaul Community Facilities Project, 7.625% due 11/1/29	972,101
Ohio
— 3.5%
1,500,000	Cuyahoga
County, OH, Hospital Facilities Revenue, Canton Inc. Project, 7.500% due
1/1/30	1,626,465
1,500,000	Miami
County, OH, Hospital Facilities Revenue, Refunding and Improvement Upper
Valley Medical Center, 5.250% due 5/15/21	1,557,600
1,500,000	Ohio
State, Air Quality Development Authority Revenue, Cleveland Pollution
Control, Series A, 6.000% due 12/1/13	1,524,015
1,260,000	Riversouth
Authority, OH, Revenue, Riversouth Area Redevelopment, Series A, 5.000% due
12/1/25	1,311,269
	Total
Ohio	6,019,349

**See Notes to Schedule of Investments.****

4

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*Western Asset Municipal High Income Fund Inc.*

Schedule of Investments (unaudited) (continued)

July 31, 2007

Face Amount	Security	Value
Oregon
— 0.6%
$ 1,000,000	Salem,
OR, Hospital Facility Authority Revenue, Salem Hospital Project, Series A,
5.000% due 8/15/36	$ 993,910
Pennsylvania
— 4.4%
1,000,000	Cumberland
County, PA, Municipal Authority Retirement Community Revenue, Wesley Affiliate
Services Inc. Project, Series A, Call 1/1/13 @ 101, 7.250% due 1/1/35 (b)	1,161,570
1,000,000	Lebanon
County, PA, Health Facilities Authority Revenue, Good Samaritan Hospital
Project, 6.000% due 11/15/35	1,060,230
1,000,000	Monroe
County, PA, Hospital Authority Revenue, Pocono Medical Center, 5.000% due
1/1/27	995,040
2,640,000	Montgomery
County, PA, Higher Education & Health Authority Revenue, Temple
Continuing Care Center, 6.625% due 7/1/19 (d)	92,400
965,000	Northumberland
County, PA, IDA Facilities Revenue, NHS Youth Services Inc. Project, Series
A, 7.500% due 2/15/29	1,022,321
1,000,000	Philadelphia,
PA, Authority for IDR, Host Marriot LP Project, Remarketed 10/31/95, 7.750%
due 12/1/17 (a)	1,003,850
2,000,000	Westmoreland
County, PA, IDA Revenue, Health Care Facilities, Redstone Highlands Health,
Series B, Call 11/15/10 @ 101, 8.125% due 11/15/30 (b)	2,269,520
	Total
Pennsylvania	7,604,931
Puerto
Rico — 1.2%
2,000,000	Puerto Rico Sales Tax Financing, Corp. Sales Tax Revenue, Series A,
5.250% due 8/1/57	2,090,180
South
Carolina — 0.1%
210,000	McCormick County, SC, COP, 9.750% due 7/1/09	212,575
Tennessee
— 2.0%
1,000,000	Clarksville,
TN, Natural Gas Acquisition Corp. Gas Revenue, 5.000% due 12/15/21	1,017,410
2,500,000	Shelby
County, TN, Health Educational & Housing Facilities Board Revenue,
Trezevant Manor Project, Series A, 5.750% due 9/1/37	2,529,825
	Total
Tennessee	3,547,235
Texas
— 8.5%
550,000	Bexar
County, TX, Housing Financial Corp., MFH Revenue, Continental Lady Ester,
Series A, Call 6/1/09 @ 102, 6.875% due 6/1/29 (b)	588,506
1,000,000	Garza
County Public Facility Corp., 5.500% due 10/1/18	1,063,980
2,000,000	Gulf
Coast of Texas, IDA, Solid Waste Disposal Revenue, CITGO Petroleum Corp.
Project, 7.500% due 10/1/12 (a)(e)	2,211,300
2,750,000	Houston,
TX, Airport Systems Revenue, Special Facilities, Continental Airlines Inc.
Project, Series C, 6.125% due 7/15/27 (a)	2,759,652
1,000,000	Laredo,
TX, ISD Public Facility Corp. Lease Revenue, Series A, AMBAC-Insured, 5.000%
due 8/1/29	1,021,390
1,000,000	Midlothian,
TX, Development Authority, Tax Increment Contract Revenue, 6.200% due
11/15/29	1,058,270
1,000,000	North
Texas Tollway Authority, Dallas North Tollway Systems Revenue, Series A,
FSA-Insured, 5.000% due 1/1/35	1,029,270
1,000,000	Port
Corpus Christi, TX, Industrial Development Corp., CITGO Petroleum Corp.
Project, 8.250%, 11/1/31 (a)	1,020,160
1,865,000	West
Texas Detention Facility Corp. Revenue, 8.000% due 2/1/25	1,910,189
	Willacy
County, TX, PFC Project Revenue:
1,000,000	County
Jail, 7.500% due 11/1/25	1,059,130
1,000,000	Series
A-1, 8.250% due 12/1/23	1,034,990
	Total
Texas	14,756,837

**See Notes to Schedule of Investments.****

5

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*Western Asset Municipal High Income Fund Inc.*

Schedule of Investments (unaudited) (continued)

July 31, 2007

Face Amount	Security	Value
Virginia
— 1.5%
$ 415,000	Alexandria,
VA, Redevelopment & Housing Authority, MFH Revenue, Parkwood Court
Apartments Project, Series C, 8.125% due 4/1/30	$ 432,239
1,000,000	Broad
Street CDA Revenue, 7.500% due 6/1/33	1,118,360
1,000,000	Fairfax
County, VA, EDA Revenue, Retirement Community, Greenspring Village, Inc.,
Series A, Call 10/1/09 @ 102, 7.500% due 10/1/29 (b)	1,094,430
	Total
Virginia	2,645,029
Wisconsin
— 0.6%
1,000,000	Wisconsin
State HEFA Revenue, Aurora Health Care, 6.400% due 4/15/33	1,084,060
	TOTAL
INVESTMENTS BEFORE SHORT-TERM INVESTMENTS (Cost — $163,427,090)	169,015,342
SHORT-TERM
INVESTMENTS — 1.0%
Colorado
— 0.7%
1,000,000	Colorado
Educational & Cultural Facilities Authority Revenue, National Jewish
Federation Bond Program, Series A-8, LOC-Bank of America, 3.700%, 8/1/07 (f)	1,000,000
200,000	Colorado
Springs, CO, Revenue, Colorado College Project, SPA- JPMorgan Chase, 3.770%,
8/1/07 (f)	200,000
	Total
Colorado	1,200,000
Oregon
— 0.1%
200,000	Oregon
State, GO, Veterans Welfare, Series 86, SPA-Dexia Credit Local, 3.700%,
8/1/07 (f)	200,000
Pennsylvania
— 0.2%
300,000	Geisinger
Authority, PA, Health System Revenue, Geisinger Health System, Series C,
SPA-Wachovia Bank, 3.680%, 8/1/07 (f)	300,000
	TOTAL
SHORT-TERM INVESTMENTS (Cost — $1,700,000)	1,700,000
	TOTAL
INVESTMENTS — 98.7% (Cost — $165,127,090#)	170,715,342
	Other
Assets in Excess of Liabilities — 1.3%	2,260,455
	TOTAL
NET ASSETS — 100.0%	$ 172,975,797

| (a) | Income from this issue is considered a
preference item for purposes of calculating the alternative minimum tax (“AMT”). |
| --- | --- |
| (b) | Pre-Refunded bonds are escrowed with
government obligations and/or government agency securities and are considered
by the Manager to be triple-A rated even if issuer has not applied for new
ratings. |
| (c) | Bonds are escrowed to maturity by
government securities and/or U.S. government agency securities and are
considered by the Manager to be triple-A rated even if issuer has not applied
for new ratings. |
| (d) | Security is currently in default. |
| (e) | Variable rate security. Interest rate disclosed is that which is in
effect at July 31, 2007. |
| (f) | Variable rate demand obligations have a
demand feature under which the Fund can tender them back to the issuer on no
more than 7 days notice. Date shown is
the date of the next interest rate change. |
| # | Aggregate cost for federal income tax
purposes is substantially the same. |
| | Abbreviations
used in this schedule: |
| | AMBAC - Ambac Assurance
Corporation |
| | CDA - Community
Development Authority |
| | COP - Certificate of
Participation |
| | DFA - Development Finance
Agency |
| | EDA - Economic Development
Authority |
| | EDR - Economic Development
Revenue |
| | EFA - Educational
Facilities Authority |
| | FGIC - Financial Guaranty
Insurance Company |
| | FHA - Federal Housing
Administration |
| | FSA - Financial Security
Assurance |
| | GO - General Obligation |
| | HEFA - Health &
Educational Facilities Authority |

**See Notes to Schedule of Investments.****

6

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*Western Asset Municipal High Income Fund Inc.*

Schedule of Investments (unaudited) (continued)

July 31, 2007

| IBC - Insured Bond
Certificates |
| --- |
| IDA - Industrial
Development Authority |
| IDR - Industrial
Development Revenue |
| IFA - Industrial Finance
Agency |
| ISD - Independent School District |
| LOC - Letter of Credit |
| MBIA - Municipal Bond
Investors Assurance Corporation |
| MFH - Multi-Family Housing |
| PFC - Public Facilities
Corporation |
| SPA - Standby Bond
Purchase Agreement |
| XLCA - XL Capital
Assurance Inc. |

*Summary of Investments by Industry (unaudited)**

Pre-Refunded	23.2
Hospitals	19.0
Education	13.4
Transportation	8.3
Industrial Development	4.5
Public Facilities	3.6
General Obligation	3.1
Life Care Systems	2.7
Cogeneration Facilities	2.6
Pollution Control	2.6
Housing: Multi-Family	2.4
Tax Allocation	2.2
Water & Sewer	0.6
Utilities	0.6
Escrowed to Maturity	0.6
Miscellaneous	10.6
	100.0 %

*As a percentage of total investments. Please note that Fund holdings are as of July 31, 2007 and subject to change.

*Ratings Table (unaudited)* **

S&P/Moody’s/Fitch
AAA/Aaa	24.6 %
AA/Aa	2.7
A	11.5
BBB/Baa	14.6
BB/Ba	4.1
B/B	2.2
A-1/VMIG1	0.4
P-1	0.6
NR	39.3
	100.0 %

** As a percentage of total investments. S&P primary rating; Moody’s secondary, then Fitch.

See pages 8 and 9 for definitions of ratings.

**See Notes to Schedule of Investments.****

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*Bond Ratings *(unaudited)**

The definitions of the applicable rating symbols are set forth below:

Standard & Poor’s Ratings Service (“Standard & Poor’s”) —Ratings from “AA” to “CCC” may be modified by the addition of a plus (+) or minus (–) sign to show relative standings within the major rating categories.

| AAA | — | Bonds rated “AAA” have the
highest rating assigned by Standard & Poor’s. Capacity to pay interest
and repay principal is extremely strong. |
| --- | --- | --- |
| AA | — | Bonds rated “AA” have a
very strong capacity to pay interest and repay principal and differ from the
highest rated issues only in a small degree. |
| A | — | Bonds rated “A” have a
strong capacity to pay interest and repay principal although they are
somewhat more susceptible to the adverse effects of changes in circumstances
and economic conditions than debt in higher rated categories. |
| BBB | — | Bonds rated “BBB” are
regarded as having an adequate capacity to pay interest and repay principal.
Whereas they normally exhibit 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 bonds in this category than
in higher rated categories. |
| BB, B, | | |
| CCC, | | |
| CC and C | — | Bonds rated “BB”, “B”,
“CCC”, “CC” and “C” are regarded, on balance, as predominantly speculative
with respect to capacity to pay interest and repay principal in accordance
with the terms of the obligation. “BB” represents the lowest degree of
speculation and “C” the highest degree of speculation. While such bonds will
likely have some quality and protective characteristics, these are outweighed
by large uncertainties or major risk exposures to adverse conditions. |
| D | — | Bonds rated “D” are in
default and payment of interest and/or repayment of principal is in arrears. |

Moody’s Investors Service (“Moody’s”) —Numerical modifiers 1, 2 and 3 may be applied to each generic rating from “Aa” to “Caa,” where 1 is the highest and 3 the lowest ranking within its generic category.

| Aaa | — | Bonds 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 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 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 some time in the future. |
| Baa | — | Bonds rated “Baa” are
considered as 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 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 therefore |

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*Bond Ratings *(unaudited)(continued)**

| B | — | not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class. — Bonds rated “B” generally
lack characteristics of desirable investments. Assurance of interest and
principal payments or of maintenance of other terms of the contract over any
long period of time may be small. |
| --- | --- | --- |
| Caa | — | Bonds rated “Caa” are of
poor standing. These may be in default, or present elements of danger may
exist with respect to principal or interest. |
| Ca | — | Bonds rated “Ca” represent
obligations which are speculative in a high degree. Such issues are often in
default or have other marked short-comings. |
| C | — | Bonds rated “C” are the
lowest class of bonds and issues so rated can be regarded as having extremely
poor prospects of ever attaining any real investment standing. |

Fitch Ratings Service (“Fitch”) —Ratings from “AA” to “CCC” may be modified by the addition of a plus (+) or minus (–) sign to show relative standings within the major rating categories.

| AAA | — | Bonds rated “AAA” have the
highest rating assigned by Fitch. Capacity to pay interest and repay
principal is extremely strong. |
| --- | --- | --- |
| AA | — | Bonds rated “AA” have a
very strong capacity to pay interest and repay principal and differ from the
highest rated issues only in a small degree. |
| A | — | Bonds rated “A” have a
strong capacity to pay interest and repay principal although they are
somewhat more susceptible to the adverse effects of changes in circumstances
and economic conditions than debt in higher rated categories. |
| BBB | — | Bonds rated “BBB” are
regarded as having an adequate capacity to pay interest and repay principal.
Whereas they normally exhibit 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 bonds in this
category than in higher rated categories. |
| BB, B, | | |
| CCC | | |
| and CC | — | Bonds rated “BB”, “B”,
“CCC” and “CC” are regarded, on balance, as predominantly speculative with
respect to capacity to pay interest and repay principal in accordance with
the terms of the obligation. “BB” represents a lower degree of speculation
than “B”, and “CC” the highest degree of speculation. While such bonds will
likely have some quality and protective characteristics, these are outweighed
by large uncertainties or major risk exposures to adverse conditions. |
| NR | — | Indicates that the bond is
not rated by Standard & Poor’s, Moody’s or Fitch. |

*Short-Term Security Ratings *(unaudited)**

| SP-1 | — | Standard & Poor’s
highest rating indicating very strong or strong capacity to pay principal and
interest; those issues determined to possess overwhelming safety
characteristics are denoted with a plus (+) sign. |
| --- | --- | --- |
| A-1 | — | Standard & Poor’s
highest commercial paper and variable-rate demand obligation (VRDO) rating
indicating 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. |
| VMIG 1 | — | Moody’s highest rating for
issues having a demand feature— VRDO. |
| MIG1 | — | Moody’s highest rating for
short-term municipal obligations. |
| P-1 | — | Moody’s highest rating for
commercial paper and for VRDO prior to the advent of the VMIG 1 rating. |
| F1 | — | Fitch’s highest rating
indicating the strongest capacity for timely payment of financial
commitments; those issues determined to possess overwhelming strong credit
feature are denoted with a plus (+) sign. |

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*Notes to Schedule of Investments (unaudited)*

*1. Organization and Significant Accounting Policies*

Western Asset Municipal High Income Fund Inc. (the “Fund”) was incorporated in Maryland and is registered as a diversified, closed-end management investment company under the Investment Company Act of 1940, as amended (the “1940 Act”).

The following are significant accounting policies consistently followed by the Fund and are in conformity with U.S. generally accepted accounting principles (“GAAP”).

*(a) Investment Valuation.* Securities are valued at the mean between the last quoted bid and asked prices provided by an independent pricing service that are based on transactions in municipal obligations, quotations from municipal bond dealers, market transactions in comparable securities and various other relationships between securities. When prices are not readily available, or are determined not to reflect fair value, the Fund may value these securities at fair value as determined in accordance with the procedures approved by the Fund’s Board of Directors. Short-term obligations with maturities of 60 days or less are valued at amortized cost, which approximates fair value.

*(b) Credit and Market Risk.* The Fund invests in high yield instruments that are subject to certain credit and market risks. The yields of high yield obligations reflect, among other things, perceived credit and market risks. The Fund’s investment in securities rated below investment grade typically involves risks not associated with higher rated securities including, among others, greater risk related to timely and ultimate payment of interest and principal, greater market price volatility and less liquid secondary market trading.

*(c) Security Transactions.* Security transactions are accounted for on a trade date basis.

*2. Investments*

At July 31, 2007, the aggregate gross unrealized appreciation and depreciation of investments for federal income tax purposes were substantially as follows:

Gross unrealized appreciation	$
Gross unrealized depreciation	(3,004,341	)
Net unrealized appreciation	$ 5,588,252

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ITEM 2. CONTROLS AND PROCEDURES.

(a) The registrant’s principal executive officer and principal financial officer have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a- 3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”)) are effective as of a date within 90 days of the filing date of this report that includes the disclosure required by this paragraph, based on their evaluation of the disclosure controls and procedures required by Rule 30a-3(b) under the 1940 Act and 15d-15(b) under the Securities Exchange Act of 1934.

(b) There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the registrant’s last fiscal quarter that have materially affected, or are likely to materially affect the registrant’s internal control over financial reporting.

ITEM 3. EXHIBITS.

Certifications pursuant to Rule 30a-2(a) under the Investment Company Act of 1940, as amended, are attached hereto.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Western Asset Municipal High Income Fund Inc.

By
R. Jay Gerken
Chief Executive Officer
Date:
September 26, 2007

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By
R. Jay Gerken
Chief Executive Officer
Date:
September 26, 2007

By
Kaprel Ozsolak
Chief Financial Officer
Date:
September 26, 2007

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