WESTERN ASSET MUNICIPAL HIGH INCOME FUND INC.

Regulatory Filings • Mar 30, 2007

N-Q 1 a07-3112_5nq.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 811-5497

*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, 4th Floor*

*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: January 31, 2007

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WESTERN ASSET MUNICIPAL HIGH INCOME FUND INC.

FORM N-Q

January 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)

January 31, 2007

Face Amount	Rating‡	Security	Value
MUNICIPAL BONDS — 97.3%
Alabama — 0.1%
$ 615,000	NR	Capstone
Improvement District of Brookwood, AL, Series A, 7.700% due 8/15/23 (a)	$ 141,450
Alaska — 1.7%
1,055,000	NR	Alaska
Industrial Development & Export Authority Revenue, Williams Lynxs Alaska
Cargoport, 8.125% due 5/1/31 (b)	1,132,237
1,650,000	AAA	Alaska State Housing
Financial Corp., General Housing, Series B, MBIA-Insured, 5.250% due 12/1/30	1,770,516
		Total
Alaska	2,902,753
Arizona — 2.7%
1,500,000	NR	Casa Grande, AZ,
IDA, Hospital Revenue, Casa Grande Regional Medical Center, Series A, 7.625%
due 12/1/29	1,662,195
1,760,000	Aaa(c)	Phoenix, AZ,
IDA, MFH Revenue, Ventana Palms Apartments Project, Series B, 8.000% due
10/1/34	1,978,680
1,000,000	AAA	Yuma & La
Paz Counties, Arizonal Community College District, Arizona Western College,
FSA-Insured, 5.000% due 7/1/24	1,056,130
		Total
Arizona	4,697,005
Arkansas — 1.0%
		Arkansas State
Development Financing Authority:
1,000,000	BBB	Hospital
Revenue, Washington Regional Medical Center, Call 2/1/10 @ 100, 7.375% due
2/1/29 (d)	1,098,620
600,000	BB	Industrial
Facilities Revenue, Potlatch Corp. Projects, Series A, 7.750% due 8/1/25 (b)	678,696
		Total
Arkansas	1,777,316
California — 12.2%
1,500,000	NR	Barona, CA, Band
of Mission Indians, GO, 8.250% due 12/1/20	1,554,735
2,000,000	A3(c)	California
Health Facilities Financing Authority Revenue, Refunding, Cedars-Sinai
Medical Center, 5.000% due 11/15/27	2,073,200
		California State Department of Water Resources &
Power Supply Revenue, Series A:
5,000,000	AAA	MBIA-IBC-Insured,
Call 5/1/12 @ 101, 5.375% due 5/1/21 (d)	5,444,000
1,500,000	AAA	XLCA-Insured,
Call 5/1/12 @ 101, 5.375% due 5/1/17 (d)	1,633,200
2,500,000	A+	California
State, GO, Various Purpose, 5.000% due 9/1/35	2,624,050
1,500,000	NR	California
Statewide CDA Revenue, East Valley Tourist Project, Series A, 9.250% due
10/1/20	1,638,540
		Golden State Tobacco Securitization Corp.,
California Tobacco Settlement Revenue:
2,000,000	BBB	Asset Backed,
Series A-4, 7.800% due 6/1/42	2,430,660
1,000,000	AAA	Enhanced Asset
Backed, Series B, Call 6/1/13 @ 100, 5.625% due 6/1/38 (d)	1,098,710
600,000	BBB+	Redding, CA,
Redevelopment Agency Tax Allocation, Shastec Redevelopment Project, 5.000% due
9/1/29	616,722
1,865,000	Ba2(c)	Vallejo, CA,
COP, Touro University, 7.375% due 6/1/29	1,947,153
		Total
California	21,060,970
Colorado — 3.3%
500,000	NR	Beacon Point
Metropolitan District, GO, Series A, 6.250% due 12/1/35	529,110
		Colorado
Educational & Cultural Facilities Authority Revenue:
		Charter School:
1,230,000	AAA	Bromley School
Project, Refunding, XLCA-Insured, 5.125% due 9/15/25	1,317,871
805,000	AAA	Peak to Peak
Project, Call 8/15/11 @100, 7.500% due 8/15/21 (d)	905,327
785,000	NR	Elbert County
Charter, 7.375% due 3/1/35	842,682

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

1

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*Western Asset Municipal High Income Fund Inc.*

Schedule of Investments (unaudited) (continued)

January 31, 2007

Face Amount	Rating‡	Security	Value
Colorado
— 3.3% (continued)
$ 190,000	AAA	Prerefunded,
University of Denver Project, Series B, FGIC-Insured, Call 3/1/16 @ 100,
5.250% due 3/1/23 (d)	$ 209,435
810,000	AAA	Unrefunded,
University of Denver Project, Series B, FGIC-Insured, 5.250% due 3/1/23	891,559
500,000	NR	High Plains, CO,
Metropolitan District, Series A, GO, 6.250% due 12/1/35	532,720
500,000	NR	Southlands, CO,
Metropolitan District Number 1, GO, 7.125% due 12/1/34	547,115
		Total Colorado	5,775,819
District
of Columbia — 1.2%
1,895,000	AAA	District of
Columbia COP, District Public Safety & Emergency, AMBAC-Insured, 5.500%
due 1/1/20	2,050,712
Florida
— 11.0%
985,000	NR	Beacon Lakes,
FL, Community Development District, Special Assessment, Series A, 6.900% due
5/1/35	1,075,334
1,500,000	NR	Bonnet Creek
Resort Community Development District, Special Assessment, 7.500% due 5/1/34	1,643,190
2,000,000	NR	Capital Projects
Finance Authority of Florida, Student Housing Revenue, Capital Projects Loan
Program, Florida University, Series A, Call 8/15/10 @ 103, 7.850% due 8/15/31
(d)	2,313,960
2,000,000	NR	Capital Projects
Finance Authority, FL, Continuing Care Retirement Glenridge on Palmer Ranch,
Series A, Call 6/01/12 @ 102, 8.000% due 6/1/32 (d)	2,389,680
950,000	NR	Century Parc
Community Development District, Special Assessment, 7.000% due 11/1/31	1,007,009
1,000,000	A+	Highlands
County, FL, Health Facilities Authority Revenue, Adventist Health Systems,
Series D, Call 11/15/12 @ 100, 6.000% due 11/15/25 (d)	1,112,000
2,000,000	BB+	Martin County,
FL, IDA Revenue, Indiantown Cogeneration Project, Series A, 7.875% due
12/15/25 (b)	2,005,660
1,000,000	NR	Orange County,
FL, Health Facilities Authority Revenue, First Mortgage, GF, Orlando Inc.
Project, 9.000% due 7/1/31	1,101,150
450,000	AAA	Palm Beach
County, FL, Health Facilities Authority Revenue, John F. Kennedy Memorial
Hospital Inc. Project, 9.500% due 8/1/13 (e)	532,643
2,000,000	NR	Reunion East
Community Development District, Special Assessment, Series A, 7.375% due
5/1/33	2,204,580
1,000,000	B-	Santa Rosa, FL,
Bay Bridge Authority Revenue, 6.250% due 7/1/28	1,013,640
1,000,000	AAA	University of
Central Florida, COP, Series A, FGIC-Insured, 5.000% due 10/1/25	1,053,050
1,450,000	NR	Waterlefe, FL,
Community Development District, Golf Course Revenue, 8.125% due 10/1/25	1,477,231
		Total Florida	18,929,127
Georgia
— 4.0%
		Atlanta, GA,
Airport Revenue:
1,000,000	AAA	Series B,
FGIC-Insured, 5.625% due 1/1/30 (b)(f)	1,050,500
1,000,000	AAA	Series G,
FSA-Insured, 5.000% due 1/1/26	1,048,500
2,500,000	NR	Atlanta, GA, Tax
Allocation, Atlantic Station Project, 7.900% due 12/1/24	2,765,600
1,000,000	A-(g)	Gainesville
& Hall County, GA, Development Authority Revenue, Senior Living
Facilities, Lanier Village Estates, Series C, 7.250% due 11/15/29	1,084,520
1,005,000	NR	Walton County,
GA, IDA Revenue, Walton Manufacturing Co. Project, 8.500% due 9/1/07	1,012,939
		Total Georgia	6,962,059
Illinois
— 1.8%
2,000,000	AAA	Chicago, IL, GO,
Neighborhoods Alive 21 Program, FGIC-Insured, Call 1/1/11 @ 100, 5.500% due
1/1/31 (d)	2,123,000
1,000,000	NR	Illinois Finance
Authority Revenue, 5.000% due 12/1/26	1,022,530
		Total
Illinois	3,145,530

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

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*Western Asset Municipal High Income Fund Inc.*

Schedule of Investments (unaudited) (continued)

January 31, 2007

Face Amount	Rating‡	Security	Value
Indiana — 0.5%
		County of St Joseph, IN, EDR, Holy Cross Village
Notre Dame Project,Series A:
$ 285,000	NR	6.000% due
5/15/26	$ 302,414
550,000	NR	6.000% due 5/15/38	578,649
		Total Indiana	881,063
Kansas — 0.7%
1,150,000	A-1(c)	Salina, KS,
Hospital Revenue, Refunding & Improvement Salina Regional Health, 5.000%
due 10/1/22	1,207,661
Louisiana — 0.6%
1,000,000	NR	Epps, LA, COP, 8.000% due 6/1/18	1,037,250
Maryland — 1.6%
1,500,000	AAA	Maryland State
Economic Development Corp. Revenue, Chesapeake Bay, Series A, Call 12/1/09 @
101, 7.730% due 12/1/27 (d)	1,669,290
1,000,000	NR	Maryland State
Health & Higher EFA Revenue, Refunding, Edenwald, Series A, 5.400% due
1/1/31	1,039,560
		Total
Maryland	2,708,850
Massachusetts — 3.9%
935,000	NR	Boston, MA,
Industrial Development Financing Authority Revenue, Roundhouse Hospitality
LLC Project, 7.875% due 3/1/25 (b)	945,575
1,000,000	NR	Massachusetts
State DFA Revenue, Briarwood, Series B, Call 12/1/10 @ 101, 8.250% due
12/1/30 (d)	1,161,620
1,000,000	BBB	Massachusetts
State HEFA Revenue, Caritas Christi Obligation, Series B, 6.750% due 7/1/16	1,114,710
1,830,000	AAA	Massachusetts
State IFA Revenue, Assisted Living Facilities, Marina Bay LLC Project, Call
12/1/07 @ 103, 7.500% due 12/1/27 (b)(d)	1,938,574
390,000	AAA	Massachusetts
State Port Authority Revenue, 13.000% due 7/1/13 (e)	510,927
1,000,000	AAA	Massachusetts
State, School Building Authority, Dedicated Sales Tax Revenue, Series A,
FSA-Insured, 5.000% due 8/15/20	1,065,690
		Total Massachusetts	6,737,096
Michigan
— 5.2%
2,130,000	NR	Allen Academy,
COP, 7.500% due 6/1/23	2,134,878
		Cesar Chavez
Academy, COP:
1,000,000	BBB-	7.250% due
2/1/33	1,055,320
1,000,000	BBB-	8.000% due
2/1/33	1,133,410
1,000,000	NR	Gaudior Academy,
COP, 7.250% due 4/1/34	1,007,300
1,750,000	NR	Kalamazoo
Advantage Academy, COP, 8.000% due 12/1/33	1,909,110
1,000,000	NR	Star
International Academy, COP, 7.000% due 3/1/33	1,026,540
700,000	NR	William C. Abney
Academy, COP, 6.750% due 7/1/19	696,458
		Total
Michigan	8,963,016
Mississippi — 0.9%
1,480,000	Aaa(c)	Jackson, MS,
Public School District, FSA-Insured, 5.000% due 10/1/20	1,568,312
Missouri
— 0.8%
1,300,000	A	Missouri State
HEFA Revenue, Refunding, St Lukes Episcopal, 5.000% due 12/1/21	1,352,117
Montana
— 1.4%
2,475,000	NR	Montana State
Board of Investment, Resource Recovery Revenue, Yellowstone Energy LP
Project, 7.000% due 12/31/19 (b)	2,490,419

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

3

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*Western Asset Municipal High Income Fund Inc.*

Schedule of Investments (unaudited) (continued)

January 31, 2007

Face Amount	Rating‡	Security	Value
New
Hampshire — 1.0%
$ 1,600,000	A	New Hampshire
HEFA Revenue, Covenant Health System, 5.500% due 7/1/34	$ 1,692,528
New
Jersey — 8.7%
1,500,000	AAA	Casino
Reinvestment Development Authority Revenue, Series A, MBIA-Insured, 5.250%
due 6/1/20	1,624,905
1,000,000	NR	New Jersey EDA,
Retirement Community Revenue, SeaBrook Village Inc., Series A, Call 11/15/10
@ 101, 8.250% due 11/15/30 (d)	1,159,980
5,000,000	NR	New Jersey EDA
Revenue, Refunding, Series B, 6.875% due 1/1/37	5,203,650
		New Jersey
Health Care Facilities Financing Authority Revenue:
1,750,000	BBB	Holy Name
Hospital, 5.000% due 7/1/36	1,788,132
3,000,000	BBB-	Trinitas
Hospital Obligation Group, 7.500% due 7/1/30	3,293,880
1,750,000	BBB	Tobacco
Settlement Financing Corp., Call 6/1/13 @ 100, 6.750% due 6/1/39 (d)	2,026,955
		Total New Jersey	15,097,502
New
Mexico — 1.4%
		Albuquerque, NM,
Hospital Revenue, Southwest Community Health Services, Call 8/1/08 @100:
180,000	AAA	10.000% due
8/1/12 (d)	193,874
95,000	AAA	10.125% due
8/1/12 (d)	102,439
1,000,000	NR	Otero County,
NM, Jail Project Revenue, 7.500% due 12/1/24	1,049,270
1,000,000	A+	Sandoval County,
NM, Incentive Payment Revenue, Refunding, 5.000% due 6/1/20	1,052,770
		Total New Mexico	2,398,353
New
York — 10.4%
700,000	NR	Brookhaven, NY,
IDA Civic Facilities Revenue, Memorial Hospital Medical Center Inc., Series
A, 8.250% due 11/15/30	753,200
500,000	Aaa(c)	Herkimer County,
NY, IDA, Folts Adult Home, Series A, FHA-Insured, GNMA-Collateralized, 5.500%
due 3/20/40	550,735
2,000,000	AAA	Metropolitan
Transportation Authority of New York, Series A, AMBAC-Insured, 5.000% due
7/1/30	2,081,480
1,000,000	NR	Monroe County,
NY, IDA, Civic Facilities Revenue, Woodland Village Project, Call 11/15/10 @
102, 8.550% due 11/15/32 (a)(d)	1,177,120
		New York City,
NY, IDA, Civic Facilities Revenue:
1,315,000	NR	Community
Residence for the Developmentally Disabled Project, 7.500% due 8/1/26	1,350,847
930,000	NR	Special Needs
Facilities Pooled Program, Series A-1, Call 7/1/10 @ 102, 8.125% due 7/1/19
(d)	1,038,866
1,000,000	AAA	New York City,
NY, Municipal Water Finance Authority, Water & Sewer System Revenue,
Series C, MBIA-Insured, 5.000% due 6/15/27	1,058,030
		New York State
Dormitory Authority Revenue:
2,090,000	AA+	Cornell University,
Series A, 5.000% due 7/1/21	2,240,564
1,500,000	AAA	Mental Health
Services Facilities Improvement, Series B, AMBAC-Insured, 5.000% due 2/15/35	1,571,670
1,450,000	AAA	Montefiore
Hospital, FGIC/FHA-Insured, 5.000% due 8/1/29	1,524,008
2,500,000	BB	New York
University Hospitals Center, Series A, 5.000% due 7/1/26	2,560,200
910,000	NR	Suffolk County,
NY, IDA, Civic Facilities Revenue, Eastern Long Island Hospital Association,
Series A, 7.750% due 1/1/22	963,735
1,000,000	BBB-	Suffolk County,
NY, Industrial Development Agency, Continuing Care Retirement Revenue,
Refunding, Jeffersons Ferry Project, 5.000% due 11/1/28	1,018,460
		Total New York	17,888,915

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

4

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*Western Asset Municipal High Income Fund Inc.*

Schedule of Investments (unaudited) (continued)

January 31, 2007

Face Amount	Rating‡	Security	Value
North Carolina — 0.6%
$ 935,000	NR	North
Carolina Medical Care Community, Health Care Facilities Revenue, First
Mortgage, DePaul Community Facilities Project, 7.625% due 11/1/29	$ 979,441
Ohio — 3.6%
1,500,000	BBB	Cuyahoga
County, OH, Hospital Facilities Revenue, Canton Inc. Project, 7.500% due
1/1/30	1,665,960
1,500,000	A-	Miami
County, OH, Hospital Facilities Revenue, Refunding and Improvement Upper
Valley Medical Center, 5.250% due 5/15/21	1,590,300
60,000	AAA	Montgomery
County, OH, Health Systems Revenue, Unrefunded Balance, Series B-1, 8.100%
due 7/1/18	61,318
1,500,000	BBB-	Ohio
State Air Quality Development Authority Revenue, Cleveland Pollution Control,
Series A, 6.000% due 12/1/13	1,539,315
1,260,000	AA+	Riversouth
Authority Ohio, Revenue, Riversouth Area Redevelopment, Series A, 5.000% due
12/1/25	1,329,791
		Total Ohio	6,186,684
Pennsylvania — 3.9%
2,200,000	NR	Allegheny
County, PA, IDA, Airport Special Facilities Revenue, USAir Inc. Project,
Series B, 8.500% due 3/1/21 (a)(b)	220
1,000,000	NR	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 (d)	1,183,100
1,000,000	BBB	Lebanon
County, PA, Health Facilities Authority Revenue, Good Samaritan Hospital
Project, 6.000% due 11/15/35	1,085,880
2,640,000	NR	Montgomery
County, PA, Higher Education & Health Authority Revenue, Temple
Continuing Care Center, 6.625% due 7/1/19 (a)	105,600
965,000	NR	Northumberland
County, PA, IDA Facilities Revenue, NHS Youth Services Inc. Project, Series
A, 7.500% due 2/15/29	1,021,134
1,000,000	NR	Philadelphia,
PA, Authority for IDR, Host Marriot LP Project, Remarketed 10/31/95, 7.750%
due 12/1/17	1,004,030
2,000,000	NR	Westmoreland
County, PA, IDA Revenue, Health Care Facilities, Redstone Highlands Health,
Series B, Call 11/15/10 @ 101, 8.125% due 11/15/30 (d)	2,303,640
		Total
Pennsylvania	6,703,604
South Carolina — 0.3%
225,000	NR	Florence
County, SC, IDR, Stone Container Corp., 7.375% due 2/1/07	225,000
300,000	NR	McCormick
County, SC, COP, 9.750% due 7/1/09	303,624
		Total
South Carolina	528,624
Tennessee — 2.1%
1,000,000	AA-	Clarksville,
TN, Natural Gas Acquisition Corp. Gas Revenue, 5.000% due 12/15/21	1,079,660
2,500,000	NR	Shelby
County, TN, Health Educational & Housing Facilities Board Revenue,
Trezevant Manor Project, Series A, 5.750% due 9/1/37	2,559,000
		Total
Tennessee	3,638,660
Texas — 8.5%
560,000	NR	Bexar
County, TX, Housing Financial Corp., MFH Revenue, Continental Lady Ester,
Series A, 6.875% due 6/1/29	540,456
1,000,000	BBB	Garza
County Public Facility Corp., 5.500% due 10/1/18	1,050,240
2,000,000	BBB-	Gulf
Coast of Texas, IDA, Solid Waste Disposal Revenue, CITGO Petroleum Corp. Project,
7.500% due 10/1/12 (b)(h)(i)	2,234,000
2,750,000	B-	Houston,
TX, Airport Systems Revenue, Special Facilities, Continental Airlines Inc.
Project, Series C, 6.125% due 7/15/27 (b)	2,762,897
1,000,000	AAA	Laredo,
TX, ISD Public Facility Corp. Lease Revenue, Series A, AMBAC-Insured, 5.000%
due 8/1/29	1,031,590

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

5

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*Western Asset Municipal High Income Fund Inc.*

Schedule of Investments (unaudited) (continued)

January 31, 2007

Face Amount	Rating‡	Security	Value
Texas — 8.5% (continued)
$ 1,000,000	NR	Midlothian, TX,
Development Authority, Tax Increment Contract Revenue, 6.200% due 11/15/29	$ 1,017,010
1,000,000	AAA	North Texas
Tollway Authority, Dallas North Tollway Systems Revenue, Series A,
FSA-Insured, 5.000% due 1/1/35	1,044,410
1,000,000	BBB-	Port Corpus
Christi, TX, Industrial Development Corp., CITGO Petroleum Corp. Project,
8.250% due 11/1/31 (b)	1,027,530
1,865,000	NR	West Texas
Detention Facility Corp. Revenue, 8.000% due 2/1/25	1,927,478
		Willacy County,
TX, PFC Project Revenue:
1,000,000	NR	County Jail,
7.500% due 11/1/25	1,023,210
1,000,000	NR	Series A-1,
8.250% due 12/1/23	1,042,410
		Total Texas	14,701,231
Virginia
— 1.6%
420,000	NR	Alexandria, VA,
Redevelopment & Housing Authority, MFH Revenue, Parkwood Court Apartments
Project, Series C, 8.125% due 4/1/30	440,496
1,000,000	NR	Broad Street CDA
Revenue, 7.500% due 6/1/33	1,131,720
1,000,000	BBB(g)	Fairfax County,
VA, EDA Revenue, Retirement Community, Greenspring Village, Inc., Series A,
Call 10/1/09 @ 102, 7.500% due 10/1/29 (d)	1,110,380
		Total Virginia	2,682,596
Wisconsin
— 0.6%
1,000,000	BBB+	Wisconsin State
HEFA Revenue, Aurora Health Care, 6.400% due 4/15/33	1,110,190
		TOTAL INVESTMENTS
BEFORE SHORT-TERM INVESTMENTS (Cost — $163,486,803)	167,996,853
SHORT-TERM
INVESTMENTS(j) — 2.1%
Illinois
— 0.5%
700,000	A-1+	Illinois Finance
Authority Revenue, Northwestern Memorial Hospital, Series B-2, SPA-UBS
AG, 3.700%, 2/1/07	700,000
200,000	A-1+	Illinois Health
Facilities Authority, University Chicago Hospitals, Series C, MBIA-Insured,
LIQ-JPMorgan Chase, 3.750%, 2/1/07	200,000
		Total Illinois	900,000
Massachusetts
— 0.1%
250,000	A-1+	Massachusetts
State HEFA, Partners Healthcare Systems, Series D-6, 3.730%, 2/1/07	250,000
New
York — 1.1%
765,000	A-1+	New York City,
NY, GO, Subordinated Series H-4, LOC-Bank of New York, 3.670%, 2/1/07	765,000
1,040,000	A-1+	New York City,
NY, Municipal Water Finance Authority, Water & Sewer System Revenue,
Fiscal 2003, Subordinated Series C-3, SPA-Bank of New York, 3.670%, 2/1/07	1,040,000
		Total New York	1,805,000
Texas —
0.4%
600,000	A-1+	Harris County,
TX, Health Facilities Development Corp. Revenue, St. Luke’s Episcopal
Hospital, Series B, SPA-Northern Trust, Bayerische Landesbank, Bank of
America, JPMorgan Chase, 3.730%, 2/1/07	600,000
		TOTAL SHORT-TERM
INVESTMENTS (Cost — $3,555,000)	3,555,000
		TOTAL INVESTMENTS —
99.4% (Cost — $167,041,803#)	171,551,853
		Other Assets in
Excess of Liabilities — 0.6%	1,092,672
		TOTAL NET ASSETS —
100.0%	$ 172,644,525

| ‡ | All ratings are by Standard & Poor’s Ratings
Service, unless otherwise noted. |
| --- | --- |
| (a) | Security is currently in default. |

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

6

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*Western Asset Municipal High Income Fund Inc.*

Schedule of Investments (unaudited) (continued)

January 31, 2007

| (b) | Income from this issue is considered a
preference item for purposes of calculating the alternative minimum tax
(“AMT”). |
| --- | --- |
| (c) | Rating by Moody’s Investors Service. |
| (d) | 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. |
| (e) | 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. |
| (f) | All or a portion of this security is
segregated for extended settlements. |
| (g) | Rating by Fitch Ratings Service. |
| (h) | Variable rate security. Interest rate disclosed is that which is in
effect at January 31, 2007. |
| (i) | Maturity date shown represents the
mandatory tender date. |
| (j) | 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 |
| | GF - General Facilities |
| | GNMA - Government National
Mortgage Association |
| | GO - General Obligation |
| | HEFA - Health &
Educational Facilities Authority |
| | IBC - Insured Bond
Certificates |
| | IDA - Industrial
Development Authority |
| | IDR - Industrial
Development Revenue |
| | IFA - Industrial Finance
Agency |
| | ISD - Independent School
District |
| | LIQ - Liquidity Facility |
| | 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*

Hospitals	20.0
Pre-Refunded	19.5 %
Education	12.8 %
Miscellaneous	11.8 %
Transportation	8.3 %
Industrial Development	4.7 %
General Obligation	3.8 %
Public Facilities	3.7 %
Housing: Multi-Family	2.8 %
Life Care Systems	2.7 %
Cogeneration Facilities	2.6 %
Pollution Control	2.6 %
Tobacco	1.4 %
Water and Sewer	1.2 %

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

7

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*Western Asset Municipal High Income Fund Inc.*

Schedule of Investments (unaudited) (continued)

January 31, 2007

Tax Allocation	0.9
Utilities	0.6 %
Escrowed to Maturity	0.6 %
	100.0 %

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

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

8

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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 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. Securities for which market quotations are not readily available or are determined not to reflect fair value, will be valued in good faith by or under the direction of the Fund’s Board of Directors. Short-term obligations with maturities of 60 days or less are valued at amortized cost, which approximates market 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 January 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	(5,078,785)
Net unrealized appreciation	$ 4,510,050

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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:	March 30, 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:	/s/ R. Jay Gerken
R. Jay Gerken
Chief Executive Officer
Date:	March 30, 2007
By:	/s/ Kaprel Ozsolak
Kaprel Ozsolak
Chief Financial Officer
Date:	March 30, 2007

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