WESTERN ASSET MUNICIPAL HIGH INCOME FUND INC.

Regulatory Filings • Mar 27, 2013

N-Q 1 a13-5166_3nq.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)
620 Eighth Avenue, 49 th Floor, New York, NY	10018
(Address of principal executive offices)	(Zip code)
Robert I. Frenkel, Esq. Legg Mason & Co., LLC 100 First Stamford Place Stamford, CT 06902
(Name and address of agent for service)
Registrant’s telephone number, including area code:	1-888-777-0102
Date of fiscal year end:	October 31
Date of reporting period:	January 31, 2013

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ITEM 1. SCHEDULE OF INVESTMENTS

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*WESTERN ASSET*

*MUNICIPAL HIGH INCOME FUND INC.*

FORM N-Q

JANUARY 31, 2013

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*WESTERN ASSET MUNICIPAL HIGH INCOME FUND INC.*

Schedule of investments (unaudited)

January 31, 2013

SECURITY	RATE	MATURITY DATE	FACE AMOUNT	VALUE
MUNICIPAL BONDS — 97.9%
Arizona — 1.9%
Pima County, AZ, IDA Revenue, Tucson Electric Power Co.	5.750%	9/1/29	$ 1,000,000	$ 1,059,860
Salt Verde, AZ, Financial Corp. Gas Revenue	5.000%	12/1/37	1,500,000	1,719,150
University Medical Center Corp., AZ, Hospital Revenue	6.250%	7/1/29	500,000	585,780
Total Arizona				3,364,790
Arkansas — 0.3%
Arkansas State Development Financing Authority, Industrial Facilities Revenue, Potlatch Corp. Projects	7.750%	8/1/25	600,000	612,840	(a)
California — 6.2%
California State PCFA, Water Furnishing Revenue	5.000%	11/21/45	3,000,000	3,084,570
California State Public Works Board, Lease Revenue, Various Capital Projects	5.125%	10/1/31	1,500,000	1,714,305
M-S-R Energy Authority, CA, Gas Revenue	7.000%	11/1/34	2,000,000	2,865,700
M-S-R Energy Authority, CA, Gas Revenue	6.500%	11/1/39	2,000,000	2,746,680
Redding, CA, Redevelopment Agency, Tax Allocation, Shastec Redevelopment Project	5.000%	9/1/29	600,000	604,572
Total California				11,015,827
Colorado — 4.7%
Colorado Educational & Cultural Facilities Authority Revenue:
Cheyenne Mountain Charter Academy	5.250%	6/15/25	680,000	711,763
Cheyenne Mountain Charter Academy	5.125%	6/15/32	510,000	524,499
Elbert County Charter	7.375%	3/1/35	785,000	792,968
Public Authority for Colorado Energy, Natural Gas Purchase Revenue	6.125%	11/15/23	4,000,000	4,899,400
Reata South Metropolitan District, CO, GO	7.250%	6/1/37	1,000,000	889,180
Southlands, CO, Metropolitan District No. 1, GO	7.125%	12/1/34	500,000	561,570	(b)
Total Colorado				8,379,380
Delaware — 4.4%
Delaware State EDA Revenue, Indian River Power LLC	5.375%	10/1/45	4,000,000	4,395,360
Sussex County, DE, Recovery Zone Facility Revenue, NRG Energy Inc., Indian River Power LLC	6.000%	10/1/40	3,000,000	3,461,640
Total Delaware				7,857,000
District of Columbia — 2.3%
District of Columbia COP, District Public Safety & Emergency, AMBAC	5.500%	1/1/20	1,895,000	1,974,836
District of Columbia Revenue, Friendship Public Charter School Inc.	5.000%	6/1/42	2,000,000	2,080,180
Total District of Columbia				4,055,016
Florida — 4.7%
Beacon Lakes, FL, Community Development District, Special Assessment	6.900%	5/1/35	770,000	779,849
Bonnet Creek Resort Community Development District, Special Assessment	7.500%	5/1/34	1,500,000	1,493,430
Martin County, FL, IDA Revenue, Indiantown Cogeneration Project	7.875%	12/15/25	2,000,000	2,010,820	(a)

See Notes to Schedule of Investments.

1

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*WESTERN ASSET MUNICIPAL HIGH INCOME FUND INC.*

Schedule of investments (unaudited) (cont’d)

January 31, 2013

SECURITY	RATE	MATURITY DATE	FACE AMOUNT	VALUE
Florida — continued
Orange County, FL, Health Facilities Authority Revenue, First Mortgage Healthcare Facilities Revenue Bonds, GF/Orlando Inc. Project	9.000%	7/1/31	$ 885,000	$ 886,115
Palm Beach County, FL, Health Facilities Authority Revenue, John F. Kennedy Memorial Hospital Inc. Project	9.500%	8/1/13	80,000	83,507	(c)
Reunion, FL, East Community Development District, Special Assessment	7.375%	5/1/33	2,000,000	1,642,634
Santa Rosa, FL, Bay Bridge Authority Revenue	6.250%	7/1/28	1,000,000	397,000	(d)
University of Central Florida, COP, FGIC	5.000%	10/1/25	1,000,000	1,030,250
Total Florida				8,323,605
Georgia — 4.5%
Atlanta, GA, Airport Revenue, AGM	5.000%	1/1/26	1,000,000	1,070,380
Atlanta, GA, Development Authority Educational Facilities Revenue, Science Park LLC Project	5.000%	7/1/32	2,000,000	2,210,660
Atlanta, GA, Water & Wastewater Revenue	6.250%	11/1/39	2,000,000	2,456,820
DeKalb, Newton & Gwinnett Counties, GA, Joint Development Authority Revenue, GGC Foundation LLC Project	6.125%	7/1/40	1,000,000	1,162,500
Franklin County, GA, Industrial Building Authority Revenue, Emmanuel College Inc.	6.000%	11/1/32	1,000,000	995,310
Total Georgia				7,895,670
Hawaii — 2.0%
Hawaii State Department of Budget & Finance Special Purpose Revenue:
Craigside Retirement Residence	7.500%	11/15/15	870,000	879,561
Craigside Retirement Residence	8.750%	11/15/29	200,000	238,960
Hawaiian Electric Co.	6.500%	7/1/39	2,000,000	2,332,820
Total Hawaii				3,451,341
Illinois — 1.2%
Illinois Finance Authority Revenue:
Park Place of Elmhurst	8.125%	5/15/40	1,000,000	1,031,560
Refunding, Chicago Charter School Project	5.000%	12/1/26	1,000,000	1,045,920
Total Illinois				2,077,480
Indiana — 0.5%
County of St. Joseph, IN, EDR:
Holy Cross Village Notre Dame Project	6.000%	5/15/26	285,000	294,448
Holy Cross Village Notre Dame Project	6.000%	5/15/38	550,000	563,051
Total Indiana				857,499
Kansas — 0.7%
Salina, KS, Hospital Revenue, Refunding & Improvement Salina Regional Health	5.000%	10/1/22	1,150,000	1,240,678
Kentucky — 1.3%
Owen County, KY, Waterworks System Revenue, Kentucky American Water Co. Project	6.250%	6/1/39	2,000,000	2,239,580
Louisiana — 0.4%
Epps, LA, COP	8.000%	6/1/18	775,000	766,777
Maryland — 2.0%
Maryland State Health & Higher EFA Revenue, Mercy Medical Center	6.250%	7/1/31	3,000,000	3,591,330

See Notes to Schedule of Investments.

2

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*WESTERN ASSET MUNICIPAL HIGH INCOME FUND INC.*

Schedule of investments (unaudited) (cont’d)

January 31, 2013

SECURITY	RATE	MATURITY DATE	FACE AMOUNT	VALUE
Massachusetts — 1.1%
Boston, MA, Industrial Development Financing Authority Revenue, Roundhouse Hospitality LLC Project	7.875%	3/1/25	$ 740,000	$ 689,125	(a)
Massachusetts State DFA Revenue, Tufts Medical Center Inc.	6.875%	1/1/41	1,000,000	1,206,720
Massachusetts State Port Authority Revenue	13.000%	7/1/13	80,000	84,128	(c)
Total Massachusetts				1,979,973
Michigan — 6.9%
Allen Academy, COP	7.500%	6/1/23	2,130,000	2,181,716
Cesar Chavez Academy, COP	6.500%	2/1/33	1,000,000	1,020,000	(b)
Cesar Chavez Academy, COP	8.000%	2/1/33	1,000,000	1,020,000	(b)
Detroit, MI, Water Supply System Revenue, Senior Lien	5.250%	7/1/41	2,000,000	2,160,580
Gaudior Academy, COP	7.250%	4/1/34	1,000,000	1,011,610
Michigan State Strategic Fund Limited Obligation Revenue:
Evangelical Homes of Michigan	5.250%	6/1/32	500,000	503,995	(e)
Evangelical Homes of Michigan	5.500%	6/1/47	750,000	755,918	(e)
Royal Oak, MI, Hospital Finance Authority Revenue, William Beaumont Hospital	8.250%	9/1/39	2,000,000	2,545,640
Star International Academy, COP	7.000%	3/1/33	900,000	922,392	(b)
Total Michigan				12,121,851
Missouri — 1.1%
Missouri State HEFA Revenue:
Lutheran Senior Services	6.000%	2/1/41	500,000	565,980
Refunding, St. Lukes Episcopal	5.000%	12/1/21	1,300,000	1,423,201
Total Missouri				1,989,181
Nebraska — 2.1%
Central Plains Energy Project, NE, Gas Project Revenue, Project #3	5.000%	9/1/42	3,340,000	3,664,648
New Jersey — 3.8%
Casino Reinvestment Development Authority Revenue, NATL	5.250%	6/1/20	1,500,000	1,598,055
New Jersey State EDA Revenue, Refunding	6.875%	1/1/37	5,000,000	5,069,550	(a)
Total New Jersey				6,667,605
New Mexico — 0.6%
Otero County, NM, COP, Jail Project Revenue	7.500%	12/1/24	1,000,000	1,005,700
New York — 1.5%
Brooklyn Arena, NY, Local Development Corp., Barclays Center Project	6.250%	7/15/40	2,000,000	2,345,980
New York City, NY, IDA, Civic Facilities Revenue, Special Needs Facilities Pooled Program	8.125%	7/1/19	265,000	266,161
Total New York				2,612,141
Ohio — 2.9%
Cuyahoga County, OH, Hospital Facilities Revenue, Canton Inc. Project	7.500%	1/1/30	1,385,000	1,387,368
Miami County, OH, Hospital Facilities Revenue, Refunding and Improvement Upper Valley Medical Center	5.250%	5/15/21	1,500,000	1,619,640

See Notes to Schedule of Investments.

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*WESTERN ASSET MUNICIPAL HIGH INCOME FUND INC.*

Schedule of investments (unaudited) (cont’d)

January 31, 2013

SECURITY	RATE	MATURITY DATE	FACE AMOUNT	VALUE
Ohio — continued
Ohio State Water Development Authority, Environmental Improvement Revenue, U.S. Steel Corp. Project	6.600%	5/1/29	$ 2,000,000	$ 2,156,560
Total Ohio				5,163,568
Oklahoma — 1.4%
Tulsa County, OK, Industrial Authority, Senior Living Community Revenue:
Montereau Inc. Project	6.875%	11/1/23	1,300,000	1,379,456
Montereau Inc. Project	7.125%	11/1/30	1,000,000	1,144,610
Total Oklahoma				2,524,066
Pennsylvania — 4.5%
Monroe County, PA, Hospital Authority Revenue, Pocono Medical Center	5.000%	1/1/27	1,000,000	1,052,040
Montgomery County, PA, IDA Revenue:
Acts Retirement-Life Communities	5.000%	11/15/28	1,400,000	1,580,446
Acts Retirement-Life Communities	5.000%	11/15/29	1,350,000	1,503,508
Pennsylvania Economic Development Financing Authority, Health Systems Revenue, Albert Einstein Healthcare	6.250%	10/15/23	2,000,000	2,347,740
Philadelphia, PA, Authority for IDR:
Discovery Charter School Inc. Project	6.250%	4/1/37	500,000	555,910
Host Marriot LP Project, Remarketed 10/31/95	7.750%	12/1/17	1,000,000	1,002,530	(a)
Total Pennsylvania				8,042,174
Puerto Rico — 2.1%
Puerto Rico Electric Power Authority, Power Revenue	5.250%	7/1/40	1,000,000	1,010,330
Puerto Rico Sales Tax Financing Corp., Sales Tax Revenue	5.000%	8/1/40	1,000,000	1,072,860	(f)
Puerto Rico Sales Tax Financing Corp., Sales Tax Revenue	5.000%	8/1/43	1,500,000	1,562,100
Total Puerto Rico				3,645,290
Tennessee — 1.4%
Shelby County, TN, Health Educational & Housing Facilities Board Revenue, Trezevant Manor Project	5.750%	9/1/37	2,500,000	2,542,550
Texas — 23.9%
Brazos River, TX, Harbor Industrial Development Corp., Environmental Facilities Revenue, Dow Chemical Co.	5.900%	5/1/28	1,500,000	1,702,350	(a)(g)
Burnet County, TX, Public Facility Project Revenue	7.500%	8/1/24	1,335,000	934,500
Dallas-Fort Worth, TX, International Airport Revenue, Joint Improvement	5.000%	11/1/42	4,000,000	4,341,480	(a)
Gulf Coast, TX, IDA Revenue, Citgo Petroleum Corp. Project	4.875%	5/1/25	1,000,000	1,018,060	(a)
Harris County, TX, Cultural Education Facilities Finance Corp., Medical Facilities Revenue, Baylor College of Medicine	5.625%	11/15/32	2,000,000	2,227,100
Houston, TX, Airport System Revenue:
Special Facilities, Continental Airlines Inc. Projects	6.125%	7/15/27	2,750,000	2,762,100	(a)
Special Facilities, Continental Airlines Inc., Terminal Projects	6.500%	7/15/30	1,000,000	1,128,700	(a)
Special Facilities, Continental Airlines Inc., Terminal Projects	6.625%	7/15/38	1,000,000	1,122,500	(a)
Laredo, TX, ISD Public Facility Corp., Lease Revenue, AMBAC	5.000%	8/1/29	1,000,000	1,011,870

See Notes to Schedule of Investments.

4

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*WESTERN ASSET MUNICIPAL HIGH INCOME FUND INC.*

Schedule of investments (unaudited) (cont’d)

January 31, 2013

SECURITY	RATE	MATURITY DATE	FACE AMOUNT	VALUE
Texas — continued
Love Field Airport Modernization Corp., TX, Special Facilities Revenue, Southwest Airlines Co. Project	5.250%	11/1/40	$ 6,000,000	$ 6,561,420
Midlothian, TX, Development Authority, Tax Increment Contract Revenue	6.200%	11/15/29	1,000,000	1,011,120
North Texas Tollway Authority Revenue	5.750%	1/1/40	2,500,000	2,861,675
Texas Midwest Public Facility Corp. Revenue, Secure Treatment Facility Project	9.000%	10/1/30	2,000,000	600,000	(d)
Texas Private Activity Bond Surface Transportation Corp., Senior Lien, NTE Mobility Partners LLC	6.875%	12/31/39	2,000,000	2,387,800
Texas Private Activity Bond Surface Transportation Corp. Revenue, LBJ Infrastructure Group LLC	7.000%	6/30/40	4,000,000	4,856,440
Texas State Municipal Gas Acquisition & Supply Corp. III, Gas Supply Revenue	5.000%	12/15/28	1,500,000	1,642,935
Texas State Public Finance Authority:
Charter School Finance Corp. Revenue, Cosmos Foundation Inc.	6.200%	2/15/40	1,000,000	1,204,280
Uplift Education	5.750%	12/1/27	1,500,000	1,637,415
West Texas Detention Facility Corp. Revenue	8.000%	2/1/25	1,865,000	1,794,484
Willacy County, TX, PFC Project Revenue	8.250%	12/1/23	955,000	976,421
Willacy County, TX, PFC Project Revenue, County Jail	7.500%	11/1/25	485,000	477,512
Total Texas				42,260,162
U.S. Virgin Islands — 1.6%
Virgin Islands Public Finance Authority Revenue, Matching Fund Loan	6.750%	10/1/37	2,500,000	2,912,375
Virginia — 3.8%
Broad Street CDA Revenue	7.500%	6/1/33	748,000	779,768	(b)
Chesterfield County, VA, EDA, Solid Waste and Sewer Disposal Revenue, Virginia Electric Power Co. Project	5.600%	11/1/31	2,500,000	2,692,200	(a)
Virginia State Small Business Financing Authority Revenue:
Elizabeth River Crossings OpCo LLC Project	5.250%	1/1/32	1,000,000	1,089,780	(a)
Elizabeth River Crossings OpCo LLC Project	5.500%	1/1/42	2,000,000	2,196,960	(a)
Total Virginia				6,758,708
West Virginia — 1.5%
Pleasants County, WV, PCR, Refunding, County Commission, Allegheny Energy Supply Co., LLC	5.250%	10/15/37	2,500,000	2,673,225
Wisconsin — 0.6%
Wisconsin State HEFA Revenue, Aurora Health Care Inc.	6.400%	4/15/33	1,000,000	1,007,990
TOTAL INVESTMENTS BEFORE SHORT-TERM INVESTMENTS (Cost — $159,698,423)				173,300,020
SHORT-TERM INVESTMENTS — 1.6%
Florida — 0.1%
Miami-Dade County, FL, Health Facilities Authority Hospital Revenue, Miami Children’s Hospital Project, NATL, LOC-Wells Fargo Bank N.A.	0.120%	8/1/34	200,000	200,000	(h)(i)
Massachusetts — 0.1%
Massachusetts State HEFA Revenue, Partners Healthcare Systems, SPA-JPMorgan Chase	0.090%	7/1/27	100,000	100,000	(h)(i)

See Notes to Schedule of Investments.

5

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*WESTERN ASSET MUNICIPAL HIGH INCOME FUND INC.*

Schedule of investments (unaudited) (cont’d)

January 31, 2013

SECURITY	RATE	MATURITY DATE	FACE AMOUNT	VALUE
Missouri — 0.1%
Missouri State HEFA, Educational Facilities Revenue, St. Louis University, LOC-Bank of America N.A.	0.100%	10/1/35	$ 100,000	$ 100,000	(h)(i)
New York — 0.1%
New York City, NY, GO, SPA-Wells Fargo Bank N.A.	0.080%	4/1/32	300,000	300,000	(h)(i)
North Carolina — 1.2%
Raleigh, NC, COP, Downtown Improvement Project, SPA-Wells Fargo Bank N.A.	0.110%	2/1/34	2,100,000	2,100,000	(h)(i)
TOTAL SHORT-TERM INVESTMENTS (Cost — $2,800,000)				2,800,000
TOTAL INVESTMENTS — 99.5 % (Cost — $162,498,423#)				176,100,020
Other Assets in Excess of Liabilities — 0.5%				944,364
TOTAL NET ASSETS — 100.0%				$ 177,044,384

(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 U.S. government obligations 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.
(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)	The coupon payment on these securities is currently in default as of January 31, 2013.
(e)	Security is purchased on a when-issued basis.
(f)	All or a portion of this security is held at the broker as collateral for open futures contracts.
(g)	Maturity date shown represents the mandatory tender date.
(h)	Variable rate demand obligations have a demand feature under which the Fund can tender them back to the issuer or liquidity provider on no more than 7 days notice.
(i)	Maturity date shown is the final maturity date. The security may be sold back to the issuer before final maturity.
#	Aggregate cost for federal income tax purposes is substantially the same.

Abbreviations used in this schedule:
AGM	- Assured Guaranty Municipal Corporation - Insured Bonds
AMBAC	- American Municipal Bond Assurance Corporation - Insured Bonds
CDA	- Communities Development Authority
COP	- Certificates of Participation
DFA	- Development Finance Agency
EDA	- Economic Development Authority
EDR	- Economic Development Revenue
EFA	- Educational Facilities Authority
FGIC	- Financial Guaranty Insurance Company - Insured Bonds
GO	- General Obligation
HEFA	- Health & Educational Facilities Authority
IDA	- Industrial Development Authority
IDR	- Industrial Development Revenue
ISD	- Independent School District
LOC	- Letter of Credit
NATL	- National Public Finance Guarantee Corporation - Insured Bonds
PCFA	- Pollution Control Financing Authority
PCR	- Pollution Control Revenue
PFC	- Public Facilities Corporation
SPA	- Standby Bond Purchase Agreement - Insured Bonds

See Notes to Schedule of Investments.

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*WESTERN ASSET MUNICIPAL HIGH INCOME FUND INC.*

Schedule of investments (unaudited) (cont’d)

January 31, 2013

*Summary of Investments by Industry †*

Industrial Revenue	28.6
Health Care	18.5
Transportation	10.3
Power	7.6
Leasing	7.4
Education	7.0
Special Tax Obligation	6.0
Water & Sewer	4.4
Pre-Refunded/Escrowed to Maturity	3.9
Other	2.7
Solid Waste/Resource Recovery	1.5
Local General Obligation	0.5
Short - Term Investments	1.6
	100.0 %

† As a percentage of total investments. Please note that Fund holdings are as of January 31, 2013 and are subject to change.

*Ratings Table * Standard & Poors/Moody’s/Fitch* **

AAA/Aaa	0.0
AA/Aa	2.2
A	23.1
BBB/Baa	46.3
BB/Ba	3.6
B/B	4.1
D	0.6
A-1/VMIG 1	1.6
NR	18.5
	100.0 %

*

As a percentage of total investments.

**

The ratings shown are based on each portfolio security’s rating as determined by Standard & Poor’s, Moody’s or Fitch, each a Nationally Recognized Statistical Rating Organization (“NRSRO”). These ratings are the opinions of the NRSROand are not measures of quality or guarantees of performance. Securities may be rated by other NRSROs, and these ratings may be higher or lower. In the event that a security is rated by multiple NRSROs and receives different ratings, the Fund will treat the security as being rated in the lowest rating category received from a NRSRO.

† Represents less than 0.1%.

See Notes to Schedule of Investments.

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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 Fund seeks high current income exempt from federal income taxes.

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.* The valuations for fixed income securities (which may include, but are not limited to, corporate, government, municipal, mortgage-backed, collateralized mortgage obligations and asset-backed securities) and certain derivative instruments are typically the prices supplied by independent third party pricing services, which may use market prices or broker/dealer quotations or a variety of valuation techniques and methodologies. The independent third party pricing services use inputs that are observable such as issuer details, interest rates, yield curves, prepayment speeds, credit risks/spreads, default rates and quoted prices for similar securities. Short-term fixed income securities that will mature in 60 days or less are valued at amortized cost, unless it is determined that using this method would not reflect an investment’s fair value. Futures contracts are valued daily at the settlement price established by the board of trade or exchange on which they are traded. If independent third party pricing services are unable to supply prices for a portfolio investment, or if the prices supplied are deemed by the manager to be unreliable, the market price may be determined by the manager using quotations from one or more broker/dealers or at the transaction price if the security has recently been purchased and no value has yet been obtained from a pricing service or pricing broker. When reliable prices are not readily available, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded, but before the Fund calculates its net asset value, the Fund values these securities as determined in accordance with procedures approved by the Fund’s Board of Directors.

The Board of Directors is responsible for the valuation process and has delegated the supervision of the daily valuation process to the Legg Mason North American Fund Valuation Committee (the “Valuation Committee”). The Valuation Committee, pursuant to the policies adopted by the Board of Directors, is responsible for making fair value determinations, evaluating the effectiveness of the Fund’s pricing policies, and reporting to the Board of Directors. When determining the reliability of third party pricing information for investments owned by the Fund, the Valuation Committee, among other things, conducts due diligence reviews of pricing vendors, monitors the daily change in prices and reviews transactions among market participants.

The Valuation Committee will consider pricing methodologies it deems relevant and appropriate when making fair value determinations. Examples of possible methodologies include, but are not limited to, multiple of earnings; discount from market of a similar freely traded security; discounted cash-flow analysis; book value or a multiple thereof; risk premium/yield analysis; yield to maturity; and/or fundamental investment analysis. The Valuation Committee will also consider factors it deems relevant and appropriate in light of the facts and circumstances. Examples of possible factors include, but are not limited to, the type of security; the issuer’s financial statements; the purchase price of the security; the discount from market value of unrestricted securities of the same class at the time of purchase; analysts’ research and observations from financial institutions; information regarding any transactions or offers with respect to the security; the existence of merger proposals or tender offers affecting the security; the price and extent of public trading in similar securities of the issuer or comparable companies; and the existence of a shelf registration for restricted securities.

For each portfolio security that has been fair valued pursuant to the policies adopted by the Board of Directors, the fair value price is compared against the last available and next available market quotations. The Valuation Committee reviews the results of such back testing monthly and fair valuation occurrences are reported to the Board of Directors quarterly.

The Fund uses valuation techniques to measure fair value that are consistent with the market approach and/or income approach, depending on the type of security and the particular circumstance. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable securities. The income approach uses valuation techniques to discount estimated future cash flows to present value.

GAAP establishes a disclosure hierarchy that categorizes the inputs to valuation techniques used to value assets and liabilities at measurement date. These inputs are summarized in the three broad levels listed below:

· Level 1—quoted prices in active markets for identical investments

· Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.)

· Level 3—significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

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*Notes to schedule of investments (unaudited) (continued)*

The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used in valuing the Fund’s assets carried at fair value:

*ASSETS*

		OTHER — SIGNIFICANT	SIGNIFICANT
		OBSERVABLE	UNOBSERVABLE
	QUOTED PRICES	INPUTS	INPUTS
DESCRIPTION	(LEVEL 1)	(LEVEL 2)	(LEVEL 3)	TOTAL
Municipal bonds†	—	$ 173,300,020	—	$ 173,300,020
Short-term investments†	—	2,800,000	—	2,800,000
Total investments	—	$ 176,100,020	—	$ 176,100,020
Other financial instruments:
Futures contracts	$ 216,156	—	—	$ 216,156
Total	$ 216,156	$ 176,100,020	—	$ 176,316,176

†See Schedule of Investments for additional detailed categorizations.

*(b) Futures contracts.* The Fund uses futures contracts generally to gain exposure to, or hedge against, changes in interest rates or gain exposure to, or hedge against, changes in certain asset classes. A futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a specified date.

Upon entering into a futures contract, the Fund is required to deposit cash or cash equivalents with a broker in an amount equal to a certain percentage of the contract amount. This is known as the “initial margin” and subsequent payments (“variation margin”) are made or received by the Fund each day, depending on the daily fluctuation in the value of the contract.

Futures contracts involve, to varying degrees, risk of loss. In addition, there is the risk that the Fund may not be able to enter into a closing transaction because of an illiquid secondary market.

*(c) Securities traded on a when-issued basis.* The Fund may trade securities on a when-issued basis. In a when-issued transaction, the securities are purchased or sold by the Fund with payment and delivery taking place in the future in order to secure what is considered to be an advantageous price and yield to the Fund at the time of entering into the transaction.

Purchasing such securities involves risk of loss if the value of the securities declines prior to settlement. These securities are subject to market fluctuations and their current value is determined in the same manner as for other securities.

*(d) 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 investments 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.

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

*2. Investments*

At January 31, 2013, the aggregate gross unrealized appreciation and depreciation of investments for federal income tax purposes were substantially as follows:

Gross unrealized appreciation	$
Gross unrealized depreciation	(2,901,698	)
Net unrealized appreciation	$ 13,601,597

At January 31, 2013, the Fund had the following open futures contracts:

	NUMBER OF CONTRACTS	EXPIRATION DATE	BASIS VALUE	MARKET VALUE	UNREALIZED GAIN
Contracts to Sell:
U.S. Treasury 30-Year Bonds	48	3/13	$ 7,102,656	$ 6,886,500	$ 216,156

*3. Derivative instruments and hedging activities*

GAAP requires enhanced disclosure about an entity’s derivative and hedging activities.

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*Notes to schedule of investments (unaudited) (continued)*

The following is a summary of the Fund’s derivative instruments categorized by risk exposure at January 31, 2013.

	Futures
	Contracts
Primary Underlying Risk	Unrealized
Disclosure	Appreciation
Interest Rate Risk	$ 216,156

During the period ended January 31, 2013, the volume of derivative activity for the Fund was as follows:

	Average market value
Futures contracts (to sell)	$ 6,538,500

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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 27, 2013

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 27, 2013
By	/s/ Richard F. Sennett
	Richard F. Sennett
	Principal Financial Officer
Date: March 27, 2013

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