Edgar Filing: WESTERN ASSET MUNICIPAL HIGH INCOME FUND INC.

WESTERN ASSET MUNICIPAL HIGH INCOME FUND INC.

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 811-05497

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: (888)777-0102

Date of fiscal year end: October 31

Date of reporting period: July 31, 2015

ITEM 1.

SCHEDULE OF INVESTMENTS.

WESTERN ASSET MUNICIPAL HIGH INCOME FUND INC.

FORM N-Q

JULY 31, 2015

WESTERN ASSET MUNICIPAL HIGH INCOME FUND INC.


Schedule of investments (unaudited)		July 31, 2015


SECURITY	RATE			MATURITY DATE		FACE AMOUNT		VALUE
MUNICIPAL BONDS - 96.3%
Alabama - 4.1%
Jefferson County, AL, Sewer Revenue:
AGM		5.500	%		10/1/53	$	400,000	$	441,272	^(a)
Convertible CAB, Subordinated Lien		0.000	%		10/1/50		3,020,000		1,968,859	^(b)
Subordinated Lien Warrants		6.000	%		10/1/42		1,120,000		1,251,857
Subordinated Lien Warrants		6.500	%		10/1/53		3,000,000		3,449,160

Total Alabama									7,111,148

Arizona - 1.9%
Phoenix, AZ, IDA, Education Revenue, Basis School Inc.		5.000	%		7/1/35		1,000,000		1,008,510	^(c)
Salt Verde, AZ, Financial Corp. Senior Gas Revenue		5.000	%		12/1/37		1,500,000		1,654,200
University Medical Center Corp., AZ, Hospital Revenue		6.250	%		7/1/29		500,000		595,210	^(d)

Total Arizona									3,257,920

California - 9.5%
Anaheim, CA, Public Financing Authority Lease Revenue		5.000	%		5/1/46		2,000,000		2,206,660
California State PCFA, Water Furnishing Revenue		5.000	%		11/21/45		3,000,000		3,098,970	^(c)
California State Public Works Board, Lease Revenue, Various Capital Project		5.125	%		10/1/31		1,500,000		1,709,535
California Statewide CDA, Student Housing Revenue:
Provident Group-Pomona Properties LLC		5.600	%		1/15/36		505,000		504,369
Provident Group-Pomona Properties LLC		5.750	%		1/15/45		360,000		347,133
Inland Valley, CA, Development Agency, Successor Agency Tax Allocation Revenue		5.000	%		9/1/44		500,000		540,870
M-S-R Energy Authority, CA, Gas Revenue		7.000	%		11/1/34		2,000,000		2,711,300
M-S-R Energy Authority, CA, Gas Revenue		6.500	%		11/1/39		3,000,000		3,927,600
Redding, CA, Redevelopment Agency, Tax Allocation, Shastec Redevelopment Project		5.000	%		9/1/29		600,000		600,186
River Islands, CA, Public Financing Authority Special Tax, Community Facilities District No. 2003-1		5.500	%		9/1/45		620,000		635,091

Total California									16,281,714

Colorado - 4.6%
Colorado Educational & Cultural Facilities Authority Revenue:
Cheyenne Mountain Charter Academy		5.250	%		6/15/25		680,000		704,718
Cheyenne Mountain Charter Academy		5.125	%		6/15/32		510,000		525,530
Elbert County Charter		7.375	%		3/1/35		785,000		785,235
Public Authority for Colorado Energy, Natural Gas Purchase Revenue		6.125	%		11/15/23		4,000,000		4,910,040
Reata South Metropolitan District, CO, GO		7.250	%		6/1/37		1,000,000		922,360

Total Colorado									7,847,883

Delaware - 3.2%
Delaware State EDA Revenue, Indian River Power LLC		5.375	%		10/1/45		2,000,000		2,164,600
Sussex County, DE, Recovery Zone Facility Revenue, NRG Energy Inc., Indian River Power LLC		6.000	%		10/1/40		3,000,000		3,406,530

Total Delaware									5,571,130

See Notes to Schedule of Investments.

WESTERN ASSET MUNICIPAL HIGH INCOME FUND INC.


Schedule of investments (unaudited) (cont’d)		July 31, 2015


SECURITY	RATE			MATURITY DATE		FACE AMOUNT		VALUE
District of Columbia - 1.5%
District of Columbia Revenue:
Friendship Public Charter School Inc.		5.000	%		6/1/42	$	2,000,000	$	2,065,440
KIPP Charter School		6.000	%		7/1/33		200,000		229,354
KIPP Charter School		6.000	%		7/1/43		250,000		281,788

Total District of Columbia									2,576,582

Florida - 3.1%
Bonnet Creek Resort Community Development District, Special Assessment		7.500	%		5/1/34		835,000		836,060
Florida State Mid-Bay Bridge Authority Revenue		5.000	%		10/1/28		500,000		550,140
Martin County, FL, IDA Revenue, Indiantown Cogeneration LP Project		4.200	%		12/15/25		1,500,000		1,519,695	^(e)
Palm Beach County, FL, Health Facilities Authority Revenue:
Sinai Residences Boca Raton Project		7.500	%		6/1/49		400,000		456,872
Sinai Residences Boca Raton Project, Entrance Fee		6.000	%		6/1/21		300,000		322,962
Reunion, FL, East Community Development District, Special Assessment		6.600	%		5/1/33		330,000		315,051
Reunion, FL, East Community Development District, Special Assessment		7.375	%		5/1/33		285,000		3	*^(f)
Santa Rosa, FL, Bay Bridge Authority Revenue		6.250	%		7/1/28		860,680		387,306	*^(f)
University of Central Florida, COP, FGIC		5.000	%		10/1/25		1,000,000		1,007,600

Total Florida									5,395,689

Georgia - 3.6%
Atlanta, GA, Development Authority Educational Facilities Revenue, Science Park LLC Project		5.000	%		7/1/32		2,000,000		2,126,700
Atlanta, GA, Water & Wastewater Revenue		6.250	%		11/1/39		2,000,000		2,417,080	^(d)
DeKalb, Newton & Gwinnett Counties, GA, Joint Development Authority Revenue, GGC Foundation LLC Project		6.125	%		7/1/40		1,000,000		1,116,670
Franklin County, GA, Industrial Building Authority Revenue, Emmanuel College Inc.		6.000	%		11/1/32		1,000,000		600,000

Total Georgia									6,260,450

Hawaii - 1.3%
Hawaii State Department of Budget & Finance Special Purpose Revenue, Hawaiian Electric Co.		6.500	%		7/1/39		2,000,000		2,286,240

Illinois - 1.8%
Chicago, IL, Motor Fuel Tax Revenue, AGM		5.000	%		1/1/32		1,000,000		1,055,400
Illinois Finance Authority Revenue, Refunding, Chicago Charter School Project		5.000	%		12/1/26		1,000,000		1,022,420
Illinois State Finance Authority Revenue, Franciscan Communities Inc.		5.250	%		5/15/47		1,000,000		1,015,870

Total Illinois									3,093,690

Indiana - 2.0%
County of St. Joseph, IN, EDR:
Holy Cross Village Notre Dame Project		6.000	%		5/15/26		285,000		290,093
Holy Cross Village Notre Dame Project		6.000	%		5/15/38		550,000		554,763

See Notes to Schedule of Investments.

WESTERN ASSET MUNICIPAL HIGH INCOME FUND INC.


Schedule of investments (unaudited) (cont’d)		July 31, 2015


SECURITY	RATE			MATURITY DATE		FACE AMOUNT		VALUE
Indiana - (continued)
Indiana State Finance Authority Revenue, Private Activity Ohio River Bridges East End Crossing Project		5.000	%		7/1/48	$	2,000,000	$	2,061,800	^(e)
Valparaiso, IN, Exempt Facilities Revenue, Pratt Paper LLC Project		7.000	%		1/1/44		500,000		603,380	^(e)

Total Indiana									3,510,036

Iowa - 3.2%
Iowa State Finance Authority Midwestern Disaster Area Revenue:
Iowa Fertilizer Co. Project		5.000	%		12/1/19		500,000		528,380
Iowa Fertilizer Co. Project		5.250	%		12/1/25		4,540,000		4,938,113

Total Iowa									5,466,493

Kansas - 0.7%
Salina, KS, Hospital Revenue, Refunding & Improvement Salina Regional Health		5.000	%		10/1/22		1,150,000		1,181,890

Kentucky - 1.3%
Owen County, KY, Waterworks System Revenue, Kentucky American Water Co. Project		6.250	%		6/1/39		2,000,000		2,273,260

Louisiana - 0.1%
Epps, LA, COP		8.000	%		6/1/18		775,000		116,250	*^(f)

Maryland - 2.0%
Maryland State Health & Higher EFA Revenue, Mercy Medical Center		6.250	%		7/1/31		3,000,000		3,378,660

Massachusetts - 0.7%
Massachusetts State DFA Revenue, Tufts Medical Center Inc.		6.875	%		1/1/41		1,000,000		1,163,260

Michigan - 3.2%
Gaudior Academy, COP		7.250	%		4/1/34		1,000,000		404,000	^(g)(h)
Michigan State Finance Authority Limited Obligation Revenue:
Higher Education, Thomas M Cooley Law School Project		6.000	%		7/1/24		310,000		316,215	^(c)
Higher Education, Thomas M Cooley Law School Project		6.750	%		7/1/44		430,000		453,482	^(c)
Michigan State Finance Authority Revenue:
Senior Lien Detroit Water & Sewer		5.000	%		7/1/33		260,000		273,536
Senior Lien Detroit Water & Sewer		5.000	%		7/1/44		270,000		276,637
Michigan State Strategic Fund Limited Obligation Revenue:
Evangelical Homes of Michigan		5.250	%		6/1/32		500,000		520,890
Evangelical Homes of Michigan		5.500	%		6/1/47		750,000		765,742
Royal Oak, MI, Hospital Finance Authority Revenue, William Beaumont Hospital		8.250	%		9/1/39		2,000,000		2,434,200	^(d)

Total Michigan									5,444,702

Missouri - 2.9%
Missouri State HEFA Revenue:
Lutheran Senior Services		6.000	%		2/1/41		500,000		549,620
Lutheran Senior Services		5.000	%		2/1/44		750,000		787,005
Refunding, St. Lukes Episcopal		5.000	%		12/1/21		1,300,000		1,373,073
St. Louis County, MO, IDA, Senior Living Facilities Revenue, Friendship Village of Sunset Hills		5.875	%		9/1/43		2,000,000		2,295,100

Total Missouri									5,004,798

See Notes to Schedule of Investments.

WESTERN ASSET MUNICIPAL HIGH INCOME FUND INC.


Schedule of investments (unaudited) (cont’d)		July 31, 2015


SECURITY	RATE			MATURITY DATE		FACE AMOUNT		VALUE
Nebraska - 2.1%
Central Plains Energy Project, NE, Gas Project Revenue, Project #3		5.000	%		9/1/42	$	3,340,000	$	3,533,319

Nevada - 0.5%
Director of the State of Nevada Department of Business & Industry Revenue:
Somerset Academy of Las Vegas		5.000	%		12/15/35		300,000		293,235	^(c)
Somerset Academy of Las Vegas		5.125	%		12/15/45		500,000		483,900	^(c)

Total Nevada									777,135

New Jersey - 6.4%
Gloucester County, NJ, PCFA Revenue, Keystone Urban Renewal, Logan Generating		5.000	%		12/1/24		450,000		502,893	^(e)
New Jersey State EDA Revenue:
Private Activity-The Goethals Bridge Replacement Project		5.375	%		1/1/43		1,500,000		1,607,220	^(e)
Refunding		6.875	%		1/1/37		4,985,000		5,012,667	^(e)
New Jersey State Higher Education Assistance Authority, Student Loan Revenue		5.000	%		12/1/44		640,000		649,529	^(e)
Salem County, NJ, PCFA Revenue, Chambers Project		5.000	%		12/1/23		3,000,000		3,261,330	^(e)

Total New Jersey									11,033,639

New York - 2.1%
Brooklyn Arena, NY, Local Development Corp. Revenue, Barclays Center Project		6.250	%		7/15/40		2,000,000		2,306,320
New York State Liberty Development Corp., Liberty Revenue, 3 World Trade Center LLC Project		5.000	%		11/15/44		1,205,000		1,214,700	^(c)

Total New York									3,521,020

North Carolina - 0.3%
North Carolina Department of Transportation Private Activity Revenue, I-77 Hot Lanes Project		5.000	%		12/31/37		500,000		529,620	^(e)

Ohio - 2.1%
Cuyahoga County, OH, Hospital Facilities Revenue, Canton Inc. Project		7.500	%		1/1/30		1,295,000		1,297,059
Miami County, OH, Hospital Facilities Revenue, Refunding and Improvement Upper Valley Medical Center		5.250	%		5/15/21		1,500,000		1,552,590
Ohio State Private Activity Revenue, Portsmouth Bypass Project		5.000	%		6/30/53		700,000		728,826	^(e)

Total Ohio									3,578,475

Oklahoma - 0.6%
Tulsa County, OK, Industrial Authority, Senior Living Community Revenue, Montereau Inc. Project		7.125	%		11/1/30		1,000,000		1,090,770

Pennsylvania - 3.6%
Cumberland County, PA, Municipal Authority Revenue, Diakon Lutheran Social Ministries Project		5.000	%		1/1/28		350,000		378,053
Erie County, PA, Convention Center Authority Gtd. Hotel Revenue, County GTD		5.000	%		1/15/36		750,000		827,730
Monroe County, PA, Hospital Authority Revenue, Pocono Medical Center		5.000	%		1/1/27		1,000,000		1,048,340

See Notes to Schedule of Investments.

WESTERN ASSET MUNICIPAL HIGH INCOME FUND INC.


Schedule of investments (unaudited) (cont’d)		July 31, 2015


SECURITY	RATE			MATURITY DATE		FACE AMOUNT		VALUE
Pennsylvania - (continued)
Montgomery County, PA, IDA Revenue:
Acts Retirement-Life Communities		5.000	%		11/15/28	$	1,400,000	$	1,504,678
Acts Retirement-Life Communities		5.000	%		11/15/29		1,350,000		1,449,265
Philadelphia, PA, Authority for IDR:
Discovery Charter School Inc. Project		6.250	%		4/1/37		500,000		518,650
Performing Arts Charter School Project		6.000	%		6/15/23		500,000		523,060	^(c)

Total Pennsylvania									6,249,776

Puerto Rico - 0.7%
Puerto Rico Sales Tax Financing Corp., Sales Tax Revenue		5.250	%		8/1/41		1,500,000		585,000
Puerto Rico Sales Tax Financing Corp., Sales Tax Revenue		5.000	%		8/1/43		1,500,000		585,000

Total Puerto Rico									1,170,000

Tennessee - 1.5%
Shelby County, TN, Health Educational & Housing Facilities Board Revenue, Trezevant Manor Project		5.750	%		9/1/37		2,500,000		2,540,900

Texas - 20.5%
Brazos River, TX, Harbor Industrial Development Corp., Environmental Facilities Revenue, Dow Chemical Co.		5.900	%		5/1/28		1,500,000		1,621,695	^(b)(e)(i)
Central Texas Regional Mobility Authority Revenue		5.000	%		1/1/42		2,000,000		2,104,760
Dallas-Fort Worth, TX, International Airport Revenue, Joint Improvement		5.000	%		11/1/42		4,000,000		4,214,160	^(e)
Grand Parkway Transportation Corp., TX, System Toll Revenue, Convertible CABs		0.000	%		10/1/35		1,500,000		1,177,920	^(b)
Gulf Coast, TX, IDA Revenue, Citgo Petroleum Corp. Project		4.875	%		5/1/25		1,000,000		1,041,920	^(e)
Harris County, TX, Cultural Education Facilities Finance Corp., Medical Facilities Revenue, Baylor College of Medicine		5.625	%		11/15/32		2,000,000		2,262,860
Love Field Airport Modernization Corp., TX, Special Facilities Revenue, Southwest Airlines Co. Project		5.250	%		11/1/40		6,000,000		6,489,360
New Hope Cultural Education Facilities Finance Corp., TX, Student Housing Revenue, Collegiate Housing Stephenville II LLC, Tarleton State University Project		5.000	%		4/1/39		1,165,000		1,195,383
North Texas Tollway Authority Revenue		5.750	%		1/1/40		2,500,000		2,730,175
Texas Midwest Public Facility Corp. Revenue, Secure Treatment Facility Project		9.000	%		10/1/30		2,000,000		280,000	*^(f)
Texas State Municipal Gas Acquisition & Supply Corp. III, Gas Supply Revenue		5.000	%		12/15/28		1,500,000		1,636,695
Texas State Private Activity Bond Surface Transportation Corp. Revenue:
LBJ Infrastructure Group LLC		7.000	%		6/30/40		4,000,000		4,772,600
Senior Lien, NTE Mobility Partners LLC		6.875	%		12/31/39		2,000,000		2,355,500
Texas State Public Finance Authority, Charter School Finance Corp. Revenue:
Cosmos Foundation Inc.		6.200	%		2/15/40		1,000,000		1,213,300	^(d)
Uplift Education		5.750	%		12/1/27		1,500,000		1,621,635
Willacy County, TX, PFC Project Revenue, County Jail		7.500	%		11/1/25		445,000		423,151

Total Texas									35,141,114

See Notes to Schedule of Investments.

WESTERN ASSET MUNICIPAL HIGH INCOME FUND INC.


Schedule of investments (unaudited) (cont’d)		July 31, 2015


SECURITY	RATE			MATURITY DATE		FACE AMOUNT		VALUE
U.S. Virgin Islands - 1.7%
Virgin Islands Public Finance Authority Revenue, Matching Fund Loan		6.750	%		10/1/37	$	2,500,000	$	2,863,050

Virginia - 1.9%
Virginia State Small Business Financing Authority Revenue:
Elizabeth River Crossings OpCo LLC Project		5.250	%		1/1/32		1,000,000		1,085,410	^(e)
Elizabeth River Crossings OpCo LLC Project		5.500	%		1/1/42		2,000,000		2,166,840	^(e)

Total Virginia									3,252,250

West Virginia - 1.5%
Pleasants County, WV, PCR, Refunding, County Commission, Allegheny Energy Supply Co., LLC		5.250	%		10/15/37		2,500,000		2,582,425

Wisconsin - 0.1%
Public Finance Authority, WI, Revenue, Church Home of Hartford Inc.		5.000	%		9/1/38		250,000		244,963	^(c)

TOTAL INVESTMENTS BEFORE SHORT-TERM INVESTMENTS (Cost - $155,733,867)									165,330,251

SHORT-TERM INVESTMENTS - 2.7%
California - 0.2%
California Statewide CDA Revenue, Kaiser Permanente		0.010	%		4/1/45		100,000		100,000	^(j)(k)
San Diego County, CA, Regional Transportation Commission, Sales Tax Revenue, SPA-JPMorgan Chase		0.020	%		4/1/38		300,000		300,000	^(j)(k)

Total California									400,000

Florida - 0.4%
Miami-Dade County, FL, IDA Revenue, Professional Modification, AAR Aircraft Services Inc., LOC-Wells Fargo Bank N.A.		0.050	%		8/1/18		750,000		750,000	^(e)(j)(k)

Massachusetts - 0.9%
Massachusetts State HEFA Revenue, Partners Healthcare Systems, SPA-JPMorgan Chase		0.020	%		7/1/27		1,600,000		1,600,000	^(j)(k)

New Hampshire - 0.1%
New Hampshire State Business Finance Authority Solid Waste Disposal Revenue, Lonza Biologies Inc. Project, LOC-Landesbank Hessen-Thuringen		0.130	%		11/1/20		100,000		100,000	^(e)(j)(k)

New York - 0.5%
New York City, NY, TFA Revenue, New York City Recovery Project, SPA-Royal Bank of Canada		0.010	%		11/1/22		800,000		800,000	^(j)(k)

North Carolina - 0.4%
Charlotte, NC, COP, Refunding Convention Facility Project B, SPA-Wells Fargo Bank N.A.		0.020	%		12/1/21		200,000		200,000	^(j)(k)
North Carolina State Medical Care Commission, Health Care Facilities Revenue, Novant Health Group, SPA-JPMorgan Chase		0.030	%		11/1/34		500,000		500,000	^(j)(k)

Total North Carolina									700,000

See Notes to Schedule of Investments.

WESTERN ASSET MUNICIPAL HIGH INCOME FUND INC.


Schedule of investments (unaudited) (cont’d)		July 31, 2015


SECURITY	RATE			MATURITY DATE		FACE AMOUNT		VALUE
Pennsylvania - 0.1%
Pennsylvania State Housing Finance Agency, Single-Family Mortgage Revenue, SPA-Sumitomo Mitsui Banking		0.030	%		4/1/26	$	100,000	$	100,000	^(e)(j)(k)

Texas - 0.1%
Texas State, GO, Veterans Housing Assistance, SPA-JPMorgan Chase		0.030	%		6/1/38		200,000		200,000	^(e)(j)(k)

TOTAL SHORT-TERM INVESTMENTS (Cost - $4,650,000)									4,650,000

TOTAL INVESTMENTS - 99.0% (Cost - $160,383,867#)									169,980,251
Other Assets in Excess of Liabilities - 1.0%									1,803,470

TOTAL NET ASSETS - 100.0%								$	171,783,721

*	Non-income producing security.

(a)	All or a portion of this security is held at the broker as collateral for open futures contracts.

(b)	Variable rate security. Interest rate disclosed is as of the most recent information available.

(c)

Security is exempt from registration under Rule 144A of the Securities Act of 1933. This security may be resold in transactions that are exempt from registration, normally to qualified institutional buyers. This security has been deemed liquid pursuant to guidelines approved by the Board of Directors, unless otherwise noted.

(d)	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.

(e)	Income from this issue is considered a preference item for purposes of calculating the alternative minimum tax (“AMT”).

(f)	The coupon payment on these securities is currently in default as of July 31, 2015.

(g)	Security is valued in good faith in accordance with procedures approved by the Board of Directors (See Note 1).

(h)	Illiquid security.

(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 or liquidity provider on no more than 7 days notice.

(k)	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
CAB		— Capital Appreciation 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
GTD		— Guaranteed
HEFA		— Health & Educational Facilities Authority
IDA		— Industrial Development Authority
IDR		— Industrial Development Revenue
LOC		— Letter of Credit
PCFA		— Pollution Control Financing Authority
PCR		— Pollution Control Revenue
PFC		— Public Facilities Corporation
SPA		— Standby Bond Purchase Agreement - Insured Bonds
TFA		— Transitional Finance Authority

This Schedule of Investments is unaudited and is intended to provide information about the Fund’s portfolio holdings as of the date of the schedule. Other information regarding the Fund is available in the Fund’s most recent annual or semi-annual shareholder report.

See Notes to Schedule of Investments.

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 Atlantic Fund Valuation Committee (formerly, 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:

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Level 1 – quoted prices in active markets for identical investments

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

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

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 and liabilities carried at fair value:


ASSETS
DESCRIPTION	QUOTED PRICES (LEVEL 1)		OTHER SIGNIFICANT OBSERVABLE INPUTS (LEVEL 2)		SIGNIFICANT UNOBSERVABLE INPUTS (LEVEL 3)		TOTAL
Municipal bonds†:
Michigan		—	$	5,040,702	$	404,000	$	5,444,702
Other municipal bonds		—		159,885,549		—		159,885,549
Short-term investments†		—		4,650,000		—		4,650,000

Total investments		—	$	169,576,251	$	404,000	$	169,980,251


LIABILITIES
DESCRIPTION	QUOTED PRICES (LEVEL 1)		OTHER SIGNIFICANT OBSERVABLE INPUTS (LEVEL 2)		SIGNIFICANT UNOBSERVABLE INPUTS (LEVEL 3)		TOTAL
Other financial instruments:
Futures contracts	$	27,400		—		—	$	27,400

†	See Schedule of Investments for additional detailed categorizations.

2. Investments

At July 31, 2015, the aggregate gross unrealized appreciation and depreciation of investments for federal income tax purposes were substantially as follows:


Gross unrealized appreciation	$	15,090,528
Gross unrealized depreciation		(5,494,144	)

Net unrealized appreciation	$	9,596,384

At July 31, 2015, the Fund had the following open futures contracts:


	Number of Contracts		Expiration Date		Basis Value		Market Value		Unrealized Depreciation
Contracts to Sell:
U.S. Treasury Long-Term Bonds		22		9/15	$	3,403,225	$	3,430,625	$	(27,400	)

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.

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		/s/ JANE TRUST
		Jane Trust
		Chief Executive Officer

Date:		September 21, 2015

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/ JANE TRUST
		Jane Trust
		Chief Executive Officer

Date:		September 21, 2015


By		/s/ RICHARD F. SENNETT
		Richard F. Sennett
		Principal Financial Officer

Date:		September 21, 2015