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)

55 Water Street, New York, NY			10041
(Address of principal executive offices)			(Zip code)

Robert I. Frenkel, Esq. Legg Mason & Co., LLC 300 First Stamford Place, 4^th 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:	July 31, 2008

ITEM 1. SCHEDULE OF INVESTMENTS

WESTERN ASSET MUNICIPAL HIGH INCOME FUND INC.

FORM N-Q

JULY 31, 2008

Western Asset Municipal High Income Fund Inc.

Schedule of Investments (unaudited)

July 31, 2008

Face Amount		Security	Value
MUNICIPAL BONDS — 97.9%
Alaska — 0.7%
$	1,055,000	Alaska Industrial Development & Export Authority Revenue, Williams Lynxs Alaska Cargoport, 8.125% due 5/1/31 (a)	$	1,066,056
Arizona — 1.7%
1,740,000		Phoenix, AZ, IDA, MFH Revenue, Ventana Palms Apartments Project, 8.000% due 10/1/34 (b)	1,895,991
1,000,000		Salt Verde, AZ Financial Corp., Gas Revenue, 5.000% due 12/1/37	836,980
		Total Arizona	2,732,971
Arkansas — 1.0%
		Arkansas State Development Financing Authority:
1,000,000		Hospital Revenue, Washington Regional Medical Center, 7.375% due 2/1/29 (c)	1,074,630
600,000		Industrial Facilities Revenue, Potlatch Corp. Projects, 7.750% due 8/1/25 (a)	635,490
		Total Arkansas	1,710,120
California — 8.5%
1,500,000		Barona, CA, Band of Mission Indians, GO, 8.250% due 12/1/20 (d)	1,512,600
2,000,000		California Health Facilities Financing Authority Revenue, Refunding, Cedars-Sinai Medical Center, 5.000% due 11/15/27	1,920,920
5,000,000		California Statewide CDA Revenue, Lodi Memorial Hospital, California Mortgage Insurance, 5.000% due 12/1/37	4,672,100
		Golden State Tobacco Securitization Corp., California Tobacco Settlement Revenue:
2,000,000		Asset Backed, 7.800% due 6/1/42 (c)	2,371,580
1,000,000		Enhanced Asset Backed, 5.625% due 6/1/38 (c)	1,090,240
600,000		Redding, CA, Redevelopment Agency, Tax Allocation, Shastec Redevelopment Project, 5.000% due 9/1/29	544,974
1,865,000		Vallejo, CA, COP, Touro University, 7.375% due 6/1/29 (c)	1,990,664
		Total California	14,103,078
Colorado — 5.5%
		Colorado Educational & Cultural Facilities Authority Revenue:
760,000		Charter School, Peak to Peak Project, 7.500% due 8/15/21 (c)	843,152
		Cheyenne Mountain Charter Academy:
680,000		5.250% due 6/15/25	670,976
510,000		5.125% due 6/15/32	478,288
785,000		Elbert County Charter, 7.375% due 3/1/35	800,496
810,000		Unrefunded, University of Denver Project, FGIC, 5.250% due 3/1/23	834,438
4,000,000		Public Authority for Colorado Energy, Natural Gas Purchase Revenue, 6.125% due 11/15/23	3,931,480
1,000,000		Reata South Metropolitan District, CO, GO, 7.250% due 6/1/37	919,690
500,000		Southlands, CO, Metropolitan District No. 1, GO, 7.125% due 12/1/34 (c)	603,540
		Total Colorado	9,082,060
District of Columbia — 1.2%
1,895,000		District of Columbia COP, District Public Safety & Emergency, AMBAC, 5.500% due 1/1/20	1,982,170

Florida — 10.0%
950,000		Beacon Lakes, FL, Community Development District, Special Assessment, 6.900% due 5/1/35	938,448
1,500,000		Bonnet Creek Resort Community Development District, Special Assessment, 7.500% due 5/1/34	1,535,010
		Capital Projects Finance Authority, FL:

See Notes to Schedule of Investments.

Western Asset Municipal High Income Fund Inc.

Schedule of Investments (unaudited) (continued)

July 31, 2008

Face Amount		Security	Value
Florida — 10.0% (continued)
$	2,000,000	Continuing Care Retirement Glenridge on Palmer Ranch, 8.000% due 6/1/32 (c)	$	2,357,260
2,000,000		Student Housing Revenue, Capital Projects Loan Program, Florida University, 7.850% due 8/15/31 (c)	2,263,880
935,000		Century Parc Community Development District, Special Assessment, 7.000% due 11/1/31	892,654
1,000,000		Highlands County, FL, Health Facilities Authority Revenue, Adventist Health Systems, 6.000% due 11/15/25 (c)	1,107,680
2,000,000		Martin County, FL, IDA Revenue, Indiantown Cogeneration Project, 7.875% due 12/15/25 (a)	2,002,880
1,000,000		Orange County, FL, Health Facilities Authority Revenue, First Mortgage, GF, Orlando Inc. Project, 9.000% due 7/1/31	1,079,250
345,000		Palm Beach County, FL, Health Facilities Authority Revenue, John F. Kennedy Memorial Hospital Inc. Project, 9.500% due 8/1/13 (e)	399,576
2,000,000		Reunion East Community Development District, Special Assessment, 7.375% due 5/1/33	2,052,940
1,000,000		Santa Rosa, FL, Bay Bridge Authority Revenue, 6.250% due 7/1/28	931,150
1,000,000		University of Central Florida, COP, FGIC, 5.000% due 10/1/25	922,820
		Total Florida	16,483,548
Georgia — 4.7%
		Atlanta, GA, Airport Revenue:
1,000,000		FGIC, 5.625% due 1/1/30 (a)	962,060
1,000,000		FSA, 5.000% due 1/1/26	1,013,620
2,000,000		Atlanta, GA, Development Authority Educational Facilities Revenue, Science Park LLC Project, 5.000% due 7/1/32	1,867,620
2,500,000		Atlanta, GA, Tax Allocation, Atlantic Station Project, 7.900% due 12/1/24 (c)	2,923,575
1,000,000		Gainesville & Hall County, GA, Development Authority Revenue, Senior Living Facilities, Lanier Village Estates, 7.250% due 11/15/29	1,032,070
		Total Georgia	7,798,945
Illinois — 0.5%
1,000,000		Illinois Finance Authority Revenue, Refunding, Chicago Charter School Project, 5.000% due 12/1/26	874,660
Indiana — 0.5%
		County of St Joseph, IN, EDR, Holy Cross Village Notre Dame Project:
285,000		6.000% due 5/15/26	264,417
550,000		6.000% due 5/15/38	479,644
		Total Indiana	744,061
Kansas — 0.7%
1,150,000		Salina, KS, Hospital Revenue, Refunding & Improvement Salina Regional Health, 5.000% due 10/1/22	1,150,644

Kentucky — 1.1%
2,000,000		Louisville & Jefferson County, KY, Metro Government Health System Revenue, Norton Healthcare Inc., 5.250% due 10/1/36	1,825,680

Louisiana — 0.6%
1,000,000		Epps, LA, COP, 8.000% due 6/1/18	999,150

Maryland — 1.5%
1,500,000		Maryland State Economic Development Corp. Revenue, Chesapeake Bay, 7.730% due 12/1/27 (c)	1,625,325
1,000,000		Maryland State Health & Higher EFA Revenue, Refunding, Edenwald, 5.400% due 1/1/31	897,080
		Total Maryland	2,522,405

See Notes to Schedule of Investments.

Western Asset Municipal High Income Fund Inc.

Schedule of Investments (unaudited) (continued)

July 31, 2008

Face Amount		Security	Value
Massachusetts — 2.1%
$	890,000	Boston, MA, Industrial Development Financing Authority Revenue, Roundhouse Hospitality LLC Project, 7.875% due 3/1/25 (a)	$	834,206
1,000,000		Massachusetts State DFA Revenue, Briarwood, 8.250% due 12/1/30 (c)	1,140,770
1,000,000		Massachusetts State HEFA Revenue, Caritas Christi Obligation, 6.750% due 7/1/16	1,067,010
315,000		Massachusetts State Port Authority Revenue, 13.000% due 7/1/13 (e)	405,890
		Total Massachusetts	3,447,876
Michigan — 6.5%
2,130,000		Allen Academy, COP, 7.500% due 6/1/23	2,029,294
		Cesar Chavez Academy, COP:
1,000,000		6.500% due 2/1/33	979,610
1,000,000		8.000% due 2/1/33	1,065,750
1,000,000		Gaudior Academy, COP, 7.250% due 4/1/34	953,030
1,750,000		Kalamazoo Advantage Academy, COP, 8.000% due 12/1/33	1,279,215
3,000,000		Michigan State Hospital Finance Authority, Refunding Hospital, Sparrow Obligated, 5.000% due 11/15/31	2,730,300
990,000		Star International Academy, COP, 7.000% due 3/1/33	927,382
700,000		William C. Abney Academy, COP, 6.750% due 7/1/19	714,875
		Total Michigan	10,679,456
Missouri — 0.8%
1,300,000		Missouri State HEFA Revenue, Refunding, St. Lukes Episcopal, 5.000% due 12/1/21	1,287,442

Montana — 1.4%
2,385,000		Montana State Board of Investment, Resource Recovery Revenue, Yellowstone Energy LP Project, 7.000% due 12/31/19 (a)	2,315,167

New Hampshire — 0.9%
1,600,000		New Hampshire HEFA Revenue, Covenant Health System, 5.500% due 7/1/34	1,556,848

New Jersey — 10.3%
1,500,000		Casino Reinvestment Development Authority Revenue, MBIA, 5.250% due 6/1/20	1,515,300
1,000,000		New Jersey EDA, Retirement Community Revenue, SeaBrook Village Inc., 8.250% due 11/15/30 (c)	1,137,610
		New Jersey Health Care Facilities Financing Authority Revenue, Trinitas Hospital Obligation Group:
5,000,000		5.250% due 7/1/30	4,168,050
3,000,000		7.500% due 7/1/30 (c)	3,319,050
5,000,000		New Jersey State, EDA, Revenue, Refunding, 6.875% due 1/1/37 (a)	4,898,800
1,750,000		Tobacco Settlement Financing Corp., 6.750% due 6/1/39 (c)	2,028,005
		Total New Jersey	17,066,815
New Mexico — 1.4%
160,000		Albuquerque, NM, Hospital Revenue, Southwest Community Health Services, 10.000% due 8/1/12 (c)	160,000
1,000,000		Otero County, NM, Jail Project Revenue, 7.500% due 12/1/24	1,043,770
1,000,000		Sandoval County, NM, Incentive Payment Revenue, Refunding, 5.000% due 6/1/20	1,032,590
		Total New Mexico	2,236,360
New York — 6.6%
700,000		Brookhaven, NY, IDA Civic Facilities Revenue, Memorial Hospital Medical Center Inc., 8.250% due 11/15/30 (c)	794,647

See Notes to Schedule of Investments.

Western Asset Municipal High Income Fund Inc.

Schedule of Investments (unaudited) (continued)

July 31, 2008

Face Amount		Security	Value
New York — 6.6% (continued)
$	2,000,000	Metropolitan Transportation Authority of New York, AMBAC, 5.000% due 7/1/30	$	2,011,880
1,000,000		Monroe County, NY, IDA, Civic Facilities Revenue, Woodland Village Project, 8.550% due 11/15/32 (c)	1,158,560
		New York City, NY, IDA, Civic Facilities Revenue:
1,270,000		Community Residence for the Developmentally Disabled Project, 7.500% due 8/1/26	1,272,121
780,000		Special Needs Facilities Pooled Program, 8.125% due 7/1/19 (c)	854,623
		New York State Dormitory Authority Revenue:
1,500,000		Mental Health Services Facilities Improvement, AMBAC, 5.000% due 2/15/35	1,504,950
2,500,000		New York University Hospitals Center, 5.000% due 7/1/26	2,334,325
875,000		Suffolk County, NY, IDA, Civic Facilities Revenue, Eastern Long Island Hospital Association, 7.750% due 1/1/22 (c)	1,003,327
		Total New York	10,934,433
North Carolina — 0.6%
920,000		North Carolina Medical Care Community, Health Care Facilities Revenue, First Mortgage, DePaul Community Facilities Project, 7.625% due 11/1/29 (c)	989,423

Ohio — 2.6%
1,500,000		Cuyahoga County, OH, Hospital Facilities Revenue, Canton Inc. Project, 7.500% due 1/1/30	1,550,490
1,500,000		Miami County, OH, Hospital Facilities Revenue, Refunding and Improvement Upper Valley Medical Center, 5.250% due 5/15/21	1,417,320
1,260,000		Riversouth Authority, OH, Revenue, Riversouth Area Redevelopment, 5.000% due 12/1/25	1,291,739
		Total Ohio	4,259,549
Pennsylvania — 4.4%
1,000,000		Cumberland County, PA, Municipal Authority Retirement Community Revenue, Wesley Affiliate Services Inc. Project, 7.250% due 1/1/35 (c)	1,175,200
1,000,000		Lebanon County, PA, Health Facilities Authority Revenue, Good Samaritan Hospital Project, 6.000% due 11/15/35	964,820
1,000,000		Monroe County, PA, Hospital Authority Revenue, Pocono Medical Center, 5.000% due 1/1/27	918,480
955,000		Northumberland County, PA, IDA Facilities Revenue, NHS Youth Services Inc. Project, 7.500% due 2/15/29	936,378
1,000,000		Philadelphia, PA, Authority for IDR, Host Marriot LP Project, Remarketed 10/31/95, 7.750% due 12/1/17 (a)	1,004,310
2,000,000		Westmoreland County, PA, IDA Revenue, Health Care Facilities, Redstone Highlands Health, 8.125% due 11/15/30 (c)	2,272,120
		Total Pennsylvania	7,271,308
South Carolina — 0.1%
110,000		McCormick County, SC, COP, 9.750% due 7/1/09	111,926

Tennessee — 1.9%
1,000,000		Clarksville, TN, Natural Gas Acquisition Corp. Gas Revenue, 5.000% due 12/15/21	859,860
2,500,000		Shelby County, TN, Health Educational & Housing Facilities Board Revenue, Trezevant Manor Project, 5.750% due 9/1/37	2,286,625
		Total Tennessee	3,146,485
Texas — 15.2%
540,000		Bexar County, TX, Housing Financial Corp., MFH Revenue, Continental Lady Ester, 6.875% due 6/1/29 (c)	573,032
2,000,000		Brazos River Authority Texas PCR, TXU Co., 8.250% due 5/1/33 (a)(b)(f)	1,948,260

See Notes to Schedule of Investments.

Western Asset Municipal High Income Fund Inc.

Schedule of Investments (unaudited) (continued)

July 31, 2008

Face Amount		Security	Value
Texas — 15.2% (continued)
$	1,500,000	Brazos River, TX, Harbor Industrial Development Corp., Environmental Facilities Revenue, Dow Chemical Co., 5.900% due 5/1/38 (a)(f)	$	1,435,845
1,500,000		Burnet County, TX, Public Facility Project Revenue, 7.500% due 8/1/24	1,468,620
		Garza County, TX, Public Facility Corp.:
1,000,000		5.500% due 10/1/18	1,012,110
2,000,000		Project Revenue, 5.750% due 10/1/25	1,974,080
2,000,000		Gulf Coast of Texas, IDA, Solid Waste Disposal Revenue, CITGO Petroleum Corp. Project, 7.500% due 10/1/12 (a)(f)	2,092,420
2,750,000		Houston, TX, Airport Systems Revenue, Special Facilities, Continental Airlines Inc. Project, 6.125% due 7/15/27 (a)	1,916,310
1,000,000		Laredo, TX, ISD Public Facility Corp. Lease Revenue, AMBAC, 5.000% due 8/1/29	1,004,670
1,000,000		Midlothian, TX, Development Authority, Tax Increment Contract Revenue, 6.200% due 11/15/29	987,100
2,500,000		North Texas Tollway Authority Revenue, 5.750% due 1/1/40	2,505,250
1,000,000		North Texas Tollway Authority, Dallas North Tollway Systems Revenue, FSA, 5.000% due 1/1/35 (c)	1,064,700
1,500,000		Texas State Public Finance Authority, Uplift Education, 5.750% due 12/1/27	1,419,600
1,865,000		West Texas Detention Facility Corp. Revenue, 8.000% due 2/1/25	1,805,469
		Willacy County, TX:
2,000,000		Local Government Corp. Revenue, 6.875% due 9/1/28	1,897,940
		PFC Project Revenue:
1,000,000		8.250% due 12/1/23	989,980
1,000,000		County Jail, 7.500% due 11/1/25	1,022,750
		Total Texas	25,118,136
Virginia — 2.9%
405,000		Alexandria, VA, Redevelopment & Housing Authority, MFH Revenue, Parkwood Court Apartments Project, 8.125% due 4/1/30	407,880
1,000,000		Broad Street CDA Revenue, 7.500% due 6/1/33	1,041,430
2,500,000		Chesterfield County, VA, EDA, Solid Waste and Sewer Disposal Revenue, Virginia Electric Power Co. Project, 5.600% due 11/1/31 (a)	2,321,350
1,000,000		Fairfax County, VA, EDA Revenue, Retirement Community, Greenspring Village Inc., 7.500% due 10/1/29 (c)	1,082,140
		Total Virginia	4,852,800
West Virginia — 1.4%
2,500,000		Pleasants County, WV, PCR, Refunding County Commission Allegheny, 5.250% due 10/15/37	2,361,000

Wisconsin — 0.6%
1,000,000		Wisconsin State HEFA Revenue, Aurora Health Care, 6.400% due 4/15/33	1,019,720

		TOTAL INVESTMENTS BEFORE SHORT-TERM INVESTMENTS (Cost — $162,162,413)	161,730,292
SHORT-TERM INVESTMENTS — 0.9%
Michigan — 0.1%
300,000		Michigan Higher Education Facilities Authority, Refunding Ltd. Obligation University Detroit, 2.100%, 8/1/08 (g)	300,000

Missouri — 0.1%
100,000		Missouri State HEFA, Washington University, 2.150%, 8/1/08 (g)	100,000

Nevada — 0.1%
100,000		Las Vegas Valley, NV, Water District, Water Improvement, SPA-Dexia Credit Local, 2.550%, 8/1/08 (g)	100,000

See Notes to Schedule of Investments.

Western Asset Municipal High Income Fund Inc.

Schedule of Investments (unaudited) (continued)

July 31, 2008

Face Amount		Security	Value
Oregon — 0.6%
$	1,000,000	Medford, OR, Hospital Facilities Authority Revenue, Rogue Valley Manor Project, LOC-Bank of America N.A., 2.100%, 8/1/08 (g)	$	1,000,000
		TOTAL SHORT-TERM INVESTMENTS (Cost — $1,500,000)	1,500,000
		TOTAL INVESTMENTS — 98.8% (Cost — $163,662,413#)	163,230,292
		Other Assets in Excess of Liabilities — 1.2%	1,918,747
		TOTAL NET ASSETS — 100.0%	$	165,149,039

(a)		Income from this issue is considered a preference item for purposes of calculating the alternative minimum tax (“AMT”).
(b)		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.
(c)		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.
(d)		All or a portion of this security is held at the broker as collateral for open futures contracts.
(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)		Variable rate security. Interest rate disclosed is that which is in effect at July 31, 2008.
(g)		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 - Insured Bonds
		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 - Insured Bonds
		FSA - Financial Security Assurance - 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
		MBIA - Municipal Bond Investors Assurance Corporation - Insured Bonds
		MFH - Multi-Family Housing
		PCR - Pollution Control Revenue
		PFC - Public Facilities Corporation
		SPA - Standby Bond Purchase Agreement - Insured Bonds

See Notes to Schedule of Investments.

Western Asset Municipal High Income Fund Inc.

Schedule of Investments (unaudited) (continued)

July 31, 2008

Summary of Investments by Industry *

Hospitals	23.3	%
Pre-Refunded/Escrowed to Maturity	23.1
Leasing	13.5
Industrial Development	11.0
Special Tax	5.7
Other Revenue	5.4
Transportation	4.6
Electric	3.6
Education	3.1
Resource Recovery	2.8
Local General Obligation	2.4
Housing	1.4
Water & Sewer	0.1
	100.0	%

*As a percentage of total investments. Please note that Fund holdings are as of July 31, 2008 and are subject to change.

Ratings Table†

S&P/Moody’s/Fitch‡

AAA/Aaa	12.1	%
AA/ Aa	6.9
A	21.2
BBB/Baa	16.7
BB/Ba	3.0
B/B	1.7
CCC/Caa	1.2
A-1/VMIG1	1.0
NR	36.2
	100.0	%

†As a percentage of total investments.

‡ S&P primary rating; Moody’s secondary, then Fitch.

See pages 8 and 9 for definitions of ratings.

See Notes to Schedule of Investments.

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 can be visualized as 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

Bond Ratings (unaudited)(continued)

		not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class.

B	—	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.

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

(b) Financial Futures Contracts. The Fund may enter into financial futures contracts typically to hedge a portion of the portfolio. Upon entering into a financial futures contract, the Fund is required to deposit cash or securities as initial margin, equal in value to a certain percentage of the contract amount (initial margin deposit). Additional securities are also segregated up to the current market value of the financial futures contracts. Subsequent payments, known as “variation margin,” are made or received by the Fund each day, depending on the daily fluctuations in the value of the underlying financial instruments. When the financial futures contracts are closed, a realized gain or loss is recognized equal to the difference between the proceeds from (or cost of) the closing transactions and the Fund’s basis in the contracts.

The risks associated with entering into financial futures contracts include the possibility that a change in the value of the contract may not correlate with the changes in the value of the underlying financial instruments. In addition, investing in financial futures contracts involves the risk that the Fund could lose more than the initial margin deposit and subsequent payments required for a futures transaction. Risks may also arise upon entering into these contracts from the potential inability of the counterparties to meet the terms of their contracts.

(c) 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.

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

2. Investments

At July 31, 2008, the aggregate gross unrealized appreciation and depreciation of investments for federal income tax purposes were substantially as follows:

Gross unrealized appreciation	$	5,775,987
Gross unrealized depreciation	(6,208,108		)
Net unrealized depreciation	$	(432,121	)

At July 31, 2008, the Fund had the following open futures contracts:

	Number of Contracts	Expiration Date	Basis Value		Market Value		Unrealized (Loss)
Contracts to Sell:
U.S. Treasury Bonds	215	9/08	$	24,543,386	$	24,832,500	$	(289,114	)

Notes to Schedule of Investments (unaudited) (continued)

3. Recent Accounting Pronouncements

On September 20, 2006, the Financial Accounting Standards Board (“FASB”) released Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“FAS 157”). FAS 157 establishes an authoritative definition of fair value, sets out a framework for measuring fair value, and requires additional disclosures about fair value measurements. The application of FAS 157 is required for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. Management has determined that there is no material impact to the Fund’s valuation policies as a result of adopting FAS 157. The Fund will implement the disclosure requirements beginning with its January 31, 2009 Form N-Q.

***

In March 2008, FASB issued the Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities (“FAS 161”). FAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. FAS 161 requires enhanced disclosures about the Fund’s derivative and hedging activities, including how such activities are accounted for and their effect on the Fund’s financial position, performance and cash flows. Management is currently evaluating the impact the adoption of FAS 161 will have on the Fund’s financial statements and related disclosures.

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/ R. Jay Gerken
R. Jay Gerken
Chief Executive Officer

Date:		September 29, 2008

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:		September 29, 2008

By:	/s/ Kaprel Ozsolak
Kaprel Ozsolak
Chief Financial Officer

Date:		September 29, 2008