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, 49th 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, 2016

 

 

 


 

ITEM 1. SCHEDULE OF INVESTMENTS.


WESTERN ASSET MUNICIPAL HIGH INCOME FUND INC.

FORM N-Q

JULY 31, 2016


WESTERN ASSET MUNICIPAL HIGH INCOME FUND INC.

 

Schedule of investments (unaudited)    July 31, 2016

 

SECURITY

   RATE     MATURITY
DATE
     FACE
AMOUNT
     VALUE  
MUNICIPAL BONDS - 99.0%           

Alabama - 5.6%

          

Jefferson County, AL, Sewer Revenue:

          

AGM

     5.500     10/1/53       $ 400,000       $ 470,744   

Convertible CAB, Subordinated Lien

     0.000     10/1/50         3,020,000         2,369,583 (a) 

Subordinated Lien Warrants

     6.000     10/1/42         1,120,000         1,358,952   

Subordinated Lien Warrants

     6.500     10/1/53         3,000,000         3,766,260   

Lower Alabama Gas District, Gas Project Revenue

     5.000     9/1/46         1,500,000         2,054,865   
          

 

 

 

Total Alabama

             10,020,404   
          

 

 

 

Arizona - 3.6%

          

La Paz County, AZ, IDA, Educational Facility Lease Revenue, Charter School Solutions, Harmony Public School Project

     5.000     2/15/36         1,000,000         1,116,390 (b) 

Navajo Nation, AZ, Revenue

     5.500     12/1/30         190,000         218,540 (b) 

Phoenix, AZ, IDA, Education Revenue:

          

Basis School Inc.

     5.000     7/1/35         1,000,000         1,112,330 (b) 

Great Hearts Academies

     5.000     7/1/41         1,200,000         1,372,284   

Salt Verde, AZ, Financial Corp. Senior Gas Revenue

     5.000     12/1/37         1,500,000         1,925,835   

University Medical Center Corp., AZ, Hospital Revenue

     6.250     7/1/29         500,000         578,725 (c) 
          

 

 

 

Total Arizona

             6,324,104   
          

 

 

 

California - 10.1%

          

Alameda, CA, Corridor Transportation Authority Revenue, Second Subordinated Lien

     5.000     10/1/37         250,000         303,018   

Anaheim, CA, Public Financing Authority Lease Revenue

     5.000     5/1/46         2,000,000         2,385,700 (d) 

California State PCFA, Water Furnishing Revenue

     5.000     11/21/45         3,000,000         3,096,570 (b) 

California State Public Works Board, Lease Revenue, Various Capital Project

     5.125     10/1/31         1,500,000         1,773,135   

California Statewide CDA, Student Housing Revenue:

          

Provident Group-Pomona Properties LLC

     5.600     1/15/36         505,000         565,746   

Provident Group-Pomona Properties LLC

     5.750     1/15/45         360,000         404,852   

Inland Valley, CA, Development Agency, Successor Agency Tax Allocation Revenue

     5.000     9/1/44         500,000         581,295   

M-S-R Energy Authority, CA, Gas Revenue

     7.000     11/1/34         2,000,000         3,040,420   

M-S-R Energy Authority, CA, Gas Revenue

     6.500     11/1/39         3,000,000         4,504,800   

Redding, CA, Redevelopment Agency, Tax Allocation, Shastec Redevelopment Project

     5.000     9/1/29         600,000         600,468   

River Islands, CA, Public Financing Authority Special Tax, Community Facilities District No. 2003-1

     5.500     9/1/45         620,000         691,052   
          

 

 

 

Total California

             17,947,056   
          

 

 

 

Colorado - 4.0%

          

Colorado Educational & Cultural Facilities Authority Revenue:

          

Cheyenne Mountain Charter Academy

     5.250     6/15/25         680,000         707,894 (c) 

Cheyenne Mountain Charter Academy

     5.125     6/15/32         510,000         530,369 (c) 

Public Authority for Colorado Energy, Natural Gas Purchase Revenue

     6.125     11/15/23         4,000,000         4,993,080   

Reata South Metropolitan District, CO, GO

     7.250     6/1/37         1,000,000         947,080   
          

 

 

 

Total Colorado

             7,178,423   
          

 

 

 

 

See Notes to Schedule of Investments.

 

1


WESTERN ASSET MUNICIPAL HIGH INCOME FUND INC.

 

Schedule of investments (unaudited) (cont’d)    July 31, 2016

 

 

SECURITY

   RATE     MATURITY
DATE
     FACE
AMOUNT
     VALUE  

Delaware - 1.2%

          

Delaware State EDA Revenue, Indian River Power LLC

     5.375     10/1/45       $ 2,000,000       $ 2,197,580   
          

 

 

 

District of Columbia - 1.6%

          

District of Columbia Revenue:

          

Friendship Public Charter School Inc.

     5.000     6/1/42         2,000,000         2,225,240   

KIPP Charter School

     6.000     7/1/33         200,000         241,912   

KIPP Charter School

     6.000     7/1/43         250,000         298,040   
          

 

 

 

Total District of Columbia

             2,765,192   
          

 

 

 

Florida - 2.8%

          

Bonnet Creek Resort Community Development District, Special Assessment

     7.500     5/1/34         755,000         756,314   

Florida State Development Finance Corp., Educational Facilities Revenue:

          

Renaissance Charter School Inc. Project

     6.000     6/15/35         250,000         266,568 (b) 

Renaissance Charter School Inc. Project

     6.125     6/15/46         220,000         233,939 (b) 

Florida State Development Finance Corp., Senior Living Revenue, Tuscan Isle Champions Gate Project

     6.375     6/1/46         250,000         258,170 (b) 

Florida State Mid-Bay Bridge Authority Revenue

     5.000     10/1/28         500,000         607,700   

Martin County, FL, IDA Revenue, Indiantown Cogeneration LP Project

     4.200     12/15/25         1,500,000         1,576,980 (e) 

Palm Beach County, FL, Health Facilities Authority Revenue, Sinai Residences Boca Raton Project

     7.500     6/1/49         400,000         493,308   

Reunion, FL, East Community Development District, Special Assessment

     6.600     5/1/33         315,000         322,941   

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         823,104         493,862 *(f) 
          

 

 

 

Total Florida

             5,009,785   
          

 

 

 

Georgia - 3.5%

          

Atlanta, GA, Development Authority Educational Facilities Revenue, Science Park LLC Project

     5.000     7/1/32         2,000,000         2,081,520 (c) 

Atlanta, GA, Water & Wastewater Revenue

     6.250     11/1/39         2,000,000         2,355,440 (c) 

DeKalb, Newton & Gwinnett Counties, GA, Joint Development Authority Revenue, GGC Foundation LLC Project

     6.125     7/1/40         1,000,000         1,142,330   

Franklin County, GA, Industrial Building Authority Revenue, Emmanuel College Inc.

     6.000     11/1/32         1,000,000         600,000 *(f) 
          

 

 

 

Total Georgia

             6,179,290   
          

 

 

 

Hawaii - 1.3%

          

Hawaii State Department of Budget & Finance Special Purpose Revenue, Hawaiian Electric Co.

     6.500     7/1/39         2,000,000         2,277,020   
          

 

 

 

Illinois - 2.3%

          

Chicago, IL, Motor Fuel Tax Revenue, AGM

     5.000     1/1/32         1,000,000         1,140,550   

Chicago, IL, O’Hare International Airport Revenue

     5.000     1/1/31         1,500,000         1,777,845 (e) 

Illinois State Finance Authority Revenue, Franciscan Communities Inc.

     5.250     5/15/47         1,000,000         1,103,530   

Metropolitan Pier & Exposition Authority, IL, Revenue, CAB-McCormick Place Expansion Project

     0.000     12/15/52         700,000         130,158   
          

 

 

 

Total Illinois

             4,152,083   
          

 

 

 

 

See Notes to Schedule of Investments.

 

2


WESTERN ASSET MUNICIPAL HIGH INCOME FUND INC.

 

Schedule of investments (unaudited) (cont’d)    July 31, 2016

 

SECURITY

   RATE     MATURITY
DATE
     FACE
AMOUNT
     VALUE  

Indiana - 1.6%

          

Indiana State Finance Authority Revenue, Private Activity Ohio River Bridges East End Crossing Project

     5.000     7/1/48       $ 2,000,000       $ 2,294,980 (e) 

Valparaiso, IN, Exempt Facilities Revenue, Pratt Paper LLC Project

     7.000     1/1/44         500,000         632,760 (e) 
          

 

 

 

Total Indiana

             2,927,740   
          

 

 

 

Kentucky - 1.3%

          

Owen County, KY, Waterworks System Revenue, Kentucky American Water Co. Project

     6.250     6/1/39         2,000,000         2,262,000   
          

 

 

 

Louisiana - 0.0%

          

Epps, LA, COP

     8.000     6/1/18         775,000         77,500 *(f) 
          

 

 

 

Maryland - 2.0%

          

Maryland State Health & Higher EFA Revenue, Mercy Medical Center

     6.250     7/1/31         3,000,000         3,573,390   
          

 

 

 

Massachusetts - 1.5%

          

Massachusetts State DFA Revenue:

          

Partners Healthcare System

     5.000     7/1/47         1,250,000         1,521,575   

Tufts Medical Center Inc.

     6.875     1/1/41         1,000,000         1,210,480   
          

 

 

 

Total Massachusetts

             2,732,055   
          

 

 

 

Michigan - 3.0%

          

Michigan State Finance Authority Limited Obligation Revenue:

          

Higher Education, Thomas M Cooley Law School Project

     6.000     7/1/24         310,000         337,395 (b) 

Higher Education, Thomas M Cooley Law School Project

     6.750     7/1/44         430,000         468,102 (b) 

Michigan State Finance Authority Revenue:

          

Local Government Loan Program, Detroit Water & Sewer Department

     5.000     7/1/35         250,000         292,673   

Senior Lien Detroit Water & Sewer

     5.000     7/1/33         260,000         304,353   

Senior Lien Detroit Water & Sewer

     5.000     7/1/44         270,000         301,369   

Michigan State Strategic Fund Limited Obligation Revenue:

          

Evangelical Homes of Michigan

     5.250     6/1/32         500,000         536,475   

Evangelical Homes of Michigan

     5.500     6/1/47         750,000         799,095   

Royal Oak, MI, Hospital Finance Authority Revenue, William Beaumont Hospital

     8.250     9/1/39         2,000,000         2,315,440 (c) 
          

 

 

 

Total Michigan

             5,354,902   
          

 

 

 

Missouri - 3.0%

          

Kansas City, MO, IDA, Senior Living Facilities Revenue, Kansas City United Methodist Retirement Home Inc.

     6.000     11/15/51         200,000         207,764 (b) 

Missouri State HEFA Revenue:

          

Lutheran Senior Services

     6.000     2/1/41         500,000         577,870   

Lutheran Senior Services

     5.000     2/1/44         750,000         851,085   

Refunding, St. Lukes Episcopal

     5.000     12/1/21         1,300,000         1,320,995   

St. Louis County, MO, IDA, Senior Living Facilities Revenue, Friendship Village of Sunset Hills

     5.875     9/1/43         2,000,000         2,383,840   
          

 

 

 

Total Missouri

             5,341,554   
          

 

 

 

 

See Notes to Schedule of Investments.

 

3


WESTERN ASSET MUNICIPAL HIGH INCOME FUND INC.

 

Schedule of investments (unaudited) (cont’d)    July 31, 2016

 

 

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       $ 3,755,930   
          

 

 

 

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         319,368 (b) 

Somerset Academy of Las Vegas

     5.125     12/15/45         500,000         525,205 (b) 
          

 

 

 

Total Nevada

             844,573   
          

 

 

 

New Jersey - 6.6%

          

Gloucester County, NJ, PCFA Revenue, Keystone Urban Renewal, Logan Generating

     5.000     12/1/24         450,000         519,813 (e) 

New Jersey State EDA Revenue, Private Activity-The Goethals Bridge Replacement Project

     5.375     1/1/43         1,500,000         1,757,940 (e) 

New Jersey State Higher Education Assistance Authority, Student Loan Revenue

     5.000     12/1/44         640,000         686,573 (e) 

New Jersey State Transportation Trust Fund Authority Revenue, Transportation Program

     5.250     6/15/32         4,720,000         5,367,914   

Salem County, NJ, PCFA Revenue, Chambers Project

     5.000     12/1/23         3,000,000         3,451,560 (e) 
          

 

 

 

Total New Jersey

             11,783,800   
          

 

 

 

New York - 4.0%

          

Brooklyn Arena, NY, Local Development Corp. Revenue, Barclays Center Project

     6.250     7/15/40         2,000,000         2,317,500 (c) 

New York City, NY, TFA Revenue, Future Tax Secured

     5.000     5/1/36         600,000         742,452   

New York State Liberty Development Corp., Liberty Revenue, 3 World Trade Center LLC Project

     5.000     11/15/44         1,205,000         1,384,352 (b) 

New York State Transportation Development Corp., Special Facilities Revenue, Laguardia Airport Terminal B Redevelopment Project

     4.000     7/1/31         2,500,000         2,705,050 (e) 
          

 

 

 

Total New York

             7,149,354   
          

 

 

 

Ohio - 1.3%

          

Miami County, OH, Hospital Facilities Revenue, Refunding and Improvement Upper Valley Medical Center

     5.250     5/15/21         1,500,000         1,505,610   

Ohio State Private Activity Revenue, Portsmouth Bypass Project

     5.000     6/30/53         700,000         800,478 (e) 
          

 

 

 

Total Ohio

             2,306,088   
          

 

 

 

Oklahoma - 0.8%

          

Payne County, OK, EDA Revenue, Epworth Living at The Ranch

     6.250     11/1/31         250,000         260,138   

Tulsa County, OK, Industrial Authority, Senior Living Community Revenue, Montereau Inc. Project

     7.125     11/1/30         1,000,000         1,095,210   
          

 

 

 

Total Oklahoma

             1,355,348   
          

 

 

 

Oregon - 0.4%

          

Yamhill County, OR, Hospital Authority Revenue, Friendsview Retirement Community

     5.000     11/15/51         725,000         791,461 (g) 
          

 

 

 

 

See Notes to Schedule of Investments.

 

4


WESTERN ASSET MUNICIPAL HIGH INCOME FUND INC.

 

Schedule of investments (unaudited) (cont’d)    July 31, 2016

 

SECURITY

   RATE     MATURITY
DATE
     FACE
AMOUNT
     VALUE  

Pennsylvania - 5.7%

          

Cumberland County, PA, Municipal Authority Revenue, Diakon Lutheran Social Ministries Project

     5.000     1/1/28       $ 350,000       $ 419,520   

Erie County, PA, Convention Center Authority Gtd. Hotel Revenue, County GTD

     5.000     1/15/36         750,000         884,505   

Monroe County, PA, Hospital Authority Revenue, Pocono Medical Center

     5.000     1/1/27         1,000,000         1,017,910   

Montgomery County, PA, IDA Revenue:

          

Acts Retirement-Life Communities

     5.000     11/15/28         1,400,000         1,620,808   

Acts Retirement-Life Communities

     5.000     11/15/29         1,350,000         1,558,143   

Pennsylvania State Turnpike Commission Revenue

     5.000     12/1/46         3,170,000         3,693,621   

Philadelphia, PA, Authority for IDR:

          

Discovery Charter School Inc. Project

     6.250     4/1/37         500,000         502,070   

Performing Arts Charter School Project

     6.000     6/15/23         480,000         510,336 (b) 
          

 

 

 

Total Pennsylvania

             10,206,913   
          

 

 

 

Tennessee - 1.4%

          

Shelby County, TN, Health Educational & Housing Facilities Board Revenue, Trezevant Manor Project

     5.750     9/1/37         2,500,000         2,506,300   
          

 

 

 

Texas - 22.4%

          

Arlington, TX, Higher Education Finance Corp., Education Revenue:

          

Uplift Education

     5.000     12/1/36         240,000         282,581   

Uplift Education

     5.000     12/1/46         200,000         232,588   

Brazos River, TX, Harbor Industrial Development Corp., Environmental Facilities Revenue, Dow Chemical Co.

     5.900     5/1/28         1,500,000         1,607,250 (a)(e)(h) 

Central Texas Regional Mobility Authority Revenue

     5.000     1/1/42         2,000,000         2,279,200   

Dallas-Fort Worth, TX, International Airport Revenue, Joint Improvement

     5.000     11/1/42         4,000,000         4,524,240 (e) 

Grand Parkway Transportation Corp., TX, System Toll Revenue, Convertible CAB

     0.000     10/1/35         1,500,000         1,373,535 (a) 

Gulf Coast, TX, IDA Revenue, Citgo Petroleum Corp. Project

     4.875     5/1/25         1,000,000         1,069,840 (e) 

Harris County, TX, Cultural Education Facilities Finance Corp., Medical Facilities Revenue, Baylor College of Medicine

     5.625     11/15/32         2,000,000         2,227,060 (c) 

Love Field Airport Modernization Corp., TX, Special Facilities Revenue, Southwest Airlines Co. Project

     5.250     11/1/40         6,000,000         6,836,700   

New Hope Cultural Education Facilities Finance Corp., TX, Senior Living Revenue:

          

Cardinal Bay Inc., Village on the Park Carriage Inn Project

     5.000     7/1/46         250,000         287,903   

Cardinal Bay Inc., Village on the Park Carriage Inn Project

     5.000     7/1/51         150,000         175,272   

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         1,348,406   

North Texas Tollway Authority Revenue

     5.000     1/1/39         175,000         211,157   

North Texas Tollway Authority Revenue:

          

System-First Tier

     5.750     1/1/40         2,190,000         2,348,227 (c) 

System-First Tier

     5.750     1/1/40         310,000         331,486   

Texas Midwest Public Facility Corp. Revenue, Secure Treatment Facility Project

     9.000     10/1/30         2,000,000         240,000 *(f) 

Texas State Municipal Gas Acquisition & Supply Corp. I, Gas Supply Revenue

     6.250     12/15/26         1,000,000         1,272,310   

Texas State Municipal Gas Acquisition & Supply Corp. III, Gas Supply Revenue

     5.000     12/15/28         1,500,000         1,745,310   

Texas State Private Activity Bond Surface Transportation Corp. Revenue:

          

LBJ Infrastructure Group LLC

     7.000     6/30/40         4,000,000         4,774,840   

Senior Lien, Blueridge Transportation Group LLC

     5.000     12/31/40         1,000,000         1,170,950 (e) 

Senior Lien, NTE Mobility Partners LLC

     6.875     12/31/39         2,000,000         2,375,240   

Texas State Public Finance Authority, Charter School Finance Corp. Revenue:

          

Cosmos Foundation Inc.

     6.200     2/15/40         1,000,000         1,187,370 (c) 

Uplift Education

     5.750     12/1/27         1,500,000         1,602,405 (c) 

Willacy County, TX, PFC Project Revenue, County Jail

     7.500     11/1/25         445,000         413,325   
          

 

 

 

Total Texas

             39,917,195   
          

 

 

 

 

See Notes to Schedule of Investments.

 

5


WESTERN ASSET MUNICIPAL HIGH INCOME FUND INC.

 

Schedule of investments (unaudited) (cont’d)    July 31, 2016

 

SECURITY

   RATE     MATURITY
DATE
     FACE
AMOUNT
     VALUE  

U.S. Virgin Islands - 1.5%

          

Virgin Islands Public Finance Authority Revenue, Matching Fund Loan

     6.750     10/1/37       $ 2,500,000       $ 2,643,500   
          

 

 

 

Virginia - 2.0%

          

Virginia State Small Business Financing Authority Revenue:

          

Elizabeth River Crossings OpCo LLC Project

     5.250     1/1/32         1,000,000         1,166,970 (e) 

Elizabeth River Crossings OpCo LLC Project

     5.500     1/1/42         2,000,000         2,345,760 (e) 
          

 

 

 

Total Virginia

             3,512,730   
          

 

 

 

West Virginia - 1.4%

          

Pleasants County, WV, PCR, Refunding, County Commission, Allegheny Energy Supply Co., LLC

     5.250     10/15/37         2,500,000         2,571,975   
          

 

 

 

Wisconsin - 0.5%

          

Public Finance Authority, WI, Exemption Facilities Revenue, Celanese Project

     5.000     12/1/25         550,000         645,744 (e) 

Public Finance Authority, WI, Revenue, Church Home of Hartford Inc.

     5.000     9/1/38         250,000         268,890 (b) 
          

 

 

 

Total Wisconsin

             914,634   
          

 

 

 

TOTAL INVESTMENTS BEFORE SHORT-TERM INVESTMENTS

(Cost - $158,814,143)

 

  

     176,579,879   
          

 

 

 
SHORT-TERM INVESTMENTS - 0.6%           
MUNICIPAL BONDS - 0.6%           

Illinois - 0.1%

          

Illinois State Health Facilities Authority Revenue, Evanston Hospital Corp., SPA-Wells Fargo Bank N.A.

     0.420     6/1/35         200,000         200,000 (i)(j) 
          

 

 

 

North Carolina - 0.5%

          

North Carolina State Medical Care Commission, Health Care Facilities Revenue, Wakemed Obligated Group, LOC-Wells Fargo Bank N.A.

     0.410     10/1/38         800,000         800,000 (i)(j) 
          

 

 

 

TOTAL MUNICIPAL BONDS

(Cost - $1,000,000)

             1,000,000   
          

 

 

 
                  SHARES         
MONEY MARKET FUNDS - 0.0%           

State Street Institutional U.S. Government Money Market Fund, Premier Class (Cost - $54,898)

     0.250        54,898         54,898   
          

 

 

 

TOTAL SHORT-TERM INVESTMENTS

(Cost - $1,054,898)

             1,054,898   
          

 

 

 

TOTAL INVESTMENTS - 99.6%

(Cost - $159,869,041#)

             177,634,777   

Other Assets in Excess of Liabilities - 0.4%

             738,296   
          

 

 

 

TOTAL NET ASSETS - 100.0%

           $ 178,373,073   
          

 

 

 

 

See Notes to Schedule of Investments.

 

6


WESTERN ASSET MUNICIPAL HIGH INCOME FUND INC.

 

Schedule of investments (unaudited) (cont’d)    July 31, 2016

 

 

* Non-income producing security.

 

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

 

(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) 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, 2016.

 

(g) Security is purchased on a when-issued basis.

 

(h) Maturity date shown represents the mandatory tender date.

 

(i) 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.

 

(j) 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

EFA   

— Educational Facilities Authority

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.

 

7


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 Fund invests primarily in intermediate- and long-term municipal debt securities issued by state and local governments. However, the Fund may invest in municipal obligations of any maturity.

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. Investments in open-end funds are valued at the closing net asset value per share of each fund on the day of valuation. 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 (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.

 

8


Notes to Schedule of Investments (unaudited) (continued)

 

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)

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†

     —         $ 176,579,879         —         $ 176,579,879   
  

 

 

    

 

 

    

 

 

    

 

 

 

Short-Term Investments†:

           

Municipal Bonds

     —         $ 1,000,000         —         $ 1,000,000   

Money Market Funds

   $ 54,898         —           —           54,898   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Short-Term Investments

   $ 54,898       $ 1,000,000         —         $ 1,054,898   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Investments

   $ 54,898       $ 177,579,879         —         $ 177,634,777   
  

 

 

    

 

 

    

 

 

    

 

 

 

LIABILITIES

 

DESCRIPTION

   QUOTED PRICES
(LEVEL 1)
     OTHER SIGNIFICANT
OBSERVABLE INPUTS
(LEVEL 2)
     SIGNIFICANT
UNOBSERVABLE
INPUTS
(LEVEL 3)
     TOTAL  

Other Financial Instruments:

           

Futures Contracts

   $ 114,109         —           —         $ 114,109   

 

See Schedule of Investments for additional detailed categorizations.

2. Investments

At July 31, 2016, the aggregate gross unrealized appreciation and depreciation of investments for federal income tax purposes were substantially as follows:

 

Gross unrealized appreciation

   $ 21,047,077   

Gross unrealized depreciation

     (3,281,341
  

 

 

 

Net unrealized appreciation

   $ 17,765,736   
  

 

 

 

At July 31, 2016, 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

     19         9/16       $ 3,200,204       $ 3,314,313       $ (114,109

 

9


 

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, 2016

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, 2016

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

Date:

 

September 21, 2016