N-Q 1 d30807dnq.htm 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, 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: January 31, 2016

 

 

 


 

ITEM 1. SCHEDULE OF INVESTMENTS.


WESTERN ASSET MUNICIPAL HIGH INCOME FUND INC.

FORM N-Q

JANUARY 31, 2016


WESTERN ASSET MUNICIPAL HIGH INCOME FUND INC.

 

Schedule of investments (unaudited)    January 31, 2016

 

 

SECURITY

   RATE     MATURITY
DATE
     FACE
AMOUNT
     VALUE  

MUNICIPAL BONDS - 95.5%

          

Alabama - 4.3%

          

Jefferson County, AL, Sewer Revenue:

          

AGM

     5.500     10/1/53       $ 400,000       $ 454,244 (a) 

Convertible CAB, Subordinated Lien

     0.000     10/1/50         3,020,000         2,186,782 (b) 

Subordinated Lien Warrants

     6.000     10/1/42         1,120,000         1,306,189   

Subordinated Lien Warrants

     6.500     10/1/53         3,000,000         3,607,950   
          

 

 

 

Total Alabama

             7,555,165   
          

 

 

 

Arizona - 2.1%

          

Navajo Nation, AZ, Revenue

     5.500     12/1/30         190,000         214,278 (c) 

Phoenix, AZ, IDA, Education Revenue, Basis School Inc.

     5.000     7/1/35         1,000,000         1,056,050 (c) 

Salt Verde, AZ, Financial Corp. Senior Gas Revenue

     5.000     12/1/37         1,500,000         1,777,710   

University Medical Center Corp., AZ, Hospital Revenue

     6.250     7/1/29         500,000         587,625 (d) 
          

 

 

 

Total Arizona

             3,635,663   
          

 

 

 

California - 9.8%

          

Anaheim, CA, Public Financing Authority Lease Revenue

     5.000     5/1/46         2,000,000         2,263,620   

California State PCFA, Water Furnishing Revenue

     5.000     11/21/45         3,000,000         3,093,990 (c) 

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

     5.125     10/1/31         1,500,000         1,769,910   

California Statewide CDA Revenue, Provident Group-Pomona Properties LLC

     5.600     1/15/36         505,000         512,817   

California Statewide CDA, Student Housing Revenue, Provident Group-Pomona Properties LLC

     5.750     1/15/45         360,000         360,396   

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

     5.000     9/1/44         500,000         550,515   

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

     7.000     11/1/34         2,000,000         2,973,940   

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

     6.500     11/1/39         3,000,000         4,331,550   

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

     5.000     9/1/29         600,000         600,318   

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

     5.500     9/1/45         620,000         674,945   
          

 

 

 

Total California

             17,132,001   
          

 

 

 

Colorado - 4.6%

          

Colorado Educational & Cultural Facilities Authority Revenue:

          

Cheyenne Mountain Charter Academy

     5.250     6/15/25         680,000         700,495   

Cheyenne Mountain Charter Academy

     5.125     6/15/32         510,000         523,143   

Elbert County Charter

     7.375     3/1/35         785,000         785,204   

Public Authority for Colorado Energy, Natural Gas Purchase Revenue

     6.125     11/15/23         4,000,000         5,038,960   

Reata South Metropolitan District, CO, GO

     7.250     6/1/37         1,000,000         940,610   
          

 

 

 

Total Colorado

             7,988,412   
          

 

 

 

Delaware - 1.2%

          

Delaware State EDA Revenue, Indian River Power LLC

     5.375     10/1/45         2,000,000         2,076,120   
          

 

 

 

District of Columbia - 1.5%

          

District of Columbia Revenue:

          

Friendship Public Charter School Inc.

     5.000     6/1/42         2,000,000         2,090,380   

KIPP Charter School

     6.000     7/1/33         200,000         231,114   

KIPP Charter School

     6.000     7/1/43         250,000         284,188   
          

 

 

 

Total District of Columbia

             2,605,682   
          

 

 

 

 

See Notes to Schedule of Investments.

 

1


WESTERN ASSET MUNICIPAL HIGH INCOME FUND INC.

 

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

 

SECURITY

   RATE     MATURITY
DATE
     FACE
AMOUNT
     VALUE  

Florida - 2.6%

          

Bonnet Creek Resort Community Development District, Special Assessment

     7.500     5/1/34       $ 765,000       $ 766,140   

Florida State Development Finance Corp., Educational Facilities Revenue:

          

Renaissance Charter School Inc. Project

     6.000     6/15/35         250,000         255,547 (c) 

Renaissance Charter School Inc. Project

     6.125     6/15/46         220,000         223,029 (c) 

Florida State Mid-Bay Bridge Authority Revenue

     5.000     10/1/28         500,000         575,165   

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

     4.200     12/15/25         1,500,000         1,531,140 (e) 

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

     7.500     6/1/49         400,000         490,860   

Reunion, FL, East Community Development District, Special Assessment

     6.600     5/1/33         330,000         321,031   

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         841,313         361,765 *(f) 
          

 

 

 

Total Florida

             4,524,680   
          

 

 

 

Georgia - 3.6%

          

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

     5.000     7/1/32         2,000,000         2,108,040   

Atlanta, GA, Water & Wastewater Revenue

     6.250     11/1/39         2,000,000         2,393,080 (d) 

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

     6.125     7/1/40         1,000,000         1,148,180   

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

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

 

 

 

Total Georgia

             6,249,300   
          

 

 

 

Hawaii - 1.3%

          

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

     6.500     7/1/39         2,000,000         2,275,420   
          

 

 

 

Illinois - 2.8%

          

Chicago, IL, Motor Fuel Tax Revenue, AGM

     5.000     1/1/32         1,000,000         1,063,720   

Chicago, IL, O’Hare International Airport Revenue

     5.000     1/1/31         1,500,000         1,721,640 (e) 

Illinois Finance Authority Revenue, Refunding, Chicago Charter School Project

     5.000     12/1/26         1,000,000         1,016,110   

Illinois State Finance Authority Revenue, Franciscan Communities Inc.

     5.250     5/15/47         1,000,000         1,030,410   

Metropolitan Pier & Exposition Authority, IL, Revenue,

CAB-McCormick Place Expansion Project

     0.000     12/15/52         700,000         101,759   
          

 

 

 

Total Illinois

             4,933,639   
          

 

 

 

Indiana - 2.1%

          

County of St. Joseph, IN, EDR:

          

Holy Cross Village Notre Dame Project

     6.000     5/15/26         285,000         289,620 (d) 

Holy Cross Village Notre Dame Project

     6.000     5/15/38         550,000         552,079 (d) 

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

     5.000     7/1/48         2,000,000         2,145,680 (e) 

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

     7.000     1/1/44         500,000         613,790 (e) 
          

 

 

 

Total Indiana

             3,601,169   
          

 

 

 

 

See Notes to Schedule of Investments.

 

2


WESTERN ASSET MUNICIPAL HIGH INCOME FUND INC.

 

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

 

 

SECURITY

   RATE     MATURITY
DATE
     FACE
AMOUNT
     VALUE  

Iowa - 3.1%

          

Iowa State Finance Authority Midwestern Disaster Area Revenue:

          

Iowa Fertilizer Co. Project

     5.000     12/1/19       $ 500,000       $ 523,520   

Iowa Fertilizer Co. Project

     5.250     12/1/25         4,540,000         4,978,655   
          

 

 

 

Total Iowa

             5,502,175   
          

 

 

 

Kansas - 0.7%

          

Salina, KS, Hospital Revenue, Refunding & Improvement Salina Regional Health

     5.000     10/1/22         1,150,000         1,159,039   
          

 

 

 

Kentucky - 1.3%

          

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

     6.250     6/1/39         2,000,000         2,255,720   
          

 

 

 

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         3,475,440   
          

 

 

 

Massachusetts - 1.5%

          

Massachusetts State DFA Revenue:

          

Partners Healthcare System

     5.000     7/1/47         1,250,000         1,440,675   

Tufts Medical Center Inc.

     6.875     1/1/41         1,000,000         1,177,190   
          

 

 

 

Total Massachusetts

             2,617,865   
          

 

 

 

Michigan - 3.3%

          

Gaudior Academy, COP

     7.250     4/1/34         1,000,000         360,000 *(f)(g) 

Michigan State Finance Authority Limited Obligation Revenue:

          

Higher Education, Thomas M Cooley Law School Project

     6.000     7/1/24         310,000         332,441 (c) 

Higher Education, Thomas M Cooley Law School Project

     6.750     7/1/44         430,000         458,922 (c) 

Michigan State Finance Authority Revenue:

          

Local Government Loan Program, Detroit Water & Sewer Department

     5.000     7/1/35         250,000         283,055   

Senior Lien Detroit Water & Sewer

     5.000     7/1/33         260,000         296,735   

Senior Lien Detroit Water & Sewer

     5.000     7/1/44         270,000         292,748   

Michigan State Strategic Fund Limited Obligation Revenue:

          

Evangelical Homes of Michigan

     5.250     6/1/32         500,000         529,450   

Evangelical Homes of Michigan

     5.500     6/1/47         750,000         790,432   

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

     8.250     9/1/39         2,000,000         2,374,840 (d) 
          

 

 

 

Total Michigan

             5,718,623   
          

 

 

 

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         202,784 (c) 

Missouri State HEFA Revenue:

          

Lutheran Senior Services

     6.000     2/1/41         500,000         570,340   

Lutheran Senior Services

     5.000     2/1/44         750,000         813,165   

Refunding, St. Lukes Episcopal

     5.000     12/1/21         1,300,000         1,351,584   

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

     5.875     9/1/43         2,000,000         2,315,140   
          

 

 

 

Total Missouri

             5,253,013   
          

 

 

 

 

See Notes to Schedule of Investments.

 

3


WESTERN ASSET MUNICIPAL HIGH INCOME FUND INC.

 

Schedule of investments (unaudited) (cont’d)    January 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       $ 3,625,871   
          

 

 

 

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         307,977 (c) 

Somerset Academy of Las Vegas

     5.125     12/15/45         500,000         506,345 (c) 
          

 

 

 

Total Nevada

             814,322   
          

 

 

 

New Jersey - 6.3%

          

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

     5.000     12/1/24         450,000         507,784 (e) 

New Jersey State EDA Revenue:

          

Private Activity-The Goethals Bridge Replacement Project

     5.375     1/1/43         1,500,000         1,673,085 (e) 

Refunding

     6.875     1/1/37         4,920,000         4,924,477 (e) 

New Jersey State Higher Education Assistance Authority, Student Loan Revenue

     5.000     12/1/44         640,000         662,157 (e) 

Salem County, NJ, PCFA Revenue, Chambers Project

     5.000     12/1/23         3,000,000         3,275,580 (e) 
          

 

 

 

Total New Jersey

             11,043,083   
          

 

 

 

New York - 2.1%

          

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

     6.250     7/15/40         2,000,000         2,318,780   

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

     5.000     11/15/44         1,205,000         1,282,409 (c) 
          

 

 

 

Total New York

             3,601,189   
          

 

 

 

North Carolina - 0.3%

          

North Carolina Department of Transportation Private Activity Revenue, I-77 Hot Lanes Project

     5.000     12/31/37         500,000         543,360 (e) 
          

 

 

 

Ohio - 2.0%

          

Cuyahoga County, OH, Hospital Facilities Revenue, Canton Inc. Project

     7.500     1/1/30         1,245,000         1,247,241   

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

     5.250     5/15/21         1,500,000         1,521,435   

Ohio State Private Activity Revenue, Portsmouth Bypass Project

     5.000     6/30/53         700,000         769,391 (e) 
          

 

 

 

Total Ohio

             3,538,067   
          

 

 

 

Oklahoma - 0.6%

          

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

     7.125     11/1/30         1,000,000         1,092,230   
          

 

 

 

Pennsylvania - 3.6%

          

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

     5.000     1/1/28         350,000         401,716   

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

     5.000     1/15/36         750,000         854,955   

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

     5.000     1/1/27         1,000,000         1,036,460   

 

See Notes to Schedule of Investments.

 

4


WESTERN ASSET MUNICIPAL HIGH INCOME FUND INC.

 

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

 

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       $ 1,518,286   

Acts Retirement-Life Communities

     5.000     11/15/29         1,350,000         1,462,468   

Philadelphia, PA, Authority for IDR:

          

Discovery Charter School Inc. Project

     6.250     4/1/37         500,000         476,860   

Performing Arts Charter School Project

     6.000     6/15/23         500,000         525,560 (c) 
          

 

 

 

Total Pennsylvania

             6,276,305   
          

 

 

 

Tennessee - 1.5%

          

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

     5.750     9/1/37         2,500,000         2,540,325   
          

 

 

 

Texas - 20.5%

          

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

     5.900     5/1/28         1,500,000         1,608,540 (b)(e)(h) 

Central Texas Regional Mobility Authority Revenue

     5.000     1/1/42         2,000,000         2,173,740   

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

     5.000     11/1/42         4,000,000         4,342,080 (e) 

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

     0.000     10/1/35         1,500,000         1,277,160 (b) 

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

     4.875     5/1/25         1,000,000         1,053,660 (e) 

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

     5.625     11/15/32         2,000,000         2,233,320   

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

     5.250     11/1/40         6,000,000         6,634,560   

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         1,226,302   

North Texas Tollway Authority Revenue:

          

System-First Tier

     5.750     1/1/40         1,250,000         1,367,613 (d) 

System-First Tier

     5.750     1/1/40         1,250,000         1,348,225   

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. III, Gas Supply Revenue

     5.000     12/15/28         1,500,000         1,719,930   

Texas State Private Activity Bond Surface Transportation Corp. Revenue:

          

LBJ Infrastructure Group LLC

     7.000     6/30/40         4,000,000         4,837,920   

Senior Lien, NTE Mobility Partners LLC

     6.875     12/31/39         2,000,000         2,387,480   

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

          

Cosmos Foundation Inc.

     6.200     2/15/40         1,000,000         1,204,610 (d) 

Uplift Education

     5.750     12/1/27         1,500,000         1,602,930   

Willacy County, TX, PFC Project Revenue, County Jail

     7.500     11/1/25         445,000         431,352   
          

 

 

 

Total Texas

             35,689,422   
          

 

 

 

U.S. Virgin Islands - 1.6%

          

Virgin Islands Public Finance Authority Revenue, Matching Fund Loan

     6.750     10/1/37         2,500,000         2,834,700   
          

 

 

 

Virginia - 1.9%

          

Virginia State Small Business Financing Authority Revenue:

          

Elizabeth River Crossings OpCo LLC Project

     5.250     1/1/32         1,000,000         1,101,500 (e) 

Elizabeth River Crossings OpCo LLC Project

     5.500     1/1/42         2,000,000         2,214,560 (e) 
          

 

 

 

Total Virginia

             3,316,060   
          

 

 

 

 

See Notes to Schedule of Investments.

 

5


WESTERN ASSET MUNICIPAL HIGH INCOME FUND INC.

 

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

 

SECURITY

   RATE     MATURITY
DATE
     FACE
AMOUNT
     VALUE  

West Virginia - 1.5%

          

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

     5.250     10/15/37       $ 2,500,000       $ 2,586,125   
          

 

 

 

Wisconsin - 0.1%

          

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

     5.000     9/1/38         250,000         251,725 (c) 
          

 

 

 

TOTAL INVESTMENTS BEFORE SHORT-TERM INVESTMENTS

(Cost - $152,920,484)

             166,428,160   
          

 

 

 
SHORT-TERM INVESTMENTS - 3.5%           
MUNICIPAL BONDS - 3.5%           

California - 0.1%

          

San Diego County, CA, Regional Transportation Commission, Sales Tax Revenue, SPA-JPMorgan Chase

     0.010     4/1/38         200,000         200,000 (i)(j) 
          

 

 

 

Florida - 0.8%

          

North Broward, FL, Hospital District Revenue, NATL, LOC-Wells Fargo Bank N.A.

     0.020     1/15/27         1,380,000         1,380,000 (i)(j) 
          

 

 

 

Kentucky - 0.2%

          

Kentucky State Economic Development Finance Authority Revenue, Catholic Health Initiatives

     0.010     5/1/34         400,000         400,000 (i)(j) 
          

 

 

 

New York - 1.2%

          

New York State Housing Finance Agency Revenue, Worth Street, FNMA, LIQ-FNMA

     0.010     5/15/33         2,100,000         2,100,000 (e)(i)(j) 
          

 

 

 

North Carolina - 1.0%

          

North Carolina State Medical Care Commission, Health Care Facilities Revenue, Novant Health Group, SPA-JPMorgan Chase

     0.060     11/1/34         1,400,000         1,400,000 (i)(j) 

Orange, NC, Water & Sewer Authority, System Revenue, SPA-Wells Fargo Bank N.A.

     0.020     7/1/29         300,000         300,000 (i)(j) 
          

 

 

 

Total North Carolina

             1,700,000   
          

 

 

 

Pennsylvania - 0.1%

          

Philadelphia, PA, Authority For Industrial Development Revenue, Gift of Life Donor Programme Project, LOC-Commerce Bank N.A.

     0.010     12/1/34         100,000         100,000 (i)(j) 
          

 

 

 

Virginia - 0.1%

          

Virginia College Building Authority, VA, Educational Facilities Revenue, 21st Century College, SPA-Wells Fargo Bank N.A.

     0.010     2/1/26         100,000         100,000 (i)(j) 
          

 

 

 

TOTAL MUNICIPAL BONDS

(Cost - $5,980,000)

             5,980,000   
          

 

 

 
                  SHARES         

Money Market Funds - 0.0%

          

State Street Institutional U.S. Government Money Market Fund, Premier Class (Cost - $52,912)

     0.194        52,912         52,912   
          

 

 

 

TOTAL SHORT-TERM INVESTMENTS

(Cost - $6,032,912)

             6,032,912   
          

 

 

 

TOTAL INVESTMENTS - 99.0%

(Cost - $158,953,396#)

             172,461,072   

Other Assets in Excess of Liabilities - 1.0%

             1,802,668   
          

 

 

 

TOTAL NET ASSETS - 100.0%

           $ 174,263,740   
          

 

 

 

 

 

See Notes to Schedule of Investments.

 

6


WESTERN ASSET MUNICIPAL HIGH INCOME FUND INC.

 

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

 

 

* 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 January 31, 2016.

 

(g) Illiquid security.

 

(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

EDR   

— Economic Development Revenue

EFA   

— Educational Facilities Authority

FNMA   

— Federal National Mortgage Association

GO   

— General Obligation

GTD   

— Guaranteed

HEFA   

— Health & Educational Facilities Authority

IDA   

— Industrial Development Authority

IDR   

— Industrial Development Revenue

LIQ   

— Liquidity Facility

LOC   

— Letter of Credit

NATL   

— National Public Finance Guarantee Corporation - Insured Bonds

PCFA   

— Pollution Control Financing Authority

PCR   

— Pollution Control Revenue

PFC   

— Public Facilities Corporation

SPA   

— Standby Bond Purchase Agreement -Insured Bonds

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  

Long-term investments†:

           

Municipal bonds

     —         $ 166,428,160         —         $ 166,428,160   
  

 

 

    

 

 

    

 

 

    

 

 

 

Short-term investments†:

           

Municipal bonds

     —           5,980,000         —           5,980,000   

Money market funds

   $ 52,912         —           —           52,912   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total short-term investments

   $ 52,912       $ 5,980,000         —         $ 6,032,912   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total investments

   $ 52,912       $ 172,408,160         —         $ 172,461,072   
  

 

 

    

 

 

    

 

 

    

 

 

 

LIABILITIES

 

DESCRIPTION

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

Other financial instruments:

           

Futures contracts

   $ 47,883         —           —         $ 47,883   

 

See Schedule of Investments for additional detailed categorizations.

2. Investments

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

 

Gross unrealized appreciation

   $ 17,683,463   

Gross unrealized depreciation

     (4,175,787
  

 

 

 

Net unrealized appreciation

   $ 13,507,676   
  

 

 

 

At January 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

     12         3/16       $ 1,884,492       $ 1,932,375       $ (47,883

 

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:

 

March 22, 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:

 

March 22, 2016

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

Date:

 

March 22, 2016