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MUNICIPAL
HIGH INCOME
FUND INC.
ANNUAL
REPORT
Small circle centered on
top front cover with fund
name in it. Entire front
cover is an American Flag
with two stars at top
right and left corner.
OCTOBER
31, 1994
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MUNICIPAL HIGH INCOME FUND INC.
Dear Shareholder:
We are pleased to provide the Annual Report for Municipal High Income Fund
Inc. for the fiscal year ended October 31, 1994. Over the past twelve months,
the Fund paid dividends totaling $0.648 per share, equivalent to an annualized
distribution rate of 7.22% based on the October 31, 1994 net asset value of
$8.98 per share and 7.85% based on the New York Stock Exchange, Inc. closing
price on that date of $8.25 per share.
PORTFOLIO UPDATE
1994 has produced a difficult investment climate for the fixed income
investor as fear of an economic expansion and, by implication, the threat of
inflation have gripped both the global and domestic bond markets. In an effort
to combat inflation, the Federal Reserve has raised interest rates six times
this year, and additional increases may be possible before year end. This has
led to a bond market characterized by pessimism and selling pressures and,
consequently, lower prices for most fixed-income securities. From our
perspective, however, trends currently aligning themselves in the bond markets
should provide positive developments for the debt markets in general, and
tax-exempt securities in particular.
When the markets become convinced that the Federal Reserve will do what is
necessary to slow economic growth, volatility should lessen and bond prices
should stabilize. This outcome becomes more likely as the Federal Reserve raises
short-term rates. Futhermore, as the Federal Reserve increases interest rates,
the U.S. dollar should strengthen, which will heighten the appeal of U.S. debt
instruments to foreign investors and thereby provide additional support to U.S.
markets. Now that the fall election cycle is complete, the markets will benefit
from a clearer knowledge of the political makeup and fiscal direction of our
government.
The tax-exempt market should continue to benefit from higher Federal tax
rates and a lack of new debt issuance, both of which heighten the value and
appeal of quality tax-exempt income. Moreover, municipals are at increasingly
attractive valuation levels as a percentage of Treasuries and should outperform
them on a relative basis going forward. The fact that our Fund is composed of
older, high-coupon bonds of good credit quality and is not leveraged means that
we are well positioned to meet our investment objective of high tax-exempt
current income at below average volatility and risk.
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The Fund continues to earn a 4-star rating for both its short-term and
long-term performance from Morningstar Inc., a nationally-recognized mutual fund
review service. We are pleased with this recognition and will continue to
endeavor to maintain our standings. We appreciate your continued confidence and
support during this difficult investment environment.
Sincerely,
<TABLE>
<S> <C>
Heath B. McLendon Lawrence T. McDermott
CHAIRMAN OF THE BOARD VICE PRESIDENT AND INVESTMENT OFFICER
November 30, 1994
</TABLE>
2
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UNAUDITED FINANCIAL DATA
PER SHARE OF COMMON STOCK
<TABLE>
<CAPTION>
CAPITAL
NYSE GAINS DIVIDEND
RECORD PAY CLOSING NET ASSET DIVIDEND DIVIDEND REINVESTMENT
DATE DATE PRICE* VALUE* PAID PAID PRICE
-------- -------- ------------- --------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
11/22/93 11/30/93 $9.375 $9.60 $.0540 -- $9.55
12/23/93 12/31/93 9.375 9.65 .0540 $.0210 9.47
1/24/94 1/31/94 9.625 9.66 .0540 -- 9.47
2/18/94 2/28/94 9.500 9.60 .0540 -- 9.41
3/24/94 3/31/94 9.125 9.42 .0540 -- 8.96
4/22/94 4/30/94 8.875 9.21 .0540 -- 9.01
5/23/94 5/31/94 9.000 9.18 .0540 -- 9.00
6/23/94 6/30/94 9.000 9.23 .0540 -- 8.98
7/22/94 7/31/94 9.125 9.20 .0540 -- 9.02
8/24/94 8/31/94 8.750 9.22 .0540 -- 8.87
9/23/94 9/30/94 8.500 9.13 .0540 -- 8.66
10/24/94 10/31/94 8.375 9.03 .0540 -- 8.17
</TABLE>
DIVIDEND DATA**
<TABLE>
<CAPTION>
EQUIVALENT TAXABLE DISTRIBUTION RATE
----------------------------------------------------
PER SHARE ANNUALIZED ASSUMING ASSUMING ASSUMING ASSUMING
DIVIDEND DISTRIBUTION 28% FEDERAL 31% FEDERAL 36% FEDERAL 39.6% FEDERAL
DISTRIBUTIONS RATE TAX BRACKET TAX BRACKET TAX BRACKET TAX BRACKET
------------ ------------ ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
$0.648 7.22% 10.03% 10.46% 11.28% 11.95%
</TABLE>
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* As of Record Date.
** Based on October 31, 1994 net asset value of $8.98 per share. Does not
include capital gains dividends of $.021 per share.
Generally, each registered shareholder is considered a participant in the
Fund's Dividend Reinvestment Plan, unless the shareholder elects to receive all
dividends and distributions in cash, or unless the shareholder's shares are
registered in the name of a broker, bank or nominee (other than Smith Barney
Inc.) which does not provide the service. Questions and correspondence
concerning the Dividend Reinvestment Plan should be directed to The Shareholder
Services Group, Inc. ("TSSG"), P.O. Box 1376, Boston, Massachusetts 02104. If
interested in joining or for more information concerning the Dividend
Reinvestment Plan, please call TSSG at 1-800-331-1710.
3
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MUNICIPAL HIGH INCOME FUND INC.
Portfolio of Investments
October 31, 1994
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KEY TO INSURANCE ABBREVIATIONS
MBIA -- MUNICIPAL BOND INVESTORS ASSURANCE
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
------------------- MARKET
FACE STANDARD & VALUE
VALUE MOODY'S POOR'S (NOTE 1)
---------- ------- ---------- -------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES--97.7%
ALABAMA--0.5%
$ 740,000 Alabama Housing Finance Authority, Single
Family Mortgage Revenue,
10.500% due 12/01/02........................ A1 AA- $ 778,850
ARIZONA--2.1%
3,300,000 Gila County, Arizona, Industrial Development
Authority, Pollution Control Revenue,
(ASARCO), Series 1985,
8.900% due 07/01/06......................... Baa2 BBB 3,610,500
ARKANSAS--1.7%
2,750,000 Pope County, Arkansas, Pollution Control
Revenue, (Arkansas Power & Light Company
Project),
11.000% due 12/01/15........................ Baa2 BBB 2,956,250
CALIFORNIA--1.2%
2,000,000 Los Angeles County, California, Regional
Airport Authority, (Continental Airlines,
Inc.),
9.000% due 08/01/17......................... NR NR 2,152,500
COLORADO--1.6%
1,250,000 Colorado Health Facilities, Authority Revenue
Project, (Beth Israel at Shalom Park
Project),
8.000% due 12/15/22......................... NR NR 1,268,750
1,600,000 Denver, Colorado, City & County Airport
Revenue, Series A,
8.000% due 11/15/25......................... Baa BB 1,558,000
CONNECTICUT--0.8%
1,500,000 Connecticut State, Development Authority,
Health Care Revenue, Series B,
8.000% due 07/01/17......................... NR NR 1,464,375
</TABLE>
See Notes to Financial Statements.
4
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MUNICIPAL HIGH INCOME FUND INC.
Portfolio of Investments (continued)
October 31, 1994
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<CAPTION>
RATINGS
(UNAUDITED)
------------------- MARKET
FACE STANDARD & VALUE
VALUE MOODY'S POOR'S (NOTE 1)
---------- ------- ---------- -------------
MUNICIPAL BONDS AND NOTES (CONTINUED)
<C> <S> <C> <C> <C>
FLORIDA--6.7%
$1,500,000 Broward County, Florida, Educational
Facilities, (NOVA Project),
8.500% due 04/01/10......................... NR BBB $ 1,702,500
1,000,000 Hillsborough County, Florida, Industrial
Development Revenue, (Seaboard Tampa
Terminals Venture Project),
8.600% due 01/15/22......................... B2 B- 900,000
1,000,000 Homestead, Florida, Industrial Development
Revenue, Project A,
7.950% due 11/01/18......................... NR NR 916,250
2,090,000 Jacksonville, Florida, Health Facilities
Authority, Health Facilities Revenue,
9.125% due 10/15/19......................... NR NR 2,121,350
1,000,000 Lady Lake, Florida, Industrial Development
Project Revenue, (Sunbelt Utilities Inc.
Project),
9.500% due 07/01/10......................... NR NR 1,206,250
1,500,000 Ocean Highway & Port Authority, Florida,
Pollution Control Revenue, Solid Waste,
9.375% due 11/01/04......................... NR B+ 1,494,375
Palm Beach County, Florida, Health Facilities
Authority, Insured Hospital Revenue,
(JFK Medical Center):
1,155,000 8.875% due 12/01/18......................... NR BBB 1,251,731
1,320,000 8.875% due 12/01/18 (prerefunded)........... NR NR 1,513,050
650,000 Tampa, Florida, (Aquarium Inc. Revenue
Project),
7.750% due 05/01/27......................... NR NR 682,500
GEORGIA--0.6%
1,000,000 Walton County, Georgia, Industrial Development
Authority, (Walton Project),
8.500% due 09/01/07......................... NR NR 1,008,750
ILLINOIS--6.9%
2,987,000 Chicago, Illinois, O'Hare International
Airport, Special Facilities Revenue Bonds,
Series B,
8.950% due 05/01/18......................... Baa2 BB 3,229,694
1,700,000 Chicago, Illinois, Skyway Toll Bridge,
6.750% due 01/01/17......................... Baa BBB- 1,589,500
</TABLE>
See Notes to Financial Statements.
5
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MUNICIPAL HIGH INCOME FUND INC.
Portfolio of Investments (continued)
October 31, 1994
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<CAPTION>
RATINGS
(UNAUDITED)
------------------- MARKET
FACE STANDARD & VALUE
VALUE MOODY'S POOR'S (NOTE 1)
---------- ------- ---------- -------------
MUNICIPAL BONDS AND NOTES (CONTINUED)
<C> <S> <C> <C> <C>
ILLINOIS (CONTINUED)
$2,000,000 East Chicago, Illinois, Industrial Pollution
Control Revenue, (Inland Steel Company),
Project 10,
6.800% due 06/01/13......................... Ba3 BB- $ 1,890,000
1,960,000 Hanover Park, Illinois, First Mortgage,
(Windsor Project),
9.250% due 12/01/07......................... NR NR 1,996,750
1,750,000 Hennepin, Illinois, Industrial Development
Revenue,
10.250% due 01/01/05 (in default)........... NR NR 157,500
1,500,000 Illinois Housing Development Authority, Series
5,
6.650% due 09/01/14......................... A1 A+ 1,498,125
795,000 Loves Park, Illinois, First Mortgage Revenue,
(Hoosier Care Project), Series A,
9.750% due 08/01/19......................... NR NR 807,919
1,000,000 Sterling, Illinois, First Mortgage Revenue
(Hoosier Care Project), Series A,
9.750% due 08/01/19......................... NR NR 1,043,750
INDIANA--0.8%
1,500,000 Sullivan, Indiana, Pollution Control Revenue
Refunding, (Indiana Michigan Power Company),
5.950% due 05/01/09......................... Baa2 BBB 1,340,625
IOWA--0.7%
1,240,000 Marion, Iowa, Multi-family Housing Revenue,
9.500% due 07/01/18......................... NR NR 1,243,100
KENTUCKY--2.7%
1,410,000 Jefferson County, Kentucky, Health Facilities
Authority,
10.125% due 05/01/08........................ A1 NR 1,566,862
Kenton County, Kentucky, Airport Board:
1,000,000 (Delta Airlines),
6.750% due 02/01/02......................... Ba1 BB 957,500
1,500,000 (Greater Cincinnati Airport Revenue), Project
A,
7.500% due 02/01/20......................... Ba1 BB 1,406,250
1,000,000 Pendleton County, Kentucky, Multi-Lease
Revenue, Series A,
6.500% due 03/01/19......................... NR A 917,500
</TABLE>
See Notes to Financial Statements.
6
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MUNICIPAL HIGH INCOME FUND INC.
Portfolio of Investments (continued)
October 31, 1994
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RATINGS
(UNAUDITED)
------------------- MARKET
FACE STANDARD & VALUE
VALUE MOODY'S POOR'S (NOTE 1)
---------- ------- ---------- -------------
MUNICIPAL BONDS AND NOTES (CONTINUED)
<C> <S> <C> <C> <C>
LOUISIANA--4.1%
$1,200,000 Lake Charles, Louisiana, (Harbor & Terminal
Project),
7.750% due 08/15/22......................... Baa3 NR $ 1,245,000
Port New Orleans, Louisiana, Industrial
Development Revenue:
2,000,000 8.250% due 06/01/04......................... NR NR 2,000,000
3,000,000 8.500% due 06/01/14......................... NR NR 2,992,500
1,000,000 (Continental Grain Company Project),
7.500% due 07/01/13......................... NR BB- 952,500
MAINE--1.7%
Maine State Housing Authority:
Mortgage Purchases,
500,000 Series C-2,
7.000% due 11/15/32......................... A1 AA- 470,625
2,500,000 Series D-1,
8.300% due 11/15/28......................... A1 AA- 2,540,625
MARYLAND--2.0%
3,000,000 Maryland State Health & Higher Education
Facilities Authority, (Doctors Community
Hospital Project),
8.750% due 07/01/22 (prerefunded 07/01/00).. Aaa NR 3,506,250
MASSACHUSETTS--5.9%
1,980,000 Commonwealth of Massachusetts Health &
Educational Facilities Authority Revenue,
(North Adams State College),
9.625% due 07/01/18......................... NR NR 2,009,700
Commonwealth of Massachusetts
Industrial Finance Agency:
1,700,000 Series A, (S.E. Mass Project),
9.000% due 07/01/15......................... NR NR 1,859,375
5,940,000 Series B, (S.E. Mass Project),
9.250% due 07/01/15......................... NR NR 6,526,575
MICHIGAN--2.4%
1,855,000 Greater Detroit, Michigan, Recreation
Authority, Series C,
9.250% due 12/13/08......................... NR BBB- 1,954,706
</TABLE>
See Notes to Financial Statements.
7
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MUNICIPAL HIGH INCOME FUND INC.
Portfolio of Investments (continued)
October 31, 1994
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<CAPTION>
RATINGS
(UNAUDITED)
------------------- MARKET
FACE STANDARD & VALUE
VALUE MOODY'S POOR'S (NOTE 1)
---------- ------- ---------- -------------
MUNICIPAL BONDS AND NOTES (CONTINUED)
<C> <S> <C> <C> <C>
MICHIGAN (CONTINUED)
$ 755,000 Greater Detroit, Michigan, Resource Recovery
Authority Revenue, Series B,
9.250% due 12/13/08......................... NR BBB- $ 795,581
1,500,000 Western Townships, Michigan, Utility Revenue,
Sewage System,
8.300% due 01/01/19......................... NR BBB+ 1,550,625
MINNESOTA--1.1%
2,000,000 Minnesota Housing Finance Authority,
Single Family Mortgage, Series H,
6.700% due 01/01/18......................... Aa AA+ 1,932,500
MISSISSIPPI--3.5%
3,300,000 Claiborne County, Mississippi, Pollution
Control Revenue, Series C,
9.875% due 12/01/14......................... NR NR 3,766,125
2,000,000 Mississippi Hospital Equipment & Facilities
Authority, (Methodist Hospital),
9.375% due 05/01/12......................... NR NR 2,307,500
NEW HAMPSHIRE--2.2%
New Hampshire State Industrial Development
Authority, (United Illuminating Company):
1,000,000 Series A,
9.375% due 07/01/12......................... Baa3 BBB- 1,083,750
2,500,000 Series B,
10.750% due 10/01/12........................ Ba1 BBB- 2,850,000
NEW JERSEY--3.2%
1,300,000 New Jersey Educational Facilities, Series C,
6.625% due 07/01/23......................... NR NR 1,165,125
New Jersey Health Care Facilities,
1,000,000 7.250% due 07/01/27......................... NR NR 907,500
Finance Authority Revenue:
1,730,000 7.600% due 07/01/21......................... Ba NR 1,684,588
1,500,000 (Zurbrugg Memorial Hospital), Series C,
8.500% due 07/01/12......................... Baa BBB- 1,560,000
</TABLE>
See Notes to Financial Statements.
8
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MUNICIPAL HIGH INCOME FUND INC.
Portfolio of Investments (continued)
October 31, 1994
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<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
------------------- MARKET
FACE STANDARD & VALUE
VALUE MOODY'S POOR'S (NOTE 1)
---------- ------- ---------- -------------
MUNICIPAL BONDS AND NOTES (CONTINUED)
<C> <S> <C> <C> <C>
NEW JERSEY (CONTINUED)
$ 310,000 New Jersey Housing and Mortgage Finance
Agency, Home Buyer Revenue, Series E, (MBIA
Insured),
7.650% due 10/01/16......................... Aaa AAA $ 324,725
NEW MEXICO--1.0%
1,705,000 New Mexico Mortgage Finance Authority, Single
Family Mortgage Program, Series B,
8.300% due 03/01/20......................... NR AA 1,781,725
NEW YORK--5.4%
1,680,000 Babylon, New York, Industrial Development
Agency, (Recycling Project), Series A,
8.875% due 03/01/11 (in default)............ NR NR 672,000
2,055,000 New York City Industrial Development Agency,
Civic Facility Revenues, (International
Center for Integrated Studies -- Door
Project),
9.000% due 03/01/09 (in default)............ NR NR 411,000
1,400,000 New York City, New York, Battery Park
Authority Revenue,
5.800% due 11/01/22......................... A A 1,184,750
New York City, New York, Certificates of
Participation:
875,000 Series C,
7.750% due 09/01/05......................... Baa1 A- 910,000
2,000,000 Series E,
6.000% due 05/15/15......................... Baa1 A- 1,737,500
1,000,000 Series H,
7.000% due 02/01/21......................... Baa1 A- 980,000
2,000,000 Sub-Series H-1,
6.125% due 08/01/10......................... Baa1 A- 1,810,000
1,950,000 New York State, Energy, Research & Development
Authority, Electric Facility Revenue,
7.150% due 12/01/20......................... Ba1 BB+ 1,833,000
NORTH CAROLINA--2.3%
1,750,000 Martin County, North Carolina, Industrial
Facilities Pollution Control,
6.800% due 05/01/24......................... A2 A 1,662,500
</TABLE>
See Notes to Financial Statements.
9
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MUNICIPAL HIGH INCOME FUND INC.
Portfolio of Investments (continued)
October 31, 1994
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<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
------------------- MARKET
FACE STANDARD & VALUE
VALUE MOODY'S POOR'S (NOTE 1)
---------- ------- ---------- -------------
MUNICIPAL BONDS AND NOTES (CONTINUED)
<C> <S> <C> <C> <C>
NORTH CAROLINA (CONTINUED)
$2,300,000 North Carolina, Eastern Municipal Power
Agency, Power Systems Revenue,
7.000% due 01/01/08......................... A A- $ 2,383,375
OHIO--2.8%
1,000,000 Cleveland, Ohio, Airport Special Revenue,
(Continental Airlines Inc.),
9.000% due 12/01/19......................... NR NR 1,026,250
1,000,000 Cuyahoga County, Ohio, Health Care Facilities,
Judson Retirement Community,
8.875% due 11/15/19......................... NR NR 1,070,000
1,500,000 Montgomery County, Ohio, Health Systems
Revenue, Series B,
8.100% due 07/01/18......................... Baa BBB- 1,580,625
115,000 Ohio Housing Finance Agency, Single Family
Mortgage Revenue,
11.375% due 08/01/14........................ Aa A 118,881
1,000,000 Ohio Water Development Authority, Pollution
Control Revenue, Series A,
8.100% due 10/01/13......................... Baa3 BB+ 1,046,250
100,000 Toledo Lucas County, Ohio, Industrial
Development Revenue Authority,
3.400% due 03/01/04......................... NR NR 100,000
PENNSYLVANIA--13.3%
2,200,000 Allegheny County, Pennsylvania, Industrial
Development Authority, Special Facilities
Revenue, Series B, (U.S. Air Project),
8.500% due 03/01/21......................... B3 B- 1,991,000
1,500,000 Delaware County Pennsylvania, Industrial
Development Authority, First Mortgage,
(White Horse),
9.700% due 07/01/09......................... NR NR 1,513,125
3,000,000 Lebanon County, Pennsylvania, (Samaritan
Hospital), Series B,
8.250% due 11/01/18......................... NR BBB+ 3,412,500
2,500,000 Luzerne County, Pennsylvania, Industrial
Development Authority,
7.125% due 12/01/22......................... Baa3 BBB- 2,384,375
</TABLE>
See Notes to Financial Statements.
10
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MUNICIPAL HIGH INCOME FUND INC.
Portfolio of Investments (continued)
October 31, 1994
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<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
------------------- MARKET
FACE STANDARD & VALUE
VALUE MOODY'S POOR'S (NOTE 1)
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MUNICIPAL BONDS AND NOTES (CONTINUED)
<C> <S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$2,000,000 Montgomery County, Pennsylvania, Higher
Education & Health Authority,
8.375% due 11/01/11......................... Ba1 NR $ 2,062,500
4,440,000 Montgomery County, Pennsylvania, Industrial
Development Authority, Pollution Control
Revenue, (Philadelphia Electric Company),
Series A,
10.500% due 05/15/15........................ Baa1 BBB 4,711,950
625,000 Northumberland County, Pennsylvania,
Industrial Development Authority Revenue,
6.875% due 02/01/03......................... NR NR 600,781
1,500,000 Pennsylvania Housing Finance Authority, Single
Family Mortgage, Series C,
6.900% due 04/01/25......................... Aa AA 1,438,125
2,000,000 Philadelphia, Pennsylvania, Gas Revenue,
Series B,
6.400% due 11/15/16......................... Ba BB 1,790,000
1,000,000 Schuylkill County, Pennsylvania, Industrial
Development Revenue,
6.500% due 01/01/10......................... NR NR 908,750
1,500,000 Scranton-Lackawanna, Pennsylvania, Health &
Welfare Authority, (Mercy Health Systems),
Series B,
8.500% due 07/01/20......................... NR BB+ 1,569,375
1,250,000 Sharon, Pennsylvania, Regional Health Systems,
(Project B),
6.875% due 12/01/22......................... NR BBB+ 1,157,812
SOUTH CAROLINA--0.5%
940,000 McCormick County, South Carolina, Certificates
of Participation,
9.750% due 07/01/09......................... NR NR 957,625
SOUTH DAKOTA--2.3%
Oglala Sioux Tribe, South Dakota, Pine Ridge
County, Revenue Bonds:
315,000 7.000% due 07/01/99......................... NR NR 310,669
1,865,000 7.500% due 07/01/13......................... NR NR 1,802,057
1,890,000 10.000% due 07/01/13........................ Aaa NR 2,017,462
</TABLE>
See Notes to Financial Statements.
11
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MUNICIPAL HIGH INCOME FUND INC.
Portfolio of Investments (continued)
October 31, 1994
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<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
------------------- MARKET
FACE STANDARD & VALUE
VALUE MOODY'S POOR'S (NOTE 1)
---------- ------- ---------- -------------
MUNICIPAL BONDS AND NOTES (CONTINUED)
<C> <S> <C> <C> <C>
TEXAS--12.6%
$ 600,000 Angelina County, Texas, Jail Facilities
Financing Corporation, (Criminal Detention
Center), Mortgage Revenue Bonds,
9.750% due 08/01/09 (in default)............ NR NR $ 6,000
1,000,000 Bell County, Texas, Health Facilities
Development Corporation, (Living Tech, Inc.
Project), Series A,
10.500% due 06/15/18........................ NR NR 920,000
Brazos River, Texas, Pollution Control
Revenue, (Collateral-Tax, Project A):
1,000,000 9.875% due 10/01/17......................... Baa2 BBB 1,111,250
2,000,000 8.250% due 01/01/19......................... Baa2 BBB 2,170,000
1,500,000 Dallas-Fort Worth, Texas, International
Airport Facilities,
7.500% due 11/01/25......................... Baa2 BB+ 1,417,500
1,495,000 El Paso, Texas, Housing Finance Corporation,
Single Family Mortgage Revenue, Series A,
8.750% due 10/01/11......................... A NR 1,614,600
2,000,000 El Paso, Texas, International Airport Revenue
Bonds,
7.750% due 03/01/12......................... B2 B 1,972,500
1,215,612 Harris County, Texas, Industrial Development
Corporation,
7.950% due 07/01/19......................... NR NR 1,132,040
840,000 La Salle County, Texas, Jail Facilities
Financing Corporation, (Criminal Detention
Center), Revenue Mortgage Bonds,
9.750% due 08/01/09 (in default)............ NR NR 8,400
1,400,000 Matagorda County, Texas, Navigation District
No. 1, Pollution Control Revenue, (Houston
Lighting & Power Company Project), Series A,
7.875% due 02/01/19......................... A3 A 1,480,500
1,400,000 North Central, Texas, Health Facilities
Development Project, (Hospital-Baylor Health
Care Systems, Project A),
8.980% due 05/15/08......................... Aa AA 1,379,000
</TABLE>
See Notes to Financial Statements.
12
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MUNICIPAL HIGH INCOME FUND INC.
Portfolio of Investments (continued)
October 31, 1994
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<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
------------------- MARKET
FACE STANDARD & VALUE
VALUE MOODY'S POOR'S (NOTE 1)
---------- ------- ---------- -------------
MUNICIPAL BONDS AND NOTES (CONTINUED)
<C> <S> <C> <C> <C>
TEXAS (CONTINUED)
Northgate Crossing, Texas, Municipal Utilities
District:
$1,000,000 Series 1,
8.875% due 12/01/13......................... NR NR $ 988,750
1,000,000 Series 2,
8.875% due 12/01/13......................... NR NR 988,750
570,000 Pecos County, Texas, Jail Facilities Financing
Corporation, (Criminal Detention Center),
Mortgage Revenue Bonds,
9.750% due 08/01/09 (in default)............ NR NR 5,700
Port Corpus Christi, Texas, Industrial
Development Corporation Revenue, (Valero
Refinancing and Marketing Company):
2,500,000 Series A,
10.250% due 06/01/17........................ Baa3 BBB- 2,765,625
2,000,000 Series B,
10.625% due 06/01/08........................ Baa3 BBB- 2,230,000
2,000,000 San Saba County, Texas, Certificates of
Obligation,
8.625% due 02/15/19......................... NR NR 2,065,000
UTAH--1.1%
1,780,000 Hurricane, Utah, Health Services Project,
10.500% due 07/01/20........................ NR NR 1,871,225
VERMONT--1.4%
2,365,000 Vermont Housing Finance Agency, Home Mortgage,
Series B,
8.100% due 06/01/22......................... A1 NR 2,421,170
VIRGINIA--1.2%
2,100,000 Hopwell, Virginia, Industrial Development
Resource Authority,
8.250% due 06/01/16......................... NR NR 2,152,500
WEST VIRGINIA--1.3%
2,500,000 Marion County, West Virginia, County
Commission,
7.750% due 12/01/11......................... NR NR 2,275,000
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
MUNICIPAL HIGH INCOME FUND INC.
Portfolio of Investments (continued)
October 31, 1994
[LOGO]
- ------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
------------------- MARKET
FACE STANDARD & VALUE
VALUE MOODY'S POOR'S (NOTE 1)
---------- ------- ---------- -------------
MUNICIPAL BONDS AND NOTES (CONTINUED)
<C> <S> <C> <C> <C>
PUERTO RICO--0.1%
$ 200,000 Commonwealth of Puerto Rico, General
Obligation Bonds,
8.000% due 07/01/08......................... Baa1 A $ 219,250
-------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (Cost $177,055,935*)................................ 97.7% 172,347,653
OTHER ASSETS AND LIABILITIES (Net).................................... 2.3 4,031,302
----- ----------
NET ASSETS............................................................ 100.0% $176,378,955
----- ----------
----- ----------
<FN>
- ---------------
* Aggregate cost for Federal tax purposes.
</TABLE>
<TABLE>
<CAPTION>
SUMMARY OF MUNICIPAL BONDS
BY COMBINED RATINGS
OCTOBER 31, 1994 (UNAUDITED)
STANDARD & PERCENT
MOODY'S OR POOR'S OF VALUE
- --------- ---------- ----------
<S> <C> <C> <C>
Aaa AAA 3.4%
Aa AA 6.1
A A 11.8
Baa BBB 30.3
Ba BB 8.2
B B 3.7
NR NR 36.5
--
100%
--
--
</TABLE>
See Notes to Financial Statements.
14
<PAGE>
MUNICIPAL HIGH INCOME FUND INC.
Statement of Assets and Liabilities
October 31, 1994
[LOGO]
- ------------
<TABLE>
<S> <C> <C>
ASSETS:
Investments, at value (Cost $177,055,935) (Note
1)
See accompanying schedule.................... $172,347,653
Interest receivable............................ 5,040,959
------------
Total Assets................................. 177,388,612
------------
LIABILITIES:
Dividends payable.............................. $403,704
Due to custodian............................... 376,513
Investment advisory fee payable (Note 2)....... 60,493
Administration fee payable (Note 2)............ 30,247
Transfer agent fees payable (Note 2)........... 10,083
Custodian fees payable (Note 2)................ 7,200
Accrued Directors' fees and expenses (Note
2)............................................ 6,017
Accrued expenses and other payables............ 115,400
--------
Total Liabilities............................ 1,009,657
------------
NET ASSETS....................................... $176,378,955
------------
------------
NET ASSETS consist of:
Undistributed net investment income............ $ 280,503
Accumulated net realized loss on investments
sold.......................................... (2,666,650)
Unrealized depreciation of investments......... (4,708,282)
Par value...................................... 196,427
Paid-in capital in excess of par value......... 183,276,957
------------
Total Net Assets............................. $176,378,955
------------
------------
NET ASSET VALUE, per share ($176,378,955
DIVIDED BY 19,642,695 shares of common stock
outstanding).................................... $8.98
------------
------------
</TABLE>
See Notes to Financial Statements.
15
<PAGE>
MUNICIPAL HIGH INCOME FUND INC.
Statement of Operations
For the Year Ended October 31, 1994
[LOGO]
- ------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest....................................... $ 14,308,419
EXPENSES:
Investment advisory fee (Note 2)............... $731,864
Administration fee (Note 2).................... 365,932
Legal and audit fees........................... 129,594
Shareholders reports expense................... 100,390
Transfer agent fees (Note 2)................... 74,177
Custodian fees (Note 2)........................ 45,845
Directors' fees and expenses (Note 2).......... 32,113
Amortization of organization costs (Note 5).... 10,425
Other.......................................... 41,044
--------
Total Expenses............................... 1,531,384
------------
NET INVESTMENT INCOME............................ 12,777,035
------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
(NOTES 1 AND 3):
Net realized loss on investments sold during
the year...................................... (2,666,650)
Net unrealized depreciation of investments
during the year............................... (11,469,648)
------------
NET REALIZED AND UNREALIZED LOSS ON
INVESTMENTS...................................... (14,136,298)
------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS....................................... $ (1,359,263)
------------
------------
</TABLE>
See Notes to Financial Statements.
16
<PAGE>
MUNICIPAL HIGH INCOME FUND INC.
Statement of Changes in Net Assets
[LOGO]
- ------------
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
10/31/94 10/31/93
------------ ------------
<S> <C> <C>
Net investment income.......................... $ 12,777,035 $ 12,709,523
Net realized gain/(loss) on investments sold
during the year............................... (2,666,650) 722,591
Net unrealized appreciation/(depreciation)
during the year............................... (11,469,648) 3,697,189
------------ ------------
Net increase/(decrease) in net assets resulting
from operations............................... (1,359,263) 17,129,303
Distributions to shareholders from:
Net investment income........................ (12,673,016) (12,707,110)
Net realized gain on investments............. (389,249) --
Net increase from Fund share transactions (Note
4)............................................ 2,506,452 4,768,088
------------ ------------
Net increase/(decrease) in net assets.......... (11,915,076) 9,190,281
NET ASSETS:
Beginning of year.............................. 188,294,031 179,103,750
------------ ------------
End of year (including undistributed net
investment income of $280,503 and $176,484,
respectively)................................. $176,378,955 $188,294,031
------------ ------------
------------ ------------
</TABLE>
See Notes to Financial Statements.
17
<PAGE>
MUNICIPAL HIGH INCOME FUND INC.
Financial Highlights
For a Fund share outstanding throughout each year.
[LOGO]
- ------------
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
10/31/94 10/31/93 10/31/92 10/31/91 10/31/90 10/31/89*
--------- --------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE:
Net asset value, beginning
of period.................................... $ 9.72 $ 9.49 $ 9.42 $ 9.28 $ 9.52 $ 9.35
--------- --------- --------- --------- --------- ------------
Net investment income......................... 0.65 0.67 0.70 0.74 0.75 0.66
Net realized and unrealized
gain/(loss) on investments................... (0.72) 0.23 0.06 0.15 (0.23) 0.15
--------- --------- --------- --------- --------- ------------
Net increase/(decrease) in
net assets resulting from
operations................................... (0.07) 0.90 0.76 0.89 0.52 0.81
LESS DISTRIBUTIONS:
Distributions from net
investment income............................ (0.65) (0.67) (0.69) (0.75) (0.76) (0.64)
Distributions from net
realized gains............................... (0.02) -- -- -- -- --
--------- --------- --------- --------- --------- ------------
Total distributions........................... (0.67) (0.67) (0.69) (0.75) (0.76) (0.64)
--------- --------- --------- --------- --------- ------------
Net asset value, end of year.................. $ 8.98 $ 9.72 $ 9.49 $ 9.42 $ 9.28 $ 9.52
--------- --------- --------- --------- --------- ------------
--------- --------- --------- --------- --------- ------------
Market value, end of year..................... $ 8.250 $ 9.875 $ 9.125 $ 9.500 $ 9.000 $ 9.500
--------- --------- --------- --------- --------- ------------
--------- --------- --------- --------- --------- ------------
Total investment return***.................... (11.79)% 17.07% 2.74% 17.88% (1.45)% 1.72%
--------- --------- --------- --------- --------- ------------
--------- --------- --------- --------- --------- ------------
Ratios to average net assets/ supplemental
data:
Net assets, end of year
(in 000's)................................... $176,379 $188,294 $179,104 $173,290 $164,531 $164,221
Ratio of net investment income
to average net assets........................ 6.98% 6.89% 7.31% 7.90% 8.00% 7.54%**
Ratio of operating expenses to average net
assets....................................... 0.84% 0.87% 0.87% 0.90% 0.87% 0.86%**+
Portfolio turnover rate....................... 17% 13% 12% 22% 11% 16%
<FN>
- ---------------
* The Fund commenced operations on November 28, 1988.
** Annualized.
*** Based on market value per share.
+ Annualized expense ratio before waiver by investment adviser was 0.88%.
</TABLE>
See Notes to Financial Statements.
18
<PAGE>
MUNICIPAL HIGH INCOME FUND INC.
Notes to Financial Statements
[LOGO]
- ------------
1. SIGNIFICANT ACCOUNTING POLICIES
Municipal High Income Fund Inc. (the "Fund") was organized as a corporation
under the laws of the State of Maryland on March 4, 1988 and is registered with
the Securities and Exchange Commission as a diversified, closed-end management
investment company under the Investment Company Act of 1940, as amended. The
policies described below are followed consistently by the Fund in the
preparation of its financial statements in conformity with generally accepted
accounting principles.
PORTFOLIO VALUATION: Investments are valued by The Boston Company Advisors,
Inc. ("Boston Advisors") after consultation with an independent pricing service
(the "Service") approved by the Fund's Board of Directors. When, in the judgment
of the Service, quoted bid prices for investments are readily available and are
representative of the bid side of the market, these investments are valued at
the mean between the quoted bid prices and asked prices. Investments for which,
in the judgment of the Service, no readily obtainable market quotations are
available, are carried at fair value as determined by the Service or by the
Fund's Board of Directors. The Service may use electronic data processing
techniques and/ or a matrix system to determine valuations. Short-term
investments that mature in fewer than 60 days are valued at amortized cost.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded as of the trade date. Securities purchased or sold on a when-issued or
delayed-delivery basis may be settled a month or more after trade date. Realized
gains and losses on investments sold are recorded on the basis of identified
cost. Interest income is recorded on the accrual basis.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: It is the policy of the Fund to
make monthly distributions of substantially all of its net investment income to
shareholders. Net realized capital gains, if any, will be distributed to
shareholders at least once a year. In addition, in order to avoid the
application of a 4% nondeductible excise tax on certain undistributed amounts of
ordinary income and capital gains, the Fund may make an additional distribution
shortly before December 31 in each year of any undistributed ordinary income or
capital gains and expects to make any other distributions as are necessary to
avoid the application of this tax. To the extent that net realized capital gains
can be offset by capital losses and loss carryforwards, it is the policy of the
Fund not to distribute such gains. Income distributions and capital gain
distributions are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. These differences are
primarily due to timing differences and differing characterization of
distributions made by the Fund as a whole.
19
<PAGE>
MUNICIPAL HIGH INCOME FUND INC.
Notes to Financial Statements
(continued)
[LOGO]
- ------------
FEDERAL INCOME TAXES: It is the policy of the Fund to qualify as a regulated
investment company, if such qualification is in the best interest of its
shareholders, by complying with the requirements of the Internal Revenue Code of
1986, as amended, applicable to regulated investment companies and by
distributing substantially all of its earnings to its shareholders. Therefore,
no Federal income tax provision is required.
2. INVESTMENT ADVISORY FEE, ADMINISTRATION FEE AND OTHER TRANSACTIONS
The Fund has entered into an investment advisory agreement (the "Advisory
Agreement") with Greenwich Street Advisors, formerly a division of Mutual
Management Corp., which has been transferred effective November 7, 1994, to
Smith Barney Mutual Funds Management Inc. ("SBMFM"). Mutual Management Corp. and
SBMFM are both wholly owned subsidiaries of Smith Barney Holdings Inc.
("Holdings"). Holdings is a wholly owned subsidiary of The Travelers Inc. Under
the Advisory Agreement, the Fund pays a monthly fee at the annual rate of 0.40%
of the value of its average daily net assets.
Prior to June 1, 1994, the Fund was party to an administration agreement
("Administration Agreement") with Boston Advisors, an indirect wholly owned
subsidiary of Mellon Bank Corporation ("Mellon"). Under the Administration
Agreement, the Fund paid a monthly fee at the annual rate of 0.20% of the value
of its average monthly net assets. As of the close of business on June 1, 1994,
SBMFM (formerly known as "Smith, Barney Advisers, Inc.") succeeded Boston
Advisors as the Fund's administrator. The new administration agreement contains
substantially the same terms and conditions, including the level of fees, as the
predecessor agreement.
As of the close of business on June 1, 1994, the Fund and SBMFM also entered
into a sub-administration agreement (the "Sub-Administration Agreement") with
Boston Advisors. Under the Sub-Administration Agreement, SBMFM pays Boston
Advisors a portion of its administration fee at a rate agreed upon from time to
time between SBMFM and Boston Advisors.
No officer, director, or employee of Smith Barney Inc. or any of its
affiliates receives any compensation from the Fund for serving as a Director or
officer of the Fund. The Fund pays each Director, who is not an officer,
director or employee of Smith Barney or any of its affiliates, $5,000 per annum
plus $500 per meeting attended and reimburses each such Director for travel and
out-of-pocket expenses.
Boston Safe Deposit and Trust Company, an indirect wholly owned subsidiary
of Mellon, serves as the Fund's custodian. The Shareholder Services Group, Inc.,
a subsidiary of First Data Corporation, serves as the Fund's transfer agent.
20
<PAGE>
MUNICIPAL HIGH INCOME FUND INC.
Notes to Financial Statements
(continued)
[LOGO]
- ------------
3. SECURITIES TRANSACTIONS
For the year ended October 31, 1994, cost of purchases and proceeds from
sales of investment securities, excluding short-term investments, aggregated
$33,625,395 and $30,242,583, respectively.
At October 31, 1994, aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost amounted to
$5,754,661, and aggregate gross unrealized depreciation for all securities in
which there was an excess of tax cost over value amounted to $10,462,943.
4. FUND SHARES
At October 31, 1994, 500,000,000 shares of common stock, with a par value of
$.01 per share were authorized.
Common stock transactions were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
10/31/94 10/31/93
------------------- -------------------
SHARES AMOUNT SHARES AMOUNT
------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Issued as reinvestment of dividends.......... 270,832 $2,506,452 503,252 $4,768,088
------- ---------- ------- ----------
------- ---------- ------- ----------
</TABLE>
5. ORGANIZATION COSTS
Costs incurred by the Fund in connection with its organization and initial
public offering of shares amounted to $625,578 and were being amortized on a
straight-line basis over a five-year period, beginning November 28, 1988, the
date of the Fund's commencement of operations. All such costs have been fully
amortized as of October 31, 1994.
6. CONCENTRATION OF CREDIT
The Fund invests in securities offering high current income which generally
will be in the lower rating categories of recognized rating agencies. These
securities generally involve more credit risk than securities in the higher
rating categories. In addition, the trading market for high yield securities may
be relatively less liquid than the market for higher-rated securities.
7. CAPITAL LOSS CARRYFORWARD
At October 31, 1994, the Fund had available for Federal income tax purposes
an unused capital loss carryforward of $2,666,650 expiring in 2002.
21
<PAGE>
MUNICIPAL HIGH INCOME FUND INC.
Notes to Financial Statements
(continued)
[LOGO]
- ------------
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
NET INCREASE/
NET REALIZED (DECREASE)
NET AND UNREALIZED IN NET ASSETS
INVESTMENT INVESTMENT GAIN/(LOSS) RESULTING FROM
INCOME INCOME ON INVESTMENTS OPERATIONS
----------------- ----------------- --------------------- -------------------
PER PER PER PER
QUARTER ENDED TOTAL SHARE TOTAL SHARE TOTAL SHARE TOTAL SHARE
----------------------- ---------- ----- ---------- ----- ------------ ------ ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
January 31, 1993....... $3,823,950 $0.20 $3,413,585 $0.18 $ 2,944,261 $ 0.16 $ 6,357,846 $ 0.34
April 30, 1993......... 3,416,422 0.18 3,042,358 0.16 241,324 0.01 3,283,682 0.17
July 31, 1993.......... 3,503,367 0.18 3,094,861 0.16 (691,663) (0.04) 2,403,198 0.12
October 31, 1993....... 3,570,033 0.18 3,158,719 0.17 1,925,858 0.10 5,084,577 0.27
January 31, 1994....... 3,648,178 0.19 3,253,314 0.17 (48,811) -- 3,204,503 0.17
April 30, 1994......... 3,536,568 0.18 3,168,209 0.16 (9,555,061) (0.50) (6,386,852) (0.34)
July 31, 1994.......... 3,603,790 0.18 3,191,200 0.16 612,747 0.04 3,803,947 0.20
October 31, 1994....... 3,519,883 0.18 3,164,312 0.16 (5,145,173) (0.26) (1,980,861) (0.10)
</TABLE>
22
<PAGE>
MUNICIPAL HIGH INCOME FUND INC.
Report of Independent Accountants
[LOGO]
- ------------
To the Shareholders and Board of Directors of
Municipal High Income Fund Inc.:
We have audited the accompanying statement of assets and liabilities of
Municipal High Income Fund Inc., including the schedule of portfolio
investments, as of October 31, 1994, the related statements of operations for
the year then ended, the statement of changes in net assets for each of the two
years in the period then ended and the financial highlights for each of the five
years in the period ended October 31, 1994 and for the period from November 28,
1988 (commencement of operations) through October 31, 1989. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1994 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Municipal High Income Fund Inc. as of October 31, 1994, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the five years in the period ended October 31, 1994 and for the period from
November 28, 1988 (commencement of operations) through October 31, 1989, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
December 15, 1994
23
<PAGE>
MUNICIPAL HIGH INCOME FUND INC.
Additional Information (unaudited)
[LOGO]
- ------------
PORTFOLIO MANAGEMENT
Lawrence T. McDermott, who is a Vice President and Investment Officer of the
Fund, is primarily responsible for management of the Fund's assets. Mr.
McDermott has served the Fund in these capacities since the commencement of the
Fund's operations.
DIVIDEND REINVESTMENT PLAN
Under the Fund's Dividend Reinvestment and Cash Purchase Plan (the "Plan"),
a shareholder whose Common Stock is registered in his own name will have all
distributions reinvested automatically by The Shareholder Services Group, Inc.
("TSSG") as agent under the Plan, unless the shareholder elects to receive cash.
Distributions with respect to shares registered in the name of a broker-dealer
or other nominee (that is, in "street name") will be reinvested by the broker or
nominee in additional Common Stock under the Plan, but only if the service is
provided by the broker or nominee, and the broker or nominee makes an election
on behalf of the shareholder to participate in the Plan. Distributions with
respect to Common Stock registered in the name of Smith Barney will
automatically be reinvested by Smith Barney in additional shares under the Plan
unless the shareholder elects to receive distributions in cash. A shareholder
who holds Common Stock registered in the name of a broker or other nominee may
not be able to transfer the Common Stock to another broker or nominee and
continue to participate in the Plan. Investors who own Common Stock registered
in street name should consult their broker or nominee for details regarding
reinvestment.
The number of shares of Common Stock distributed to participants in the Plan
in lieu of a cash dividend is determined in the following manner. Whenever the
market price of the Fund's Common Stock is equal to or exceeds 98% of net asset
value per share at the time shares are valued for determining the number of
shares equivalent to the cash dividend or capital gains distribution,
participants will be issued shares of Common Stock valued at the greater of (i)
98% of net asset value per share or (ii) 95% of the then current market price.
If 98% of the net asset value per share of Common Stock at the time of valuation
exceeds the market price of the Common Stock, TSSG will buy shares of the Fund's
Common Stock on the open market, on the New York Stock Exchange, Inc. or
elsewhere, beginning on the record date of the dividend or distribution, until
it has expended for such purchases all of the cash that would otherwise be
payable to the participants. The number of purchased shares that will then be
credited to the participants' accounts will be based on the average per share
purchase price of the shares so purchased, including brokerage commissions. If
TSSG commences purchases in the open market and the market price of the shares
subsequently exceeds 98% of their net asset value before the completion of the
purchases, TSSG will attempt to terminate purchases in the open market and cause
the Fund to issue the remaining dividend or distribution in shares at 98% of the
net asset value per share. In
24
<PAGE>
MUNICIPAL HIGH INCOME FUND INC.
Additional Information (unaudited)
(continued)
[LOGO]
- ------------
this case, the number of shares of Common Stock received by the participant will
be based on the weighted average of prices paid for shares purchased in the open
market and the price at which the Fund issues the remaining shares.
Plan participants are not subject to any charge for reinvesting dividends or
capital gains distributions. Each participant will, however, bear a
proportionate share of brokerage commissions incurred with respect to TSSG's
open market purchases of shares of Common Stock in connection with the
reinvestment of dividends or capital gains distributions. For the year ended
October 31, 1994, no such brokerage commissions were incurred.
The automatic reinvestment of dividends and capital gains distributions will
not relieve Plan participants of any income tax that may be payable on the
dividends or capital gains distributions. A participant in the Plan will be
treated for federal income tax purposes as having received, on the dividend
payment date, a dividend or distribution in an amount equal to the cash that the
participant could have received instead of shares of Common Stock.
A shareholder may terminate participation in the Plan at any time by
notifying TSSG in writing. A termination will be effective immediately if notice
is received by TSSG not less than 10 days before any dividend or distribution
record date. Otherwise, the termination will be effective, and only with respect
to any subsequent dividends or distributions, on the first trading day after the
dividend or distribution has been credited to the participant's account in
additional shares of Common Stock of the Fund. Upon termination according to a
participant's instructions, TSSG will either (a) issue certificates for the
whole shares credited to a Plan account and a check representing any fractional
shares or (b) sell the shares in the market. There will be a $5.00 fee assessed
for liquidation service, plus brokerage commissions, and TSSG is authorized to
sell a sufficient number of a participant's shares to cover such amounts.
The Plan is described in more detail on pages 21-23 of the Fund's Prospectus
dated August 23, 1993. Information concerning the Plan may be obtained from TSSG
at (800) 331-1710.
25
<PAGE>
MUNICIPAL HIGH INCOME FUND INC.
Tax Information
Fiscal Year Ended October 31, 1994 (unaudited)
[LOGO]
- ------------
During the fiscal year ended October 31, 1994, the Fund paid $389,249 of
long-term capital gains to its shareholders.
Of the dividends paid from net investment income for the year ended October
31, 1994, 100% is tax exempt for regular Federal income tax purposes.
26
<PAGE>
MUNICIPAL HIGH INCOME FUND INC.
Management of the Fund
[LOGO]
- ------------
DIRECTORS
Charles F. Barber
Allan J. Bloostein
Martin Brody
Dwight B. Crane
Robert A. Frankel
Heath B. McLendon
OFFICERS
Heath B. McLendon
CHAIRMAN OF THE BOARD
Stephen J. Treadway
PRESIDENT
Lawrence T. McDermott
VICE PRESIDENT AND
INVESTMENT OFFICER
Karen Mahoney-Malcolmson
INVESTMENT OFFICER
Michael J. Maher
INVESTMENT OFFICER
Lewis E. Daidone
SENIOR VICE PRESIDENT
AND TREASURER
Christina T. Sydor
SECRETARY
INVESTMENT ADVISER
Greenwich Street Advisors
388 Greenwich Street
New York, New York 10013
AUDITORS AND COUNSEL
Coopers & Lybrand
One Post Office Square
Boston, Massachusetts 02109
Willkie Farr & Gallagher
153 East 53rd Street
New York, New York 10022
TRANSFER AGENT
The Shareholder Services Group, Inc.
Exchange Place
Boston, Massachusetts 02109
CUSTODIAN
Boston Safe Deposit and
Trust Company
One Boston Place
Boston, Massachusetts 02108
27
<PAGE>
[LOGO]
This report is sent to shareholders of Municipal High Income Fund Inc. for their
information. It is not a Prospectus, circular or representation intended for use
in the purchase or sale of shares of the Fund or of any securities mentioned in
this report.
MUNICIPAL HIGH INCOME FUND INC.
388 Greenwich Street
New York, NY 10013
(212) 723-9218