<PAGE>
Dear Shareholder:
We are pleased to provide our fifth annual report for Municipal High
Income Fund Inc. During the past five years the Fund has achieved its mandate of
delivering a higher dividend return than available from a portfolio composed
entirely of investment grade tax-exempt bonds. We will continue to approach the
management of the Fund with this as our goal.
1993 set yet another record for new issue volume. It reached
approximately $300 billion as states, cities, and towns refinanced their higher
interest rate debt that was issued in the 1980s. While this is beneficial for
taxpayers, it comes at the expense of fixed income investors who are forced to
reinvest at today's prevailing lower interest rates. The municipal market has
been able to digest the record volume at a relaxed pace. We expect that the
retirement (whether by call or maturity) of higher interest rate municipal
securities will continue over the next few years, and that new issue volume
should slow to one-half that of 1993. Tax-exempt investments should remain in
great demand, however, fueled by the impact of higher Federal taxes.
Many economists are expressing concern that the recent strength in
consumer spending (which accounts for two-thirds of economic activity) will
result in an increase in inflationary pressures. Inflation is the arch enemy of
the fixed income investor because it reduces real income. Our feeling, however,
is that although renewed economic strength could be inflationary, it will be
offset by the constraints caused by higher consumer debt, and higher Federal
taxes and benefit costs.
Our strategy through the past year has been to hold onto high-coupon
bonds despite their generally attractive price levels since we would have had to
reinvest the proceeds in much lower yielding securities. We remained fully
invested in "cushion bonds" that carry coupons above current market rates and
therefore sell at a premium to the market. This strategy allows us to offer
investors a higher level of income yet also moderates fluctuations in the Fund's
net asset value per share because the higher coupons "cushion" the bonds against
dramatic changes in price as interest rates fluctuate.
Although the economy appears to be stronger, we still remain cautious.
Consequently, we have invested 57% of the Fund in securities rated as investment
grade (Baa/BBB or higher) by Moody's Investors Service, Inc. or Standard &
Poor's Corporation. The Fund's investments continue to be diversified by
geographic location, issuer, and industry. Hospital (21%), industrial
development revenue
<PAGE>
(18%), and pollution control revenue (16%) bonds form the core of the Fund's
holdings. As of October 31, 1993, the average maturity of the Fund's portfolio
was approximately 20 years.
<TABLE>
As we have since the Fund's commencement of operations in 1988, we
will continue in our efforts to provide you with a high level of current income
exempt from Federal income taxes. If you have any questions about your
investment in the Fund, please do not hesitate to contact The Shareholder
Services Group, Inc. at (800) 331-1710. We appreciate your continued confidence
and support.
Sincerely,
<S> <C>
Heath B. McLendon Lawrence T. McDermott
Chairman of the Board Vice President and Investment Officer
</TABLE>
December 13, 1993
<PAGE>
<TABLE>
UNAUDITED FINANCIAL DATA
PER SHARE OF COMMON STOCK
<CAPTION>
DIVIDEND
NYSE NET ASSET DIVIDEND REINVESTMENT
CLOSING PRICE VALUE PAID PRICE
------------ -------- ------- -----------
<S> <C> <C> <C> <C>
November 30, 1992............. $ 9.25 $ 9.57 $.0560 $9.28
December 31, 1992............. 9.50 9.60 .0560 9.39
January 31, 1993.............. 9.75 9.65 .0560 9.42
February 28, 1993............. 10.00 9.76 .0560 9.50
March 31, 1993................ 10.00 9.65 .0560 9.50
April 30, 1993................ 9.78 9.66 .0560 9.50
May 28, 1993.................. 9.75 9.68 .0560 9.46
June 30, 1993................. 9.78 9.66 .0560 9.43
July 31, 1993................. 9.75 9.63 .0560 9.44
August 31, 1993............... 9.63 9.70 .0540 9.49
September 30, 1993............ 9.75 9.75 .0540 9.54
October 31, 1993.............. 9.88 9.72 .0540 9.56
</TABLE>
<TABLE>
DIVIDEND DATA*
<CAPTION>
EQUIVALENT TAXABLE DISTRIBUTION RATE
-------------------------------------
PER SHARE ANNUALIZED ASSUMING ASSUMING
DIVIDEND DISTRIBUTION 28% FEDERAL 31% FEDERAL
DISTRIBUTIONS RATE TAX BRACKET TAX BRACKET
--------------- --------------- --------------- ---------------
<S> <C> <C> <C>
$0.6660 6.85% 9.51% 9.93%
- ---------------
* Based on October 31, 1993 net asset value of $9.72 per share.
</TABLE>
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
Shearson Inc.) which does not provide the service. Questions and correspondence
concerning the Dividend Reinvestment Plan should be directed to The Shareholder
Services Group, Inc., P.O. Box 1376, Boston, Massachusetts 02104.
3
<PAGE>
MUNICIPAL HIGH INCOME FUND INC.
Portfolio of Investments
October 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
- ---------------------------------------------------
KEY TO INSURANCE ABBREVIATIONS
- ---------------------------------------------------
MBIA -- MUNICIPAL BOND INVESTORS ASSURANCE
- ---------------------------------------------------
<CAPTION>
RATINGS (UNAUDITED)
-------------------- MARKET
FACE STANDARD & VALUE
VALUE MOODY'S POOR'S (NOTE 1)
- --------- ------- ---------- -----------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES--97.4%
ALABAMA--0.6%
$1,115,000 Alabama Housing Finance Authority,
Single Family Mortgage Revenue,
10.500% due 12/01/02.................. A1 AA- $ 1,206,988
ARIZONA--2.0%
3,300,000 Gila County, Arizona, Industrial
Development Authority, Pollution
Control Revenue, (ASARCO), Series
1985,
8.900% due 07/01/06................... Baa2 BBB- 3,814,875
ARKANSAS--1.7%
2,750,000 Pope County, Arkansas, Pollution Control
Revenue, (Arkansas Power & Light
Company Project),
11.000% due 12/01/15.................. Baa3 BBB- 3,190,000
CALIFORNIA--1.2%
2,000,000 Los Angeles County, California, Regional
Airport Authority, (Continental
Airlines, Inc.),
9.000% due 08/01/17................... NR NR 2,255,000
COLORADO--0.7%
1,250,000 Colorado Health Facilities, Authority
Revenue Project, (Beth Israel at
Shalom Park Project),
8.000% due 12/15/22................... NR NR 1,321,875
CONNECTICUT--0.8%
1,500,000 Connecticut State, Development
Authority, Health Care Revenue, Series B,
8.000% due 07/01/17................... NR NR 1,537,500
DISTRICT OF COLUMBIA--0.7%
1,255,000 District of Columbia, Housing Finance
Agency, Multifamily Housing Revenue,
11.375% due 07/01/08.................. A3 AA- 1,316,181
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
<TABLE>
MUNICIPAL HIGH INCOME FUND INC.
Portfolio of Investments (continued)
October 31, 1993
- --------------------------------------------------------------------------------
<CAPTION>
RATINGS (UNAUDITED)
-------------------- MARKET
FACE STANDARD & VALUE
VALUE MOODY'S POOR'S (NOTE 1)
- --------- ------- ---------- -----------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES (CONTINUED)
FLORIDA--6.6%
$1,500,000 Broward County, Florida, Educational
Facility,
8.500% due 04/01/10................... NR BBB $ 1,734,375
1,000,000 Hillsborough County, Florida, Industrial
Development Revenue, (Seaboard Tampa
Terminals Venture Project),
8.600% due 01/15/22................... Ba2 BB 1,141,250
1,000,000 Homestead, Florida, Industrial
Development Revenue, Project A,
7.950% due 11/01/18................... NR NR 998,750
2,110,000 Jacksonville, Florida, Health Facilities
Authority, Health Facilities Revenue,
9.125% due 10/15/19................... NR NR 2,236,600
1,000,000 Lady Lake, Florida, Industrial
Development Project Revenue, (Sunbelt
Utilities Inc. Project),
9.500% due 07/01/10................... NR NR 1,076,250
1,500,000 Ocean Highway & Port Authority, Florida,
Pollution Control Revenue,
9.375% due 11/01/04................... NR BB 1,548,750
2,500,000 Palm Beach County, Florida, Health
Facilities Authority, Insured Hospital
Revenue, (JFK Medical Center),
8.875% due 12/01/18................... NR BBB 2,996,400
650,000 Tampa, Florida, (Aquarium Inc. Revenue
Project), 7.750% due 05/01/27......... NR NR 732,875
GEORGIA--2.1%
2,510,000 Georgia Municipal Electric Authority,
General Power Revenue, Series 85-K,
9.875% due 01/01/16................... A2 AA- 2,739,037
1,000,000 Walton County, Georgia, Industrial
Development Authority, (Walton
Project),
8.500% due 09/01/07................... NR NR 1,000,000
2,550,000 Warren County, Georgia, Industrial
Development Authority Revenue,
(Foundry East Project),
10.000% due 07/01/19 (in default)..... NR NR 255,000
</TABLE>
See Notes to Financial Statements.
5
<PAGE>
<TABLE>
MUNICIPAL HIGH INCOME FUND INC.
Portfolio of Investments (continued)
October 31, 1993
- --------------------------------------------------------------------------------
<CAPTION>
RATINGS (UNAUDITED)
-------------------- MARKET
FACE STANDARD & VALUE
VALUE MOODY'S POOR'S (NOTE 1)
- --------- ------- ---------- -----------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES (CONTINUED)
ILLINOIS--6.2%
$3,032,000 Chicago, Illinois, O'Hare International
Airport, Special Facilities Revenue
Bonds, Series B,
8.950% due 05/01/18................... Baa3 BBB- $ 3,524,700
Crestwood, Illinois, Cook County Tax
Increment Bonds:
450,000 10.000% due 12/01/96.................... NR NR 460,125
550,000 10.000% due 12/01/97.................... NR NR 565,812
650,000 10.000% due 12/01/98.................... NR NR 671,125
2,000,000 East Chicago, Illinois, Industrial
Pollution Control Revenue, (Inland
Steel Company), Project 10,
6.800% due 06/01/13................... Ba3 BB- 2,065,000
2,000,000 Hanover Park, Illinois, First Mortgage,
(Windsor Project),
9.250% due 12/01/07................... NR NR 2,130,000
1,750,000 Hennepin, Illinois, Industrial
Development Revenue,
10.250% due 01/01/05 (in default)..... NR NR 218,750
795,000 Loves Park, Illinois, First Mortgage
Revenue, (Hoosier Care Project),
Series A,
9.750% due 08/01/19................... NR NR 836,738
1,000,000 Sterling, Illinois, First Mortgage
Revenue, (Hoosier Care Project),
Series A,
9.750% due 08/01/19................... NR NR 1,071,250
INDIANA--1.0%
1,520,000 LaPorte County, Indiana, Hospital
Authority, Hospital Association
Revenue, (LaPorte Hospital, Inc.),
8.750% due 03/01/12................... Aaa BBB- 1,776,500
IOWA--0.7%
1,240,000 Marion, Iowa, Multi-family Housing
Revenue,
9.500% due 07/01/18................... NR NR 1,280,300
KENTUCKY--2.9%
1,440,000 Jefferson County, Kentucky, Health
Facilities Authority,
10.125% due 05/01/08.................. A1 NR 1,659,600
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
<TABLE>
MUNICIPAL HIGH INCOME FUND INC.
Portfolio of Investments (continued)
October 31, 1993
- --------------------------------------------------------------------------------
<CAPTION>
RATINGS (UNAUDITED)
-------------------- MARKET
FACE STANDARD & VALUE
VALUE MOODY'S POOR'S (NOTE 1)
- --------- ------- ---------- -----------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES (CONTINUED)
KENTUCKY (CONTINUED)
Kenton County, Kentucky, Airport Board:
$1,000,000 (Delta Airlines),
6.750% due 02/01/02................... Baa3 BBB- $ 1,048,750
1,500,000 (Greater Cincinnati Airport Revenue),
Project A,
7.500% due 02/01/20................... Baa2 BBB+ 1,608,750
1,000,000 Pendleton County, Kentucky, Multi-Lease
Revenue, Series A,
6.500% due 03/01/19................... NR A 1,048,750
LOUISIANA--1.4%
1,200,000 Lake Charles, Louisiana,
(Harbor & Terminal Project),
7.750% due 08/15/22................... Ba1 NR 1,387,500
195,000 Louisiana Housing Finance Agency, Single
Family Mortgage Revenue,
13.625% due 09/01/02.................. A1 AA- 206,213
1,000,000 Port New Orleans, Louisiana, Industrial
Development Revenue, (Continental
Grain Company Project),
7.500% due 07/01/13................... NR BB- 1,057,500
MAINE--1.4%
2,500,000 Maine State Housing Authority, Mortgage
Purchases, Series D-1,
8.300% due 11/15/28................... A1 A+ 2,603,125
MARYLAND--2.0%
3,000,000 Maryland State Health & Higher Education
Facilities Authority, (Doctors
Community Hospital Project),
8.750% due 07/01/22................... Baa1 BBB- 3,828,750
MASSACHUSETTS--8.2%
2,000,000 Commonwealth of Massachusetts Health &
Educational Facilities Authority
Revenue, (North Adams State College),
9.625% due 07/01/18................... NR NR 2,200,000
</TABLE>
See Notes to Financial Statements.
7
<PAGE>
<TABLE>
MUNICIPAL HIGH INCOME FUND INC.
Portfolio of Investments (continued)
October 31, 1993
- --------------------------------------------------------------------------------
<CAPTION>
RATINGS (UNAUDITED)
-------------------- MARKET
FACE STANDARD & VALUE
VALUE MOODY'S POOR'S (NOTE 1)
- --------- ------- ---------- -----------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES (CONTINUED)
MASSACHUSETTS (CONTINUED)
Commonwealth of Massachusetts Housing
Finance Agency, Residential
Development:
$1,675,000 (Section 8), Series B,
8.100% due 08/01/23................... NR A+ $ 1,783,875
1,055,000 (Single Family Mortgage),
13.375% due 12/01/09.................. Aa A+ 1,081,375
Commonwealth of Massachusetts Industrial
Finance Agency:
1,500,000 (American Health),
10.125% due 03/01/19.................. NR NR 1,530,000
1,700,000 Series A, (S.E. Mass Project),
9.000% due 07/01/15................... NR NR 1,942,250
5,940,000 Series B, (S.E. Mass Project),
9.250% due 07/01/15................... NR NR 6,801,300
MICHIGAN--2.4%
755,000 Greater Detroit, Michigan, Resource
Recovery Authority Revenue, Series B,
9.250% due 12/13/08................... NR BBB- 829,556
1,855,000 Greater Detroit Recreation Authority,
Series C,
9.250% due 12/13/08................... NR BBB- 2,038,181
1,500,000 Western Townships, Michigan,
Utility Sewage System,
8.300% due 01/01/19................... NR BBB+ 1,638,750
MISSISSIPPI--3.5%
3,300,000 Claiborne County, Mississippi, Pollution
Control Revenue, Series C,
9.875% due 12/01/14................... NR NR 4,108,500
2,000,000 Mississippi Hospital Equipment &
Facilities Authority, (Methodist
Hospital),
9.375% due 05/01/12................... NR NR 2,487,500
MONTANA--1.1%
2,000,000 Montana State Board Investment Resource,
Recovery Revenue, Yellowstone
Energy LP Project,
7.000% due 12/31/19................... NR NR 2,047,500
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
<TABLE>
MUNICIPAL HIGH INCOME FUND INC.
Portfolio of Investments (continued)
October 31, 1993
- --------------------------------------------------------------------------------
<CAPTION>
RATINGS (UNAUDITED)
-------------------- MARKET
FACE STANDARD & VALUE
VALUE MOODY'S POOR'S (NOTE 1)
- --------- ------- ---------- -----------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES (CONTINUED)
NEW HAMPSHIRE--2.3%
New Hampshire State Industrial
Development Authority:
$1,000,000 Series A,
9.375% due 07/01/12................... Baa3 BBB- $ 1,176,250
2,500,000 Series B, (UTD Illuminating),
10.750% due 10/01/12.................. Baa3 BBB- 3,084,375
NEW JERSEY--1.3%
1,500,000 New Jersey Health Care Facilities,
Finance Authority Revenue, (Zurbrugg
Memorial Hospital), Series C,
8.500% due 07/01/12................... Baa1 BBB+ 1,610,625
310,000 New Jersey Housing and Mortgage Finance
Agency, Home Buyer Revenue, Series E,
(MBIA Insured),
7.650% due 10/01/16................... Aaa AAA 334,800
500,000 New Jersey Municipal Utilities,
Authorized Revenue, Series A, (MBIA
Insured),
8.125% due 12/15/17................... Aaa AAA 542,500
NEW MEXICO--1.2%
1,975,000 New Mexico Mortgage Finance Authority,
Single Family Mortgage Program, Series
B,
8.300% due 03/01/20................... NR AA- 2,165,093
NEW YORK--5.5%
1,725,000 Babylon, New York, Industrial
Development Agency, (Recycling
Project), Series A,
8.875% due 03/01/11................... NR NR 1,929,843
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 1,027,500
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
<TABLE>
MUNICIPAL HIGH INCOME FUND INC.
Portfolio of Investments (continued)
October 31, 1993
- --------------------------------------------------------------------------------
<CAPTION>
RATINGS (UNAUDITED)
-------------------- MARKET
FACE STANDARD & VALUE
VALUE MOODY'S POOR'S (NOTE 1)
- --------- ------- ---------- -----------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES (CONTINUED)
NEW YORK (CONTINUED)
New York City, New York, Certificates of
Participation:
$ 875,000 Series C,
7.750% due 09/01/05................... Baa1 A- $ 973,438
2,000,000 Series E,
6.000% due 05/15/15................... Baa1 A- 2,032,500
1,000,000 Series H,
7.000% due 02/01/21................... Baa1 A- 1,103,750
1,000,000 New York City, New York, Health &
Hospital Corporation, Series A,
6.300% due 02/15/20................... Baa BBB 1,040,000
1,950,000 New York State, Energy, Research &
Development, Authority, Electric
Facility Revenue,
7.150% due 12/01/20................... A A- 2,145,000
NORTH CAROLINA--1.4%
2,300,000 North Carolina, Eastern Municipal Power
Agency, Power Systems Revenue,
7.000% due 01/01/08................... A A- 2,662,250
OHIO--2.8%
1,000,000 Cleveland, Ohio, Airport Special
Revenue, (Continental Airlines Inc.),
9.000% due 12/01/19................... NR NR 1,112,500
1,000,000 Cuyahoga County, Ohio, Health Care
Facilities, Judson Retirement
Community,
8.875% due 11/15/19................... NR NR 1,126,250
1,500,000 Montgomery County, Ohio, Health Systems
Revenue, Series B,
8.100% due 07/01/18................... Baa1 BBB- 1,747,500
190,000 Ohio Housing Finance Agency, Single
Family Mortgage Revenue,
11.375% due 08/01/14.................. A A 198,550
1,000,000 Ohio Water Development Authority,
Pollution Control Revenue, Series A,
8.100% due 10/01/13................... Baa3 BBB- 1,153,750
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
<TABLE>
MUNICIPAL HIGH INCOME FUND INC.
Portfolio of Investments (continued)
October 31, 1993
- --------------------------------------------------------------------------------
<CAPTION>
RATINGS (UNAUDITED)
-------------------- MARKET
FACE STANDARD & VALUE
VALUE MOODY'S POOR'S (NOTE 1)
- --------- ------- ---------- -----------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES (CONTINUED)
OKLAHOMA--0.5%
$ 950,000 Oklahoma Housing Finance Agency,
Single Family Housing,
10.750% due 03/01/07.................. Aa1 A+ $ 974,938
PENNSYLVANIA--12.4%
2,200,000 Allegheny County, Pennsylvania,
Industrial Development Authority,
Special Facilities Revenue, Series B,
(U.S. Air Project),
8.500% due 03/01/21................... Ba3 BB- 2,477,750
Delaware County Pennsylvania, Industrial
Development Authority, First Mortgage:
240,000 8.250% due 07/01/94..................... NR NR 239,100
1,500,000 (White Horse),
9.700% due 07/01/09................... NR NR 1,586,250
3,000,000 Lebanon County, Pennsylvania, (Samaritan
Hospital), Series B,
8.250% due 11/01/18................... NR BBB 3,382,500
2,500,000 Luzerne County, Pennsylvania, Industrial
Development Authority,
7.125% due 12/01/22................... Baa3 BBB- 2,737,500
2,000,000 Montgomery County, Pennsylvania, Higher
Education & Health Authority,
8.375% due 11/01/11................... Ba1 NR 2,187,500
4,440,000 Montgomery County, Pennsylvania,
Industrial Development Authority,
Pollution Control Revenue,
(Philadelphia Electric Company),
Series A,
10.500% due 05/15/15.................. Baa3 BBB 5,006,100
625,000 Northumberland County, Pennsylvania,
Industrial Development Authority,
6.875% due 02/01/03................... Baa3 BBB 636,719
2,000,000 Philadelphia, Pennsylvania, Gas Revenue,
Series B,
6.400% due 11/15/16................... Ba1 B 2,050,000
1,500,000 Scranton-Lackawanna, Pennsylvania,
Health & Welfare Authority, (Mercy
Health Systems), Series B,
8.500% due 07/01/20................... NR BBB 1,738,125
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
<TABLE>
MUNICIPAL HIGH INCOME FUND INC.
Portfolio of Investments (continued)
October 31, 1993
- --------------------------------------------------------------------------------
<CAPTION>
RATINGS (UNAUDITED)
-------------------- MARKET
FACE STANDARD & VALUE
VALUE MOODY'S POOR'S (NOTE 1)
- --------- ------- ---------- -----------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES (CONTINUED)
PENNSYLVANIA (CONTINUED)
$1,250,000 Sharon, Pennsylvania, Regional Health
Systems, (Project B),
7.000% due 12/01/22................... NR BBB+ $ 1,314,063
PUERTO RICO--0.1%
200,000 Commonwealth of Puerto Rico, General
Obligation Bonds,
8.000% due 07/01/08................... Baa1 A 234,500
SOUTH CAROLINA--0.5%
965,000 McCormick County, South Carolina,
Certificates of Participation,
9.750% due 07/01/09................... NR NR 1,019,281
SOUTH DAKOTA--2.4%
Oglala Sioux Tribe, South Dakota, Pine
Ridge County, Revenue Bonds:
365,000 7.000% due 07/01/99..................... Aaa NR 374,125
1,865,000 7.500% due 07/01/13..................... NR NR 1,923,281
1,915,000 10.000% due 07/01/13.................... Aaa NR 2,168,738
TENNESSEE--1.0%
1,750,000 State of Tennessee, Certificates of
Participation, (Town Project),
8.000% due 08/01/08................... NR NR 1,900,938
TEXAS--15.2%
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
</TABLE>
See Notes to Financial Statements.
12
<PAGE>
<TABLE>
MUNICIPAL HIGH INCOME FUND INC.
Portfolio of Investments (continued)
October 31, 1993
- --------------------------------------------------------------------------------
<CAPTION>
RATINGS (UNAUDITED)
-------------------- MARKET
FACE STANDARD & VALUE
VALUE MOODY'S POOR'S (NOTE 1)
- --------- ------- ---------- -----------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES (CONTINUED)
TEXAS (CONTINUED)
$1,000,000 Bexar County, Texas, Health Facilities
Development Corporation,
7.900% due 05/01/18................... Baa1 BBB $ 1,105,000
Brazos River, Texas, Pollution Control
Revenue, (Collateral-Tax, Project A):
1,000,000 9.875% due 10/01/17..................... Baa2 BBB 1,198,750
2,000,000 8.250% due 01/01/19..................... Baa2 BBB 2,305,000
1,000,000 Dallas-Fort Worth, Texas, International
Airport Facilities, (Delta Airlines
Inc.),
6.250% due 11/01/13................... Ba1 BB 986,250
1,795,000 El Paso, Texas, Housing Finance
Corporation, Single Family Mortgage
Revenue,
8.750% due 10/01/11................... A NR 1,974,500
2,000,000 El Paso, Texas, International Airport
Revenue Bonds,
7.750% due 03/01/12................... Baa3 BBB 2,115,000
1,215,612 Harris County, Texas, Industrial
Development Corporation,
7.950% due 07/01/19................... NR NR 1,224,729
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 1,568,000
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 1,592,500
Northgate Crossing, Texas, Municipal
Utilities District:
1,000,000 Series 1,
8.875% due 12/01/13................... NR BBB+ 1,036,250
1,000,000 Series 2,
8.875% due 12/01/13................... NR BBB+ 1,036,250
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
<TABLE>
MUNICIPAL HIGH INCOME FUND INC.
Portfolio of Investments (continued)
October 31, 1993
- --------------------------------------------------------------------------------
<CAPTION>
RATINGS (UNAUDITED)
-------------------- MARKET
FACE STANDARD & VALUE
VALUE MOODY'S POOR'S (NOTE 1)
- --------- ------- ---------- -----------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES (CONTINUED)
TEXAS (CONTINUED)
$ 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- 3,003,125
2,000,000 Series B,
10.625% due 06/01/08.................. Baa3 BBB- 2,427,500
3,515,000 Sam Rayburn, Texas, Municipal Power
Agency, Power Revenue,
9.625% due 09/01/04................... Aaa BBB 3,976,344
2,000,000 San Saba County, Texas, Certificates
of Obligation,
8.625% due 02/15/19................... NR NR 2,190,000
UTAH--1.0%
1,800,000 Hurricane, Utah, Health Services
Project,
10.500% due 07/01/20.................. NR NR 1,928,250
VERMONT--1.3%
2,365,000 Vermont Housing Finance Agency, Home
Mortgage, Series B,
8.100% due 06/01/22................... A1 NR 2,486,206
VIRGINIA--1.3%
2,600,000 Hopwell, Virginia, Industrial
Development Resource Authority,
8.250% due 06/01/16................... NR NR 2,535,000
-----------
TOTAL MUNICIPAL BONDS AND NOTES (Cost $176,625,001)....................... 183,386,367
-----------
</TABLE>
See Notes to Financial Statements.
14
<PAGE>
<TABLE>
MUNICIPAL HIGH INCOME FUND INC.
Portfolio of Investments (continued)
October 31, 1993
- --------------------------------------------------------------------------------
<CAPTION>
RATINGS (UNAUDITED)
-------------------- MARKET
FACE STANDARD & VALUE
VALUE MOODY'S POOR'S (NOTE 1)
- --------- ------- ---------- -----------
<C> <S> <C> <C> <C>
SHORT TERM MUNICIPAL BONDS AND NOTES--0.2% (Cost $300,000)
VIRGINIA--0.2%
$ 300,000 Peninsula Ports Authority, Virginia,
(Shell Oil Company),
2.200% due 12/01/05+.................. Aa2 AAA $ 300,000
------------
TOTAL INVESTMENTS (Cost $176,925,001*)....................... 97.6% 183,686,367
OTHER ASSETS AND LIABILITIES (Net)........................... 2.4 4,607,664
--------- ------------
NET ASSETS................................................... 100.0% $188,294,031
========= ============
- ------------
<FN>
* Aggregate cost for Federal tax purposes.
+ Variable rate demand bonds are payable upon not more than seven calendar days' notice.
</TABLE>
<TABLE>
- ---------------------------------------------------------
SUMMARY OF MUNICIPAL BONDS
BY COMBINED RATINGS
OCTOBER 31, 1993 (UNAUDITED)
- ---------------------------------------------------------
<CAPTION>
STANDARD & PERCENT
MOODY'S OR POOR'S OF VALUE
--------- ----------- --------
<S> <C> <C>
Aaa AAA 5%
Aa AA 6
A A 12
Baa BBB 35
Ba BB 8
NR NR 34
---
100%
===
- ---------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
15
<PAGE>
<TABLE>
MUNICIPAL HIGH INCOME FUND INC.
Statement of Assets and Liabilities
October 31, 1993
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investments, at value (Cost $176,925,001) (Note 1)
See accompanying schedule.............................. $183,686,367
Cash..................................................... 49,678
Interest receivable...................................... 4,775,753
Unamortized organization costs (Note 5).................. 10,425
-----------
Total Assets......................................... 188,522,223
LIABILITIES:
Investment advisory fee payable (Note 2)................. $64,121
Administration fee payable (Note 2)...................... 32,061
Accrued shareholder reports expense...................... 30,000
Audit fee payable........................................ 30,000
Legal fee payable........................................ 20,000
Transfer agent fees payable (Note 2)..................... 15,000
Custodian fees payable (Note 2).......................... 14,000
Accrued Directors' fees and expenses (Note 2)............ 8,750
Accrued expenses and other payables...................... 14,260
-------
Total Liabilities.................................... 228,192
-----------
NET ASSETS................................................... $188,294,031
===========
NET ASSETS consist of:
Undistributed net investment income...................... $ 176,484
Accumulated net realized gain on investments sold........ 389,249
Unrealized appreciation of investments................... 6,761,366
Par value................................................ 193,719
Paid-in capital in excess of par value................... 180,773,213
-----------
Total Net Assets..................................... $188,294,031
===========
NET ASSET VALUE, per share ($188,294,031/19,371,863 shares of
common stock outstanding).................................. $ 9.72
===========
</TABLE>
See Notes to Financial Statements.
16
<PAGE>
<TABLE>
MUNICIPAL HIGH INCOME FUND INC.
Statement of Operations
For the Year Ended October 31, 1993
- --------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Interest................................................. $14,313,772
EXPENSES:
Investment advisory fee (Note 2)......................... $737,798
Sub-investment advisory and administration fee (Note
2)..................................................... 368,899
Legal and audit fees..................................... 126,689
Amortization of organization costs (Note 5).............. 125,116
Transfer agent fees (Note 2)............................. 52,486
Directors' fees and expenses (Note 2).................... 43,790
Custodian fees (Note 2).................................. 41,784
Other.................................................... 107,687
--------
Total Expenses....................................... 1,604,249
----------
NET INVESTMENT INCOME........................................ 12,709,523
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
(NOTES 1 AND 3):
Net realized gain on investments sold during the year.... 722,591
Net unrealized appreciation of investments during the
year................................................... 3,697,189
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS.............. 4,419,780
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS......... $17,129,303
==========
</TABLE>
See Notes to Financial Statements.
17
<PAGE>
<TABLE>
MUNICIPAL HIGH INCOME FUND INC.
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<CAPTION>
YEAR YEAR
ENDED ENDED
10/31/93 10/31/92
----------- -----------
<S> <C> <C>
Net investment income................................... $ 12,709,523 $ 12,974,241
Net realized gain/(loss) on investments sold during the
year.................................................. 722,591 (88,935)
Net unrealized appreciation of investments during the
year.................................................. 3,697,189 1,359,079
----------- -----------
Net increase in net assets resulting from operations.... 17,129,303 14,244,385
Distributions to shareholders from net investment
income................................................ (12,707,110) (12,842,104)
Net increase in net assets from Fund share transactions
(Note 4).............................................. 4,768,088 4,411,155
----------- -----------
Net increase in net assets.............................. 9,190,281 5,813,436
NET ASSETS:
Beginning of year....................................... 179,103,750 173,290,314
----------- -----------
End of year (including undistributed net investment
income of $176,484 and $174,071, respectively)........ $188,294,031 $179,103,750
=========== ===========
</TABLE>
See Notes to Financial Statements.
18
<PAGE>
<TABLE>
MUNICIPAL HIGH INCOME FUND INC.
Financial Highlights
- --------------------------------------------------------------------------------
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<CAPTION>
YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
10/31/93 10/31/92 10/31/91 10/31/90 10/31/89*
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of
year............................. $ 9.49 $ 9.42 $ 9.28 $ 9.52 $ 9.35
-------- -------- -------- -------- ---------
Net investment income.............. 0.67 0.70 0.74 0.75 0.66
Net realized and unrealized
gain/(loss) on investments....... 0.23 0.06 0.15 (0.23) 0.15
-------- -------- -------- -------- ---------
Net increase in net assets
resulting from operations........ 0.90 0.76 0.89 0.52 0.81
DISTRIBUTIONS:
Dividends from net investment
income........................... (0.67) (0.69) (0.75) (0.76) (0.64)
-------- -------- -------- -------- ---------
Net asset value, end of year....... $ 9.72 $ 9.49 $ 9.42 $ 9.28 $ 9.52
======== ======== ======== ======== =========
Market value, end of year.......... $ 9.875 $ 9.125 $ 9.500 $ 9.000 $ 9.500
======== ======== ======== ======== =========
Total investment return***......... 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)........................... $188,294 $179,104 $173,290 $164,531 $164,221
Ratio of net investment income to
average net assets............... 6.89% 7.31% 7.90% 8.00% 7.54%**
Ratio of operating expenses to
average net assets............... 0.87% 0.87% 0.90% 0.87% 0.86%**+
Portfolio turnover rate............ 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 fees waived by investment adviser was .88%.
</TABLE>
See Notes to Financial Statements.
19
<PAGE>
MUNICIPAL HIGH INCOME FUND INC.
Notes to Financial Statements
- --------------------------------------------------------------------------------
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 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. The differences are
primarily due to timing differences and differing characterization of
distributions made by the Fund as a whole.
20
<PAGE>
MUNICIPAL HIGH INCOME FUND INC.
Notes to Financial Statements
(continued)
- --------------------------------------------------------------------------------
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 RELATED PARTY
TRANSACTIONS
Up to the close of business on July 30, 1993, the Fund entered into an
investment advisory agreement with Shearson Lehman Brothers Inc. ("Shearson
Lehman Brothers") on behalf of Shearson Lehman Advisors, a member of the Asset
Management Group of Shearson Lehman Brothers. Under the Advisory Agreement, the
Fund paid a monthly fee at the annual rate of 0.40% of the value of its average
monthly net assets.
As of the close of business on July 30, 1993, Primerica Corporation
("Primerica") and Smith Barney, Harris Upham & Co. Incorporated completed the
acquisition of the domestic retail brokerage and asset management business of
Shearson Lehman Brothers and Smith Barney, Harris Upham & Co. Incorporated was
renamed Smith Barney Shearson Inc. ("Smith Barney Shearson").
As of the close of business on July 30, 1993, Greenwich Street Advisors, a
division of Mutual Management Corp., which is controlled by Smith Barney
Shearson Holdings Inc. ("Holdings"), succeeded Shearson Lehman Advisors as the
Fund's investment adviser. Holdings is a wholly owned subsidiary of Primerica.
The new investment advisory agreement (the "Advisory Agreement") with Greenwich
Street Advisors contains terms and conditions substantially similar to the
investment advisory agreement with the predecessor investment adviser and
provides for payment of fees at the same rate as was paid to such predecessor
investment adviser.
The Fund has also entered into an administration agreement ("Administration
Agreement") with The Boston Company Advisors, Inc. ("Boston Advisors"), an
indirect wholly owned subsidiary of Mellon Bank Corporation ("Mellon"). Under
the Administration Agreement, the Fund pays a monthly fee at the annual rate of
0.20% of the value of its average monthly net assets. Prior to May 21, 1993,
Boston Advisors served as sub-investment adviser and administrator to the Fund.
No officer, director, or employee of Smith Barney Shearson, Boston Advisors
or of any parent or subsidiary of those corporations receives any compensation
from the Fund for serving as a Director or officer of the Fund. The Fund pays
each Director,
21
<PAGE>
MUNICIPAL HIGH INCOME FUND INC.
Notes to Financial Statements
(continued)
- --------------------------------------------------------------------------------
who is not an officer, director or employee of Smith Barney Shearson, Boston
Advisors or any of their 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.
3. SECURITIES TRANSACTIONS
For the year ended October 31, 1993, cost of purchases and proceeds from
sales of investment securities, excluding short-term investments, aggregated
$32,346,329 and $24,147,746, respectively.
At October 31, 1993, aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost amounted to
$14,729,261, and aggregate gross unrealized depreciation for all securities in
which there was an excess of tax cost over value amounted to $7,967,895.
<TABLE>
4. FUND SHARES
At October 31, 1993, 500,000,000 shares of common stock, with a par value
of $.01 per share were authorized.
Common stock transactions were as follows:
<CAPTION>
YEAR ENDED YEAR ENDED
10/31/93 10/31/92
--------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Issued as reinvestment of dividends... 503,252 $4,768,088 474,878 $4,411,155
======= ========== ======= ==========
</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 are 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.
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.
22
<PAGE>
MUNICIPAL HIGH INCOME FUND INC.
Notes to Financial Statements
(continued)
- --------------------------------------------------------------------------------
<TABLE>
QUARTERLY RESULTS OF OPERATIONS
(UNAUDITED)
<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, 1992....... $ 3,703,283 $0.20 $ 3,308,313 $0.18 $ 598,707 $ 0.03 $ 3,907,020 $
0.21
April 30, 1992......... 3,602,971 0.19 3,244,453 0.17 (657,952) (0.03) 2,586,501 0.14
July 31, 1992.......... 3,723,175 0.20 3,295,472 0.18 5,255,933 0.28 8,551,405 0.46
October 31, 1992....... 3,491,667 0.19 3,126,003 0.17 (3,926,544) (0.22) (800,541)
(0.05)
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
</TABLE>
23
<PAGE>
MUNICIPAL HIGH INCOME FUND INC.
Report of Independent Accountants
- --------------------------------------------------------------------------------
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, 1993, the related statement 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 four
years in the period ended October 31, 1993 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 investments and cash held by
the custodian as of October 31, 1993. 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, 1993, 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 four years in the period ended October 31, 1993 and for the period from
November 28, 1988 (commencement of operations) through October 31, 1989, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND
Boston, Massachusetts
December 8, 1993
24
<PAGE>
MUNICIPAL HIGH INCOME FUND INC.
Additional Information (unaudited)
- --------------------------------------------------------------------------------
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 Shearson will
automatically be reinvested by Smith Barney Shearson 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 payment 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
25
<PAGE>
MUNICIPAL HIGH INCOME FUND INC.
Additional Information (unaudited)
(continued)
- --------------------------------------------------------------------------------
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 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 Plan 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, 1993, 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 1-(800) 331-1710.
26
<PAGE>
MUNICIPAL HIGH INCOME FUND INC.
Tax Information
- --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 1993 (UNAUDITED)
Of the dividends paid from net investment income for the year ended October
31, 1993, 100% is tax exempt for regular Federal income tax purposes.
27
<PAGE>
MUNICIPAL HIGH INCOME FUND INC.
Management of the Fund
- --------------------------------------------------------------------------------
DIRECTORS
INVESTMENT ADVISER
Charles F. Barber
Allan J. Bloostein Greenwich Street Advisors
Martin Brody Two World Trade Center
Dwight B. Crane New York, New York 10048
Heath B. McLendon
ADMINISTRATOR
OFFICERS The Boston Company Advisors, Inc.
One Boston Place
Heath B. McLendon Boston, Massachusetts 02108
CHAIRMAN OF THE BOARD
Stephen J. Treadway
President AUDITORS AND COUNSEL
Coopers & Lybrand
Richard P. Roelofs One Post Office Square
EXECUTIVE VICE PRESIDENT Boston, Massachusetts 02109
Lawrence T. McDermott Willkie Farr & Gallagher
VICE PRESIDENT AND 153 East 53rd Street
INVESTMENT OFFICER New York, New York 10022
Karen Mahoney-Malcolmson
Investment Officer TRANSFER AGENT
Michael J. Maher The Shareholder Services Group, Inc.
INVESTMENT OFFICER Exchange Place
Boston, Massachusetts 02109
Vincent Nave
TREASURER
CUSTODIAN
Francis J. McNamara, III
Secretary Boston Safe Deposit and
Trust Company
One Boston Place
Boston, Massachusetts 02108
28
