Municipal
High Income
Fund Inc.
[GRAPHIC OMITTED]
Quarterly
Report
[GRAPHIC]
January
31, 1999
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Municipal High Income Fund Inc.
Dear Shareholder:
We are pleased to provide the quarterly report for the Municipal High
Income Fund Inc. ("Fund") for the three months ended January 31, 1999. Please
note that on February 3, 1999, Peter Coffey assumed management of the Municipal
High Income Fund. Mr. Coffey has over 30 years of investment experience. Over
the three-month period covered by this report, the Fund paid income dividends
totaling $0.15 per share. The table below shows the annualized distribution rate
and three-month total return based on the Fund's January 31, 1999 net asset
value ("NAV") per share and its New York Stock Exchange ("NYSE") closing price.
Price Annualized Three-Month
Per Share Distribution Rate* Total Return
--------- ------------------ ------------
$9.74 (NAV) 5.98% 1.24%
$9.625 (NYSE) 6.05% (3.46)%
In comparison, the Fund's Lipper, Inc. peer group returned an average of
1.54% based on NAV for the same period. (Lipper, Inc. is an independent
fund-tracking organization.)
Market and Economic Overview
The municipal bond market remained quite stable in the past three months
while many other financial markets experienced significant volatility. The
sudden collapse of Russia's economy and the near-failure of a prominent
leveraged hedge fund last summer heightened credit-quality concerns for many
investors. Moreover, Brazil, a major Latin American economy, appeared to be
facing a currency crisis of its own, which added to the uncertainty and
volatility in financial markets. These doubts led investors to shun most
corporate bonds, particularly high-yield bonds, in favor of U.S. Treasury bonds,
considered to be the global benchmark for credit quality.
The surging demand for U.S. Treasury bonds caused their yields, which move
in the opposite direction of their prices, to plummet while municipal bond
yields remained largely unchanged. As a result, the spread between municipal
bond yields and U.S. Treasury bond yields narrowed. During the reporting period,
long-term municipal bonds yielded as much as 100% of long-term U.S. Treasury
bonds. Under typical market conditions, municipal bonds yield roughly 85% of
similar-maturity U.S. Treasury bonds.
- ----------
* The annualized distribution rate assumes a current monthly income dividend
rate of $0.0485 per share for twelve months.
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Faced with a potential credit crunch and the possibility that financial
instability could trigger an U.S. recession, the Federal Reserve Board ("Fed")
lowered its federal-funds target rate from 5.50% to 4.75% over the course of
several weeks. (The federal-funds rate is the rate banks charge each other for
overnight loans and an indication of the future direction of interest rates.)
This action helped to calm jittery investors and provided more liquidity in the
banking system. The Fed's efforts may have also helped the U.S. economy maintain
its momentum. Despite recessionary trends abroad, the domestic unemployment rate
declined from 4.7% to 4.4% in 1998 and consumer demand remained robust.
A buoyant U.S. economy also contributed to the massive issuance of
municipal bonds in 1998, totaling some $284 billion - the second highest
issuance volume in history. The ability of the municipal bond market to absorb
such a heavy issuance is an indication of steady demand for tax-exempt
investments, unlike the radical shift in investor sentiment experienced by their
taxable counterparts.
Investment Strategy
The Fund's investment objective is to provide high levels of tax-exempt
current income. In pursuit of this objective, we have maintained broad
diversification across a number of investment sectors that we believe offer
high-yield potential as well as relative price stability. Among top market
segments represented in the Fund's portfolio as of January 31, 1999 were:
industrial revenue bonds (23%), hospital bonds (19%) and transportation bonds
(15%).
As of January 31, 1999, approximately 40.5% of the Fund's holdings were
rated investment grade. In addition, at the close of the Fund's fiscal quarter,
the Fund's average maturity was 21.9 years and the average life of the portfolio
was 8.4 years.
Municipal Bond Market Outlook
Looking ahead, we believe that the U.S. economy should remain strong in
the coming months with muted inflationary pressures. Despite the surprising
resilience in many areas of the economy, we believe that ongoing financial
weakness abroad should help dampen overall price increases.
In recent weeks, long-term interest rates have spiked upward, partly in
response to unexpected strength in the U.S. economy. However, we believe that
after aggressively cutting short-term rates last fall, the Fed will likely adopt
a wait-and-see approach before adjusting interest rates again. Moreover, we
believe that a slight rise in interest rates could create buying opportunities
for the Fund. In our view, these conditions should provide a supportive backdrop
for municipal bonds over the medium term.
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In closing, we thank you for your investment in the Municipal High Income
Fund Inc. We look forward to continuing to help you pursue your financial goals.
Sincerely,
/s/ Heath B. McLendon /s/ Peter M.Coffey
Heath B. McLendon Peter M. Coffey
Chairman Vice President and
Investment Officer
February 24, 1999
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Take Advantage of the Fund's Dividend Reinvestment Plan!
Did you know that Fund investors who reinvest their dividends are taking
advantage of one of the most effective wealth-building tools available today?
Systematic investments put time to work for you through the strength of
compounding.
As an investor in the Fund, you can participate in its Dividend Reinvestment
Plan ("Plan"), a convenient, simple and efficient way to reinvest your
dividends and capital gains, if any, in additional shares of the Fund. A more
complete description of the Plan begins on page 24. Below is a short summary
of how the Plan works.
Plan Summary
If you are a Plan participant who has not elected to receive your dividends in
the form of a cash payment, then your dividend and capital gain distributions
will be reinvested automatically in additional shares of the Fund.
The number of common stock shares in the Fund you will receive in lieu of a
cash dividend is determined in the following manner. If the market price of
the common stock is equal to or higher than 98% of the net asset value ("NAV")
per share on the date of valuation, you will be issued shares for the
equivalent of either 98% of the most recently determined NAV per share or 95%
of the market price, whichever is greater.
If 98% of the NAV per share at the time of valuation is greater than the
market price of the common stock, or if the Fund declares a dividend or
capital gains distribution payable only in cash, the Fund will buy common
stock for your account in the open market or on the New York Stock Exchange.
If the Fund begins to purchase additional shares in the open market and the
market price of the shares subsequently rises above 98% of the NAV before the
purchases are completed, the Fund will attempt to cancel any remaining orders
and issue the remaining dividend or distribution in shares at 98% of the
Fund's NAV per share. In that case, the number of Fund shares you receive 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.
To find out more detailed information about the Plan and about how you can
participate, please call First Data Investors Services Group, Inc. at (800)
331-1710.
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<PAGE>
Municipal High Income Fund Inc.
Schedule of Investments (unaudited)
[GRAPHIC] January 31, 1999
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<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
=======================================================================================
<S> <C> <C> <C>
Alabama -- 3.8%
$ 180,000 Aaa* Alabama HFA, Single-Family Mortgage Revenue,
10.500% due 12/1/02 .............................. $ 190,800
1,000,000 Baa3* Alabama State IDA, Solid Waste Disposal,
6.450% due 12/1/23 (b) ........................... 1,080,000
4,000,000 BBB- Butler, AL IDR, Waste Disposal, 8
.000% due 9/1/28 (b)(c) .......................... 4,585,000
1,000,000 CCC Mobile, AL IDR, 6.950% due 1/1/20 .................. 530,000
1,000,000 NR West Jefferson, AL Amusement & Public Park
Authority Revenue, (Visionland Project),
(Pre-Refunded --Escrowed with U.S.
government securities to 12/1/06 Call @ 102),
8.000% due 12/1/26 (d) ........................... 1,152,500
------------
7,538,300
------------
Arizona -- 1.5%
1,000,000 BBB- Coconino County, AZ PCR, Nevada Power Co., Series
B, 5.800% due 11/1/32 (b) ........................ 1,020,000
2,000,000 BBB- Gila County, AZ IDA Revenue, ASARCO Inc.,
5.550% due 1/1/27 ................................ 1,997,500
------------
3,017,500
------------
California -- 1.1%
2,000,000 NR Los Angeles County, CA Regional Airport
Authority, Continental Airlines, Inc.,
9.000% due 8/1/17 (b)(c) ......................... 2,063,680
------------
Colorado -- 2.6%
2,000,000 NR Colorado Health Facilities Authority Revenue,
(Beth Israel Shalom Park Project),
7.250% due 12/15/25 .............................. 2,087,500
Denver, CO Airport, Series A:
1,505,000 BBB+ 8.500% due 11/15/23 (b) .......................... 1,638,569
1,175,000 BBB+ 8.000% due 11/15/25 (b) .......................... 1,283,688
------------
5,009,757
------------
Connecticut -- 1.8%
Connecticut State Development Authority:
1,735,000 NR Aquarium Project Revenue, Mystic Marinelife
Aquarium, 7.000% due 12/1/27 ................... 1,858,619
1,500,000 NR Health Care Revenue, Series B,
8.000% due 7/1/17 .............................. 1,633,125
------------
3,491,744
------------
Florida -- 3.7%
2,000,000 NR Florida Housing Finance Corp., Multi-Family Revenue,
(Whistlers Cove Apartment Project),
6.500% due 1/1/39 (b) ............................ 2,015,000
875,000 NR Homestead, FL IDR, (Project A), 7.950% due 11/1/18 . 942,813
1,970,000 NR Jacksonville, FL Health Facilities Authority
Revenue, 9.125% due 10/15/19 2,014,660
2,000,000 BBB- Martin County, FL IDR, (Indiantown Cogeneration
Project A), 7.875% due 12/15/25 (b) .............. 2,305,000
------------
7,277,473
------------
</TABLE>
See Notes to Financial Statements.
5
<PAGE>
Municipal High Income Fund Inc.
Schedule of Investments (unaudited) (continued)
[GRAPHIC] January 31, 1999
================================================================================
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
=======================================================================================
<S> <C> <C> <C>
Georgia -- 2.1%
$3,000,000 NR Forsyth County, GA Hospital Authority Revenue,
(Baptist Health Care System Project),
6.375% due 10/1/28 ............................... $ 2,988,750
1,000,000 NR Walton County, GA IDA, (Walton Project),
8.500% due 9/1/07 ................................ 1,141,250
------------
4,130,000
------------
Illinois -- 3.7%
6,750,000 AAA Chicago, IL Board of Education, (School Reform
Project), Series B-1, FGIC-Insured, zero
coupon bond to yield 5.220% due 12/1/31 .......... 1,240,313
2,500,000 BB East Chicago, IL IDA Revenue, (Inland Steel Co.,
Project 10), 6.800% due 6/1/13 ................... 2,559,375
1,500,000 A+ Illinois Housing Development Authority, Series 5,
6.750% due 9/1/23 ............................... 1,636,875
730,000 NR Loves Park, IL First Mortgage Revenue, (Hoosier Care
Project), Series A, 9.750% due 8/1/19 ............ 761,551
955,000 NR Sterling, IL First Mortgage Revenue, (Hoosier Care
Project), Series A, 9.750% due 8/1/19 ............ 994,231
------------
7,192,345
------------
Indiana -- 4.3%
1,000,000 B+ Indiana State Development Finance Authority, PCR,
(Inland Steel Co., Project No. 13), 7.250% due
11/1/11 (b) ...................................... 1,056,250
2,000,000 Baa2* Indiana State Environmental Development
Finance Authority, (USX Corp. Project),
6.250% due 7/15/30 ............................... 2,162,500
4,750,000 Baa2* Indianapolis, IN Airport Authority, United
Airlines, 6.500% due 11/15/31 (b)(c) ............. 5,135,937
------------
8,354,687
------------
Kentucky -- 2.0%
1,230,000 NR Jefferson County, KY Health Facilities Authority,
Dates Beverly Enterprises, 10.125% due 5/1/08 .... 1,279,138
1,500,000 BBB- Kenton County, KY Airport Board, (Delta Airlines
Project), 7.500% due 2/1/20 (b) .................. 1,644,375
1,000,000 A Pendleton County, KY Multi-Lease Revenue, Series A,
6.500% due 3/1/19 ................................ 1,087,500
------------
4,011,013
------------
Louisiana -- 5.6%
1,200,000 A3* Lake Charles, LA Harbor & Terminal District Port
Facilities Revenue, (Trunkline LNG Co. Project),
7.750% due 8/15/22 ............................... 1,363,500
800,000 A-1+ Louisiana State Offshore Terminal Authority,
Deepwater Port Revenue, First Stage,
Series A, (Loop Inc. Project),
3.200% due 9/1/08 (e) ............................ 800,000
Port New Orleans, LA IDR:
Avondale Industries, Inc. Project:
1,600,000 NR 8.250% due 6/1/04 .............................. 1,784,000
3,000,000 NR 8.500% due 6/1/14 .............................. 3,408,750
1,000,000 B+ Continental Grain Co. Project,
7.500% due 7/1/13 (c) .......................... 1,070,000
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
Municipal High Income Fund Inc.
Schedule of Investments (unaudited) (continued)
[GRAPHIC] January 31, 1999
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<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
=======================================================================================
<S> <C> <C> <C>
Louisiana -- 5.6% (continued)
$2,400,000 BB+ West Feliciana Parish, LA PCR,
8.000% due 12/1/24 ............................... $ 2,516,352
------------
10,942,602
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Maine -- 0.0%
Maine State Housing Authority Mortgage Purchases:
35,000 AA Series C-2, 7.000% due 11/15/32 (b) .............. 37,625
20,000 AA Series D-1, 8.300% due 11/15/28 (b) .............. 20,450
------------
58,075
------------
Massachusetts -- 7.0%
Commonwealth of Massachusetts Industrial Finance Agency,
(S.E. Mass Project):
1,700,000 NR Series A, 9.000% due 7/1/15 .................... 1,899,750
5,895,000 NR Series B, 9.250% due 7/1/15 (b)(c) ............. 6,609,769
1,000,000 BBB Massachusetts State Health & Educational Facilities
Authority Revenue, Caritas Christi Obligation,
Group A, 5.625% due 7/1/20 ....................... 1,002,500
Massachusetts State Industrial Finance Agency:
2,000,000 NR Assisted Living Facility Revenue, (Marina Bay LLC
Project), 7.500% due 12/1/27 (b) ............... 2,130,000
2,250,000 NR Chestnut Knoll Project, Series A,
5.500% due 2/15/18 ............................. 2,199,375
------------
13,841,394
------------
Michigan -- 3.6%
2,000,000 BB- Detroit, MI Local Development Finance Authority,
Series A, 5.500% due 5/1/21 ...................... 1,985,000
Garden City, MI Hospital Finance Authority, Hospital
Revenue Garden City Hospital Obligation, Group A:
2,000,000 NR 5.625% due 9/1/10 .............................. 1,997,500
1,000,000 NR 5.750% due 9/1/17 .............................. 1,000,000
2,000,000 NR Michigan State Strategic Fund, Resource Recovery
Limited Obligation Revenue, Central Wayne
Energy Recovery, Series A, 6.900% due 7/1/19 (b) . 2,035,000
------------
7,017,500
------------
Minnesota -- 1.0%
1,795,000 AA+ Minnesota HFA, Single-Family, Series H,
6.700% due 1/1/18 ................................ 1,927,381
------------
Mississippi -- 1.8%
3,500,000 BBB- Mississippi Business Finance Corp., MS PCR,
(System Energy Resource Inc. Project),
5.875% due 4/1/22 ................................ 3,508,750
------------
Montana -- 2.2%
4,530,000 NR Montana State Board Investment Resource
Recovery Revenue, (Yellowstone Energy LP
Project), 7.000% due 12/31/19 (b) ................ 4,411,087
------------
New Hampshire -- 0.8%
1,000,000 BBB- New Hampshire Higher Educational & Health
Facilities Authority Revenue, New Hampshire
College, 6.375% due 1/1/27 ....................... 1,058,750
</TABLE>
See Notes to Financial Statements.
7
<PAGE>
Municipal High Income Fund Inc.
Schedule of Investments (unaudited) (continued)
[GRAPHIC] January 31, 1999
================================================================================
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
=======================================================================================
<S> <C> <C> <C>
New Hampshire -- 0.8% (continued)
$ 500,000 BB- New Hampshire State Business Finance Authority,
PCR, (Public Service Co.), Series D,
6.000% due 5/1/21 (b) ............................ $ 512,500
------------
1,571,250
------------
New Jersey -- 4.1%
3,000,000 Ba2* Camden County, NJ Improvement Authority Revenue,
Health Care Redevelopment Project, (Cooper
Health), 5.875% due 2/15/15 ...................... 2,711,250
2,200,000 NR New Jersey Educational Facilities, Fairleigh
Dickinson University, Series C,
6.625% due 7/1/23 ................................ 2,315,500
New Jersey Health Care Facilities:
1,885,000 Baa3* Palisades Medical Center, Finance Authority
Revenue, 7.600% due 7/1/21 ..................... 2,019,306
1,000,000 NR Raritan Bay Medical Center,
7.250% due 7/1/27 ............................ 1,062,500
------------
8,108,556
------------
New Mexico -- 0.5%
945,000 AAA New Mexico Mortgage Finance Authority,
Single-Family Mortgage Program, Series B,
FHA-Insured, 8.300% due 3/1/20 (b) ............... 1,043,044
------------
New York -- 6.0%
800,000 A-1+ Long Island Power Authority, NY Electrical System
Revenue, Sub-Series 5, 3.150% due 5/1/33 (e) ..... 800,000
1,640,000 NR Monroe County, NY Industrial Development Agency
Revenue, (Empire Sports Project), Series A,
6.250% due 3/1/28 ................................ 1,648,200
1,500,000 NR New York City, NY IDA, Civil Facility Revenue,
7.500% due 8/1/26 ................................ 1,584,375
1,950,000 A- New York State Energy and Research Development
Authority, Electric Facility Revenue, LILCO,
(Pre-Refunded --Escrowed with U.S. government
securities to 6/15/02 Call @ 102),
7.150% due 12/1/20 (b)(d) ........................ 2,130,375
2,750,000 NR Port Authority of NY & NJ, Special Obligation
Revenue, 6.750% due 10/1/19 (b) .................. 3,062,812
2,500,000 NR Suffolk County, NY Industrial Development
Agency, IDR, Nissequogue Cogen Partners
Facility, 5.500% due 1/1/23 (b) .................. 2,515,625
------------
11,741,387
------------
North Carolina -- 4.2%
1,750,000 A Martin County, NC Industrial Facilities PCR,
6.800% due 5/1/24 (b) ............................ 1,944,687
2,300,000 Baa1* North Carolina Eastern Municipal Power Agency,
Power Systems Revenue, Series B,
7.000% due 1/1/08 ................................ 2,705,375
1,440,000 NR North Carolina Medical Care Community Health Care
Facilities, First Mortgage, De Paul Community
Facilities, 6.125% due 1/1/28 .................... 1,447,200
800,000 Baa1* North Carolina Medical Care Community Hospital
Revenue, Halifax Regional Medical Center,
5.000% due 8/15/24 ............................... 762,000
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
Municipal High Income Fund Inc.
Schedule of Investments (unaudited) (continued)
[GRAPHIC] January 31, 1999
================================================================================
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
=======================================================================================
<S> <C> <C> <C>
North Carolina -- 4.2% (continued)
$1,310,000 A- North Carolina Municipal Power Agency No. 1,
Catawaba Electric Revenue, 6.250% due 1/1/17 ..... $ 1,393,512
------------
8,252,774
------------
Ohio -- 5.9%
Cleveland, OH Airport Special Revenue,
(Continental Airlines Inc. Project):
1,000,000 NR 9.000% due 12/1/19 (b) ......................... 1,066,410
2,000,000 BB 5.375% due 9/15/27 (b) ......................... 1,935,000
1,000,000 NR Cuyahoga County, OH Health Care Facilities,
Judson Retirement Community, Series A,
7.250% due 11/15/18 .............................. 1,078,750
3,000,000 BBB Dayton, OH Special Facilities Revenue, Emergency
Air Freight, Series A, 5.625% due 2/1/18 ......... 3,086,250
Montgomery County, OH Health Systems Revenue,
Series B1:
465,000 BBB 8.100% due 7/1/18 .............................. 561,487
1,035,000 AAA 8.100% due 7/1/18, (Pre-Refunded -- Escrowed
with U.S. government securities to
7/1/06 Call @ 102) ........................... 1,323,506
1,250,000 NR Ohio State Solid Waste Revenue, 9.000%
due 6/1/21 (b) ................................... 1,393,750
1,000,000 Baa3* Ohio Water Development Authority, PCR, Series A,
8.100% due 10/1/23 (b) ........................... 1,048,900
------------
11,494,053
------------
Oklahoma -- 0.3%
3,000,000 Aaa* Oklahoma Housing Finance Agency, Single-Family
Revenue, Collateralized Mortgage, Series D-1,
zero coupon bond to yield 5.400% due 3/1/29 ...... 600,000
------------
Pennsylvania -- 13.8%
2,200,000 B+ Allegheny County, PA IDA, Special Facilities
Revenue, Series B, (U.S. Air Project),
8.500% due 3/1/21 (b) ............................ 2,425,500
Beaver County, PA IDA, PCR:
2,000,000 BB+ 7.625% due 5/1/20 ................................ 2,282,500
2,500,000 BB+ 7.625% due 5/1/25 ................................ 2,853,125
1,500,000 NR Dauphin County, PA General Authority, Hotel &
Conference Center Hyatt Regency,
6.200% due 1/1/29 ................................ 1,507,500
1,500,000 NR Delaware County, PA IDA, First Mortgage,
White Horse, (Pre-Refunded-- Escrowed with
U.S. government securities to 7/1/99
Call @ 103), 9.700% due 7/1/09 (d) ............... 1,584,780
3,000,000 BBB+ Lebanon County, PA Samaritan House, Series B,
(Pre-Refunded-- Escrowed with U.S. government
securities to 11/1/99 Call @ 102),
8.250% due 11/1/18 (d) ........................... 3,173,550
2,500,000 A- Luzerne County, PA IDA, (PA Gas & Water Co.
Project), Series B, 7.125% due 12/1/22 (b) ....... 2,762,500
550,000 NR Northumberland County, PA IDA Revenue,
6.875% due 2/1/03 ................................ 562,375
1,500,000 AA+ Pennsylvania HFA, Series C, 6.900%
due 4/1/25 (b) ................................... 1,614,375
1,920,000 BBB Philadelphia, PA Gas Revenue, Series B,
6.400% due 11/15/16 .............................. 2,028,000
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
Municipal High Income Fund Inc.
Schedule of Investments (unaudited) (continued)
[GRAPHIC] January 31, 1999
================================================================================
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
=======================================================================================
<S> <C> <C> <C>
Pennsylvania -- 13.8% (continued)
$1,000,000 NR Philadelphia, PA IDR, Host Marriott,
7.750% due 12/1/17 (b) ........................... $ 1,113,750
Scranton-Lackawanna, PA Health & Welfare
Authority Revenue, (Moses Taylor Hospital Project):
1,905,000 BBB- 6.150% due 7/1/14 .............................. 2,028,825
3,050,000 BBB- 6.250% due 7/1/20 .............................. 3,210,125
------------
27,146,905
------------
Puerto Rico -- 0.1%
200,000 A-1+ Puerto Rico Commonwealth Government Development
Bank, MBIA-Insured, 2.350% due 12/1/15 (e) ....... 200,000
------------
South Carolina -- 2.0%
775,000 NR Florence County, SC IDR, 7.375% due 2/1/07 ......... 831,188
2,500,000 BBB- Greenville, SC Connector 2,000 Association Inc.,
SC Toll Road Revenue, (Southern Connector
Project), Series A, 5.375% due 1/1/38 ............ 2,293,750
800,000 NR McCormick County, SC COP, 9.750% due 7/1/09 ........ 806,968
------------
3,931,906
------------
South Dakota -- 1.0%
Oglala Sioux Tribe, SD Pine Ridge County,
Revenue Bonds:
1,865,000 NR 7.500% due 7/1/13 .............................. 1,909,294
40,000 NR 7.000% due 7/1/99 .............................. 40,388
------------
1,949,682
------------
Tennessee -- 0.4%
750,000 AAA Knox County, TN Health, Education & Housing,
FSA-Insured, 7.125% due 1/1/30 ................... 837,187
------------
Texas -- 8.5%
1,350,000 BBB Alliance, TX Airport Authority Inc., (Federal
Express Corp. Project), 6.375% due 4/1/21 (b) .... 1,459,688
795,000 A2* El Paso, TX Housing Finance Corp., Single-Family
Mortgage Revenue, 8.750% due 10/1/11 ............. 858,600
2,000,000 B1* El Paso, TX International Airport Revenue Bonds,
(Marriott Corp. Project), 7.750% due 3/1/12 ...... 2,132,500
Houston, TX Airport Systems Revenue Special
Facilities, Continental Airlines Inc.:
1,050,000 Ba1* Series B, 6.125% due 7/15/27 (b) ............... 1,080,187
3,000,000 Ba1* Series C, 6.125% due 7/15/27 (b) ............... 3,086,250
1,000,000 AAA Matagorda County, TX Navigation District No. 1,
PCR, (Houston Lighting & Power Co. Project),
MBIA-Insured, 6.100% due 7/1/28 .................. 1,048,750
North Central, TX Health Facilities Development
Project, Hospital Revenue Bonds, Baylor
Health Care Systems, Series B, Variable
Rate INFLOS:
1,265,000 AA 8.700% due 5/15/08 (f) ......................... 1,391,500
135,000 AA 8.700% due 5/15/08, (Pre-Refunded -- Escrowed
with U.S. government securities to 5/15/02
Call @ 102) (d)(f) ........................... 150,019
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
Municipal High Income Fund Inc.
Schedule of Investments (unaudited) (continued)
[GRAPHIC] January 31, 1999
================================================================================
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
=======================================================================================
<S> <C> <C> <C>
Texas -- 8.5% (continued)
Northgate Crossing, TX Municipals Utilities:
$1,000,000 CCC+++ District 1, GO, 8.875% due 12/1/13 ............... $ 1,007,500
1,000,000 CCC+++ District 2, Special Tax, 8.875% due 12/1/13 ...... 1,007,500
3,435,000 BB Sam Rayburn, TX Municipal Power Supply System
Revenue Refunding, Series A, 6.250% due 10/1/17 .. 3,525,169
------------
16,747,663
------------
Utah -- 2.0%
1,720,000 NR Hurricane, UT Health Facilities Development
Revenue, (Mission Health Services Project),
10.500% due 7/1/20 ............................... 1,866,200
2,000,000 NR Utah State Housing Finance Agency Revenue,
Series A, 6.875% due 7/1/27 ...................... 2,095,000
------------
3,961,200
------------
Vermont -- 1.1%
2,060,000 A1* Vermont Housing Finance Agency, Home Mortgage,
Series B, 8.100% due 6/1/22 (b) .................. 2,115,187
------------
West Virginia -- 0.6%
Marion County, WV Solid Waste Disposal Facilities
Revenue, Adirondack Recycling:
1,098,392 NR Series A, 8.000% due 12/1/25 ................... 988,553
156,003 NR Series B, 10.000% due 12/1/25 .................. 140,403
------------
1,128,956
------------
Wisconsin -- 0.9%
1,770,000 NR Wisconsin State Health & Educational Facilities
Authority Revenue, Benchmark Health Care
Green Bay, 7.750% due 5/1/27 ..................... 1,858,500
------------
TOTAL INVESTMENTS -- 100%
(Cost-- $185,673,571**) ............................ $196,481,538
============
</TABLE>
(a) All ratings are by Standard & Poor's Rating Service except those which are
identified by an asterisk (*) are rated by Moody's Investors Service,
Inc., or those which are identified by a double dagger (++) are rated by
Fitch IBCA, Inc.
(b) Income from this issue is considered a preference item for purposes of
calculating the alternative minimum tax.
(c) Security segregated by Custodian for open market purchase commitment.
(d) Pre-Refunded bonds Escrowed with U.S. government securities are considered
by the investment advisor to be triple-A rated even if issuer has not
applied for new ratings.
(e) Variable rate obligation payable at par on demand at any time on no more
than seven days notice.
(f) Residual interest bonds-coupon varies inversely with level of short-term
tax-exempt interest rates.
** Aggregate cost for Federal income tax purposes is substantially the same.
See pages 13 through 15 for definition of ratings and certain security
descriptions.
See Notes to Financial Statements.
11
<PAGE>
Municipal High Income Fund Inc.
Summary of Municipal Bonds by Combined Ratings
[GRAPHIC] January 31, 1999
================================================================================
------------------------------------------------------------------------
Standard & Percent of
Moody's and/or Poor's Total Investments
------------------------------------------------------------------------
Aaa AAA 3.2%
Aa AA 2.6
A A 7.8
Baa BBB 26.9
Ba BB 12.7
B B 3.4
Caa CCC 1.3*
P-1/VMIG 1 A-1/SP-1 0.9
NR NR 41.2
-----
100.0%
=====
------------------------------------------------------------------------
* 1.0% was rated by Fitch IBCA, Inc.
12
<PAGE>
Municipal High Income Fund Inc.
Bond Ratings (unaudited)
================================================================================
The definitions of the applicable ratings symbols are set forth below:
Standard & Poor's Ratings Service ("Standard & Poor's") -- Ratings from "AA" to
"CCC" may be modified by the addition of a plus (+) or a minus (-) sign to show
relative standings within the major rating categories.
AAA --Bonds rated "AAA" have the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely
strong.
AA --Bonds rated "AA" have a very strong capacity to pay interest and
repay principal and differ from the highest rated issue only in a
small degree.
A --Bonds rated "A" have a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
debt in higher rated categories.
BBB --Bonds rated "BBB" are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in
higher rated categories.
BB, B --Bonds rated "BB" and "B" are regarded, on balance, as predominantly
and CCC speculative and with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB"
represents a lower degree of speculation than "B", and "CCC" the
highest degree of speculation. While such bonds will likely have
some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
Moody's Investors Service, Inc. ("Moody's") -- Numerical modifiers 1, 2 and 3
may be applied to each generic rating from "Aa" to "B," where 1 is the highest
and 3 the lowest rating within its generic category.
Aaa --Bonds rated "Aaa" are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as
can be visualized are most unlikely to impair the fundamentally
strong position of such issues.
Aa --Bonds rated "Aa" are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large in "Aaa"
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in "Aaa" securities.
A --Bonds rated "A" possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment
some time in the future.
13
<PAGE>
Municipal High Income Fund Inc.
[GRAPHIC] Bond Ratings (unaudited) (continued)
================================================================================
Baa --Bonds rated "Baa" are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba --Bonds rated "Ba" are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B --Bonds rated "B" generally lack characteristics of desirable
investments. Assurance of interest and principal payments or of
maintenance of other terms of the contract over many long period of
time may be small.
Fitch IBCA, Inc. ("Fitch") -- Rating may be modified by the addition of a plus
(+) sign or minus (-) to show relative standings with the major ratings
categories.
BBB --Bonds rated "BBB" by Fitch currently have a low expectation of
credit risk. The capacity for timely payment of financial
commitments is considered to be adequate. Adverse changes in
economic conditions and circumstances, however, are more likely to
impair this capacity. This is the lowest investment grade category
assigned by Fitch.
CCC, CC, C--Default on bonds rated CCC, CC, and C by Fitch is a real
possibility. The capacity to meet financial commitments depends
solely on a sustained, favorable business and economic environment.
Default of some kind on bonds rated CC appears probable, a C rating
indicates imminent default.
NR --Indicates that the bond is not rated by Standard & Poor's, Moody's
or Fitch.
Short-Term Security Ratings (unaudited)
================================================================================
A-1 --Standard & Poor's highest commercial paper and variable-rate demand
obligation (VRDO) rating indicating that the degree of safety
regarding timely payment is either overwhelming or very strong;
those issues determined to possess overwhelming safety
characteristics are denoted with a plus (+) sign.
14
<PAGE>
Municipal High Income Fund Inc.
[GRAPHIC] Security Descriptions (unaudited)
================================================================================
ABAG -- Association of Bay Area Governments
AIG -- American International Guaranty
AMBAC -- American Municipal Bond
Assurance Corporation
BAN -- Bond Anticipation Notes
BIG -- Bond Investors Guaranty
CGIC -- Capital Guaranty Insurance Company
CHFCLI -- California Health Facility
Construction Loan Insurance
CONNIE LEE -- College Construction Loan
Insurance Association
COP -- Certificate of Participation
EDA -- Economic Development Authority
ETM -- Escrowed to Maturity
FGIC -- Financial Guaranty Insurance Company
FHA -- Federal Housing Administration
FHLMC -- Federal Home Loan Mortgage
Corporation
FLAIRS -- Floating Adjustable Interest Rate
Securities
FNMA -- Federal National Mortgage Association
FRTC -- Floating Rate Trust Certificates
FSA -- Financing Security Assurance
GIC -- Guaranteed Investment Contract
GNMA -- Government National Mortgage
Association
GO -- General Obligation
HDC -- Housing Development Corporation
HFA -- Housing Finance Authority
IDA -- Industrial Development
Authority
IDB -- Industrial Development Board
IDR -- Industrial Development Revenue
INFLOS -- Inverse Floaters
ISD -- Independent School District
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors
Assurance Corporation
MVRICS -- Municipal Variable Rate Inverse
Coupon Security
PCR -- Pollution Control Revenue
PSFG -- Permanent School Fund
Guaranty
RAN -- Revenue Anticipation Notes
RIBS -- Residual Interest Bonds
RITES -- Residual Interest
Tax-Exempt Securities
SYCC -- Structured Yield Curve
Certificate
TAN -- Tax Anticipation Notes
TECP -- Tax-Exempt Commercial Paper
TOB -- Tender Option Bonds
TRAN -- Tax and Revenue Anticipation
Notes
VA -- Veterans Administration
VRWE -- Variable Rate Wednesday
Demand
15
<PAGE>
Municipal High Income Fund Inc.
Statement of Assets and Liabilities (unaudited)
[GRAPHIC] January 31, 1999
================================================================================
ASSETS:
Investments, at value (Cost-- $185,673,571) ............. $ 196,481,538
Cash .................................................... 10,504
Receivable for securities sold .......................... 95,292
Interest receivable ..................................... 2,872,348
-------------
Total Assets ............................................ 199,459,682
-------------
LIABILITIES:
Payable for securities purchased ........................ 988,450
Dividends payable ....................................... 277,013
Investment advisory fees payable ........................ 65,038
Administration fees payable ............................. 32,258
Accrued expenses ........................................ 194,593
-------------
Total Liabilities ....................................... 1,557,352
-------------
Total Net Assets .......................................... $ 197,902,330
=============
NET ASSETS:
Par value of capital shares ............................. $ 203,194
Capital paid in excess of par value ..................... 188,689,714
Overdistributed net investment income ................... (56,284)
Accumulated net realized loss
from security transactions ............................ (1,742,261)
Net unrealized appreciation of investments .............. 10,807,967
-------------
Total Net Assets .......................................... $ 197,902,330
=============
Shares Outstanding ........................................ 20,319,366
-------------
Net Asset Value ........................................... $9.74
-------------
See Notes to Financial Statements.
16
<PAGE>
Municipal High Income Fund Inc.
Statement of Operations (unaudited)
[GRAPHIC] For the Three Months Ended January 31, 1999
================================================================================
INVESTMENT INCOME:
Interest ................................................... $ 3,334,071
------------
EXPENSES:
Investment advisory fees (Note 3) .......................... 196,982
Administration fees (Note 3) ............................... 98,491
Shareholder communications ................................. 31,824
Audit and legal ............................................ 12,918
Director's fees ............................................ 10,721
Registration fees .......................................... 6,083
Shareholder and system servicing fees ...................... 5,746
Pricing service fees ....................................... 3,740
Custody .................................................... 2,462
Other ...................................................... 1,735
------------
Total Expenses ............................................. 370,702
------------
Net Investment Income ........................................ 2,963,369
------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (NOTE 4):
Realized Gain From Security Transactions
(excluding short-term securities):
Proceeds from sales ...................................... 12,552,797
Cost of securities sold .................................. 12,222,039
------------
Net Realized Gain .......................................... 330,758
------------
Change in Net Unrealized Appreciation of Investments:
Beginning of period ...................................... 11,724,011
End of period ............................................ 10,807,967
------------
Decrease in Net Unrealized Appreciation .................... (916,044)
------------
Net Loss on Investments ...................................... (585,286)
------------
Increase in Net Assets From Operations ....................... $ 2,378,083
============
See Notes to Financial Statements.
17
<PAGE>
Municipal High Income Fund Inc.
Statements of Changes in Net Assets
For the Three Months Ended January 31, 1999 (unaudited)
[GRAPHIC] and the Year Ended October 31, 1998
================================================================================
1999 1998
---- ----
Operations:
Net investment income ...................... $ 2,963,369 $ 11,975,257
Net realized gain .......................... 330,758 1,469,162
Decrease in net unrealized appreciation .... (916,044) (807,512)
------------- -------------
Increase in Net Assets From Operations ..... 2,378,083 12,636,907
------------- -------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM (NOTE 2):
Net investment income ...................... (3,002,731) (12,128,877)
In excess of net investment income ......... -- (287,412)
------------- -------------
Decrease in Net Assets From
Distributions to Shareholders ............ (3,002,731) (12,416,289)
------------- -------------
FUND SHARE TRANSACTIONS (NOTE 5):
Net asset value of shares issued for
reinvestment of dividends ................ 582,904 3,590,163
------------- -------------
Increase in Net Assets From
Fund Share Transactions .................. 582,904 3,590,163
------------- -------------
Increase (Decrease) in Net Assets ............ (41,744) 3,810,781
NET ASSETS:
Beginning of period ........................ 197,944,074 194,133,293
------------- -------------
End of period* ............................. $ 197,902,330 $ 197,944,074
============= =============
* Includes overdistributed net
investment income of: .................... $ (56,284) $ (16,922)
============= =============
See Notes to Financial Statements.
18
<PAGE>
Municipal High Income Fund Inc.
[GRAPHIC] Notes to Financial Statements (unaudited)
================================================================================
1. Significant Accounting Policies
Municipal High Income Fund Inc. ("Fund"), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended, as a
diversified, closed-end management investment company.
The significant accounting policies consistently followed by the Fund are:
(a) security transactions are accounted for on trade date; (b) securities are
valued at the mean between the bid and asked prices provided by an independent
pricing service; (c) securities maturing within 60 days are valued at cost plus
accreted discount, or minus amortized premium, which approximates value; (d)
gains or losses on the sale of securities are calculated by using the specific
identification method; (e) interest income, adjusted for amortization of premium
and accretion of original issue discount, is recorded on an accrual basis; (f)
dividends and distributions to shareholders are recorded on the ex-dividend
date; (g) the Fund intends to comply with the applicable provisions of the
Internal Revenue Code of 1986, as amended, pertaining to regulated investment
companies and to make distributions of taxable income sufficient to relieve it
from substantially all Federal income and excise taxes; (h) the character of
income and gains to be distributed are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles. At
October 31, 1998, reclassifications were made to the Fund's capital accounts to
reflect permanent book/tax differences and income and gains available for
distributions under income tax regulations. Accordingly, a portion of
accumulated net investment income amounting to $287,412 was reclassified to
paid-in capital. Net realized gains and net assets were not affected by this
change; and (i) estimates and assumptions are required to be made regarding
assets, liabilities and changes in net assets resulting from operations when
financial statements are prepared. Changes in the economic environment,
financial markets and any other parameters used in determining these estimates
could cause actual results to differ.
2. Exempt-Interest Dividends and Other Distributions
The Fund intends to satisfy conditions that will enable interest from
municipal securities, which is exempt from Federal income tax, to retain such
tax-exempt status when distributed to the shareholders of the Fund.
Capital gains distributions, if any, are taxable to shareholders, and are
declared and paid at least annually.
3. Investment Advisory Agreement, Administration Agreement and Other
Transactions
SSBC Fund Management Inc., ("SSBC"), formerly known as Mutual Management
Corp., a subsidiary of Salomon Smith Barney Holdings Inc. ("SSBH"), acts as
investment adviser to the Fund. The Fund pays SSBC an advisory fee calculated at
an annual rate of 0.40% of the average daily net assets. SSBC also acts as the
administrator of the Fund for which it receives a fee
19
<PAGE>
Municipal High Income Fund Inc.
[GRAPHIC] Notes to Financial Statements (unaudited) (continued)
================================================================================
calculated at an annual rate of 0.20% of the average daily net assets. These
fees are calculated daily and paid monthly.
All officers and one Director of the Fund are employees of Salomon Smith
Barney Inc., another subsidiary of SSBH.
4. Investments
During the three months ended January 31, 1999, the aggregate cost of
purchases and proceeds from sales of investments (including maturities, but
excluding short-term securities) were as follows:
================================================================================
Purchases $ 8,248,250
- --------------------------------------------------------------------------------
Sales 12,552,797
================================================================================
At January 31, 1999, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
================================================================================
Gross unrealized appreciation $11,918,453
Gross unrealized depreciation (1,110,486)
- --------------------------------------------------------------------------------
Net unrealized appreciation $10,807,967
================================================================================
5. Capital Shares
At January 31, 1999, the Fund had 500,000,000 shares of capital stock
authorized with a par value of $0.01 per share.
Capital stock transactions during the period were as follows:
Three Months Ended Year Ended
January 31, 1999 October 31, 1998
------------------ ------------------
Shares Amount Shares Amount
================================================================================
Shares issued on reinvestment 60,726 $582,904 373,334 $3,590,163
================================================================================
6. Capital Loss Carryforwards
At October 31, 1998, the Fund had, for Federal income tax purposes,
approximately $2,072,000 of capital loss carryforwards available to offset
future capital gains. To the extent that these capital loss carryforwards are
used to offset capital gains, it is probable that the gains so offset will not
be distributed. The amount and expiration of the carryforwards are indicated
below. Expiration occurs on October 31 of the year indicated:
2002 2003 2004 2005
================================================================================
Carryforward Amounts $1,197,000 $270,000 $205,000 $400,000
================================================================================
20
<PAGE>
Municipal High Income Fund Inc.
[GRAPHIC] Notes to Financial Statements (unaudited)
================================================================================
For a share of capital stock outstanding throughout each year ended October 31,
except where noted:
<TABLE>
<CAPTION>
1999(1) 1998 1997 1996 1995 1994
------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period ........ $ 9.77 $ 9.76 $ 9.53 $ 9.51 $ 8.98 $ 9.72
-------- -------- -------- -------- -------- --------
Income (Loss) From
Operations:
Net investment income ...... 0.15 0.60 0.61 0.63 0.64 0.65
Net realized and unrealized
gain (loss) ............... (0.03) 0.03 0.24 -- 0.54 (0.72)
-------- -------- -------- -------- -------- --------
Total Income (Loss) From
Operations ................ 0.12 0.63 0.85 0.63 1.18
-------- -------- -------- -------- -------- --------
Less Distributions From:
Net investment income ...... (0.15) (0.61) (0.62) (0.61) (0.65) (0.65)
In excess of net investment
income ................... -- (0.01) -- -- -- --
Net realized gains ......... -- -- -- -- -- (0.02)
-------- -------- -------- -------- -------- --------
Total Distributions ......... (0.15) (0.62) (0.62) (0.61) (0.65) (0.67)
-------- -------- -------- -------- -------- --------
Net Asset Value,
End of Period ............. $ 9.74 $ 9.77 $ 9.76 $ 9.53 $ 9.51 $ 8.98
-------- -------- -------- -------- -------- --------
Total Return, Based on
Market Value .............. (3.46)%++ 9.34% 17.22% 10.22 14.17% (10.11)%
-------- -------- -------- -------- -------- --------
Total Return, Based on
Net Asset Value ........... 1.24%++ 6.75% 9.41% 7.39% 14.00% (0.54)%
-------- -------- -------- -------- -------- --------
Net Assets,
End of Period (000s) ...... $197,902 $197,944 $194,133 $187,303 $187,048 $176,379
======== ======== ======== ======== ======== ========
Ratios to Average Net Assets:
Expenses .................. 0.75%+ 0.74% 0.74% 0.77% 0.84% 0.84%
Net investment income ..... 6.02+ 6.07 6.38 6.65 6.87 6.98
Portfolio Turnover Rate ..... 4% 57% 35% 17% 18% 17%
Market Value, End of Period . $ 9.625 $ 10.125 $ 9.875 $ 9.000 $ 9.000 $ 8.250
</TABLE>
(1) For the three months ended January 31, 1999 (unaudited).
++ Total return is not annualized as it may not be representative of the
total return for the year.
+ Annualized.
21
<PAGE>
Municipal High Income Fund Inc.
[GRAPHIC] Financial Data Per Share of Common Stock (unaudited)
================================================================================
Dividend
Record Payable NYSE Net Asset Dividend Reinvestment
Date Date Closing Price* Value* Paid Price
- -------- -------- -------------- --------- -------- ------------
11/25/96 11/29/96 $9.125 $9.57 $0.0510 $9.23
12/23/96 12/27/96 9.375 9.56 0.0520 9.30
1/28/97 1/31/97 9.375 9.53 0.0520 9.44
2/25/97 2/28/97 9.375 9.60 0.0520 9.37
3/24/97 3/27/97 9.125 9.52 0.0520 9.27
4/22/97 4/25/97 9.250 9.48 0.0520 9.32
5/27/97 5/30/97 9.125 9.53 0.0520 9.47
6/24/97 6/27/97 9.563 9.62 0.0520 9.43
7/22/97 7/25/97 9.938 9.70 0.0520 9.51
8/26/97 8/29/97 9.500 9.68 0.0520 9.49
9/23/97 9/26/97 9.813 9.72 0.0520 9.53
10/28/97 10/31/97 9.625 9.74 0.0520 9.55
11/24/97 11/28/97 9.938 9.76 0.0520 9.56
12/22/97 12/26/97 10.000 9.83 0.0520 9.63
1/27/98 1/30/98 10.125 9.85 0.0520 9.65
2/24/98 2/27/98 10.063 9.86 0.0520 9.66
3/24/98 3/27/98 9.813 9.83 0.0520 9.63
4/21/98 4/24/98 9.563 9.80 0.0520 9.58
5/26/98 5/29/98 9.375 9.80 0.0520 9.52
6/23/98 6/26/98 9.750 9.83 0.0510 9.63
7/28/98 7/31/98 9.750 9.80 0.0510 9.60
8/25/98 8/28/98 9.875 9.81 0.0510 9.61
9/22/98 9/25/98 9.813 9.83 0.0510 9.63
10/27/98 10/30/98 10.000 9.76 0.0510 9.57
11/23/98 11/27/98 10.188 9.72 0.0510 9.68
12/21/98 12/24/98 10.000 9.71 0.0485 9.52
1/26/99 1/29/99 9.625 9.73 0.0485 9.54
*As of record date.
22
<PAGE>
Municipal High Income Fund Inc.
[GRAPHIC] Quarterly Results of Operations (unaudited)
================================================================================
<TABLE>
<CAPTION>
Net Net Realized Net Increase
Investment Investment and Unrealized in Net Assets
Income Income Gain (Loss) From Operations
------------------ ----------------- ------------------ ------------------
Quarter Per Per Per Per
Ended Total Share Total Share Total Share Total Share
- -------- ------------ ------- ---------- ----- ----------- ------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1/31/97 $ 3,457,602 $ 0.18 $3,095,243 $0.16 $ 591,922 $ 0.03 $3,687,165 $0.19
4/30/97 3,361,023 0.17 3,011,000 0.15 (889,987) (0.05) 2,121,013 0.10
7/31/97 3,314,095 0.17 2,960,294 0.15 4,722,973 0.24 7,683,267 0.39
10/31/97 3,360,938 0.17 3,016,071 0.15 466,422 0.02 3,482,493 0.17
1/31/98 3,350,456 0.17 2,981,194 0.15 2,552,783 0.13 5,533,977 0.28
4/30/98 3,347,620 0.17 2,986,264 0.15 (1,600,055) (0.08) 1,386,209 0.07
7/31/98 3,383,910 0.17 3,016,338 0.15 186,317 0.01 3,202,655 0.16
10/31/9 83,350,658 0.17 2,991,461 0.15 (477,395) (0.02) 2,514,066 0.12
1/31/99 3,334,071 0.16 2,963,369 0.15 (585,286) (0.03) 2,378,083 0.12
</TABLE>
23
<PAGE>
Municipal High Income Fund Inc.
Dividend Reinvestment Plan (unaudited)
================================================================================
The Fund's policy, which may be changed by the Fund's Board of Directors,
is generally to make monthly distributions of substantially all its net
investment income (i.e., income other than net realized capital gains) to the
holders of the Fund's common stock. From time to time, when the Fund makes a
substantial capital gains distribution, it may do so in lieu of paying its
regular monthly dividend, net income of the Fund consists of all interest income
accrued on portfolio assets less all expenses of the Fund. Expenses of the Fund
are accrued each day. Net realized capital gains, if any, will be distributed to
the shareholders at least once a year.
Under the Fund's Dividend Reinvestment Plan ("Plan"), a shareholder whose
common stock is registered in his or her own name will have all distributions
reinvested automatically by First Data as purchasing 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 shares
under the Plan, unless the service is not provided by the broker or nominee or
the shareholder elects to receive distributions in cash. Investors who own
common stock registered in street name should consult their broker-dealers for
details regarding reinvestment. All distributions to shareholders who do not
participate in the Plan will be paid by check mailed directly to the record
holder by or under the direction of First Data, as dividend-paying agent.
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 common stock is equal to or exceeds 98% of net asset
value ("NAV") per share on the determination date (generally, the record date
for the distribution), participants will be issued shares of common stock valued
at the greater of (1) 98% of the NAV or (2) 95% of the market price. To the
extent that the Fund issues shares to participants in the Plan at a discount to
NAV, the interests of remaining shareholders (i.e., those who do not participate
in the Plan) in the Fund's net assets will be proportionately diluted.
If 98% of the NAV per share of the common stock at the time of valuation
(which is the close of business on the determination date) exceeds the market
price of common stock, or if the Fund declares a dividend or capital gains
distribution payable only in cash, First Data will buy common stock in the open
market, on the NYSE or elsewhere, for the participants' accounts. If, following
the commencement of the purchases and before First Data has completed its
purchases, the market price exceeds 98% of what the NAV per share of the common
stock was at the valuation time, First Data will attempt to terminate purchases
in the open market and cause the Fund to issue the remaining portion of the
dividend or distribution by issuing shares at a price equal to the greater of
(1) 98% of the NAV per share as of the valuation time, or (2) 95% of the then
current market price. In this case, the number of shares of common stock
received by a Plan 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. To the extent First Data is unable to stop open
market purchases and cause the Fund to issue the remaining shares, the
24
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Municipal High Income Fund Inc.
[GRAPHIC] Dividend Reinvestment Plan (unaudited)
================================================================================
average per share price paid by First Data may exceed 98% of the NAV per share
of the common stock. First Data will begin to purchase common stock on the open
market as soon as practicable after the payment date of the dividend or capital
gains distribution, but in no event shall such purchases continue later than 30
days after that date, except when necessary to comply with applicable provisions
of the Federal securities laws.
First Data maintains all shareholder accounts in the Plan and furnishes
written confirmations of all transactions in each account, including information
needed by a shareholder for personal and tax records. 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. common stock in the account of each Plan participant will be held
by First Data an uncertificated form in the name of the Plan participant.
Plan participants are subject to no charge for reinvesting dividends and
capital gains distributions under the Plan. First Data's fees for handling the
reinvestment of dividends and capital gains distributions will be paid by the
Fund. No brokerage charges shall apply with respect to shares of common stock
issued directly by the Fund under the Plan. Each Plan participant will, however,
bear a pro-rata share of brokerage commissions actually incurred with respect to
any open market purchases made under the Plan.
Experience under the Plan may indicate that changes to it are desirable.
The Fund reserves the right to amend or terminate the Plan as applied to any
dividend or capital gains distribution paid subsequent to written notice of the
change sent to participants at least 30 days before the record date for the
dividend or capital gains distribution. The Plan also may be amended or
terminated by First Data or the Fund on at least 30 days' written notice to Plan
participants. All correspondence concerning the Plan should be directed by mail
to First Data Investor Services Group, Inc., P.O. Box 8030, Boston,
Massachusetts 02266-8030 or by telephone at 1-800-451-2010.
The Fund's Board of Directors recently approved an amendment to the Plan
whereby changes to the Plan may be implemented upon 30 days notice to
shareholders. This change is reflected in the description above.
---------------------
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940, as amended, that from time to time the Fund may purchase at
market prices shares of its common stock in the open market. As of January 31,
1999, the Fund has not repurchased any shares.
25
<PAGE>
Municipal High Income Fund Inc.
[GRAPHIC] Management of the Fund
================================================================================
Directors
Allan J. Bloostein
Martin Brody
Dwight B. Crane
Robert A. Frankel
William R. Hutchinson
Heath B. McLendon, Chairman
Charles F. Barber, Emeritus
Officers
Heath B. McLendon
President and
Chief Executive Officer
Lewis E. Daidone
Senior Vice President
and Treasurer
Peter M. Coffey
Vice President and
Investment Officer
Michael J. Maher
Investment Officer
Paul A. Brook
Controller
Christina T. Sydor
Secretary
Investment Adviser and Administrator
SSBC Fund Management Inc.
388 Greenwich Street
New York, New York 10013
Transfer Agent
First Data Investor Services Group, Inc.
P.O. Box 8030
Boston, Massachusetts 02266-8030
Custodian
PNC Bank, N.A.
17th and Chestnut Street
Philadelphia, Pennsylvania 19103
26
<PAGE>
[GRAPHIC OMITTED]
This report is intended only for shareholders of Municipal High Income Fund Inc.
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
FD01095 3/99
