Municipal
High Income
Fund Inc.
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Semi-Annual
Report
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April
30, 1999
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Municipal High Income Fund Inc.
Dear Shareholder:
We are pleased to provide the semi-annual report for the Municipal High
Income Fund Inc. ("Fund") for the period ended April 30, 1999. Over the
six-month period covered by this report, the Fund paid income dividends totaling
$0.29 per share. The table below shows the annualized distribution rate and
six-month total return based on the Fund's April 30, 1999 net asset value
("NAV") per share and its New York Stock Exchange ("NYSE") closing price.
Price Annualized Six-Month
Per Share Distribution Rate* Total Return
--------- ------------------ ------------
$9.64 (NAV) 6.04% 1.75%
$9.625 (NYSE) 6.05% (1.97)%
In comparison, the Fund's Lipper, Inc. peer group returned an average of
1.75% for the same period. (Lipper, Inc. is an independent fund tracking
organization.)
Market and Economic Overview
During much of the past year, the municipal bond market was an oasis of
stability compared to the significant turmoil experienced by other fixed-income
markets. In the wake of Russia's loan default, growing numbers of creditors
became increasingly risk averse. In response, the Federal Reserve Board ("Fed")
lowered short-term interest rates by 0.75% in three separate actions over the
course of several weeks. These interest rate cuts helped lift bond markets. In
the midst of the turmoil, many investors fled to the relative safe haven of U.S.
Treasury bonds, sparking a sharp rally that helped send long-term government
interest rates to their lowest level in more than thirty years. The 30-year U.S.
Treasury bond yield fluctuated approximately 131 basis points (1.31%) from April
30, 1998 to April 30, 1999. In contrast, municipal bond yields (as measured by
the Bond Buyers 25 Revenue Index) were far less volatile and remained confined
to a much narrower range of roughly 43 basis points during the same period.
Despite jittery financial markets, the U.S. economy continued to expand
vigorously, defying the expectations of many economists. The domestic economy
grew at an annual rate of 4.1% in the first quarter of 1999, coming off the
heels of a brisk 6% annual growth rate for the fourth quarter of 1998. The
unemployment rate hovered just above 4.2% in March 1999, a 29-year low. Yet,
inflationary pressures have been well contained. The Consumer Price Index
("CPI") continues to rise at a modest 2% annual rate.
- ----------
* The distribution rate assumes a current monthly income dividend rate of
$0.0485 per share for twelve months.
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In our view, inflationary pressures have been held in check by a fortunate
combination of ongoing economic weakness abroad, added cost controls in health
care and the expanding role of technology. Economic recessions in many parts of
the world have helped keep import prices down, especially in key commodities
such as food and energy. In addition, the cost controls introduced by managed
health-care companies have begun to bring down medical costs and the growing use
of technology has not only boosted worker productivity, but has also made many
consumer goods companies much more cost competitive.
Municipal bonds, along with many other financial assets, have benefited
from the high-growth, low-inflation U.S. economy. Similar to other types of
bonds, municipal bond yields have declined but their real rate of return (i.e.
the rate of return after subtracting the effects of inflation) has remained
historically high. Moreover, long-term municipal bonds currently yield more than
90% of long-term U.S. Treasury bond yields. Typically, municipal bonds are
considered a good relative value when they yield approximately 85% of
comparable-maturity U.S. Treasury bonds.
A strong U.S. economy and low interest rates have encouraged many
municipalities to issue more bonds and refinance more expensive existing debt.
We believe the ability of the market to absorb the unusually heavy municipal
bond issuance last year is an indication of the health of the municipal bond
market. This steady equilibrium of supply and demand is one reason that
municipal bond prices have remained stable compared to other fixed-income
assets.
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 a broad
diversification across a number of investment sectors that we believe offer high
yield potential as well as relative price stability. At the close of the
reporting period, the Fund's assets were concentrated in industrial revenue
bonds (23.6%) and hospital bonds (19.1%).
As of April 30, 1999, approximately 43% of the Fund's holdings were rated
investment grade (BBB/Baa and higher) by either Standard & Poor's Ratings
Service or Moody's Investors Service, Inc. In addition, at the close of the
Fund's fiscal quarter, the Fund's average maturity was 22.1 years and the
average life of the portfolio was 9.6 years.
2
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Municipal Bond Market Outlook
Over the near term, we remain largely positive on the prospects for
municipal bonds. In our judgement, Fed monetary policy will likely remain on
hold until signs of inflation surface. However, while we believe that inflation
should remain subdued, continued strong momentum in the U.S. economy has raised
inflation concerns. While the Fed has elected to leave short-term interest rates
unchanged, a much stronger than expected jump in the CPI in April prompted the
Fed to change its bias toward tightening monetary policy. This increases the
likehood that the Fed will raise short-term interest rates at its next Federal
Open Market Committee meeting on June 30, 1999 if the economy continues to
exhibit signs of increasing inflationary pressure. However, the fundamental
conditions underpinning the currently benign inflationary environment, (weak
foreign economies with excess capacity and tepid demand coupled with strong
productivity gains in our economy) appear to remain in place.
After a period of substantial volatility, we expect that U.S. Treasury
bonds will fluctuate within a fairly narrow trading range in the coming months.
Moreover, new municipal bond issuance volume for 1999 is down significantly from
last year. If this pattern holds, it could set the stage for a municipal bond
rally later in the year.
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
May 24, 1999
3
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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 25. 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 Investor Services Group, Inc. at (800)
331-1710.
4
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<PAGE>
Municipal High Income Fund Inc.
Schedule of Investments (unaudited)
April 30, 1999
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================================================================================
<TABLE>
<CAPTION>
Face
Amount Rating(a) Security Value
==================================================================================================
<S> <C> <C> <C>
Alabama -- 4.0%
$ 180,000 Aaa* Alabama HFA, Single-Family Housing Revenue,
10.500% due 12/1/02 ......................................... $ 191,250
1,000,000 Baa3* Alabama State IDA, Solid Waste Disposal Revenue, Pine City
Fiber Co., Remarketed 1/2/97, 6.450% due 12/1/23 (b) ........ 1,063,750
4,000,000 BBB- Butler, AL IDB, Solid Waste Disposal Revenue,
(James River Corp. Project), 8.000% due 9/1/28 (b) .......... 4,555,000
1,000,000 CCC Mobile, AL IDB, Solid Waste Disposal Revenue, (Mobile Energy
Services Co. Project), 6.950% due 1/1/20 .................... 530,000
1,000,000 AAA 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 .......................................... 1,260,000
----------
7,600,000
----------
Arizona -- 1.5%
1,000,000 BBB Coconino County, AZ PCR, Nevada Power Co., Series B,
5.800% due 11/1/32 (b) ...................................... 1,013,750
2,000,000 BBB- Gila County, AZ IDA Revenue, ASARCO Inc.,
5.550% due 1/1/27 ........................................... 1,945,000
----------
2,958,750
----------
Colorado -- 2.6%
2,000,000 NR Colorado Health Facilities Authority Revenue,
(Beth Israel at Shalom Park Project), 7.250% due
12/15/25 .................................................... 2,080,000
Denver, CO City & County Airport Revenue, Series A:
1,505,000 BBB+ 8.500% due 11/15/23 (b) ..................................... 1,623,519
1,175,000 BBB+ 8.000% due 11/15/25 (b) ..................................... 1,267,531
----------
4,971,050
----------
Connecticut -- 1.8%
Connecticut State Development Authority:
1,735,000 NR Aquarium Project Revenue, (Mystic Marinelife Aquarium
Project), Series A, 7.000% due 12/1/27 .................... 1,847,775
1,500,000 NR Health Care Revenue, (Independent Living Project),
(Pre-Refunded -- Escrowed with state & local government
securities to 7/1/03 Call @ 102), Series B,
8.000% due 7/1/17 ......................................... 1,625,625
----------
3,473,400
----------
Florida -- 3.7%
2,000,000 NR Florida Housing Finance Corp., Multi-Family Housing Revenue,
(Whistlers Cove Apartment Project), 6.500% due 1/1/39 (b) ... 1,987,500
875,000 NR Homestead, FL IDR, Community Rehabilitation Providers
Program, Series A, 7.950% due 11/1/18 ....................... 938,437
1,970,000 NR Jacksonville, FL Health Facilities Authority Revenue, Mental
Health Center of Jacksonville, 9.125% due 10/15/19 .......... 2,012,217
</TABLE>
See Notes to Financial Statements.
5
<PAGE>
Municipal High Income Fund Inc.
Schedule of Investments (unaudited) (continued)
April 30, 1999
[GRAPHIC OMITTED]
================================================================================
<TABLE>
<CAPTION>
Face
Amount Rating(a) Security Value
==================================================================================================
<S> <C> <C> <C>
Florida -- 3.7% (continued)
$2,000,000 BBB- Martin County, FL IDA IDR, (Indiantown Cogeneration Project),
Series A, 7.875% due 12/15/25 (b) ........................... $2,137,500
----------
7,075,654
----------
Georgia -- 3.9%
1,500,000 NR Atlanta, GA Urban Residential Finance Authority, Multi-Family
Housing Revenue, Park Place Apartments, Series A,
6.750% due 3/1/31 ........................................... 1,528,125
2,000,000 AAA Atlanta, GA Water & Wastewater Revenue, Series A,
FGIC-Insured, 5.000% due 11/1/38 ............................ 1,920,000
3,000,000 NR Forsyth County, GA Hospital Authority, Revenue Anticipation
Certificates, (Baptist Health Care System Project),
6.375% due 10/1/28 .......................................... 2,970,000
1,000,000 NR Walton County, GA IDA IDR, (Walton Manufacturing Co.
Project), 8.500% due 9/1/07 ................................. 1,135,000
----------
7,553,125
----------
Illinois -- 3.6%
6,750,000 AAA Chicago, IL Board of Education, Capital Appreciation GO,
(School Reform Project), Series B-1, FGIC-Insured,
zero coupon bond to yield 5.220% due 12/1/31 ................ 1,215,000
2,500,000 A- Illinois Development Finance Authority, Hospital Revenue,
Adventist Health System/Sunbelt Obligation Group,
5.500% due 11/15/29 ......................................... 2,400,000
1,500,000 A+ Illinois Housing Development Authority, Multi-Family Housing
Program, Series 5, 6.750% due 9/1/23 ........................ 1,635,000
730,000 NR Loves Park, IL First Mortgage Revenue, (Hoosier Care Project),
Series A, 9.750% due 8/1/19 ................................. 756,243
955,000 NR Sterling, IL First Mortgage Revenue, (Hoosier Care Project),
Series A, 9.750% due 8/1/19 ................................. 988,310
----------
6,994,553
----------
Indiana -- 5.7%
2,500,000 BB East Chicago, IN PCR, (Inland Steel Co. Project No. 10),
6.800% due 6/1/13 ........................................... 2,550,000
Indiana State Development Finance Authority:
2,000,000 Baa2* Environmental Revenue, (USX Corp. Project),
6.250% due 7/15/30 ........................................ 2,130,000
1,000,000 B+ PCR, (Inland Steel Co. Project No. 13),
7.250% due 11/1/11 (b) .................................... 1,051,250
4,750,000 Baa2* Indianapolis, IN Airport Authority Revenue, (United Airlines Inc.
Project), Series A, 6.500% due 11/15/31 (b) ................ 5,135,937
----------
10,867,187
----------
Kentucky -- 1.4%
1,500,000 BBB- Kenton County, KY Airport Board Revenue, (Delta Airlines
Project), Series A, 7.500% due 2/1/20 (b) ................... 1,629,375
</TABLE>
See Notes to Financial Statements.
s
6
<PAGE>
Municipal High Income Fund Inc.
Schedule of Investments (unaudited) (continued)
April 30, 1999
[GRAPHIC OMITTED]
================================================================================
<TABLE>
<CAPTION>
Face
Amount Rating(a) Security Value
==================================================================================================
<S> <C> <C> <C>
Kentucky -- 1.4% (continued)
$1,000,000 A Pendleton County, KY Multi-County Lease Revenue,
(Kentucky Association of Counties Leasing Trust Program),
Series A, 6.500% due 3/1/19 ................................. $1,077,500
----------
2,706,875
----------
Louisiana -- 5.2%
1,200,000 A3* Lake Charles, LA Harbor & Terminal District, Port
Facilities Revenue, (Trunkline LNG Co. Project),
7.750% due 8/15/22 .......................................... 1,351,500
Port New Orleans, LA IDR:
Avondale Industries, Inc. Project:
1,600,000 NR 8.250% due 6/1/04 ......................................... 1,772,000
3,000,000 NR 8.500% due 6/1/14 ......................................... 3,386,250
1,000,000 B- Continental Grain Co. Project, 7.500% due 7/1/13 ............ 1,046,250
2,400,000 BB+ West Feliciana Parish, LA PCR, (Gulf States Utilities Co.
Project), 8.000% due 12/1/24 ................................ 2,493,048
----------
10,049,048
----------
Maine -- 0.0%
Maine State Housing Authority, Mortgage Purchase Revenue:
35,000 AA Series C-2, 7.000% due 11/15/32 (b) ......................... 37,319
20,000 AA Series D-1, 8.300% due 11/15/28 (b) ......................... 20,376
----------
57,695
----------
Massachusetts -- 7.1%
1,000,000 BBB Massachusetts State Health & Educational
Facilities Authority Revenue, Caritas Christi
Obligation Group, Series A, 5.625% due 7/1/20 ............... 987,500
Massachusetts State Industrial Finance Agency Revenue:
2,000,000 NR Assisted Living Facility, (Marina Bay LLC Project),
7.500% due 12/1/27 (b) .................................... 2,167,500
2,250,000 NR Chestnut Knoll Project, Series A, 5.500% due 2/15/18 ........ 2,182,500
Resource Recovery, (SEMASS Partnership Project):
1,700,000 NR Series A, 9.000% due 7/1/15 ................................. 1,882,750
5,895,000 NR Series B, 9.250% due 7/1/15 (b) ............................. 6,543,450
----------
13,763,700
----------
Michigan -- 3.6%
2,000,000 BB- Detroit, MI Local Development Finance Authority,
Tax Increment, Series A, 5.500% due 5/1/21 .................. 1,970,000
Garden City, MI Hospital Finance Authority, Hospital Revenue,
Garden City Hospital Obligation Group, Series A:
2,000,000 NR 5.625% due 9/1/10 ......................................... 1,990,000
1,000,000 NR 5.750% due 9/1/17 ......................................... 993,750
2,000,000 NR Michigan State Strategic Fund, Resource Recovery Limited
Obligation Revenue, Central Wayne Energy Recovery LP,
Series A, 6.900% due 7/1/19 (b) ............................. 2,025,000
----------
6,978,750
----------
</TABLE>
See Notes to Financial Statements.
7
<PAGE>
Municipal High Income Fund Inc.
Schedule of Investments (unaudited) (continued)
April 30, 1999
[GRAPHIC OMITTED]
================================================================================
<TABLE>
<CAPTION>
Face
Amount Rating(a) Security Value
==================================================================================================
<S> <C> <C> <C>
Minnesota -- 1.0%
$1,795,000 AA+ Minnesota State HFA, Single-Family Mortgage Revenue,
Series H, 6.700% due 1/1/18 ................................. $1,925,137
----------
Mississippi -- 1.8%
3,500,000 BBB- Mississippi Business Finance Corp., MS PCR, (System Energy
Resource Inc. Project), 5.875% due 4/1/22 ................... 3,495,625
----------
Montana -- 2.3%
4,530,000 NR Montana State Board of Investment Resource Recovery
Revenue, (Yellowstone Energy LP Project),
7.000% due 12/31/19 (b) ..................................... 4,445,062
----------
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 ........... 1,045,000
500,000 BB- New Hampshire State Business Finance Authority, PCR,
(Public Service Co. of New Hampshire), Series D,
Remarketed 5/1/98, 6.000% due 5/1/21 (b) .................... 509,375
----------
1,554,375
----------
New Jersey -- 5.1%
3,000,000 B1* Camden County, NJ Improvement Authority Revenue,
(Health Care Redevelopment Project - Cooper Health
System), 5.875% due 2/15/15 ................................. 2,460,000
1,000,000 BBB- Hudson County, NJ Improvement Authority, Solid Waste
System Revenue, Series 1, 6.000% due 1/1/29 ................. 1,007,500
1,000,000 NR New Jersey EDA, Healthcare Facility Revenue, (Sayreville
Senior Living Project), Series A, 6.375% due 4/1/29 ......... 975,000
New Jersey Health Care Facilities, Finance Authority Revenue:
1,885,000 Baa3* Palisades Medical Center Obligation Group,
7.600% due 7/1/21 ......................................... 2,009,881
1,000,000 NR Raritan Bay Medical Center, 7.250% due 7/1/27 ................. 1,022,500
2,200,000 NR New Jersey State Educational Facilities Authority Revenue,
Fairleigh Dickinson University, Series C,
6.625% due 7/1/23 ........................................... 2,304,500
----------
9,779,381
----------
New Mexico -- 0.4%
775,000 AAA New Mexico Mortgage Finance Authority, Single-Family
Mortgage Program, Series B, FHA-Insured,
8.300% due 3/1/20 (b) ....................................... 841,844
----------
New York -- 5.7%
1,640,000 NR Monroe County, NY IDR Agency, (Empire Sports Project),
Series A, 6.250% due 3/1/28 ................................. 1,642,050
1,500,000 NR New York City, NY IDA, Civic Facility Revenue,
7.500% due 8/1/26 ........................................... 1,616,250
New York State Energy, Research & Development Authority,
Electric Facility Revenue, LILCO., Series A:
520,000 Aaa* 7.150% due 12/1/20 (b) .................................... 573,950
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
Municipal High Income Fund Inc.
Schedule of Investments (unaudited) (continued)
April 30, 1999
[GRAPHIC OMITTED]
================================================================================
<TABLE>
<CAPTION>
Face
Amount Rating(a) Security Value
==================================================================================================
<S> <C> <C> <C>
New York -- 5.7% (continued)
$1,430,000 A- 7.150% due 12/1/20, (Pre-Refunded -- Escrowed
with U.S. government securities to 6/15/02
Call @ 102) (b)(c) ....................................... $1,589,088
2,750,000 NR Port Authority of NY & NJ, Special Obligation
Revenue, Fifth Installment, (KIAC Partners Project),
Series 4, 6.750% due 10/1/19 (b) ............................ 3,035,313
2,500,000 NR Suffolk County, NY Industrial Development Agency, IDR,
Nissequogue Cogeneration Partners Facility,
5.500% due 1/1/23 (b) ....................................... 2,512,500
----------
10,969,151
----------
North Carolina -- 4.2%
1,750,000 A Martin County, NC Industrial Facilities & PCR Financing
Authority, Solid Waste Disposal, (Weyerhaeuser Co. Project),
6.800% due 5/1/24 (b) ....................................... 1,933,750
2,300,000 Baa1* North Carolina Eastern Municipal Power Agency, Power
Systems Revenue, Series B, 7.000% due 1/1/08 ................ 2,642,125
North Carolina Medical Care Commission:
1,440,000 NR Health Care Facilities Revenue, First Mortgage, De Paul
Community Facilities, 6.125% due 1/1/28 ................... 1,458,000
800,000 A-++ Hospital Revenue, Halifax Regional Medical Center Inc.,
5.000% due 8/15/24 ....................................... 738,000
1,310,000 A- North Carolina Municipal Power Agency No. 1, Catawaba
Electric Revenue, 6.250% due 1/1/17 ......................... 1,383,688
----------
8,155,563
----------
Ohio -- 4.9%
1,000,000 NR Cleveland, OH Airport Special Revenue, (Continental
Airlines Inc. Project), 9.000% due 12/1/19 (b) .............. 1,050,450
1,000,000 NR Cuyahoga County, OH Health Care Facilities Revenue, Judson
Retirement Community, Series A, 7.250% due 11/15/18 ......... 1,076,250
3,000,000 BBB Dayton, OH Special Facilities Revenue, Emery Air
Freight Corp., Series A, 5.625% due 2/1/18 .................. 3,067,500
Montgomery County, OH Health Systems Revenue, Series B-1:
465,000 BBB 8.100% due 7/1/18 .......................................... 548,700
1,035,000 AAA 8.100% due 7/1/18, (Pre-Refunded -- Escrowed with
state & local government securities to 7/1/06 Call @ 102).. 1,295,044
1,250,000 NR Ohio State Solid Waste Revenue, Republic Engineered
Steels Inc., 9.000% due 6/1/21 (b) .......................... 1,385,938
1,000,000 Baa3* Ohio State Water Development Authority, PCR, (Ohio Edison
Project), Series A, 8.100% due 10/1/23 (b) .................. 1,039,670
----------
9,463,552
----------
Oklahoma -- 0.3%
3,000,000 Aaa* Oklahoma Housing Finance Agency, Single-Family Housing
Revenue, Capital Appreciation, Home Ownership, Series D-1,
zero coupon bond to yield 5.400% due 3/1/29 ................. 607,500
----------
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
Municipal High Income Fund Inc.
Schedule of Investments (unaudited) (continued)
April 30, 1999
[GRAPHIC OMITTED]
================================================================================
<TABLE>
<CAPTION>
Face
Amount Rating(a) Security Value
==================================================================================================
<S> <C> <C> <C>
Pennsylvania -- 13.9%
$2,200,000 B+ Allegheny County, PA IDA, Airport Special Facilities Revenue,
(USAir Inc. Project), Series B, 8.500% due 3/1/21 (b) ....... $2,406,250
Beaver County, PA IDA, PCR:
2,500,000 BB+ Cleveland Electric Illuminating Co. Project,
7.625% due 5/1/25 ......................................... 2,834,375
2,000,000 BB+ Toledo Edison Co. Project, 7.625% due 5/1/20 ................ 2,267,500
1,500,000 NR Dauphin County, PA General Authority Revenue, Hotel &
Conference Center, Hyatt Regency, 6.200% due 1/1/29 ......... 1,518,750
1,500,000 NR Delaware County Authority, PA IDA, First Mortgage Revenue,
(White Horse Village Project), (Pre-Refunded -- Escrowed
with U.S. government securities to 7/1/99 Call @ 103),
9.700% due 7/1/09 (c) ....................................... 1,559,370
3,000,000 BBB+ Lebanon County, PA Good Samaritan Hospital Authority
Revenue (Pre-Refunded -- Escrowed with G.E. Capital Corp.
medium-term notes to 11/1/99 Call @ 102), Series B,
8.250% due 11/1/18 .......................................... 3,131,190
2,500,000 A- Luzerne County, PA IDA, Exempt Facilities Revenue,
(Pennsylvania Gas & Water Co. Project), Series B,
7.125% due 12/1/22 (b) ...................................... 2,731,250
460,000 NR Northumberland County, PA IDA, IDR, (Beverly Enterprises Inc.
Project), 6.875% due 2/1/03 ................................. 468,625
1,500,000 AA+ Pennsylvania HFA, Single-Family Mortgage Revenue,
Series 40, 6.900% due 4/1/25 (b) ............................ 1,612,500
1,000,000 NR Philadelphia, PA Authority for Industrial Development Revenue,
(Host Marriott LP Project), Remarketed 10/31/95,
7.750% due 12/1/17 (b) ...................................... 1,107,500
1,920,000 Baa* Philadelphia, PA Municipal Authority, Lease Revenue,
Series B, 6.400% due 11/15/16 .............................. 2,018,400
Scranton-Lackawanna, PA Health & Welfare Authority
Revenue, (Moses Taylor Hospital Project):
1,905,000 BBB- 6.150% due 7/1/14 ......................................... 1,938,338
3,050,000 BBB- 6.250% due 7/1/20 ......................................... 3,114,813
----------
26,708,861
----------
South Carolina -- 2.0%
2,500,000 BBB- Connector 2,000 Association Inc., SC Toll Road Revenue,
(Southern Connector Project), Series A, 5.375% due 1/1/38 2,271,875
775,000 NR Florence County, SC IDR, Stone Container Corp.,
7.375% due 2/1/07 ........................................... 827,312
800,000 NR McCormick County, SC COP, 9.750% due 7/1/09 ................... 802,384
----------
3,901,571
----------
South Dakota -- 1.0%
Oglala Sioux Tribe, SD Pine Ridge County, Revenue Bonds:
40,000 NR 7.000% due 7/1/99 ........................................... 40,164
1,865,000 NR 7.500% due 7/1/13 ........................................... 1,902,300
----------
1,942,464
----------
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
Municipal High Income Fund Inc.
Schedule of Investments (unaudited) (continued)
April 30, 1999
[GRAPHIC OMITTED]
================================================================================
<TABLE>
<CAPTION>
Face
Amount Rating(a) Security Value
==================================================================================================
<S> <C> <C> <C>
Tennessee -- 0.4%
$ 750,000 AAA Knox County, TN Multi-Family Housing Mortgage Revenue,
SCA Tax Exempt Trust, Knox Health, Education & Housing
Development Board, Series A-10, FSA-Insured,
7.125% due 1/1/30 ........................................... $ 829,688
----------
Texas -- 8.6%
1,350,000 BBB Alliance Airport Authority Inc., TX Special Facilities Revenue,
(Federal Express Corp. Project), 6.375% due 4/1/21 (b) ...... 1,446,187
745,000 A2* El Paso, TX Housing Finance Corp., Single-Family Mortgage
Revenue, Series A, FHA/VA-Insured, 8.750% due 10/1/11 ....... 799,012
2,000,000 B1* El Paso, TX International Airport Revenue, Special Facilities,
(Marriott Corp. Project), 7.750% due 3/1/12 ................. 2,120,000
Houston, TX Airport Systems Revenue, Special Facilities,
Continental Airlines Inc.:
1,050,000 Ba1* Series B, 6.125% due 7/15/27 (b) .......................... 1,082,812
3,000,000 Ba1* Series C, 6.125% due 7/15/27 (b) .......................... 3,093,750
1,000,000 AAA Matagorda County, TX Navigation District No. 1, PCR,
(Central Power & Light Co. Project), MBIA-Insured,
6.100% due 7/1/28 ........................................... 1,042,500
North Central, TX Health Facility Development Corp. Revenue,
Baylor Health Care Systems, Series B, Variable Rate INFLOS:
1,265,000 AA 7.600% due 5/15/08 (d) .................................... 1,380,431
135,000 AA 7.600% due 5/15/08, (Pre-Refunded-- Escrowed with
state and local government securities to 5/15/02
Call @ 102) (d) ......................................... 148,331
Northgate Crossing, TX Municipal Utility:
1,000,000 CCC++ District No. 1, GO, 8.875% due 12/1/13 ...................... 1,006,250
1,000,000 CCC++ District No. 2, Special Tax Revenue, 8.875% due 12/1/13 ..... 1,006,250
3,435,000 BB Sam Rayburn, TX Municipal Power Supply System Revenue
Refunding, Series A, 6.250% due 10/1/17 ..................... 3,512,288
----------
16,637,811
----------
Utah -- 2.1%
1,720,000 NR Hurricane, UT Health Facilities Development Revenue,
(Mission Health Services Project), 10.500% due 7/1/20 ....... 1,849,000
2,000,000 NR Utah State HFA Revenue, (RHA Community Services of
Utah Inc. Project), Series A, 6.875% due 7/1/27 ............. 2,082,500
----------
3,931,500
----------
West Virginia -- 0.4%
Marion County, WV County Commission, Solid Waste
Disposal Facilities Revenue, Adirondack Recycling:
1,098,392 NR Series A, 8.000% due 12/1/25 .............................. 659,035
156,003 NR Series B, 10.000% due 12/1/25 ............................. 93,602
----------
752,637
----------
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
Municipal High Income Fund Inc.
Schedule of Investments (unaudited) (continued)
April 30, 1999
[GRAPHIC OMITTED]
================================================================================
<TABLE>
<CAPTION>
Face
Amount Rating(a) Security Value
==================================================================================================
<S> <C> <C> <C>
Wisconsin -- 1.0%
$1,770,000 NR Wisconsin State Health & Educational Facilities Authority
Revenue, (Benchmark Healthcare of Green Bay Inc. Project),
Series A, 7.750% due 5/1/27 ................................. $ 1,849,650
------------
TOTAL INVESTMENTS -- 100%
(Cost-- $184,234,851**) ....................................... $192,841,159
============
</TABLE>
- ----------
(a) All ratings are by Standard & Poor's Ratings Service, except for 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
by Fitch IBCA, Inc.
(b) Income from this issue is considered a preference item for purposes of
calculating the alternative minimum tax.
(c) 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.
(d) 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 14 through 16 for bond ratings and certain security
descriptions.
See Notes to Financial Statements.
12
<PAGE>
Municipal High Income Fund Inc.
Summary of Municipal Bonds by Combined Ratings
April 30, 1999
[GRAPHIC OMITTED]
================================================================================
- --------------------------------------------------------------------------------
Standard & Percent of
Moody's and/or Poor's Total Investments
- --------------------------------------------------------------------------------
Aaa AAA 5.1%
Aa AA 2.7
A A 8.1*
Baa BBB 27.1
Ba BB 10.5
B B 4.7
Caa CCC 1.3**
NR NR 40.5
-----
100.0%
=====
- --------------------------------------------------------------------------------
* 0.4% was rated by Fitch IBCA, Inc.
** 1.0% was rated by Fitch IBCA, Inc.
13
<PAGE>
Municipal High Income Fund Inc.
Bond Ratings (unaudited)
[GRAPHIC OMITTED]
================================================================================
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.
14
<PAGE>
Municipal High Income Fund Inc.
Bond Ratings (unaudited) (continued)
[GRAPHIC OMITTED]
================================================================================
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 Bond 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.
15
<PAGE>
Municipal High Income Fund Inc.
Security Descriptions (unaudited)
[GRAPHIC OMITTED]
================================================================================
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
16
<PAGE>
Municipal High Income Fund Inc.
Statement of Assets and Liabilities (unaudited)
April 30, 1999
[GRAPHIC OMITTED]
================================================================================
ASSETS:
Investments, at value (Cost-- $184,234,851) ................ $ 192,841,159
Interest receivable ........................................ 4,164,613
Receivable for securities sold ............................. 1,276,973
-------------
Total Assets ............................................... 198,282,745
-------------
LIABILITIES:
Payable to bank ............................................ 1,002,818
Dividends payable .......................................... 271,776
Investment advisory fees payable ........................... 67,124
Administration fees payable ................................ 33,301
Accrued expenses ........................................... 193,466
-------------
Total Liabilities .......................................... 1,568,485
-------------
Total Net Assets ............................................. $ 196,714,260
=============
NET ASSETS:
Par value of capital shares ................................ $ 204,059
Capital paid in excess of par value ........................ 189,511,969
Overdistributed net investment income ...................... (30,524)
Accumulated net realized loss from security transactions ... (1,577,552)
Net unrealized appreciation of investments ................. 8,606,308
-------------
Total Net Assets ............................................. $ 196,714,260
=============
Shares Outstanding ........................................... 20,405,925
-------------
Net Asset Value .............................................. $ 9.64
-------------
See Notes to Financial Statements.
17
<PAGE>
Municipal High Income Fund Inc.
Statement of Operations (unaudited)
For the Six Months Ended April 30, 1999
[GRAPHIC OMITTED]
================================================================================
INVESTMENT INCOME:
Interest ................................................... $ 6,695,559
------------
EXPENSES:
Investment advisory fees (Note 3) .......................... 393,968
Administration fees (Note 3) ............................... 196,984
Shareholder communications ................................. 63,736
Audit and legal ............................................ 25,882
Directors' fees ............................................ 21,441
Registration fees .......................................... 12,167
Shareholder and system servicing fees ...................... 11,492
Pricing service fees ....................................... 7,480
Custody .................................................... 4,925
Other ...................................................... 3,480
------------
Total Expenses ............................................. 741,555
------------
Net Investment Income ........................................ 5,954,004
------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (NOTE 4):
Realized Gain From Security Transactions
(excluding short-term securities):
Proceeds from sales ...................................... 20,188,839
Cost of securities sold .................................. 19,693,372
------------
Net Realized Gain .......................................... 495,467
------------
Change in Net Unrealized Appreciation of Investments:
Beginning of period ...................................... 11,724,011
End of period ............................................ 8,606,308
------------
Decrease in Net Unrealized Appreciation .................... (3,117,703)
------------
Net Loss on Investments ...................................... (2,622,236)
------------
Increase in Net Assets From Operations ....................... $ 3,331,768
============
See Notes to Financial Statements.
18
<PAGE>
Municipal High Income Fund Inc.
Statements of Changes in Net Assets
For the Six Months Ended April 30, 1999 (unaudited)
and the Year Ended October 31, 1998
[GRAPHIC OMITTED]
================================================================================
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Operations:
Net investment income ............................... $ 5,954,004 $ 11,975,257
Net realized gain ................................... 495,467 1,469,162
Decrease in net unrealized appreciation ............. (3,117,703) (807,512)
------------- -------------
Increase in Net Assets From Operations .............. 3,331,768 12,636,907
------------- -------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM (NOTE 2):
Net investment income ............................... (5,967,606) (12,128,877)
In excess of net investment income .................. -- (287,412)
------------- -------------
Decrease in Net Assets From
Distributions to Shareholders ..................... (5,967,606) (12,416,289)
------------- -------------
FUND SHARE TRANSACTIONS (NOTE 5):
Net asset value of shares issued for
reinvestment of dividends ......................... 1,406,024 3,590,163
------------- -------------
Increase in Net Assets From
Fund Share Transactions ........................... 1,406,024 3,590,163
------------- -------------
Increase (Decrease) in Net Assets ...................... (1,229,814) 3,810,781
NET ASSETS:
Beginning of period ................................. 197,944,074 194,133,293
------------- -------------
End of period* ...................................... $ 196,714,260 $ 197,944,074
============= =============
* Includes overdistributed net investment income of: ... $ (30,524) $ (16,922)
============= =============
</TABLE>
See Notes to Financial Statements.
19
<PAGE>
Municipal High Income Fund Inc.
Notes to Financial Statements (unaudited)
[GRAPHIC OMITTED]
================================================================================
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"), 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 calculated at an annual rate of 0.20% of the average daily net
assets. These fees are calculated daily and paid monthly.
20
<PAGE>
Municipal High Income Fund Inc.
Notes to Financial Statements (unaudited) (continued)
[GRAPHIC OMITTED]
================================================================================
All officers and one Director of the Fund are employees of Salomon Smith
Barney Inc., another subsidiary of SSBH.
4. Investments
During the six months ended April 30, 1999, the aggregate cost of
purchases and proceeds from sales of investments (including maturities, but
excluding short-term securities) were as follows:
================================================================================
Purchases $16,057,485
- --------------------------------------------------------------------------------
Sales 20,188,839
================================================================================
At April 30, 1999, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
================================================================================
Gross unrealized appreciation $10,493,872
Gross unrealized depreciation (1,887,564)
- --------------------------------------------------------------------------------
Net unrealized appreciation $ 8,606,308
================================================================================
5. Capital Shares
At April 30, 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:
Six Months Ended Year Ended
April 30, 1999 October 31, 1998
------------------- -------------------
Shares Amount Shares Amount
================================================================================
Shares issued on reinvestment 147,285 $1,406,024 373,334 $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
================================================================================
21
<PAGE>
Municipal High Income Fund Inc.
Financial Highlights (unaudited)
[GRAPHIC OMITTED]
================================================================================
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> <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 .............. 0.29 0.60 0.61 0.63 0.64 0.65
Net realized and unrealized
gain (loss) ........................ (0.13) 0.03 0.24 -- 0.54 (0.72)
-------- -------- -------- -------- -------- --------
Total Income (Loss) From
Operations ......................... 0.16 0.63 0.85 0.63 1.18 (0.07)
-------- -------- -------- -------- -------- --------
Less Distributions From:
Net investment income .............. (0.29) (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 .................. (0.29) (0.62) (0.62) (0.61) (0.65) (0.67)
-------- -------- -------- -------- -------- --------
Net Asset Value,
End of Period ...................... $9.64 $9.77 $9.76 $9.53 $9.51 $8.98
-------- -------- -------- -------- -------- --------
Total Return, Based on
Market Value ....................... (1.97)% 9.34% 17.22% 10.22% 14.17% (10.11)%
-------- -------- -------- -------- -------- --------
Total Return, Based on
Net Asset Value .................... 1.75%+ 6.75% 9.41% 7.39% 14.00% (0.54)%
-------- -------- -------- -------- -------- --------
Net Assets,
End of Period (000s) ............... $196,714 $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 ............. 6.05+ 6.07 6.38 6.65 6.87 6.98
Portfolio Turnover Rate .............. 8% 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 six months ended April 30, 1999 (unaudited).
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
22
<PAGE>
Municipal High Income Fund Inc.
Financial Data Per Share of Common Stock (unaudited)
[GRAPHIC OMITTED]
================================================================================
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
2/23/99 2/26/99 9.625 9.71 0.0485 9.52
3/23/99 3/26/99 9.750 9.67 0.0485 9.48
4/27/99 4/30/99 9.563 9.64 0.0485 9.48
*As of record date.
23
<PAGE>
Municipal High Income Fund Inc.
Quarterly Results of Operations (unaudited)
[GRAPHIC OMITTED]
================================================================================
<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
10/31/98 3,350,658 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
4/30/99 3,361,488 0.16 2,990,635 0.15 (2,036,950) (0.10) 953,685 0.05
</TABLE>
24
<PAGE>
Municipal High Income Fund Inc.
Dividend Reinvestment Plan (unaudited)
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================================================================================
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
25
<PAGE>
Municipal High Income Fund Inc.
Dividend Reinvestment Plan (unaudited) (continued)
[GRAPHIC OMITTED]
================================================================================
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
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.
-------------------
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 April 30,
1999, the Fund has not repurchased any shares.
26
<PAGE>
Municipal High Income Fund Inc.
Management of the Fund
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================================================================================
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
27
<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
FD01139 6/99
