[CLIP ART] [CLIP ART]
Municipal
High Income
Fund Inc.
[GRAPHIC OMITTED]
Semi-Annual
Report
[CLIP ART]
April
30, 2000
<PAGE>
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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, 2000. In this report,
we summarize the period's prevailing economic and market conditions and outline
our portfolio strategy.(1) A detailed summary of the Fund's performance and
holdings can be found in the appropriate sections that follow. We hope you find
this report useful and informative.
The table below shows the annualized distribution rates and total returns
based on the Fund's April 30, 2000 net asset value ("NAV")(2) per share and its
New York Stock Exchange ("NYSE") closing price.
Price Annualized Six-Month
Per Share Distribution Rate(3) Total Return(3)
--------- -------------------- ---------------
$8.74 (NAV) 6.66% 0.87%
$7.688 (NYSE) 7.57% (0.18)%
Over the six-month period covered by this report, the Fund paid income
dividends totaling $0.29 per share and posted a total return of 0.87% on NAV. In
comparison, the Fund's Lipper, Inc. peer group returned a negative 0.23% based
on NAV for the same period. (Lipper, Inc. is a major independent fund tracking
organization.)
----------
(1) The information provided herin represents the opinion of the manager and
is not intended to be a forecast of future events, a guarantee of future
results nor investment advice. Further, there is no assurance that certain
securities will remain in or out of the portfolio.
(2) The NAV is calculated by subtracting total liabilities from the closing
value of all securities held by the Fund, plus all other assets. This
result (total net assets) is divided by the total number of shares
outstanding. The NAVfluctuates with the changes in the market price of the
securities in which the Fund has invested. However, the price at which the
investor buys or sells shares of the Fund is its market (NYSE) price as
determined by supply and demand.
(3) Total returns are based on changes in NAV and the market value,
respectively. Total returns assume the reinvestment of all dividends
and/or capital gains distributions in additional shares. The annualized
distribution rate is the Fund's current monthly income dividend rate,
annualized, and then divided by the NAV or the market value noted in the
above chart. This annualized distribution rate assumes a current monthly
income dividend rate of $0.0485 for twelve months. This rate is as of May
31, 2000 and is subject to change. The important difference between a
total return and an annualized distribution rate is that the total return
takes into consideration a number of factors including the fluctuation of
the NAVor the market value during the period reported. The NAV fluctuation
includes the effects of unrealized appreciation or depreciation in the
Fund. Accordingly, since an annualized distribution rate only reflects the
current monthly income dividend rate annualized, it should not be used as
the sole indicator to judge the return you received from your fund
investment. Past performance is not indicative of future results.
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Market and Economic Overview
The bond markets have changed dramatically over the past several years. In
our view, one central theme of this change, which began following the Asian
crisis in 1997, is that the capital markets can no longer rely on the U.S.
Treasury markets to provide a near-perfect "benchmark" of trends in interest
rates. Before the Asian crisis, the capital markets relied on the U.S. Treasury
market as a measure to determine what bonds "should" yield.
Under these changing conditions, it may therefore be more difficult for
the Federal Reserve Board ("Fed") to moderate the growth of the economy, since
long-term interest rates may not rise as the Fed puts upward pressure on
short-term rates. The shape of the U.S. Treasury curve just six months ago was
fairly "normal". (A normal yield curve depicts a relationship whereby bonds with
longer maturities have higher yields than bonds with shorter maturities.)
Usually longer-term bonds are more volatile than shorter-term bonds because more
risk is associated with bonds of longer maturities.
As of May 8, 2000, yields on longer-term bonds were depressed by a growing
bond shortage, as well as by expectations that the Fed may ultimately be
successful in slowing the economy and diffusing inflationary pressures. The
result is a negatively sloped yield curve for U.S. Treasuries - instead of the
usual upward-sloping curve, with yields rising steadily along with the maturity
of Treasury bonds, the highest yields have been for shorter-term bonds.
The U.S. economy continues to generate remarkable non-inflationary growth.
The Fed has increased short-term interest rates five times in the last ten
months by a total of 125 basis points (or 1.25%).(4) (A basis point is 0.01% or
one-hundredth of a percent.) The Fed remains committed to keeping pressure on
borrowing costs until the U.S. economy slows to levels that keep inflation from
accelerating. The question: How much tightening is necessary to slow the economy
to levels deemed desirable by the Fed? We think that increases amounting to
another 50 to 75 basis points may be sufficient to slow economic growth.
During the period covered by this report, the municipal bond market
performed competitively, particularly in comparison with non-U.S. Treasury
taxable fixed-income sectors. While municipals have been unable to keep pace
with the decline in yield on U.S. Treasuries, they are clearly less volatile
than many taxable bonds which are more susceptible to credit problems and
capital market liquidity issues. In our view, the chief challenge facing
municipal securities continues to be extremely tight supply. In fact, new issue
volume in January 2000 was less than half of that sold in January 1999.
----------
(4) On May 16, 2000, after this letter was written, the Fed raised interest
rates 0.50% to 6.50%.
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While no guarantees can be given, we believe that short- and
intermediate-term municipal yields have the potential to slightly increase
because of:
o The expected continuing increases in the federal funds rate, that
would put upward pressure on all short-term yields. (The federal
funds rate is the interest rate that banks with excess reserves at a
Federal Reserve district bank charge other banks that need overnight
loans.)
o A likely increase in supply, which would be felt most dramatically
in the supply of the short end of the yield curve.
o The yield on municipal bonds with longer maturities are not nearly
as attractive as yields offered on short- and intermediate-term
taxable bonds.
The last factor is particularly important in terms of the Fund's current
portfolio strategy. While the U.S. Treasury yield curve has an inverted shape,
with the highest yields in five years, the municipal yield curve has maintained
a sharp positive slope. In fact, the difference in yield between 20- and 30-year
municipal bonds is only 10 basis points as of this writing.
Investment Strategy
The Fund's investment objective is to provide high levels of current
income exempt from federal income taxation.(5) We invest primarily in
intermediate- and long-term municipal securities. The Fund is allowed to invest
up to 100% of its assets in securities rated below investment grade or
considered by the manager to be of comparable quality. (Investment grade debt
securities are defined as those rated in one of the four highest rating
categories by a nationally recognized statistical organization ("NRSRO")).
Investing in below investment grade securities involves a substantial risk of
loss. These securities are considered speculative because they have a higher
risk of default, tend to be less liquid, and may be more difficult to value than
investment grade securities.
In seeking to achieve the Fund's objective, we have sought to maintain
broad diversification across a number of investment sectors and to seek
municipal securities that have the potential to offer a high yield as well as
relative price stability.
As of April 30, 2000, approximately 26.6% of the Fund's holdings were
rated investment grade (BBB/Baa and higher) by either Standard and Poor's
Ratings Service or Moody's Investors Service, Inc., and about 3.2% of the Fund's
portfolio was invested in triple-A rated bonds, the highest rating.
----------
(5) Please note a portion of the income from the Fund may be subject to the
Alternative Minimum Tax ("AMT").
3
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With the bond markets likely to remain volatile, we continue to favor an
"ease into the market" approach. We tend to favor longer intermediate
maturities, where most of the benefits of the steep positive slope of the
municipal yield curve can be obtained.
During the reporting period, we took advantage of rising interest rates to
generate additional yield in the Fund. We also wanted to incorporate additional
call protection into the Fund by selling off some of our higher coupon bonds
with shorter calls, and replacing them with bonds that have a similar high
coupon structure, but are not subject to early call. (Callable bonds are
redeemable by the issuer before the scheduled maturity under specific conditions
and at a stated price, which usually begins at a premium to par and declines
annually. Bonds are usually "called" when interest rates fall so significantly
that the issuer can save money by floating new bonds at lower rates.)
One of our objectives in the Fund is to create a built-in income stream
for the long-term in a rising interest rates environment. To this end, we have
generally focused on investing in securities with high relative credit quality
and match our investment objective and offer good call protection, as we believe
they offer solid long-term values.
Moreover, we have a fairly long weighted average life in the portfolio
because we believe that the risk of higher inflation at the present time is
negligible. In addition, we think our greater emphasis on call protection should
provide our shareholders with more consistent income if interest rates do in
fact go down.
Municipal Bond Market Outlook
In light of recent investor confusion and volatility in the fixed-income
markets, long-term municipal bond yields have not changed much in several
months. This relative stability should be reassuring for investors looking for
tax-exempt income, and seeking to ride out bond market volatility (as well as
higher volatility in the other major capital markets).
We believe that Fed monetary policy action should be sufficient to slow
the economy without triggering higher inflation. The good news is that the
economy's "soft landing" is likely to be at a higher annual growth rate than was
previously thought possible due to the possible emergence of a New Economy where
technological advances can spur growth without inflationary pressures.
4
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In our opinion, the recent rise in interest rates has created several
buying opportunities. Although the bond markets remain unsettled, we maintain
our positive outlook for municipal securities for the following reasons:
o Real municipal yields remains very high by historical standards,
representing excellent value in our opinion.
o Longer intermediate and long maturity yields remain very high
relative to taxable counterparts. For example, some bonds are
yielding roughly 95% to 100% of similar maturity U.S. Treasuries.
o The municipal yield curve remains very steeply sloped, even as the
U.S. Treasury yield curve is inverted.
o When capital markets begin to believe that the Fed has achieved its
goal of easing growth down to non-inflationary levels, bonds could
rally and shortages of bonds with the best coupon structures and
call provisions could eventually surface.
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
in the new century.
Sincerely,
/s/ Heath B. McLendon /s/ Peter M. Coffey
Heath B. McLendon Peter M. Coffey
Chairman Vice President and
Investment Officer
May 8, 2000
5
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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 27. 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 PFPC Global Fund Services at (800) 331-1710.
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6
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<PAGE>
[CLIP ART] Municipal High Income Fund Inc.
Schedule of Investments (unaudited)
April 30, 2000
================================================================================
<TABLE>
<CAPTION>
Face
Amount Rating(a) Security Value
==========================================================================================================
Alabama -- 3.4%
<S> <C> <C> <C>
$ 85,000 Aaa* Alabama HFA, Single-Family Housing Revenue,
10.500% due 12/1/02 ....................................... $ 88,294
4,000,000 BBB Butler, AL IDB, Solid Waste Disposal Revenue,
(James River Corp. Project), 8.000% due 9/1/28 (b) ........ 4,310,000
1,000,000 CCC Mobile, AL IDB, Solid Waste Disposal Revenue,
(Mobile Energy Services Co. Project), 6.950% due 1/1/20 ... 440,000
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 ........................................ 1,166,250
-------------
6,004,544
-------------
Arizona -- 1.8%
1,750,000 B+ Gila County, AZ IDA Revenue, ASARCO Inc.,
5.550% due 1/1/27 ......................................... 1,362,812
1,850,000 NR Phoenix, AZ IDA, Multi-Family Housing Revenue,
(Ventana Palms Apartments Project), Series B,
8.000% due 10/1/34 ........................................ 1,810,688
-------------
3,173,500
-------------
Arkansas -- 0.6%
1,000,000 BBB- Arkansas State Development Finance Authority,
Hospital Revenue, Washington Regional Medical Center,
7.375% due 2/1/29 ......................................... 985,000
-------------
California -- 1.9%
1,500,000 NR Barona, CA Band of Mission Indians,
8.250% due 1/1/20 ......................................... 1,498,125
1,865,000 Ba2* Vallejo, CA Certificates of Participation, Touro University,
7.375% due 6/1/29 ......................................... 1,832,362
-------------
3,330,487
-------------
Colorado -- 2.7%
2,000,000 NR Colorado Health Facilities Authority Revenue, (Beth Israel at
Shalom Park Project), 7.250% due 12/15/25 ................. 2,005,000
Denver, CO City & County Airport Revenue, Series A:
1,505,000 A 8.500% due 11/15/23 (b) ................................... 1,557,600
1,175,000 A 8.000% due 11/15/25 (b) ................................... 1,217,594
-------------
4,780,194
-------------
Connecticut -- 1.9%
Connecticut State Development Authority:
1,735,000 NR Aquarium Project Revenue, (Mystic Marinelife Aquarium
Project), Series A, 7.000% due 12/1/27 .................. 1,737,169
</TABLE>
See Notes to Financial Statements.
7
<PAGE>
[CLIP ART] Municipal High Income Fund Inc.
Schedule of Investments (unaudited) (continued)
April 30, 2000
================================================================================
<TABLE>
<CAPTION>
Face
Amount Rating(a) Security Value
==========================================================================================================
<S> <C> <C> <C>
Connecticut -- 1.9% (continued)
$ 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 ............................... $ 1,636,875
-------------
3,374,044
-------------
Delaware -- 0.5%
1,000,000 NR Sussex County, DE Assisted Living Facility Revenue,
(Heritage at Milford Project), 7.250% due 7/1/29 .......... 915,000
-------------
Florida -- 4.1%
2,000,000 NR Florida Housing Finance Corp., Multi-Family Housing
Revenue, (Whistlers Cove Apartment Project),
6.500% due 1/1/39 (b) ..................................... 1,825,000
2,750,000 NR Hillsborough County, FL IDA Revenue, (Lakeshore Villas
Project), Series A, 6.750% due 7/1/29 ..................... 2,461,250
875,000 NR Homestead, FL IDR, Community Rehabilitation Providers
Program, Series A, 7.950% due 11/1/18 ..................... 905,625
2,000,000 BBB- Martin County, FL IDA, IDR, (Indiantown Cogeneration
Project), Series A, 7.875% due 12/15/25 (b) ............... 2,010,000
-------------
7,201,875
-------------
Georgia -- 5.1%
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 ......................................... 1,381,875
2,000,000 NR Clayton County, GA Development Authority Revenue,
Senior Care Group Inc., (Bayberry Project), Series A,
6.750% due 7/1/29 ......................................... 1,732,500
3,000,000 NR Forsyth County, GA Hospital Authority, Revenue Anticipation
Certificates, (Baptist Health Care System Project),
6.375% due 10/1/28 ........................................ 2,486,250
1,000,000 NR Gainesville & Hall County, GA Development Authority Revenue,
Senior Living Facility, Lanier Village, Series C,
7.250% due 11/15/29 ....................................... 957,500
1,435,000 NR Savannah, GA EDA Revenue, Marshview Inn, Series A,
7.125% due 7/1/29 ......................................... 1,320,200
1,000,000 NR Walton County, GA IDA, IDR, (Walton Manufacturing Co.
Project), 8.500% due 9/1/07 ............................... 1,061,250
-------------
8,939,575
-------------
Illinois -- 1.5%
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 5.214% due 12/1/31 .............. 970,312
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
[CLIP ART] Municipal High Income Fund Inc.
Schedule of Investments (unaudited) (continued)
April 30, 2000
================================================================================
<TABLE>
<CAPTION>
Face
Amount Rating(a) Security Value
==========================================================================================================
<S> <C> <C> <C>
Illinois -- 1.5% (continued)
$ 2,000,000 A- Illinois Development Finance Authority, Hospital Revenue,
Adventist Health System/Sunbelt Obligation Group,
5.500% due 11/15/29 ....................................... $ 1,577,500
-------------
2,547,812
-------------
Indiana -- 2.5%
2,500,000 BB East Chicago, IN PCR, (Inland Steel Co. Project No. 10),
6.800% due 6/1/13 ......................................... 2,390,625
1,000,000 B+ Indiana State Development Finance Authority, PCR,
(Inland Steel Co. Project No. 13), 7.250% due 11/1/11 (b) . 972,500
1,000,000 NR Indianapolis, IN Multi-Family Revenue, (Lake Nora Fox Club
Project), Series B, 7.500% due 10/1/29 .................... 958,750
-------------
4,321,875
-------------
Kentucky -- 2.2%
2,310,000 NR Jefferson County, KY Student Housing Individual Building
Revenue, Collegiate Housing Foundation, Series A,
7.000% due 9/1/19 ......................................... 2,240,700
1,500,000 BBB- Kenton County, KY Airport Board Revenue, (Delta Airlines
Project), Series A, 7.500% due 2/1/20 (b) ................. 1,541,250
-------------
3,781,950
-------------
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 .. 1,284,000
2,000,000 NR Louisiana Local Government Environmental Facilities,
Community Development Authority Revenue, St. James
Place, Series A, 8.000% due 11/1/25 ....................... 1,995,000
Port of New Orleans, LA IDR:
Avondale Industries, Inc. Project:
1,400,000 NR 8.250% due 6/1/04 ....................................... 1,492,750
3,000,000 NR 8.500% due 6/1/14 ....................................... 3,266,250
1,000,000 CC Continental Grain Co. Project, 7.500% due 7/1/13 .......... 991,250
-------------
9,029,250
-------------
Maine -- 0.0%
Maine State Housing Authority, Mortgage Purchase Revenue:
15,000 AA Series C-2, 7.000% due 11/15/32 (b) ....................... 15,412
20,000 AA Series D-1, 8.300% due 11/15/28 (b) ....................... 20,132
-------------
35,544
-------------
Maryland -- 1.7%
3,000,000 NR Maryland State Economic Development Corporate Revenue,
Chesapeake Bay, Series A, 7.730% due 12/1/27 .............. 2,940,000
-------------
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
[CLIP ART] Municipal High Income Fund Inc.
Schedule of Investments (unaudited) (continued)
April 30, 2000
================================================================================
<TABLE>
<CAPTION>
Face
Amount Rating(a) Security Value
==========================================================================================================
<S> <C> <C> <C>
Massachusetts -- 10.7%
$ 1,000,000 NR Boston, MA Industrial Development Financing Authority
Revenue, (Roundhouse Hospitality LLC Project),
7.875% due 3/1/25 (b) ..................................... $ 998,750
1,000,000 NR Massachusetts State Development Finance Agency Revenue,
Alliance Health Care Facility, Series A,
7.100% due 7/1/32 ......................................... 917,500
Massachusetts State Health & Educational Facilities
Authority Revenue:
1,000,000 AAA Beth Israel Deaconess Medical Center, Series G-4,
AMBAC-Insured, Variable Rate INFLOS,
7.508% due 7/1/25 (c) ................................. 943,750
1,000,000 BBB Caritas Christi Obligation Group, Series A,
5.625% due 7/1/20 ..................................... 803,750
1,250,000 Ba2* Saint Memorial Medical Center Project, Series A,
6.000% due 10/1/23 .................................... 981,250
1,920,000 Aa3* Massachusetts State HFA, Single-Family Housing Revenue,
Series 38, 7.200% due 12/1/26 (b) ......................... 1,960,800
Massachusetts State Industrial Finance Agency Revenue:
2,000,000 NR Assisted Living Facility, (Marina Bay LLC Project),
7.500% due 12/1/27 (b) .................................. 1,972,500
Chestnut Knoll Project, Series A:
2,250,000 NR 5.500% due 2/15/18 ...................................... 1,808,438
500,000 NR 5.625% due 2/15/25 ...................................... 390,000
Resource Recovery, (SEMASS Partnership Project):
1,700,000 NR Series A, 9.000% due 7/1/15 ............................. 1,808,375
5,840,000 NR Series B, 9.250% due 7/1/15 (b) ......................... 6,219,600
-------------
18,804,713
-------------
Michigan -- 3.5%
2,000,000 BB- Detroit, MI Local Development Finance Authority,
Tax Increment, Series A, 5.500% due 5/1/21 ................ 1,760,000
Garden City, MI Hospital Finance Authority, Hospital Revenue,
Garden City Hospital Obligation Group, Series A:
2,000,000 Ba3* 5.625% due 9/1/10 ....................................... 1,712,500
1,000,000 Ba3* 5.750% due 9/1/17 ....................................... 808,750
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) ........................... 1,832,500
-------------
6,113,750
-------------
Minnesota -- 1.0%
2,000,000 NR Sartell, MN Health Care & Housing Facilities Revenue,
(Foundation for Healthcare Project), Series A,
6.500% due 9/1/16 ......................................... 1,785,000
-------------
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
[CLIP ART] Municipal High Income Fund Inc.
Schedule of Investments (unaudited) (continued)
April 30, 2000
================================================================================
<TABLE>
<CAPTION>
Face
Amount Rating(a) Security Value
==========================================================================================================
<S> <C> <C> <C>
Montana -- 2.4%
$ 4,530,000 NR Montana State Board of Investment Resource Recovery
Revenue, (Yellowstone Energy LP Project),
7.000% due 12/31/19 (b) ................................... $ 4,280,850
-------------
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 ......................................... 892,500
500,000 BBB- 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) .................. 460,625
-------------
1,353,125
-------------
New Jersey -- 6.4%
3,000,000 B1* Camden County, NJ Improvement Authority Revenue, (Health
Care Redevelopment Project-- Cooper Health System),
5.875% due 2/15/15 ........................................ 2,152,500
1,000,000 NR New Jersey EDA, Healthcare Facility Revenue, (Sayreville
Senior Living Project), Series A, 6.375% due 4/1/29 ....... 837,500
New Jersey Health Care Facilities Financing Authority Revenue:
Palisades Medical Center Obligation Group:
735,000 Baa3* 7.600% due 7/1/21 ....................................... 738,675
1,150,000 Aaa* Pre-Refunded-- Escrowed with U.S. government
securities to 7/1/02 Call @ 102, 7.600% due 7/1/21 .... 1,233,375
2,000,000 NR Raritan Bay Medical Center, 7.250% due 7/1/27 ............. 1,780,000
3,000,000 BBB- Trinitas Hospital Obligation Group, 7.500% due 7/1/30 ..... 3,003,750
1,450,000 NR New Jersey State Educational Facilities Authority Revenue,
Fairleigh Dickinson University, Series C, 6.625% due 7/1/23 1,422,812
-------------
11,168,612
-------------
New Mexico -- 0.3%
510,000 AAA New Mexico Mortgage Finance Authority, Single-Family
Mortgage Program, Series B, FHA-Insured,
8.300% due 3/1/20 (b) ..................................... 529,125
-------------
New York -- 2.8%
1,900,000 NR Monroe County, NY IDR Agency, (Empire Sports Project),
Series A, 6.250% due 3/1/28 ............................... 1,607,875
1,500,000 NR New York City, NY IDA, Civic Facility Revenue,
7.500% due 8/1/26 ......................................... 1,498,125
Suffolk County, NY Industrial Development Agency,
Civic Facility Revenue, Southampton Hospital Association:
1,000,000 NR Series A, 7.250% due 1/1/20 ............................. 930,000
1,000,000 NR Series B, 7.625% due 1/1/30 ............................. 951,250
-------------
4,987,250
-------------
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
[CLIP ART] Municipal High Income Fund Inc.
Schedule of Investments (unaudited) (continued)
April 30, 2000
================================================================================
<TABLE>
<CAPTION>
Face
Amount Rating(a) Security Value
==========================================================================================================
<S> <C> <C> <C>
North Carolina -- 2.9%
$ 3,000,000 NR Charlotte, NC Special Facilities Revenue, Charlotte/Douglas
International Airport, 5.600% due 7/1/27 (b) .............. $ 2,272,500
North Carolina Medical Care Commission:
Health Care Facilities Revenue, First Mortgage,
(De Paul Community Facilities Project):
1,440,000 NR 6.125% due 1/1/28 ..................................... 1,180,800
1,000,000 NR 7.625% due 11/1/29 .................................... 960,000
800,000 Baa1* Hospital Revenue, Halifax Regional Medical Center Inc.,
5.000% due 8/15/24 ...................................... 593,000
-------------
5,006,300
-------------
Ohio -- 1.8%
1,000,000 NR Cuyahoga County, OH Health Care Facilities Revenue, Judson
Retirement Community, Series A, 7.250% due 11/15/18 ....... 973,750
Montgomery County, OH Health Systems Revenue, Series B-1:
465,000 AAA Pre-Refunded-- Escrowed with state & local government
securities to 7/1/06 Call @ 102, 8.100% due 7/1/18 ...... 526,031
1,035,000 AAA Unrefunded, 8.100% due 7/1/18 ............................. 1,204,481
1,250,000 NR Ohio State Solid Waste Revenue, Republic Engineered
Steels Inc., 9.000% due 6/1/21 (b) ........................ 487,500
-------------
3,191,762
-------------
Oklahoma -- 0.9%
2,000,000 BBB Oklahoma Development Finance Authority Revenue, Hillcrest
Healthcare System, Series A, 5.625% due 8/15/29 ........... 1,552,500
-------------
Oregon -- 1.0%
2,000,000 NR Washington County, OR Housing Authority Revenue,
Affordable Housing Pool, Series A, 6.125% due 7/1/29 ..... 1,772,500
-------------
Pennsylvania -- 11.8%
2,200,000 B Allegheny County, PA IDA, Airport Special Facilities Revenue,
(USAir Inc. Project), Series B, 8.500% due 3/1/21 (b) ..... 2,299,000
Beaver County, PA IDA, PCR:
2,500,000 BB+ Cleveland Electric Illuminating Co. Project,
7.625% due 5/1/25 ....................................... 2,637,500
2,000,000 BB+ Toledo Edison Co. Project, 7.625% due 5/1/20 .............. 2,130,000
3,000,000 NR Dauphin County, PA General Authority Revenue, Hotel &
Conference Center, Hyatt Regency, 6.200% due 1/1/29 ....... 2,673,750
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) .................................... 2,628,125
</TABLE>
See Notes to Financial Statements.
12
<PAGE>
[CLIP ART] Municipal High Income Fund Inc.
Schedule of Investments (unaudited) (continued)
April 30, 2000
================================================================================
<TABLE>
<CAPTION>
Face
Amount Rating(a) Security Value
==========================================================================================================
<S> <C> <C> <C>
Pennsylvania -- 11.8% (continued)
$ 2,840,000 NR Montgomery County, PA Higher Education & Health
Authority Revenue, Temple Continuing Care Center,
6.625% due 7/1/19 ......................................... $ 2,516,950
365,000 NR Northumberland County, PA IDA, IDR, (Beverly Enterprises Inc.
Project), 6.875% due 2/1/03 ............................... 364,960
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) .................................... 1,055,000
Scranton-Lackawanna, PA Health & Welfare Authority Revenue,
(Moses Taylor Hospital Project):
1,905,000 BBB- 6.150% due 7/1/14 ....................................... 1,681,162
3,050,000 BBB- 6.250% due 7/1/20 ....................................... 2,611,563
-------------
20,598,010
-------------
Puerto Rico -- 0.8%
1,750,000 BBB- Puerto Rico Industrial Tourist Educational, Medical &
Environmental Control Facilities, (Mennonite General
Hospital Project), Series A, 5.625% due 7/1/27 ............ 1,391,250
-------------
South Carolina -- 2.2%
Connector 2000 Association Inc., SC Toll Road Revenue:
Series B:
3,100,000 BBB- Zero coupon bond to yield 7.956% due 1/1/27 ............. 399,125
7,750,000 BBB- Zero coupon bond to yield 8.150% due 1/1/34 ............. 581,250
2,000,000 BBB- Southern Connector Project, Series A, 5.375% due 1/1/38 ... 1,445,000
685,000 NR Florence County, SC IDR, Stone Container Corp.,
7.375% due 2/1/07 ......................................... 703,838
755,000 NR McCormick County, SC COP, 9.750% due 7/1/09 ................... 756,163
-------------
3,885,376
-------------
South Dakota -- 1.0%
1,820,000 NR Oglala Sioux Tribe, SD Pine Ridge County, Revenue Bonds,
7.500% due 7/1/13 ......................................... 1,822,275
-------------
Tennessee -- 0.7%
1,415,000 NR Shelby County, TN Health, Educational & Housing Facilities
Board Revenue, Multi-Family Housing, (Hedgerow
Apartments Project), 6.875% due 7/1/36 .................... 1,298,262
-------------
Texas -- 7.8%
615,000 A2* El Paso, TX Housing Finance Corp., Single-Family Mortgage
Revenue, Series A, FHA/VA-Insured, 8.750% due 10/1/11 ..... 653,438
2,000,000 Ba2* El Paso, TX International Airport Revenue, Special Facilities,
(Marriott Corp. Project), 7.750% due 3/1/12 ............... 2,057,500
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
[CLIP ART] Municipal High Income Fund Inc.
Schedule of Investments (unaudited) (continued)
April 30, 2000
================================================================================
<TABLE>
<CAPTION>
Face
Amount Rating(a) Security Value
==========================================================================================================
<S> <C> <C> <C>
Texas -- 7.8% (continued)
$ 3,000,000 Ba1* Houston, TX Airport Systems Revenue, Special
Facilities, Continental Airlines Inc., Series C,
6.125% due 7/15/27 (b) .................................... $ 2,632,500
1,265,000 AA- North Central, TX Health Facility Development Corp. Revenue,
Baylor Health Care Systems, Series B, 6.400% due 5/15/08 .. 1,314,019
Northgate Crossing, TX Municipal Utility:
1,000,000 CCC++ District No. 1, GO, 8.875% due 12/1/13 .................... 963,750
1,000,000 CCC++ District No. 2, Special Tax Revenue, 8.875% due 12/1/13 ... 967,500
Sam Rayburn, TX Municipal Power Agency:
Series A:
2,645,000 BB 6.750% due 10/1/14 ...................................... 2,598,712
1,500,000 BB 6.250% due 10/1/17 ...................................... 1,436,250
1,165,000 BB Series B, 6.125% due 10/1/13 .............................. 1,115,488
-------------
13,739,157
-------------
Utah -- 2.1%
1,705,000 NR Hurricane, UT Health Facilities Development Revenue,
(Mission Health Services Project), 10.500% due 7/1/20 ..... 1,762,953
2,000,000 NR Utah State HFA Revenue, (RHA Community Services
of Utah Inc. Project), Series A, 6.875% due 7/1/27 ........ 1,890,000
-------------
3,652,953
-------------
Virginia -- 2.0%
600,000 NR Alexandria, VA Redevelopment & Housing Authority,
Multi-Family Housing Revenue, (Parkwood Court
Apartments Project), Series C, 8.125% due 4/1/30 .......... 601,500
1,000,000 NR Fairfax County, VA EDA Revenue, Retirement Community,
Greenspring Village Inc., Series A, 7.500% due 10/1/29 .... 957,500
23,400,000 BBB- Pocahontas Parkway Association, VA Toll Road Revenue,
Series B, zero coupon bond to yield 7.438% due 8/15/34 .... 2,018,250
-------------
3,577,250
-------------
West Virginia -- 0.6%
1,000,000 NR West Virginia Economic Development Authority Revenue,
(Stonewall Jackson Project), Series B, 8.000% due 4/1/30 .. 966,250
-------------
</TABLE>
See Notes to Financial Statements.
14
<PAGE>
[CLIP ART] Municipal High Income Fund Inc.
Schedule of Investments (unaudited) (continued)
April 30, 2000
================================================================================
<TABLE>
<CAPTION>
Face
Amount Rating(a) Security Value
==========================================================================================================
<S> <C> <C> <C>
Wisconsin -- 1.4%
Wisconsin State Health & Educational Facilities
Authority Revenue:
$ 1,060,000 BBB+ Aurora Health Care Inc., Series A, 5.600% due 2/15/29 ... $ 842,700
1,770,000 NR Benchmark Healthcare of Green Bay Inc. Project,
Series A, 7.750% due 5/1/27 ........................... 1,635,037
-------------
2,477,737
-------------
TOTAL INVESTMENTS -- 100%
(Cost -- $183,615,977**) $ 175,314,657
=============
</TABLE>
----------
(a) All ratings are by Standard & Poor's Ratings Service, except those
identified by an asterisk (*) which are rated by Moody's Investors
Service, Inc., or those identified by a double dagger (++) which 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) 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 16 through 18 for definitions of ratings and certain security
descriptions.
Summary of Municipal Bonds by Combined Ratings
April 30, 2000 (unaudited)
================================================================================
--------------------------------------------------------------------------------
Standard & Percent of
Moody's and/or Poor's Total Investments
--------------------------------------------------------------------------------
Aaa AAA 3.2%
Aa AA 1.9
A A 5.6
Baa BBB 15.9
Ba BB 13.7
B B 3.9
Caa CCC 1.4*
Ca CC 0.6
NR NR 53.8
-----
100.0%
=====
--------------------------------------------------------------------------------
* 1.1% was rated by Fitch IBCA, Inc.
See Notes to Financial Statements.
15
<PAGE>
[CLIP ART] 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
"CC" 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
CCC and CC predominantly 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 "CC" 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.
16
<PAGE>
[CLIP ART] Municipal High Income Fund Inc.
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 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.
VMIG 1 -- Moody's highest rating for issues having a demand feature --
VRDO.
17
<PAGE>
[CLIP ART] Municipal High Income Fund Inc.
Bond Ratings (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
18
<PAGE>
[CLIP ART] Municipal High Income Fund Inc.
Statement of Assets and Liabilities (unaudited)
April 30, 2000
================================================================================
ASSETS:
Investments, at value (Cost -- $183,615,977) .............. $ 175,314,657
Interest receivable ....................................... 4,019,003
-------------
Total Assets .............................................. 179,333,660
-------------
LIABILITIES:
Dividends payable ......................................... 247,297
Payable to bank ........................................... 234,333
Investment advisory fees payable .......................... 57,462
Administration fees payable ............................... 28,471
Accrued expenses .......................................... 87,450
-------------
Total Liabilities ......................................... 655,013
-------------
Total Net Assets ............................................. $ 178,678,647
=============
NET ASSETS:
Par value of capital shares ............................... $ 204,551
Capital paid in excess of par value ....................... 189,974,124
Overdistributed net investment income ..................... (139,526)
Accumulated net realized loss from security transactions .. (3,059,182)
Net unrealized depreciation of investments ................ (8,301,320)
-------------
Total Net Assets ............................................. $ 178,678,647
=============
Shares Outstanding ........................................... 20,455,083
-------------
Net Asset Value .............................................. $ 8.74
-------------
See Notes to Financial Statements.
19
<PAGE>
[CLIP ART] Municipal High Income Fund Inc.
Statement of Operations (unaudited)
For the Six Months Ended April 30, 2000
================================================================================
INVESTMENT INCOME:
Interest .................................................. $ 6,626,846
------------
EXPENSES:
Investment advisory fees (Note 3) ......................... 359,534
Administration fees (Note 3) .............................. 179,767
Audit and legal ........................................... 32,790
Directors' fees ........................................... 18,329
Registration fees ......................................... 12,279
Shareholder and system servicing fees ..................... 8,343
Pricing service fees ...................................... 6,408
Shareholder communications ................................ 5,314
Custody ................................................... 4,494
Other ..................................................... 7,691
------------
Total Expenses ............................................ 634,949
------------
Net Investment Income ........................................ 5,991,897
------------
REALIZED AND UNREALIZED GAIN(LOSS)
ON INVESTMENTS (NOTE 4):
Realized Loss From Security Transactions
(excluding short-term securities):
Proceeds from sales ..................................... 31,710,016
Cost of securities sold ................................. 31,909,717
------------
Net Realized Loss ......................................... (199,701)
------------
Change in Net Unrealized Depreciation of Investments:
Beginning of period ..................................... (3,055,104)
End of period ........................................... (8,301,320)
------------
Increase in Net Unrealized Depreciation ................... (5,246,216)
------------
Net Loss on Investments ...................................... (5,445,917)
------------
Increase in Net Assets From Operations ....................... $ 545,980
============
See Notes to Financial Statements.
20
<PAGE>
[CLIP ART] Municipal High Income Fund Inc.
Statements of Changes in Net Assets
For the Six Months Ended April 30, 2000 (unaudited)
and the Year Ended October 31, 1999
================================================================================
<TABLE>
<CAPTION>
2000 1999
------ ------
<S> <C> <C>
OPERATIONS:
Net investment income .......................... $ 5,991,897 $ 11,804,409
Net realized loss .............................. (199,701) (834,124)
Increase in net unrealized depreciation ........ (5,246,216) (14,779,115)
------------- -------------
Increase (Decrease) in Net Assets
From Operations .............................. 545,980 (3,808,830)
------------- -------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM (NOTE 2):
Net investment income .......................... (5,952,435) (11,918,813)
------------- -------------
Decrease in Net Assets From
Distributions to Shareholders ................ (5,952,435) (11,918,813)
------------- -------------
FUND SHARE TRANSACTIONS (NOTE 6):
Net asset value of shares issued for
reinvestment of dividends .................... -- 1,868,671
------------- -------------
Increase in Net Assets From
Fund Share Transactions ...................... -- 1,868,671
------------- -------------
Decrease in Net Assets ............................ (5,406,455) (13,858,972)
NET ASSETS:
Beginning of period ............................ 184,085,102 197,944,074
------------- -------------
End of period* ................................. $ 178,678,647 $ 184,085,102
============= =============
* Includes overdistributed net investment
income of ....................................... $ (139,526) $ (178,988)
============= =============
</TABLE>
See Notes to Financial Statements.
21
<PAGE>
[CLIP ART] Municipal High Income Fund Inc.
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)Egains 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, 1999, 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. 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
SSB Citi Fund Management LLC ("SSBC"), a subsidiary of Salomon Smith
Barney Holdings Inc. ("SSBH"), which, in turn, is a subsidiary of Citigroup
Inc., 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
22
<PAGE>
[CLIP ART] Municipal High Income Fund Inc.
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 six months ended April 30, 2000, the aggregate cost of
purchases and proceeds from sales of investments (including maturities, but
excluding short-term securities) were as follows:
Purchases ......................................................... $37,281,215
===========
Sales ............................................................. $31,710,016
===========
At April 30, 2000, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
Gross unrealized appreciation .......................... $ 3,238,055
Gross unrealized depreciation .......................... (11,539,375)
------------
Net unrealized depreciation ............................ $ (8,301,320)
============
5. Capital Loss Carryforwards
At October 31, 1999, the Fund had, for Federal income tax purposes,
approximately $2,858,500 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 2007
================================================================================
Carryforward Amounts $1,197,000 $270,000 $205,000 $400,000 $786,500
================================================================================
6. Capital Shares
At April 30, 2000, 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, 2000 October 31, 1999
------------------- --------------------
Shares Amount Shares Amount
------- -------- ------- ----------
Shares issued on reinvestment..... -- -- 196,443 $1,868,671
====== ======== ======= ==========
23
<PAGE>
[CLIP ART] Municipal High Income Fund Inc.
Financial Highlights
================================================================================
For a share of capital stock outstanding throughout each year ended October 31,
except where noted:
<TABLE>
<CAPTION>
2000(1) 1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period ....... $ 9.00 $ 9.77 $ 9.76 $ 9.53 $ 9.51 $ 8.98
------------ ------------ ------------ ------------ ------------ ------------
Income (Loss) From Operations:
Net investment income ..... 0.29 0.58 0.60 0.61 0.63 0.64
Net realized and
unrealized gain (loss) .. (0.26) (0.76) 0.03 0.24 -- 0.54
------------ ------------ ------------ ------------ ------------ ------------
Total Income (Loss)
From Operations ........... 0.03 (0.18) 0.63 0.85 0.63 1.18
------------ ------------ ------------ ------------ ------------ ------------
Less Distributions From:
Net investment income ..... (0.29) (0.59) (0.61) (0.62) (0.61) (0.65)
In excess of net
investment income ....... -- -- (0.01) -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Total Distributions ............. (0.29) (0.59) (0.62) (0.62) (0.61) (0.65)
------------ ------------ ------------ ------------ ------------ ------------
Net Asset Value,
End of Period ............. $ 8.74 $ 9.00 $ 9.77 $ 9.76 $ 9.53 $ 9.51
------------ ------------ ------------ ------------ ------------ ------------
Total Return,
Based on Market Value ..... (0.18)%++ (15.76)% 9.34% 17.22% 10.22% 14.17%
------------ ------------ ------------ ------------ ------------ ------------
Total Return,
Based on Net Asset Value .. 0.87%++ (1.79)% 6.75% 9.41% 7.39% 14.00%
------------ ------------ ------------ ------------ ------------ ------------
Net Assets,
End of Period (000s) ...... $ 178,679 $ 184,085 $ 197,944 $ 194,133 $ 187,303 $ 187,048
============ ============ ============ ============ ============ ============
Ratios to Average Net Assets:
Expenses .................. 0.71%+ 0.73% 0.74% 0.74% 0.77% 0.84%
Net investment income ..... 6.67+ 6.08 6.07 6.38 6.65 6.87
Portfolio Turnover Rate ......... 18% 27% 57% 35% 17% 18%
Market Value, End of Period ..... $ 7.688 $ 8.000 $ 10.125 $ 9.875 $ 9.000 $ 9.000
</TABLE>
--------------
(1) For the six months ended April 30, 2000 (unaudited).
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
24
<PAGE>
[CLIP ART] Municipal High Income Fund Inc.
Financial Data Per Share of Common Stock (unaudited)
================================================================================
Dividend
Record Payable NYSE Net Asset Dividend Reinvestment
Date Date Closing Price* Value* Paid Price
------ ------- -------------- ------ -------- -------
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 9.53
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 9.45
5/25/99 5/28/99 9.250 9.58 0.0485 9.35
6/22/99 6/25/99 9.000 9.46 0.0485 9.08
7/27/99 7/30/99 8.938 9.46 0.0485 8.84
8/24/99 8/27/99 8.562 9.27 0.0485 8.79
9/21/99 9/24/99 8.375 9.22 0.0485 8.37
10/26/99 10/29/99 7.625 9.00 0.0485 7.98
11/22/99 11/26/99 7.938 9.03 0.0485 7.74
12/27/99 12/30/99 7.313 8.86 0.0485 7.38
1/25/00 1/28/00 7.750 8.70 0.0485 7.84
2/22/00 2/25/00 7.813 8.65 0.0485 7.66
3/28/00 3/31/00 7.438 8.80 0.0485 7.58
4/25/00 4/28/00 7.625 8.76 0.0485 7.62
-------
* As of record date.
25
<PAGE>
[CLIP ART] Municipal High Income Fund Inc.
Quarterly Results of Operations (unaudited)
================================================================================
<TABLE>
<CAPTION>
Net Increase
Net Net Realized (Decrease)
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>
1/31/98 $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
7/31/99 3,265,290 0.16 2,898,717 0.14 (4,105,413) (0.20) (1,206,696) (0.06)
10/31/99 3,269,246 0.16 2,951,688 0.14 (8,885,590) (0.43) (5,933,902) (0.29)
1/31/00 3,388,350 0.17 3,059,977 0.15 (7,328,329) (0.35) (4,268,352) (0.20)
4/30/00 3,238,496 0.16 2,931,920 0.14 1,882,412 0.09 4,814,332 0.23
</TABLE>
26
<PAGE>
[CLIP ART] 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 PFPC Global Fund Services ("PFPC"), 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 PFPC, 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, PFPC 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 PFPC has completed its purchases,
the market price exceeds 98% of what the NAV per share of the common stock was
at the valuation time, PFPC 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
27
<PAGE>
[CLIP ART] Municipal High Income Fund Inc.
Dividend Reinvestment Plan (unaudited) (continued)
================================================================================
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 PFPC is
unable to stop open market purchases and cause the Fund to issue the remaining
shares, the average per share price paid by PFPC may exceed 98% of the NAV per
share of the common stock. PFPC 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.
PFPC 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 PFPC 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. PFPC'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 PFPC or the Fund on at least 30 days' written notice to Plan
participants. All correspondence concerning the Plan should be directed by mail
to PFPC Global Fund Services, P.O. Box 8030, Boston, Massachusetts 02266-8030 or
by telephone at 1-800-331-1710.
-------------------------
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,
2000, the Fund has not repurchased any shares.
28
<PAGE>
[CLIP ART] Municipal High Income Fund Inc.
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
SSB Citi Fund Management LLC
388 Greenwich Street
New York, New York 10013
Transfer Agent
PFPC Global Fund Services
P.O. Box 8030
Boston, Massachusetts 02266-8030
Custodian
PFPC Trust Company
17th and Chestnut Street
Philadelphia, Pennsylvania 19103
<PAGE>
[GRAPHIC OMITTED]
[CLIP ART]
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 6/00
