UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-Q

QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED
MANAGEMENT INVESTMENT COMPANY

Investment Company Act file number		811-5497

Western Asset Municipal High Income Fund Inc.
(Exact name of registrant as specified in charter)

55 Water Street, New York, NY			10041
(Address of principal executive offices)			(Zip code)

Robert I. Frenkel, Esq. Legg Mason & Co., LLC 100 First Stamford Place Stamford, CT 06902
(Name and address of agent for service)

Registrant’s telephone number, including area code:		Funds Investor Services 1-888-777-0102

Date of fiscal year end:	October 31

Date of reporting period:	January 31, 2010

ITEM 1. SCHEDULE OF INVESTMENTS

WESTERN ASSET

MUNICIPAL HIGH INCOME FUND INC.

FORM N-Q

JANUARY 31, 2010

Western Asset Municipal High Income Fund Inc.

Schedule of Investments (unaudited)

January 31, 2010

Face Amount		Security	Value
MUNICIPAL BONDS — 98.2%
Alaska — 0.6%
$	1,055,000	Alaska Industrial Development & Export Authority Revenue, Williams Lynxs Alaska Cargoport, 8.125% due 5/1/31 (a)	$	936,365
Arizona — 1.8%
1,000,000		Pima County, AZ, IDA, Revenue, Tucson Electric Power Co., 5.750% due 9/1/29	1,008,930
1,500,000		Salt Verde, AZ Financial Corp., Gas Revenue, 5.000% due 12/1/37	1,279,410
500,000		University Medical Center Corp., AZ, Hospital Revenue, 6.250% due 7/1/29	535,195
		Total Arizona	2,823,535
Arkansas — 1.0%
		Arkansas State Development Financing Authority:
1,000,000		Hospital Revenue, Washington Regional Medical Center, 7.375% due 2/1/29 (b)	1,000,000
600,000		Industrial Facilities Revenue, Potlatch Corp. Projects, 7.750% due 8/1/25 (a)	608,784
		Total Arkansas	1,608,784
California — 6.7%
1,500,000		Barona, CA, Band of Mission Indians, GO, 8.250% due 12/1/20	1,412,115
2,000,000		California Health Facilities Financing Authority Revenue, Refunding, Cedars-Sinai Medical Center, 5.000% due 11/15/27	1,947,000
2,000,000		Golden State Tobacco Securitization Corp., California Tobacco Settlement Revenue, Asset Backed, 7.800% due 6/1/42 (b)	2,419,080
		M-S-R Energy Authority, CA:
2,000,000		7.000% due 11/1/34	2,228,100
2,000,000		6.500% due 11/1/39	2,108,940
600,000		Redding, CA, Redevelopment Agency, Tax Allocation, Shastec Redevelopment Project, 5.000% due 9/1/29	529,512
		Total California	10,644,747
Colorado — 5.9%
		Colorado Educational & Cultural Facilities Authority Revenue:
705,000		Charter School, Peak to Peak Project, 7.500% due 8/15/21 (b)	763,698
		Cheyenne Mountain Charter Academy:
680,000		5.250% due 6/15/25	695,368
510,000		5.125% due 6/15/32	500,978
785,000		Elbert County Charter, 7.375% due 3/1/35	732,970
810,000		Unrefunded, University of Denver Project, NATL/FGIC, 5.250% due 3/1/23	856,065
4,000,000		Public Authority for Colorado Energy, Natural Gas Purchase Revenue, 6.125% due 11/15/23	4,344,040
1,000,000		Reata South Metropolitan District, CO, GO, 7.250% due 6/1/37	811,920
500,000		Southlands, CO, Metropolitan District No. 1, GO, 7.125% due 12/1/34 (b)	625,725
		Total Colorado	9,330,764
District of Columbia — 1.3%
1,895,000		District of Columbia COP, District Public Safety & Emergency, AMBAC, 5.500% due 1/1/20	1,996,894
Florida — 7.9%
875,000		Beacon Lakes, FL, Community Development District, Special Assessment, 6.900% due 5/1/35	838,644
1,500,000		Bonnet Creek Resort Community Development District, Special Assessment, 7.500% due 5/1/34	1,225,560
2,000,000		Capital Projects Finance Authority, FL, Student Housing Revenue, Capital Projects Loan Program, Florida University, 7.850% due 8/15/31 (b)	2,136,220

See Notes to Schedule of Investments.

Western Asset Municipal High Income Fund Inc.

Schedule of Investments (unaudited) (continued)

January 31, 2010

Face Amount		Security	Value
Florida — 7.9% (continued)
$	905,000	Century Parc Community Development District, Special Assessment, 7.000% due 11/1/31	$	878,366
1,000,000		Highlands County, FL, Health Facilities Authority Revenue, Adventist Health Systems, 6.000% due 11/15/25 (b)	1,128,050
2,000,000		Martin County, FL, IDA Revenue, Indiantown Cogeneration Project, 7.875% due 12/15/25 (a)	2,097,140
1,000,000		Orange County, FL, Health Facilities Authority Revenue, First Mortgage, GF, Orlando Inc. Project, 9.000% due 7/1/31	992,360
290,000		Palm Beach County, FL, Health Facilities Authority Revenue, John F. Kennedy Memorial Hospital Inc. Project, 9.500% due 8/1/13 (c)	338,230
2,000,000		Reunion East Community Development District, Special Assessment, 7.375% due 5/1/33	1,446,180
1,000,000		Santa Rosa, FL, Bay Bridge Authority Revenue, 6.250% due 7/1/28	577,730
1,000,000		University of Central Florida, COP, FGIC, 5.000% due 10/1/25	946,920
		Total Florida	12,605,400
Georgia — 7.0%
		Atlanta, GA, Airport Revenue:
1,000,000		AGM, 5.000% due 1/1/26	1,029,320
1,000,000		FGIC, 5.625% due 1/1/30 (a)	1,002,900
		Atlanta, GA:
2,000,000		Development Authority Educational Facilities Revenue, Science Park LLC Project, 5.000% due 7/1/32	2,002,540
2,500,000		Tax Allocation, Atlantic Station Project, 7.900% due 12/1/24 (b)	2,850,475
2,000,000		Water & Wastewater Revenue, 6.250% due 11/1/39	2,107,160
1,000,000		DeKalb, Newton & Gwinnett Counties, GA, Joint Development Authority Revenue, GGC Foundation LLC Project, 6.125% due 7/1/40	1,097,750
1,000,000		Gainesville & Hall County, GA, Development Authority Revenue, Senior Living Facilities, Lanier Village Estates, 7.250% due 11/15/29	1,010,120
		Total Georgia	11,100,265
Hawaii — 2.8%
		Hawaii State Department of Budget & Finance Special Purpose:
2,000,000		Revenue, Hawaiian Electric Co., 6.500% due 7/1/39	2,149,840
		Senior Living Revenue:
550,000		6.400% due 11/15/14	556,105
1,500,000		7.500% due 11/15/15	1,550,190
200,000		15 Craigside Project, 8.750% due 11/15/29	219,256
		Total Hawaii	4,475,391
Illinois — 0.6%
1,000,000		Illinois Finance Authority Revenue, Refunding, Chicago Charter School Project, 5.000% due 12/1/26	907,690
Indiana — 0.4%
		County of St. Joseph, IN, EDR, Holy Cross Village Notre Dame Project:
285,000		6.000% due 5/15/26	244,909
550,000		6.000% due 5/15/38	434,473
		Total Indiana	679,382
Kansas — 0.7%
1,150,000		Salina, KS, Hospital Revenue, Refunding & Improvement Salina Regional Health, 5.000% due 10/1/22	1,179,325
Kentucky — 1.9%
1,000,000		Louisville & Jefferson County, KY, Metro Government Health System Revenue, Norton Healthcare Inc., 5.250% due 10/1/36	953,080

See Notes to Schedule of Investments.

Western Asset Municipal High Income Fund Inc.

Schedule of Investments (unaudited) (continued)

January 31, 2010

Face Amount		Security	Value
Kentucky — 1.9% (continued)
$	2,000,000	Owen County, KY, Waterworks System Revenue, Kentucky American Water Co. Project, 6.250% due 6/1/39	$	2,136,720
		Total Kentucky	3,089,800
Louisiana — 1.2%
1,000,000		Epps, LA, COP, 8.000% due 6/1/18	1,004,110
1,000,000		St. John Baptist Parish, LA, Revenue, Marathon Oil Corp., 5.125% due 6/1/37	949,930
		Total Louisiana	1,954,040
Massachusetts — 2.0%
860,000		Boston, MA, Industrial Development Financing Authority Revenue, Roundhouse Hospitality LLC Project, 7.875% due 3/1/25 (a)	722,022
		Massachusetts State:
1,000,000		DFA Revenue, Briarwood, 8.250% due 12/1/30 (b)	1,071,700
1,000,000		HEFA Revenue, Caritas Christi Obligation, 6.750% due 7/1/16	1,043,010
265,000		Port Authority Revenue, 13.000% due 7/1/13 (c)	323,957
		Total Massachusetts	3,160,689
Michigan — 5.3%
2,130,000		Allen Academy, COP, 7.500% due 6/1/23	1,875,443
		Cesar Chavez Academy, COP:
1,000,000		6.500% due 2/1/33	847,970
1,000,000		8.000% due 2/1/33	1,002,020
1,000,000		Gaudior Academy, COP, 7.250% due 4/1/34	852,690
2,000,000		Royal Oak, MI, Hospital Finance Authority Revenue, William Beaumont Hospital, 8.250% due 9/1/39	2,364,460
975,000		Star International Academy, COP, 7.000% due 3/1/33	817,801
700,000		William C. Abney Academy, COP, 6.750% due 7/1/19	692,762
		Total Michigan	8,453,146
Missouri — 0.8%
1,300,000		Missouri State HEFA Revenue, Refunding, St. Lukes Episcopal, 5.000% due 12/1/21	1,312,636
Montana — 1.2%
2,330,000		Montana State Board of Investment, Resource Recovery Revenue, Yellowstone Energy LP Project, 7.000% due 12/31/19 (a)	1,909,388
New Hampshire — 1.0%
1,600,000		New Hampshire HEFA Revenue, Healthcare System, Covenant Health System, 5.500% due 7/1/34	1,578,768
New Jersey — 8.6%
1,500,000		Casino Reinvestment Development Authority Revenue, NATL, 5.250% due 6/1/20	1,527,765
1,000,000		New Jersey EDA, Retirement Community Revenue, SeaBrook Village Inc., 8.250% due 11/15/30 (b)	1,072,120
		New Jersey Health Care Facilities Financing Authority Revenue, Trinitas Hospital Obligation Group:
5,000,000		5.250% due 7/1/30	4,194,600
3,000,000		7.500% due 7/1/30 (b)	3,114,000
5,000,000		New Jersey State, EDA, Revenue, Refunding, 6.875% due 1/1/37 (a)	3,792,950
		Total New Jersey	13,701,435
New Mexico — 0.6%
1,000,000		Otero County, NM, Jail Project Revenue, 7.500% due 12/1/24	960,210

See Notes to Schedule of Investments.

Western Asset Municipal High Income Fund Inc.

Schedule of Investments (unaudited) (continued)

January 31, 2010

Face Amount		Security	Value
New York — 3.4%
$	700,000	Brookhaven, NY, IDA Civic Facilities Revenue, Memorial Hospital Medical Center Inc., 8.250% due 11/15/30 (b)	$	748,048
2,000,000		Brooklyn Arena, NY, Local Development Corp., Barclays Center Project, 6.250% due 7/15/40	2,044,260
1,000,000		Monroe County, NY, IDA, Civic Facilities Revenue, Woodland Village Project, 8.550% due 11/15/32 (b)	1,080,090
695,000		New York City, NY, IDA, Civic Facilities Revenue, Special Needs Facilities Pooled Program, 8.125% due 7/1/19 (b)	709,977
800,000		Suffolk County, NY, IDA, Civic Facilities Revenue, Eastern Long Island Hospital Association, 7.750% due 1/1/22 (b)	885,368
		Total New York	5,467,743
Ohio — 2.7%
1,500,000		Cuyahoga County, OH, Hospital Facilities Revenue, Canton Inc. Project, 7.500% due 1/1/30	1,517,970
1,500,000		Miami County, OH, Hospital Facilities Revenue, Refunding and Improvement Upper Valley Medical Center, 5.250% due 5/15/21	1,486,035
1,260,000		Riversouth Authority, OH, Revenue, Riversouth Area Redevelopment, 5.000% due 12/1/25	1,320,178
		Total Ohio	4,324,183
Pennsylvania — 5.7%
1,000,000		Cumberland County, PA, Municipal Authority Retirement Community Revenue, Wesley Affiliate Services Inc. Project, 7.250% due 1/1/35 (b)	1,181,580
1,000,000		Lebanon County, PA, Health Facilities Authority Revenue, Good Samaritan Hospital Project, 6.000% due 11/15/35	926,010
1,000,000		Monroe County, PA, Hospital Authority Revenue, Pocono Medical Center, 5.000% due 1/1/27	949,580
920,000		Northumberland County, PA, IDA Facilities Revenue, NHS Youth Services Inc. Project, 7.500% due 2/15/29	798,312
2,000,000		Pennsylvania Economic Development Financing Authority, Health Systems Revenue, Albert Einstein Healthcare, 6.250% due 10/15/23	2,108,320
1,000,000		Philadelphia, PA, Authority for IDR, Host Marriot LP Project, Remarketed 10/31/95, 7.750% due 12/1/17 (a)	1,002,420
2,000,000		Westmoreland County, PA, IDA Revenue, Health Care Facilities, Redstone Highlands Health, 8.125% due 11/15/30 (b)	2,138,980
		Total Pennsylvania	9,105,202
Tennessee — 4.4%
1,000,000		Clarksville, TN, Natural Gas Acquisition Corp. Gas Revenue, 5.000% due 12/15/21	985,870
1,000,000		Johnson City, TN, Health & Educational Facilities Board, Hospital Revenue, Mountain States Health Alliance, 5.500% due 7/1/36	968,830
2,500,000		Shelby County, TN, Health Educational & Housing Facilities Board Revenue, Trezevant Manor Project, 5.750% due 9/1/37	2,131,075
3,000,000		Tennessee Energy Acquisition Corp., Gas Revenue, 5.250% due 9/1/26	2,912,610
		Total Tennessee	6,998,385
Texas — 16.6%
1,500,000		Brazos River, TX, Harbor Industrial Development Corp., Environmental Facilities Revenue, Dow Chemical Co., 5.900% due 5/1/28 (a)(d)	1,468,695
1,500,000		Burnet County, TX, Public Facility Project Revenue, 7.500% due 8/1/24	1,506,465
		Garza County, TX, Public Facility Corp.:
1,000,000		5.500% due 10/1/18	939,500
2,000,000		Project Revenue, 5.750% due 10/1/25	2,044,620
2,000,000		Gulf Coast of Texas, IDA, Solid Waste Disposal Revenue, CITGO Petroleum Corp. Project, 7.500% due 10/1/12 (a)(d)	2,051,820

See Notes to Schedule of Investments.

Western Asset Municipal High Income Fund Inc.

Schedule of Investments (unaudited) (continued)

January 31, 2010

Face Amount		Security	Value
Texas — 16.6% (continued)
$	2,000,000	Harris County, TX, Cultural Education Facilities Finance Corp., Medical Facilities Revenue, Baylor College of Medicine, 5.625% due 11/15/32	$	1,851,280
2,750,000		Houston, TX, Airport Systems Revenue, Special Facilities, Continental Airlines Inc. Project, 6.125% due 7/15/27 (a)	2,426,518
1,000,000		Laredo, TX, ISD Public Facility Corp. Lease Revenue, AMBAC, 5.000% due 8/1/29	1,009,450
1,000,000		Midlothian, TX, Development Authority, Tax Increment Contract Revenue, 6.200% due 11/15/29	1,005,900
2,500,000		North Texas Tollway Authority Revenue, 5.750% due 1/1/40	2,552,375
2,000,000		Texas Midwest Public Facility Corp. Revenue, Secure Treatment Facility Project, 9.000% due 10/1/30	2,075,440
2,000,000		Texas Private Activity Bond Surface Transportation Corp., Senior Lien, 6.875% due 12/31/39	2,078,900
1,500,000		Texas State Public Finance Authority, Uplift Education, 5.750% due 12/1/27	1,459,140
1,865,000		West Texas Detention Facility Corp. Revenue, 8.000% due 2/1/25	1,654,553
		Willacy County, TX:
1,025,000		Local Government Corp. Revenue, 6.875% due 9/1/28	888,634
		PFC Project Revenue:
1,000,000		8.250% due 12/1/23	924,840
580,000		County Jail, 7.500% due 11/1/25	509,588
		Total Texas	26,447,718
U.S. Virgin Islands — 1.7%
2,500,000		Virgin Islands Public Finance Authority Revenue, Matching Fund Loan, 6.750% due 10/1/37	2,662,100
Virginia — 2.3%
345,000		Alexandria, VA, Redevelopment & Housing Authority, MFH Revenue, Parkwood Court Apartments Project, 8.125% due 4/1/30	321,909
1,000,000		Broad Street CDA Revenue, 7.500% due 6/1/33	899,980
2,500,000		Chesterfield County, VA, EDA, Solid Waste and Sewer Disposal Revenue, Virginia Electric Power Co. Project, 5.600% due 11/1/31 (a)	2,465,750
		Total Virginia	3,687,639
West Virginia — 1.5%
2,500,000		Pleasants County, WV, PCR, Refunding County Commission Allegheny, 5.250% due 10/15/37	2,380,750
Wisconsin — 0.6%
1,000,000		Wisconsin State HEFA Revenue, Aurora Health Care, 6.400% due 4/15/33	1,018,060
		TOTAL INVESTMENTS BEFORE SHORT-TERM INVESTMENTS (Cost — $157,846,079)	156,500,434
SHORT-TERM INVESTMENTS — 1.8%
Colorado — 0.1%
100,000		Colorado Educational & Cultural Facilities Authority Revenue, YMCA Rockies Project, LOC-Bank of America N.A., 0.200%, 2/1/10 (e)	100,000
Florida — 0.8%
1,300,000		Florida State Municipal Power Agency Revenue, All Requirements Power Supply, LOC-SunTrust Bank, 0.240%, 2/1/10 (e)	1,300,000
Puerto Rico — 0.9%
		Commonwealth of Puerto Rico, GO, Public Improvements:
100,000		AGM, SPA-Dexia Bank, 0.230%, 2/4/10 (e)	100,000

See Notes to Schedule of Investments.

Western Asset Municipal High Income Fund Inc.

Schedule of Investments (unaudited) (continued)

January 31, 2010

Face Amount		Security	Value
Puerto Rico — 0.9% (continued)
$	1,300,000	LOC-Wachovia Bank N.A., 0.180%, 2/1/10 (e)	$	1,300,000
		Total Puerto Rico	1,400,000
		TOTAL SHORT-TERM INVESTMENTS (Cost — $2,800,000)	2,800,000
		TOTAL INVESTMENTS — 100.0% (Cost — $160,646,079#)	159,300,434
		Other Assets in Excess of Liabilities — 0.0%	1,034
		TOTAL NET ASSETS — 100.0%	$	159,301,468

(a)	Income from this issue is considered a preference item for purposes of calculating the alternative minimum tax (“AMT”).
(b)	Pre-Refunded bonds are escrowed with U.S. government obligations and/or U.S. government agency securities and are considered by the manager to be triple-A rated even if issuer has not applied for new ratings.
(c)	Bonds are escrowed to maturity by government securities and/or U.S. government agency securities and are considered by the manager to be triple-A rated even if issuer has not applied for new ratings.
(d)	Maturity date shown represents the mandatory tender date.
(e)	Variable rate demand obligations have a demand feature under which the Fund can tender them back to the issuer or liquidity provider on no more than 7 days notice. Date shown is the date of the next interest rate change.
#	Aggregate cost for federal income tax purposes is substantially the same.

	Abbreviations used in this schedule:
	AGM	-	Assured Guaranty Municipal Corp. - Insured Bonds
	AMBAC	-	American Municipal Bond Assurance Corporation - Insured Bonds
	CDA	-	Community Development Authority
	COP	-	Certificate of Participation
	DFA	-	Development Finance Agency
	EDA	-	Economic Development Authority
	EDR	-	Economic Development Revenue
	FGIC	-	Financial Guaranty Insurance Company - Insured Bonds
	GO	-	General Obligation
	HEFA	-	Health & Educational Facilities Authority
	IDA	-	Industrial Development Authority
	IDR	-	Industrial Development Revenue
	ISD	-	Independent School District
	LOC	-	Letter of Credit
	MFH	-	Multi-Family Housing
	NATL	-	National Public Finance Guarantee Corporation - Insured Bonds
	PCR	-	Pollution Control Revenue
	PFC	-	Public Facilities Corporation
	SPA	-	Standby Bond Purchase Agreement - Insured Bonds

See Notes to Schedule of Investments.

Western Asset Municipal High Income Fund Inc.

Schedule of Investments (unaudited) (continued)

January 31, 2010

Summary of Investments by Industry *

Health Care	19.6	%
Industrial Revenue	16.7
Pre-Refunded/Escrowed to Maturity	14.8
Leasing	11.1
Power	8.8
Special Tax Obligation	5.1
Education	5.0
Other	4.8
Transportation	4.5
Solid Waste/Resource Recovery	4.0
Local General Obligation	2.3
Water & Sewer	1.3
Housing	0.2
Short-Term Investment	1.8
	100.0	%

*As a percentage of total investments. Please note that Fund holdings are as of January 31, 2010 and are subject to change.

Ratings Table†

S&P/Moody’s/Fitch‡
AAA/Aaa	5.5	%
AA/Aa	0.8
A	26.6
BBB/Baa	27.0
BB/Ba	7.2
CCC/Caa	1.5
CC/Ca	0.4
A-1/VMIG1	1.8
NR	29.2
	100.0	%

†As a percentage of total investments.

‡ In the event that a security is rated by multiple nationally recognized statistical rating organizations (“NRSROs”) and receives different ratings, the Fund will treat the security as being rated in the lowest rating category received from an NRSRO.

See pages 8 and 9 for definitions of ratings.

See Notes to Schedule of Investments.

Bond Ratings (unaudited)

The definitions of the applicable rating 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 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 issues only in a small degree.
A	—	Bonds rated “A” have a strong capacity to pay interest and repay principal although they are 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 bonds in this category than in higher rated categories.
BB, B, CCC, CC and C	—	Bonds rated “BB”, “B”, “CCC”, “CC” and “C” are regarded, on balance, as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. “BB” represents the lowest degree of speculation and “C” 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.
D	—	Bonds rated “D” are in default and payment of interest and/or repayment of principal is in arrears.

Moody’s Investors Service (“Moody’s”)—Numerical modifiers 1, 2 and 3 may be applied to each generic rating from “Aa” to “Caa,” where 1 is the highest and 3 the lowest ranking 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 can be visualized as 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 as 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.
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 and therefore

Bond Ratings (unaudited)(continued)

		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 any long period of time may be small.
Caa	—	Bonds rated “Caa” are of poor standing. These may be in default, or present elements of danger may exist with respect to principal or interest.
Ca	—	Bonds rated “Ca” represent obligations which are speculative in a high degree. Such issues are often in default or have other marked short-comings.
C	—	Bonds rated “C” are the lowest class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.

Fitch Ratings Service (“Fitch”)—Ratings from “AA” to “CCC” may be modified by the addition of a plus (+) or minus (–) sign to show relative standings within the major rating categories.

AAA	—	Bonds rated “AAA” have the highest rating assigned by Fitch. 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 issues only in a small degree.
A	—	Bonds rated “A” have a strong capacity to pay interest and repay principal although they are 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 bonds in this category than in higher rated categories.
BB, B, CCC and CC	—	Bonds rated “BB”, “B”, “CCC” and “CC” are regarded, on balance, as predominantly speculative 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.

NR	—	Indicates that the bond is not rated by Standard & Poor’s, Moody’s or Fitch.

Short-Term Security Ratings (unaudited)

SP-1	—	Standard & Poor’s highest rating indicating very strong or strong capacity to pay principal and interest; those issues determined to possess overwhelming safety characteristics are denoted with a plus (+) sign.
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.
MIG 1	—	Moody’s highest rating for short-term municipal obligations.
P-1	—	Moody’s highest rating for commercial paper and for VRDO prior to the advent of the VMIG 1 rating.
F1	—	Fitch’s highest rating indicating the strongest capacity for timely payment of financial commitments; those issues determined to possess overwhelming strong credit feature are denoted with a plus (+) sign.

Notes to Schedule of Investments (unaudited)

1. Organization and Significant Accounting Policies

Western Asset Municipal High Income Fund Inc. (the “Fund”) was incorporated in Maryland and is registered as a diversified, closed-end management investment company under the Investment Company Act of 1940, as amended (the “1940 Act”). The Fund seeks high current income exempt from federal income taxes.

The following are significant accounting policies consistently followed by the Fund and are in conformity with U.S. generally accepted accounting principles (“GAAP”).

(a) Investment Valuation. Securities are valued at the mean between the last quoted bid and asked prices provided by an independent pricing service, which are based on transactions in municipal obligations, quotations from municipal bond dealers, market transactions in comparable securities and various other relationships between securities. When prices are not readily available, or are determined not to reflect fair value, the Fund values these securities at fair value as determined in accordance with procedures approved by the Fund’s Board of Directors. Short-term obligations with maturities of 60 days or less are valued at amortized cost, which approximates fair value.

The Fund has adopted Financial Accounting Standards Board Codification Topic 820 (“ASC Topic 820”). ASC Topic 820 establishes a single definition of fair value, creates a three-tier hierarchy as a framework for measuring fair value based on inputs used to value the Fund’s investments, and requires additional disclosure about fair value. The hierarchy of inputs is summarized below.

· Level 1—quoted prices in active markets for identical investments

· Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.)

· Level 3—significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The Fund uses valuation techniques to measure fair value that are consistent with the market approach and/or income approach, depending on the type of the security and the particular circumstance. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable securities. The income approach uses valuation techniques to convert future amounts to a single present amount.

The following is a summary of the inputs used in valuing the Fund’s assets carried at fair value:

DESCRIPTION	QUOTED PRICES (LEVEL 1)	OTHER SIGNIFICANT OBSERVABLE INPUTS (LEVEL 2)		SIGNIFICANT UNOBSERVABLE INPUTS (LEVEL 3)	TOTAL
Municipal bonds†	—	$	156,500,434	—	$	156,500,434
Short-term investments†	—	2,800,000		—	2,800,000
Total investments	—	$	159,300,434	—	$	159,300,434

† See Schedule of Investments for additional detailed categorizations.

(b) Credit and Market Risk. The Fund invests in high yield instruments that are subject to certain credit and market risks. The yields of high yield obligations reflect, among other things, perceived credit and market risks. The Fund’s investment in securities rated below investment grade typically involves risks not associated with higher rated securities including, among others, greater risk related to timely and ultimate payment of interest and principal, greater market price volatility and less liquid secondary market trading.

(c) Security Transactions. Security transactions are accounted for on a trade date basis.

Notes to Schedule of Investments (unaudited) (continued)

2. Investments

At January 31, 2010, the aggregate gross unrealized appreciation and depreciation of investments for federal income tax purposes were substantially as follows:

Gross unrealized appreciation	$	5,957,039
Gross unrealized depreciation	(7,302,684		)
Net unrealized depreciation	$	(1,345,645	)

3. Derivative Instruments and Hedging Activities

Financial Accounting Standards Board Codification Topic 815 (“ASC Topic 815”) requires enhanced disclosure about an entity’s derivative and hedging activities.

During the period ended January 31, 2010, the Fund did not invest in any derivative instruments.

ITEM 2. CONTROLS AND PROCEDURES.

(a) The registrant’s principal executive officer and principal financial officer have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a- 3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”)) are effective as of a date within 90 days of the filing date of this report that includes the disclosure required by this paragraph, based on their evaluation of the disclosure controls and procedures required by Rule 30a-3(b) under the 1940 Act and 15d-15(b) under the Securities Exchange Act of 1934.

(b) There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the registrant’s last fiscal quarter that have materially affected, or are likely to materially affect the registrant’s internal control over financial reporting.

ITEM 3. EXHIBITS.

Certifications pursuant to Rule 30a-2(a) under the Investment Company Act of 1940, as amended, are attached hereto.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Western Asset Municipal High Income Fund Inc.

By	/s/ R. Jay Gerken
	R. Jay Gerken
	Chief Executive Officer

Date: March 25, 2010

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By	/s/ R. Jay Gerken
	R. Jay Gerken
	Chief Executive Officer

Date: March 25, 2010

By	/s/ Kaprel Ozsolak
	Kaprel Ozsolak
	Chief Financial Officer

Date: March 25, 2010