[CLIP ART]
Municipal
High Income
Fund Inc.
[GRAPHIC OMITTED]
Semi-Annual
Report
[CLIP ART]
April 30,
2002
================================== [CLIP ART] ==================================
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, 2002. In this report,
we summarize what we believe to be the period's prevailing economic and market
conditions and outline our investment strategy. A detailed summary of the Fund's
performance can be found in the appropriate sections that follow. We hope you
find this report useful and informative.
Performance Update
During the past six months, the Fund distributed income dividends to
shareholders totaling $0.29 per share. The table below details the annualized
distribution rate and the six-month total return for the Fund based on its April
30, 2002 net asset value ("NAV") per share and the New York Stock Exchange
("NYSE") closing price.(1)
Price Annualized Six-Month
Per Share Distribution Rate(2) Total Return(2)
------------ -------------------- ---------------
$8.38 (NAV) 6.95% 0.12%
$8.12 (NYSE) 7.17% (2.41)%
----------
(1) The NAV is calculated by subtracting total liabilities from the closing
value of all securities held by the Fund (plus all other assets) and
dividing the results (total net assets) by the total number of shares
outstanding. The NAV fluctuates with changes in the value of the
securities in which the Fund has invested. However, the price at which the
investor may buy or sell shares of the Fund is at their market (NYSE)
price as determined by supply and demand for the Fund's shares.
(2) Total returns are based on changes in NAV or the market value,
respectively. Total returns assume the reinvestment of all dividends
and/or capital-gains distributions in additional shares. 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 this
report. The annualized distribution rate assumes a current monthly income
dividend rate of $0.0485 for 12 months. This rate is as of May 31, 2002
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 NAV or
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 receive from your Fund
investment. Past performance is not indicative of future results.
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During the period the Fund generated a total return based on NAV of 0.12%.
In comparison, the Fund's Lipper Inc. ("Lipper") peer group of closed-end
high-yield municipal debt funds returned 1.22% based on NAV for the same
period.(3)
Investment Strategy
The Fund's investment objective is high current income exempt from federal
income tax.(4) The Fund generally invests in intermediate- and long-term
municipal obligations. The Fund's municipal obligations may have all types of
interest rate payment and reset terms, including fixed rate, adjustable rate,
zero coupon, payment-in-kind and auction rate features.
Market Review
Although the economy may struggle for another quarter or so, we believe
that it is on the road to recovery and should gain momentum by late 2002.
Inflation remained subdued during this reporting period. Therefore, we believe
the Federal Open Market Committee ("FOMC")(5) will probably not raise the
federal funds rate ("fed funds rate")(6) until later this summer, when signs of
a sustainable recovery - such as stronger growth in corporate profits, an
increase in capital spending and rising employment levels - may appear.
One obstacle to this recovery could be lingering skepticism among some
investors about truthfulness in corporate accounting practices, along with some
possible delays in corporate earnings releases for the first two or three
quarters of 2002 as executives check and double-check their financial reports
before releasing them. We also believe that corporate profits could improve
enough by late 2002 and early 2003 to exceed investor expectations. In our
opinion, the fiscal stimulus package that Congress passed in 2002 should help
the economy because it was aimed at corporations, which we believe led the
economy into recession.
----------
(3) Source: Lipper Inc. Past performance is not indicative of future results.
Average annual total returns are based on a 12-month period as of April
30, 2002, calculated among 12 funds in the closed-end high-yield municipal
debt fund category, as defined by Lipper Inc., with reinvestment of
dividends and capital gains, excluding sales charges.
(4) Certain investors may be subject to the Federal Alternative Minimum Tax
(AMT), and state and local taxes may apply. Capital gains, if any, are
fully taxable.
(5) The FOMC is a policy-making body of the Federal Reserve System responsible
for the formulation of a policy designed to promote economic growth, full
employment, stable prices, and a sustainable pattern of international
trade and payments.
(6) The fed funds rate is the interest rate that banks with excess reserves at
a Federal Reserve district bank charge other banks that need overnight
loans. The fed funds rate often points to the direction of U.S. interest
rates.
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Municipal Bond Market Outlook
In general, we believe the municipal bond market should continue to
perform well as an alternative to low money market rates and a jittery equity
market in the near-term. Still, while we remain constructive in our outlook for
the municipal market, conditions in the high yield segment remain challenging.
Default risks and credit quality spreads (the difference in yields between
higher and lower quality bonds) are considerably lower than the historically
high levels exhibited on corporate debt, but have nevertheless increased in a
weak economic environment. These factors have caused many high yield municipal
securities to underperform the general municipal market. In this environment, we
are placing additional emphasis on managing credit risk.
Looking ahead, we believe the high yield market should improve along with
a recovering economy, but may have to endure some additional difficulties along
the way.
Thank you for investing in the Municipal High Income Fund Inc.
Sincerely,
/s/ Heath B. McLendon /s/ Peter M. Coffey
Heath B. McLendon Peter M. Coffey
Chairman Vice President and
Investment Officer
May 22, 2002
The information provided in this letter 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 Fund. Please refer to pages 5 through 13
for a list and percentage breakdown of the Fund's holdings. Also, please note
any discussion of the Fund's holdings is as of April 30, 2002 and is subject to
change.
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Take Advantage of the Fund's Dividend Reinvestment Plan!
Did you know that Fund investors may reinvest their dividends in an effort to
take advantage of what can be one of the most effective wealth-building tools
available today? When the Fund achieves its objectives, systematic investments
by shareholders put time to work for them 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 26. 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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4
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Municipal High Income Fund Inc.
[CLIP ART] Schedule of Investments (unaudited)
April 30, 2002
================================================================================
FACE
AMOUNT RATING(a) SECURITY VALUE
========================================================================================================
Alabama -- 4.2%
$ 5,000 Aaa* Alabama HFA, Single-Family Housing Revenue,
10.500% due 12/1/02............................................. $ 5,035
4,000,000 BBB- Butler, AL IDB, Solid Waste Disposal Revenue, (James River
Corp. Project), 8.000% due 9/1/28 (b)........................... 4,196,040
615,000 NR Capstone Improvement District of Brookwood, AL, Series A,
7.700% due 8/15/23.............................................. 577,719
1,000,000 CCC Mobile, AL IDB, Solid Waste Disposal Revenue, (Mobile
Energy Services Co. Project), 6.950% due 1/1/20 (c)............. 60,000
1,000,000 NR Rainbow City, AL Special Health Care Facility Financing
Authority, Series A, 8.250% due 1/1/31.......................... 1,037,130
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.............................................. 1,211,060
------------
7,086,984
------------
Alaska -- 0.6%
1,055,000 NR Alaska Industrial Development & Export Authority Revenue,
Williams Lynxs Alaska Cargoport, 8.125% due 5/1/31 (b).......... 1,101,462
------------
Arizona -- 3.2%
1,500,000 NR Casa Grande, AZ IDA Hospital Revenue, Casa Grande Regional
Medical Center, Series A, 7.625% due 12/1/29.................... 1,551,870
1,750,000 CCC Gila County, AZ IDA Revenue, ASARCO Inc.,
5.550% due 1/1/27............................................... 525,000
Maricopa, AZ IDA, MFH Revenue:
490,000 NR Avalon Apartments Project, Series C, 10.000% due 4/1/30......... 488,270
1,000,000 NR Gran Victoria Housing LLC Project, Series B,
10.000% due 5/1/31............................................ 1,030,390
1,830,000 NR Phoenix, AZ IDA, MFH Revenue, (Ventana Palms
Apartments Project), Series B, 8.000% due 10/1/34............... 1,834,575
------------
5,430,105
------------
California -- 2.1%
1,500,000 NR Barona, CA Band of Mission Indians, GO, 8.250% due 1/1/20......... 1,594,905
1,865,000 Ba3* Vallejo, CA COP, Touro University, 7.375% due 6/1/29.............. 1,920,073
------------
3,514,978
------------
Colorado -- 0.6%
1,000,000 NR Highline Business Improvement District, Littleton CO, GO,
Series B, 8.750% due 12/15/19................................... 1,055,820
------------
See Notes to Financial Statements.
5
Municipal High Income Fund Inc.
[CLIP ART] Schedule of Investments (unaudited) (continued)
April 30, 2002
================================================================================
FACE
AMOUNT RATING(a) SECURITY VALUE
========================================================================================================
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........................ $ 1,753,512
1,475,000 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............................................. 1,590,832
------------
3,344,344
------------
Delaware -- 0.5%
1,000,000 NR Sussex County, DE Assisted Living Facilities Revenue,
(Heritage at Milford Project), 7.250% due 7/1/29................ 849,660
------------
District of Columbia -- 0.6%
1,000,000 A1* District of Columbia, Tobacco Settlement Financing Corp.,
Asset-Backed Bonds, 6.750% due 5/15/40.......................... 1,029,320
------------
Florida -- 6.5%
2,000,000 NR Capital Projects Finance Authority, FL Student Housing Revenue,
Florida University, Series A, 7.850% due 8/15/31................ 2,018,980
1,000,000 NR Century Parc Community Development District, FL Special
Assessment, 7.000% due 11/1/31.................................. 1,000,860
2,750,000 NR Hillsborough County, FL IDA Revenue, (Lakeshore Villas
Project), Series A, 6.750% due 7/1/29........................... 2,379,053
875,000 NR Homestead, FL IDR, Community Rehabilitation Providers
Program, Series A, 7.950% due 11/1/18........................... 908,731
2,000,000 BBB- Martin County, FL IDA, IDR, (Indiantown Cogeneration
Project), Series A, 7.875% due 12/15/25 (b)..................... 2,055,920
1,000,000 NR Orange County, FL Health Facilities Authority Revenue, First
Mortgage, (GF/Orlando Inc. Project), 9.000% due 7/1/31.......... 1,023,810
1,650,000 NR Orlando, FL Urban Community Development District,
Capital Improvement, Series A, 6.950% due 5/1/33................ 1,665,345
------------
11,052,699
------------
Georgia -- 5.4%
775,000 AA- Albany Dougherty, GA Payroll Development Authority,
Solid Waste Disposal Revenue, Procter & Gamble Paper
Products, 5.200% due 5/15/28 (b)................................ 756,624
Atlanta, GA:
1,000,000 AAA Airport Revenue, Series B, 5.625% due 1/1/30 (b)................ 1,012,180
2,500,000 NR Tax Allocation, (Atlantic Station Project),
7.900% due 12/1/24............................................ 2,468,675
1,000,000 NR Urban Residential Finance Authority, MFH Revenue,
Park Place Apartments, Series A, 6.750% due 3/1/31............ 929,660
See Notes to Financial Statements.
6
Municipal High Income Fund Inc.
[CLIP ART] Schedule of Investments (unaudited) (continued)
April 30, 2002
================================================================================
FACE
AMOUNT RATING(a) SECURITY VALUE
========================================================================================================
Georgia -- 5.4% (continued)
$ 2,000,000 NR Clayton County, GA Development Authority Revenue,
First Mortgage, Senior Care Group Inc., (Bayberry Project),
Series A, 6.750% due 7/1/29 (c)................................. $ 500,000
500,000 NR Fulton County, GA Residential Care Facilities, Senior Lien,
RHA Assisted Living, Series A, 7.000% due 7/1/29................ 428,790
1,000,000 NR Gainesville & Hall County, GA Development Authority Revenue,
Senior Living Facility, Lanier Village Estates, Series C,
7.250% due 11/15/29............................................. 1,007,470
1,435,000 NR Savannah, GA EDA Revenue, Marshview Inn, Series A,
7.125% due 7/1/29............................................... 1,004,457
1,000,000 NR Walton County, GA IDA, IDR, (Walton Manufacturing Co.
Project), 8.500% due 9/1/07..................................... 1,084,040
------------
9,191,896
------------
Illinois -- 2.1%
2,000,000 AAA Chicago, IL GO, Neighborhoods Alive 21 Program,
FGIC-Insured, 5.500% due 1/1/31................................. 2,038,460
2,500,000 AAA Illinois Sports Facilities Authority, 5.500% due 6/15/30.......... 1,568,350
------------
3,606,810
------------
Indiana -- 1.1%
2,500,000 CCC+ East Chicago, IN PCR, (Inland Steel Co. Project No. 10),
6.800% due 6/1/13............................................... 811,875
1,000,000 Ca* Indiana State Development Finance Authority, PCR, (Inland
Steel Co. Project No. 13), 7.250% due 11/1/11 (b)............... 200,000
975,000 NR Indianapolis, IN MFH Revenue, (Lake Nora Fox Club
Project), Series B, 7.500% due 10/1/29.......................... 951,678
------------
1,963,553
------------
Kentucky -- 0.9%
1,500,000 BB+ Kenton County, KY Airport Board Revenue, (Delta Airlines
Project), Series A, 7.500% due 2/1/20 (b)....................... 1,502,880
------------
Louisiana -- 6.8%
1,200,000 A3* Lake Charles, LA Harbor & Terminal District, Port Facilities
Revenue, (Trunkline LNG Co. Project), 7.750% due 8/15/22........ 1,251,468
2,000,000 NR Louisiana Local Government Environmental Facilities,
Community Development Authority Revenue, St. James
Place, Series A, 8.000% due 11/1/25............................. 2,060,200
3,000,000 NR Louisiana Public Facilities Authority Hospital Revenue, (Lake
Charles Memorial Hospital Project), 8.625% due 12/1/30.......... 3,061,080
See Notes to Financial Statements.
7
Municipal High Income Fund Inc.
[CLIP ART] Schedule of Investments (unaudited) (continued)
April 30, 2002
================================================================================
FACE
AMOUNT RATING(a) SECURITY VALUE
========================================================================================================
Louisiana -- 6.8% (continued)
Port of New Orleans, LA IDR:
Avondale Industries, Inc. Project:
$ 925,000 NR 8.250% due 6/1/04............................................. $ 974,423
2,900,000 NR 8.500% due 6/1/14............................................. 3,125,272
1,000,000 BB- Continental Grain Co. Project, 7.500% due 7/1/13................ 1,035,940
------------
11,508,383
------------
Maine -- 0.0%
15,000 AA+ Maine State Housing Authority, Mortgage Purchase Revenue,
Series C-2, 7.000% due 11/15/32 (b)............................. 15,687
------------
Maryland -- 1.7%
3,000,000 NR Maryland State Economic Development Corp. Revenue,
Chesapeake Bay, Series A, 7.730% due 12/1/27.................... 2,976,600
------------
Massachusetts -- 8.3%
970,000 NR Boston, MA IDA Financing Revenue, (Roundhouse Hospitality
LLC Project), 7.875% due 3/1/25 (b)............................. 965,257
Massachusetts State Development Finance Agency Revenue:
1,000,000 NR Alliance Health Care Facility, Series A, 7.100% due 7/1/32...... 988,830
1,000,000 NR Briarwood, Series B, 8.250% due 12/1/30......................... 1,033,360
Massachusetts State Health & Education Facilities Authority
Revenue:
1,000,000 AAA Beth Israel Deaconess Medical Center, Series G-4,
AMBAC-Insured, Variable Rate INFLOS,
10.149% due 7/1/25 (d)...................................... 1,045,190
1,000,000 BBB Caritas Christi Obligation, Series B, 6.750% due 7/1/16....... 1,057,770
1,060,000 Ba2* Saint Memorial Medical Center, Series A,
6.000% due 10/1/23.......................................... 938,927
1,395,000 AA Massachusetts State HFA, Single-Family Housing Revenue,
Series 38, 7.200% due 12/1/26 (b)............................... 1,456,701
2,000,000 NR Massachusetts State Industrial Finance Agency Revenue,
Assisted Living Facility, (Marina Bay LLC Project),
7.500% due 12/1/27 (b).......................................... 2,055,740
4,000,000 AA- Massachusetts State, GO, Variable Rate INFLOS,
9.185% due 11/1/17 (d).......................................... 4,671,120
------------
14,212,895
------------
Michigan -- 2.1%
Garden City, MI Hospital Finance Authority, Hospital Revenue,
Garden City Hospital Obligation Group, Series A:
2,000,000 B1* 5.625% due 9/1/10............................................. 1,642,720
1,000,000 B1* 5.750% due 9/1/17............................................. 720,620
See Notes to Financial Statements.
8
Municipal High Income Fund Inc.
[CLIP ART] Schedule of Investments (unaudited) (continued)
April 30, 2002
================================================================================
FACE
AMOUNT RATING(a) SECURITY VALUE
========================================================================================================
Michigan -- 2.1% (continued)
$ 2,000,000 NR Michigan State Strategic Fund, Resource Recovery Ltd.
Obligation Revenue, Central Wayne Energy Recovery L.P.,
Series A, 6.900% due 7/1/19 (b)(c).............................. $ 1,200,000
------------
3,563,340
------------
Minnesota -- 2.6%
1,000,000 NR Minneapolis & St. Paul, MN Metropolitan Airports Community
Special Facility Revenue, (Northwest Airlines Project),
Series A, 7.000% due 4/1/25 (b)................................. 903,340
2,000,000 NR Sartell, MN Health Care & Housing Facilities Revenue,
(Foundation for Healthcare Project), Series A,
6.500% due 9/1/16............................................... 1,875,880
1,935,000 BB- St. Paul, MN Housing & Redevelopment Authority Hospital
Revenue, (Healtheast Project), Series A,
6.625% due 11/1/17.............................................. 1,632,985
------------
4,412,205
------------
Montana -- 2.4%
4,530,000 NR Montana State Board of Investment Resource Recovery
Revenue, (Yellowstone Energy L.P. Project),
7.000% due 12/31/19 (b)......................................... 4,156,683
------------
New Jersey -- 6.2%
3,000,000 B1* Camden County, NJ Improvement Authority Revenue, (Health
Care Redevelopment Project -- Cooper Health System),
5.875% due 2/15/15.............................................. 2,292,150
New Jersey EDA, Series A:
850,000 NR First Mortgage, The Presbyterian Home,
6.375% due 11/1/31............................................ 824,211
1,000,000 NR Healthcare Facility Revenue, (Sayreville Senior Living
Project), 6.375% due 4/1/29................................... 420,000
1,000,000 NR Retirement Community Revenue, 8.250% due 11/15/30............... 1,071,510
New Jersey Health Care Facilities Financing Authority Revenue:
735,000 Baa3* Palisades Medical Center of NY, Un-Refunded,
7.600% due 7/1/21............................................. 756,822
2,000,000 NR Raritan Bay Medical Center, 7.250% due 7/1/27................... 2,016,800
3,000,000 BBB- Trinitas Hospital Obligation Group, 7.500% due 7/1/30........... 3,214,950
------------
10,596,443
------------
New Mexico -- 0.2%
300,000 AAA New Mexico Mortgage Finance Authority, Single-Family
Mortgage Program, Series B, FHA-Insured,
8.300% due 3/1/20 (b)........................................... 310,938
------------
See Notes to Financial Statements.
9
Municipal High Income Fund Inc.
[CLIP ART] Schedule of Investments (unaudited) (continued)
April 30, 2002
================================================================================
FACE
AMOUNT RATING(a) SECURITY VALUE
========================================================================================================
New York -- 4.6%
$ 700,000 NR Brookhaven, NY IDA, Civic Facility Revenue, Memorial Hospital
Medical Center, Series A, 8.250% due 11/15/30................... $ 736,358
Monroe County, NY IDA:
1,000,000 NR Civic Facility Revenue, Woodland Village Project,
8.550% due 11/15/32........................................... 1,049,490
1,900,000 NR Empire Sports Project, IDR, Series A, 6.250% due 3/1/28......... 1,131,450
New York City, NY IDA, Civic Facility Revenue:
1,400,000 NR Community Resources for the Developmentally Disabled,
7.500% due 8/1/26............................................. 1,434,244
1,400,000 NR Special Needs Facility Pooled Program, Series A-1,
8.125% due 7/1/19............................................. 1,464,974
Suffolk County, NY IDA Civic Facility Revenue, Southampton
Hospital Association:
1,000,000 NR Series A, 7.250% due 1/1/20................................... 988,110
1,000,000 NR Series B, 7.625% due 1/1/30................................... 1,010,380
------------
7,815,006
------------
North Carolina -- 1.5%
1,000,000 NR Charlotte, NC Special Facilities Revenue, Charlotte/Douglas
International Airport, 5.600% due 7/1/27 (b).................... 520,080
North Carolina Medical Care Commission,
Health Care Facilities Revenue, First Mortgage,
(De Paul Community Facilities Project):
1,240,000 NR 6.125% due 1/1/28............................................. 1,079,668
1,000,000 NR 7.625% due 11/1/29............................................ 1,007,700
------------
2,607,448
------------
Ohio -- 2.0%
1,500,000 BBB Cuyahoga County, OH Hospital Facilities Revenue,
(Canton Inc. Project), 7.500% due 1/1/30........................ 1,625,340
Montgomery County, OH Health Systems Revenue, Series B-1,
(Escrowed with state & local government securities to
7/1/06 Call @ 102):
1,035,000 AAA Pre-Refunded, 8.100% due 7/1/18............................... 1,245,126
465,000 AAA Un-Refunded, 8.100% due 7/1/18................................ 533,764
1,250,000 NR Ohio State Solid Waste Revenue, Republic Engineered
Steels Inc., 9.000% due 6/1/21 (b)(c)........................... 15,625
------------
3,419,855
------------
Oklahoma -- 0.9%
2,000,000 B- Oklahoma Development Finance Authority Revenue,
Hillcrest Healthcare System, Series A, 5.625% due 8/15/29....... 1,495,100
------------
See Notes to Financial Statements.
10
Municipal High Income Fund Inc.
[CLIP ART] Schedule of Investments (unaudited) (continued)
April 30, 2002
================================================================================
FACE
AMOUNT RATING(a) SECURITY VALUE
========================================================================================================
Pennsylvania -- 12.8%
$ 2,200,000 CCC+ Allegheny County, PA IDA, Airport Special Facilities Revenue,
(USAir Inc. Project), Series B, 8.500% due 3/1/21 (b)........... $ 1,342,044
Beaver County, PA IDA, PCR:
1,500,000 BBB Cleveland Electric Illuminating Co. Project,
7.625% due 5/1/25............................................. 1,612,830
2,000,000 BBB Toledo Edison Co. Project, 7.625% due 5/1/20.................... 2,150,440
3,000,000 NR Dauphin County, PA General Authority Revenue, Hotel &
Conference Center-Hyatt Regency, 6.200% due 1/1/29.............. 2,623,890
2,500,000 A3* Luzerne County, PA IDA, Exempt Facilities Revenue,
(Pennsylvania Gas & Water Co. Project), Series B,
7.125% due 12/1/22 (b).......................................... 2,586,650
2,640,000 NR Montgomery County, PA Higher Education & Health Authority
Revenue, Temple Continuing Care Center, 6.625% due 7/1/19....... 2,395,114
135,000 NR Northumberland County, PA IDA, IDR, (Beverly Enterprises Inc.
Project), 6.875% due 2/1/03..................................... 136,536
1,000,000 NR Philadelphia, PA Authority for IDR, (Host Marriott L.P. Project),
Remarketed 10/31/95, 7.750% due 12/1/17 (b)..................... 1,040,330
Scranton-Lackawanna, PA Health & Welfare Authority Revenue:
500,000 BB+++ Allied Services Rehab Hospitals Project, Series A,
7.600% due 7/15/20............................................ 503,115
Moses Taylor Hospital Project:
1,270,000 BBB- 6.150% due 7/1/14............................................. 1,149,642
3,050,000 BBB- 6.250% due 7/1/20............................................. 2,612,935
1,500,000 NR Waterlefe Community Development District, FL Golf Course
Revenue, 8.125% due 10/1/25..................................... 1,517,580
2,000,000 NR Westmoreland County, PA IDA, Healthcare Facilities, Redstone
Highlands Health, Series B, 8.125% due 11/15/30................. 2,067,780
------------
21,738,886
------------
South Carolina -- 3.6%
Connector 2000 Association Inc., SC Toll Road Revenue:
Capital Appreciation, Series B:
3,100,000 BBB- Zero coupon bond to yield 7.956% due 1/1/27................... 327,887
7,750,000 BBB- Zero coupon bond to yield 8.150% due 1/1/34................... 433,225
2,000,000 BBB- Southern Connector Project, Series A, 5.375% due 1/1/38......... 1,371,620
600,000 NR Florence County, SC IDR, Stone Container Corp.,
7.375% due 2/1/07............................................... 605,298
655,000 NR McCormick County, SC COP, 9.750% due 7/1/09....................... 655,845
2,650,000 AA- Tobacco Settlement Revenue Management Authority, SC,
Variable Rate INFLOS, 10.316% due 5/15/28 (d)................... 2,679,044
------------
6,072,919
------------
See Notes to Financial Statements.
11
Municipal High Income Fund Inc.
[CLIP ART] Schedule of Investments (unaudited) (continued)
April 30, 2002
================================================================================
FACE
AMOUNT RATING(a) SECURITY VALUE
========================================================================================================
South Dakota -- 1.0%
$ 1,640,000 NR Oglala Sioux Tribe, SD Pine Ridge County, Revenue Bonds,
7.500% due 7/1/13............................................... $ 1,641,722
------------
Tennessee -- 1.1%
1,915,000 NR Shelby County, TN Health, Educational & Housing Facilities
Board Revenue, MFH, (Hedgerow Apartments Project),
6.875% due 7/1/36............................................... 1,808,315
------------
Texas -- 7.6%
Bexar County, TX Housing Financial Corp., MFH Revenue:
1,000,000 NR Continental Lady Ester, Series A, 6.875% due 6/1/29............. 947,800
1,195,000 Baa3* Nob Hill Apartments, Series B, 8.500% due 6/1/31................ 1,168,614
250,000 Baa3* Waters at Northern Hills, Series C, 7.750% due 8/1/36........... 242,105
2,000,000 Ba2* El Paso, TX International Airport Revenue, Special Facilities,
(Marriott Corp. Project), 7.750% due 3/1/12..................... 2,033,220
2,750,000 BB- Houston, TX Airport Systems Revenue, Special Facilities,
Continental Airlines Inc., Series C, 6.125% due 7/15/27......... 2,297,378
Houston, TX Hotel Occupancy, Tax & Special Revenue, Capital
Appreciation, Series B, AMBAC-Insured:
3,000,000 AAA Zero coupon due 9/1/32........................................ 525,060
1,000,000 AAA Zero coupon due 9/1/33........................................ 164,750
2,710,000 AAA Houston, TX Water and Sewer System Revenue, Capital
Appreciation, Jr. Lien, Series A, zero coupon due 12/1/23....... 810,995
1,000,000 CCC++ Northgate Crossing, TX, Municipal Utility, District No. 1,
GO, 8.875% due 12/1/13.......................................... 1,026,430
1,405,000 BBB- Sam Rayburn, TX Municipal Power Agency, Series A,
6.750% due 10/1/14.............................................. 1,412,924
995,000 Baa3* Texas State Affordable Housing Corp. MFH Revenue, Sub-HIC
Arborstone/Baybrook, Series C, 7.250% due 11/1/31............... 942,881
1,405,000 A3* Travis County, TX Housing Finance Authority, MFH Revenue,
(Lakeview Apartments Project), Series A, 6.375% due 1/1/34...... 1,398,214
------------
12,970,371
------------
Utah -- 1.8%
1,645,000 NR Hurricane, UT Health Facilities Development Revenue,
(Mission Health Services Project), 10.500% due 7/1/20........... 1,151,500
2,000,000 NR Utah State HFA Revenue, (RHA Community Services
of Utah Inc. Project), Series A, 6.875% due 7/1/27.............. 1,922,440
------------
3,073,940
------------
See Notes to Financial Statements.
12
Municipal High Income Fund Inc.
[CLIP ART] Schedule of Investments (unaudited) (continued)
April 30, 2002
================================================================================
FACE
AMOUNT RATING(a) SECURITY VALUE
========================================================================================================
Virginia -- 1.8%
$ 590,000 NR Alexandria, VA Redevelopment & Housing Authority,
MFH Revenue, (Parkwood Court Apartments Project),
Series C, 8.125% due 4/1/30..................................... $ 599,806
1,000,000 NR Fairfax County, VA EDA Revenue, Retirement Community,
Greenspring Village Inc., Series A, 7.500% due 10/1/29.......... 1,081,500
23,400,000 BBB- Pocahontas Parkway Association, VA Toll Road Revenue,
Capital Appreciation, Series B, zero coupon bond to yield
7.438% due 8/15/34.............................................. 1,377,090
------------
3,058,396
------------
West Virginia -- 0.6%
1,000,000 NR West Virginia EDA, Commercial Development Revenue,
(Stonewall Jackson Project), Series B, 8.000% due 4/1/30........ 968,630
------------
Wisconsin -- 0.7%
1,770,000 NR Wisconsin State Health & Educational Facilities Authority
Revenue, (Benchmark Healthcare of Green Bay Inc. Project),
Series A, 7.750% due 5/1/27 (c)................................. 1,150,500
------------
TOTAL INVESTMENTS -- 100%
(Cost -- $184,474,102**).......................................... $170,304,773
============
----------
(a) All ratings are by Standard & Poor's Ratings Service, except those which
are identified by an asterisk (*) are rated by Moody's Investors Service,
Inc., or those which are identified by a double dagger (++) are rated by
Fitch IBCA, Duff & Phelps.
(b) Income from this issue is considered a preference item for purposes of
calculating the alternative minimum tax.
(c) Security is currently in default.
(d) Inverse floating rate security-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 15 through 17 for definitions of ratings and certain security
descriptions.
See Notes to Financial Statements.
13
Municipal High Income Fund Inc.
[CLIP ART] Summary of Municipal Bonds by Combined Ratings
April 30, 2002 (unaudited)
================================================================================
--------------------------------------------------------------------------------
Standard & Percent of
Moody's and/or Poor's Total Investments
--------------------------------------------------------------------------------
Aaa AAA 6.1%
Aa AA 5.6
A A 3.7
Baa BBB 16.3
Ba BB 7.0*
B B 3.6
Caa CCC 2.2**
Ca CC 0.1
NR NR 55.4
-----
100.0%
=====
* 0.3% was rated by Fitch IBCA, Duff & Phelps.
** 0.6% was rated by Fitch IBCA, Duff & Phelps.
14
Municipal High Income Fund Inc.
[CLIP ART] 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", "B", "CCC" and "CC" 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 "Ca," 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.
15
Municipal High Income Fund Inc.
[CLIP ART] 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.
Caa -- Bonds that are rated "Caa" are of poor standing. These issues may
be in default, or there may be present elements of danger 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
shortcomings.
Fitch IBCA, Duff & Phelps ("Fitch") -- Ratings from "BBB" to "C" 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.
BB -- Bonds rated BB by Fitch carry the possibility of credit risk
developing, particularly as the result of adverse economic change
over time. Business or financial alternatives may, however, be
available to allow financial commitments to be met. Securities
rated in this category are not considered by Fitch to be
investment grade.
CCC, -- Default on bonds rated "CCC", "CC" and "C" by Fitch is a real
CC and C 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.
16
Municipal High Income Fund Inc.
[CLIP ART] Security Descriptions (unaudited)
================================================================================
ABAG -- Association of Bay Area Governments
AIG -- American International Guaranty
AMBAC -- American Municipal Bond
Assurance Corporation
BAN -- Bond Anticipation Notes
BIG -- Bond Investors Guaranty
CGIC -- Capital Guaranty Insurance Company
CHFCLI -- California Health Facility
Construction Loan Insurance
CONNIE -- College Construction Loan
LEE 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/Agency
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
MFH -- Multi-Family Housing
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
17
Municipal High Income Fund Inc.
[CLIP ART] Statement of Assets and Liabilities (unaudited)
April 30, 2002
================================================================================
ASSETS:
Investments, at value (Cost -- $184,474,102) .............. $ 170,304,773
Cash ...................................................... 78,839
Interest receivable ....................................... 4,273,389
Receivable for securities sold ............................ 5,000
-------------
Total Assets .............................................. 174,662,001
-------------
LIABILITIES:
Investment advisory fee payable ........................... 64,349
Administration fee payable ................................ 31,914
Accrued expenses .......................................... 263,104
-------------
Total Liabilities ......................................... 359,367
-------------
Total Net Assets ............................................. $ 174,302,634
=============
NET ASSETS:
Par value of capital shares ............................... $ 208,022
Capital paid in excess of par value ....................... 192,917,924
Undistributed net investment income ....................... 145,729
Accumulated net realized loss from security transactions .. (4,799,712)
Net unrealized depreciation of investments ................ (14,169,329)
-------------
Total Net Assets ............................................. $ 174,302,634
=============
Shares Outstanding ........................................... 20,802,173
-------------
Net Asset Value .............................................. $ 8.38
-------------
See Notes to Financial Statements.
18
Municipal High Income Fund Inc.
[CLIP ART] Statement of Operations (unaudited)
For the Six Months Ended April 30, 2002
================================================================================
INVESTMENT INCOME:
Interest ................................................. $ 6,475,260
------------
EXPENSES:
Investment advisory fee (Note 3) ......................... 348,241
Administration fee (Note 3) .............................. 174,121
Shareholder communications ............................... 90,681
Shareholder and system servicing fees .................... 27,290
Audit and legal .......................................... 25,159
Directors' fees .......................................... 17,738
Pricing service fees ..................................... 8,145
Custody .................................................. 4,344
Other .................................................... 5,177
------------
Total Expenses ........................................... 700,896
------------
Net Investment Income ....................................... 5,774,364
------------
REALIZED AND UNREALIZED LOSS ON
INVESTMENTS (NOTE 4):
Realized Loss From Security Transactions
(excluding short-term securities):
Proceeds from sales ................................... 40,157,246
Cost of securities sold ............................... 40,617,321
------------
Net Realized Loss ........................................ (460,075)
------------
Increase in Net Unrealized Depreciation (Note 1) ......... (5,318,282)
------------
Net Loss on Investments ..................................... (5,778,357)
------------
Decrease in Net Assets From Operations ...................... $ (3,993)
============
See Notes to Financial Statements.
19
Municipal High Income Fund Inc.
Statement of Changes in Net Assets
[CLIP ART] For the Six Months Ended April 30, 2002 (unaudited)
and the Year Ended October 31, 2001
================================================================================
2002 2001
---- ----
Operations:
Net investment income ........................ $ 5,774,364 $ 12,153,225
Net realized loss ............................ (460,075) (733,106)
Increase in net unrealized depreciation ...... (5,318,282) (3,386,185)
------------- -------------
Increase (Decrease) in Net Assets
From Operations ............................ (3,993) 8,033,934
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM (NOTE 2):
Net investment income ........................ (6,041,700) (11,958,713)
------------- -------------
Decrease in Net Assets From
Distributions to Shareholders .............. (6,041,700) (11,958,713)
------------- -------------
FUND SHARE TRANSACTIONS (NOTE 6):
Net asset value of shares issued for
reinvestment of dividends .................. 780,779 2,166,492
------------- -------------
Increase in Net Assets From
Fund Share Transactions .................... 780,779 2,166,492
------------- -------------
Decrease in Net Assets .......................... (5,264,914) (1,758,287)
NET ASSETS:
Beginning of period .......................... 179,567,548 181,325,835
------------- -------------
End of period* ............................... $ 174,302,634 $ 179,567,548
============= =============
* Includes undistributed net investment income of $ 145,729 $ 298,182
============= =============
See Notes to Financial Statements.
20
Municipal High Income Fund Inc.
[CLIP ART] 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. Securities with no readily obtainable market quotations are
valued at fair value as determined by an independent pricing service under the
supervision of the Fund's Board of Directors; (c) securities maturing within 60
days are valued at cost plus accreted discount, or minus amortized premium,
which approximates value; (d) gains or losses on the sale of securities are
calculated by using the specific identification method; (e) interest income,
adjusted for amortization of premium and accretion of 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 accounting
principles generally accepted in the United States of America; 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.
In November 2000, the American Institute of Certified Public Accountants
("AICPA") issued a revised version of the AICPA Audit and Accounting Guide for
Investment Companies ("Guide"). This revised version is effective for financial
statements issued for fiscal years beginning after December 15, 2000. The
revised Guide requires the Fund to amortize premium and accrete all discounts on
all fixed-income securities. The Fund adopted this requirement November 1, 2001.
This change does not affect the Fund's net asset value, but does change the
classification of certain amounts in the statement of operations. For the
six-month period ended April 30, 2002, interest income increased by $32,990, net
realized loss decreased by $1,235 and the change in net unrealized depreciation
of investments increased by $34,225. In addition, the Fund recorded adjustments
to increase the cost of securities and increase accumulated undistributed net
investment income by $114,883 to reflect the cumulative effect of this change up
to the date of the adoption.
21
Municipal High Income Fund Inc.
[CLIP ART] Notes to Financial Statements (unaudited) (continued)
================================================================================
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
Smith Barney Fund Management LLC ("SBFM"), a subsidiary of Salomon Smith
Barney Holdings Inc. ("SSBH"), which, in turn, is a subsidiary of Citigroup Inc.
("Citigroup"), acts as investment adviser to the Fund. The Fund pays SBFM an
advisory fee calculated at an annual rate of 0.40% of the average daily net
assets. SBFM also acts as the administrator of the Fund for which it receives a
fee calculated at an annual rate of 0.20% of the average daily net assets. These
fees are calculated daily and paid monthly.
All officers and one Director of the Fund are employees of Citigroup or
its affiliates.
4. Investments
During the six months ended April 30, 2002, the aggregate cost of
purchases and proceeds from sales of investments (including maturities, but
excluding short-term securities) were as follows:
Purchases ........................................................ $39,282,512
===========
Sales ............................................................ $40,157,246
===========
At April 30, 2002, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
Gross unrealized appreciation .................................. $ 4,285,237
Gross unrealized depreciation .................................. (18,454,566)
------------
Net unrealized depreciation .................................... $(14,169,329)
============
22
Municipal High Income Fund Inc.
[CLIP ART] Notes to Financial Statements (unaudited) (continued)
================================================================================
5. Capital Loss Carryforwards
At October 31, 2001, the Fund had, for Federal income tax purposes,
approximately $4,340,000 of capital loss carryforwards available to offset
future capital gains. To the extent that these capital loss carryforwards are
used to offset capital gains, it is probable that the gains so offset will not
be distributed. The amount and expiration of the carryforwards are indicated
below. Expiration occurs on October 31 of the year indicated:
2002 2003 2004 2005 2007 2008 2009
---------- -------- -------- -------- -------- -------- --------
Carryforward amounts ... $1,198,000 $270,000 $205,000 $400,000 $786,000 $748,000 $733,000
6. Capital Shares
At April 30, 2002, the Fund had 500,000,000 shares of capital stock
authorized with a par value of $0.01 per share.
Capital stock transactions were as follows:
Six Months Ended Year Ended
April 30, 2002 October 31, 2001
-------------------- ---------------------
Shares Amount Shares Amount
-------- -------- -------- ----------
Shares issued on reinvestment ..... 94,065 $780,779 235,025 $2,166,492
======== ======== ======== ==========
23
Municipal High Income Fund Inc.
[CLIP ART] Financial Highlights
================================================================================
For a share of capital stock outstanding throughout each year ended October 31,
unless otherwise noted:
2002(1) 2001 2000 1999 1998 1997
---- ---- ---- ---- ---- ----
Net Asset Value,
Beginning of Period ....... $ 8.67 $ 8.86 $ 9.00 $ 9.77 $ 9.76 $ 9.53
-------- -------- -------- -------- -------- --------
Income (Loss) From
Operations:
Net investment income(2) .. 0.28 0.59 0.60 0.58 0.60 0.61
Net realized and unrealized
gain (loss)(2) ............ (0.28) (0.20) (0.16) (0.76) 0.03 0.24
-------- -------- -------- -------- -------- --------
Total Income (Loss) From
Operations ................ -- 0.39 0.44 (0.18) 0.63 0.85
-------- -------- -------- -------- -------- --------
Less Distributions From:
Net investment income ..... (0.29) (0.58) (0.58) (0.59) (0.61) (0.62)
In excess of net investment
income .................... -- -- -- -- (0.01) --
-------- -------- -------- -------- -------- --------
Total Distributions ......... (0.29) (0.58) (0.58) (0.59) (0.62) (0.62)
-------- -------- -------- -------- -------- --------
Net Asset Value,
End of Period ............. $ 8.38 $ 8.67 $ 8.86 $ 9.00 $ 9.77 $ 9.76
======== ======== ======== ======== ======== ========
Total Return, Based on
Market Value .............. (2.41)%++ 13.85% 9.39% (15.76)% 9.34% 17.22%
======== ======== ======== ======== ======== ========
Total Return, Based on
Net Asset Value ........... 0.12%++ 4.77% 5.97% (1.79)% 6.75% 9.41%
======== ======== ======== ======== ======== ========
Net Assets,
End of Period (000s) ...... $174,303 $179,568 $181,326 $184,085 $197,944 $194,133
======== ======== ======== ======== ======== ========
Ratios to Average Net Assets:
Expenses .................. 0.81%+ 0.82% 0.71% 0.73% 0.74% 0.74%
Net investment income(2) .. 6.63+ 6.74 6.72 6.08 6.07 6.38
Portfolio Turnover Rate ..... 23% 15% 27% 27% 57% 35%
Market Value,
End of Period ............. $ 8.120 $ 8.640 $ 8.125 $ 8.000 $ 10.125 $ 9.875
(1) For the six months ended April 30, 2002 (unaudited).
(2) Without the adoption of the change in the accounting method discussed in
Note 1, for the six months ended April 30, 2002, the ratio of net
investment income to average net assets would have been 6.59%. Per share,
ratios and supplemental data for the periods prior to November 1, 2001
have not been restated to reflect this change in presentation. In
addition, the impact of this change to net investment income and net
realized and unrealized loss per share was less than $0.01.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
24
Municipal High Income Fund Inc.
[CLIP ART] Financial Data Per Share of Common Stock (unaudited)
================================================================================
Dividend
Record Payable NYSE Net Asset Dividend Reinvestment
Date Date Closing Price* Value* Paid Price
------ -------- -------------- ------ ------- ------
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
5/23/00 5/26/00 7.750 8.60 0.0485 7.75
6/27/00 6/30/00 7.563 8.74 0.0485 7.85
7/25/00 7/28/00 8.094 8.78 0.0485 8.28
8/22/00 8/25/00 8.4375 8.84 0.0485 8.51
9/26/00 9/29/00 8.1875 8.83 0.0485 8.36
10/24/00 10/27/00 8.1250 8.86 0.0485 8.10
11/20/00 11/24/00 8.060 8.25 0.0485 7.96
12/26/00 12/29/00 8.0625 8.81 0.0485 8.49
1/23/01 1/26/01 8.8125 8.79 0.0485 8.61
2/20/01 2/23/01 8.740 8.77 0.0485 8.60
3/27/01 3/30/01 8.380 8.77 0.0485 8.57
4/24/01 4/27/01 8.680 8.67 0.0485 8.50
5/22/01 5/25/01 8.620 8.69 0.0485 8.52
6/26/01 6/29/01 8.630 8.71 0.0485 8.54
7/24/01 7/27/01 8.570 8.75 0.0485 8.57
8/28/01 8/31/01 8.890 8.83 0.0485 8.65
9/25/01 9/28/01 8.300 8.71 0.0485 8.54
10/23/01 10/26/01 8.630 8.70 0.0485 8.53
11/27/01 11/30/01 8.500 8.59 0.0485 8.42
12/24/01 12/28/01 7.890 8.42 0.0485 8.16
1/22/02 1/25/02 8.300 8.45 0.0485 8.28
2/19/02 2/22/02 8.350 8.40 0.0485 8.23
3/19/02 3/22/02 8.160 8.34 0.0485 8.11
4/23/02 4/26/02 8.070 8.36 0.0485 8.18
----------
* As of record date.
25
Municipal High Income Fund Inc.
[CLIP ART] 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
26
Municipal High Income Fund Inc.
[CLIP ART] 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,
2002, the Fund has not repurchased any shares.
27
Municipal High Income Fund Inc.
[CLIP ART] Management of the Fund
================================================================================
Directors
Allan J. Bloostein
Dwight B. Crane
Paolo M. Cucchi
Robert A. Frankel
Paul Hardin
William R. Hutchinson
Heath B. McLendon, Chairman
George M. Pavia
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
Christina T. Sydor
Secretary
Investment Adviser and Administrator
Smith Barney Fund Management LLC
333 West 34th Street
New York, New York 10001
Transfer Agent
PFPC Global Fund Services
P.O. Box 8030
Boston, Massachusetts 02266-8030
Custodian
State Street Bank and Trust Co.
225 Franklin Street
Boston, Massachusetts 02110
[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.
125 Broad Street
10th Floor, MF-2
New York, NY10004
FD1139 6/02