UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES

ITEM 1.                                                     REPORT TO STOCKHOLDERS.

The Annual Report to Stockholders is filed herewith.

ANNUAL REPORT / APRIL 30, 2009

Western Asset High Income Fund II Inc.

(HIX)

Managed by  WESTERN ASSET

Fund objective

The Fund seeks to maximize current income by investing at least 80% of its net assets, plus any borrowings for investment purposes, in high-yield debt securities. As a secondary objective, the Fund seeks capital appreciation to the extent consistent with its objective of seeking to maximize current income.

What’s inside

Legg Mason Partners Fund Advisor, LLC (“LMPFA”) is the Fund’s investment manager. Western Asset Management Company (“Western Asset”), Western Asset Management Company Limited (“Western Asset Limited”) and Western Asset Management Company Pte. Ltd. in Singapore (“Western Singapore”) are the Fund’s subadvisers. LMPFA, Western Asset, Western Asset Limited and Western Singapore are wholly-owned subsidiaries of Legg Mason, Inc.

Letter from the chairman

Dear Shareholder,

The U.S. economy weakened significantly during the twelve-month reporting period ended April 30, 2009. Looking back, U.S. gross domestic product (“GDP”)i growth was 2.8% during the second quarter of 2008. Contributing to the economy’s expansion were rising exports that were buoyed by a weakening U.S. dollar. In addition, consumer spending increased, aided by the government’s tax rebate program. However, the dollar’s rally and the end of the rebate program, combined with other strains on the economy, caused GDP to take a step backward during the second half of 2008. According to the U.S. Department of Commerce, third and fourth quarter 2008 GDP contracted 0.5% and 6.3%, respectively, the latter being the worst quarterly reading since 1982. Economic weakness continued in early 2009, as the preliminary estimate for first quarter 2009 GDP decline was 5.7%. This marked the first time in thirty-four years that the U.S. economy posted three consecutive quarters of negative GDP growth.

It may seem like ancient history, but when the reporting period began, speculation remained as to whether the U.S. would experience a recession. This ended in December 2008, when the National Bureau of Economic Research (“NBER”)—which has the final say on when one begins and ends—announced that a recession had begun in December 2007, making the current recession the lengthiest since the Great Depression. Contributing to the economy’s troubles is the accelerating weakness in the labor market. Since December 2007, approximately 5.7 million jobs have been shed, with nearly 2.7 million being lost during the first four months of 2009. In addition, the unemployment rate continued to move steadily higher, rising from 8.5% in March to 8.9% in April 2009, to reach its highest rate since 1983.

Another strain on the economy, the housing market, appeared to finally be getting closer to reaching a bottom. According to the S&P/Case-Shiller Home Price Indexii, U.S. home prices continued to fall in February 2009, but they did end their sixteen-month streak of record declines. This led to hopes that prices could be nearing a period of stabilization. Other economic news also seemed to be “less negative.” Inflation remained low and, in March 2009, data were released showing increases in durable goods orders, manufacturing and consumer sentiment, albeit all from depressed levels.

Letter from the chairman continued

Ongoing issues related to the housing and subprime mortgage markets and seizing credit markets prompted the Federal Reserve Board (“Fed”)iii to take aggressive and, in some cases, unprecedented actions. When the reporting period began, the federal funds rateiv was 2.00%. After lowering rates from 2.25% to 2.00% at the end of April 2008, the Fed left rates on hold for several months due to growing inflationary pressures as a result of soaring oil and commodity prices, coupled with the sagging U.S. dollar. However, as inflation receded along with oil prices and the global financial crisis escalated, the Fed cut rates twice in October 2008 to 1.00%. Then, in December 2008, it reduced the federal funds rate to a range of zero to 0.25%—a historic low—and maintained this stance during its next meetings in January, March and April 2009. In conjunction with the April meeting, the Fed stated that it “will employ all available tools to promote economic recovery and to preserve price stability. The Committee . . . anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”

In addition to the interest rate cuts, the Fed took several actions to improve liquidity in the credit markets. In September 2008, it announced an $85 billion rescue plan for ailing AIG and pumped $70 billion into the financial system as Lehman Brothers’ bankruptcy and mounting troubles at other financial firms roiled the markets. More recently, the Fed has taken additional measures to thaw the frozen credit markets, including the purchase of debt issued by Fannie Mae and Freddie Mac, as well as introducing the Term Asset-Backed Securities Loan Facility (“TALF”). In March 2009, the Fed continued to pursue aggressive measures as it announced its intentions to:

·  Purchase up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion in 2009.

·  Increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion.

·  Buy up to $300 billion of longer-term Treasury securities over the next six months.

The U.S. Department of the Treasury has also taken an active role in attempting to stabilize the financial system, as it orchestrated the government’s takeover of mortgage giants Fannie Mae and Freddie Mac in September 2008. In October, the Treasury’s $700 billion Troubled Asset Relief Program (“TARP”) was approved by Congress and signed into law by former President Bush. Then, in March 2009, Treasury Secretary Geithner

introduced the Public-Private Partnership Investment Program (“PPIP”), which will be used to facilitate the purchase of $500 billion to $1 trillion of troubled mortgage assets from bank balance sheets. President Obama has also made reviving the economy a priority in his administration, the cornerstone thus far being the $787 billion stimulus package that was signed into law in February 2009.

During the twelve-month reporting period ended April 30, 2009, both short- and long-term Treasury yields experienced periods of extreme volatility. While earlier in 2008 investors were focused on the subprime segment of the mortgage-backed market, these concerns broadened to include a wide range of financial institutions and markets. As a result, other fixed-income instruments also experienced increased price volatility. This unrest triggered several “flights to quality,” causing Treasury yields to move lower (and their prices higher), while riskier segments of the market saw their yields move higher (and their prices lower). This was particularly true toward the end of 2008, as the turmoil in the financial markets and sharply falling stock prices caused investors to flee securities that were perceived to be risky, even high-quality corporate bonds and high-grade municipal bonds. On several occasions, the yield available from short-term Treasuries fell to nearly zero, as investors were essentially willing to forgo any return potential in order to access the relative safety of government-backed securities. During the twelve months ended April 30, 2009, two-year Treasury yields fell from 2.29% to 0.91%. Over the same time frame, ten-year Treasury yields moved from 3.77% to 3.16%. For the twelve-month period ended April 30, 2009, the Barclays Capital U.S. Aggregate Indexv returned 3.84%.

Periods of increased investor risk aversion caused the high-yield bond market to produce poor results over the twelve months ended April 30, 2009. While the asset class posted strong returns during four of the last five months of the reporting period, it was not enough to overcome earlier flights to quality. In particular, seizing credit markets, coupled with fears of a global recession and rising corporate bond default rates, sent high-yield bond prices sharply lower in October and November 2008. All told, over the twelve months ended April 30, 2009, the Citigroup High Yield Market Indexvi returned -13.95%.

Fears of a global recession, falling commodity prices and seizing credit markets sent emerging market debt prices lower during the twelve-month reporting period. While the asset class rallied on several occasions, it was not enough to offset its sharp loss in October 2008, as the JPMorgan Emerging Markets Bond Index Global (“EMBI Global”)vii returned -14.89% for the month. Over the twelve months ended April 30, 2009, the EMBI Global returned -4.52%.

Letter from the chairman continued

Special shareholder notice

The Board of Directors of the Fund has approved Western Asset Management Company Pte. Ltd. in Singapore (“Western Singapore”) as a subadviser to the Fund under an additional subadvisory agreement between Western Asset Management Company (“Western Asset”) and Western Singapore. Western Asset will supervise Western Singapore’s provision of services to the Fund. The appointment was effective as of February 3, 2009.

Western Singapore was established in 2000 and has offices at 1 George Street #23-01, Singapore 049145. The Western Singapore office is responsible, generally, for managing Asian (excluding Japan) fixed-income mandates, including the related portions of Western Asset’s broader portfolios, as well as servicing these relationships. It undertakes all investment-related activities including investment management, research and analysis, securities settlement and client services.

While Western Asset will remain ultimately responsible for investment decisions relating to the Fund’s portfolio, Western Singapore will provide certain subadvisory services to the Fund relating to currency transactions and investments in non-U.S. dollar-denominated securities and related foreign currency instruments. The Fund’s current management fee remains unchanged. Western Asset and Western Singapore are wholly-owned subsidiaries of Legg Mason, Inc.

A special note regarding increased market volatility

In recent months, we have experienced a series of events that have impacted the financial markets and created concerns among both novice and seasoned investors alike. In particular, we have witnessed the failure and consolidation of several storied financial institutions, periods of heightened market volatility, and aggressive actions by the U.S. federal government to steady the financial markets and restore investor confidence. While we hope that the worst is over in terms of the issues surrounding the credit and housing crises, it is likely that the fallout will continue to impact the financial markets and the U.S. economy well into 2009.

Like all asset management firms, Legg Mason has not been immune to these difficult and, in some ways, unprecedented times. However, today’s challenges have only strengthened our resolve to do everything we can to help you reach your financial goals. Now, as always, we remain committed to providing you with excellent service and a full spectrum of investment choices. Rest assured, we will continue to work hard to ensure that our investment managers make every effort to deliver strong long-term results.

We also remain committed to supplementing the support you receive from your financial advisor. One way we accomplish this is through our enhanced website, www.leggmason.com/cef. Here you can gain immediate access to many special features to help guide you through difficult times, including:

·  Fund prices and performance,

·  Market insights and commentaries from our portfolio managers, and

·  A host of educational resources.

During periods of market unrest, it is especially important to work closely with your financial advisor and remember that reaching one’s investment goals unfolds over time and through multiple market cycles. Time and again, history has shown that, over the long run, the markets have eventually recovered and grown.

Information about your fund

Please read on for a more detailed look at prevailing economic and market conditions during the Fund’s reporting period and to learn how those conditions have affected Fund performance.

Important information with regard to recent regulatory developments that may affect the Fund is contained in the Notes to Financial Statements included in this report.

As always, thank you for your confidence in our stewardship of your assets. We look forward to helping you meet your financial goals.

Sincerely,

R. Jay Gerken, CFA

Chairman, President and Chief Executive Officer

May 29, 2009

Letter from the chairman continued

All index performance reflects no deduction for fees, expenses or taxes. Please note that an investor cannot invest directly in an index.

Fund overview

Q. What is the Fund’s investment strategy?

A. As a primary investment objective, the Fund seeks to maximize current income by investing at least 80% of its net assets, plus any borrowings for investment purposes, in high-yield debt securities. As a secondary investment objective, the Fund seeks capital appreciation to the extent consistent with its primary objective of seeking to maximize current income. The Fund may invest up to 35% of its total assets in debt securities of issuers located in emerging market countries. It may also invest up to 30% of its assets in zero coupon securities, pay-in-kind bonds and deferred payment securities, and up to 20% of its assets in equity securities. We employ an actively managed approach that is risk-controlled and assimilates top-down macroeconomic views with industry sector insights and bottom-up credit research to derive the general framework for the Fund’s predominantly non-investment grade credit mandate. This framework provides the foundation for how the portfolio is positioned with respect to risk (aggressive, neutral, conservative), as well as identifying sector overweights and underweights.

Risk and weightings are reviewed on a regular basis. Our bottom-up process provides the basis for populating the targeted industry weightings through individual credit selection. Analysts work closely with portfolio managers to determine which credits provide the best risk/reward relationship within their respective sectors. The research team focuses on key fundamental measures such as leverage, cash flow adequacy, liquidity, amortization schedule, underlying asset value and management integrity/track record.

At Western Asset Management Company (“Western Asset”), the Fund’s subadviser, we utilize a fixed-income team approach, with decisions derived from interaction among various investment management sector specialists. The sector teams are comprised of Western Asset’s senior portfolio managers, research analysts and an in-house economist. Under this team approach, management of client fixed-income portfolios will reflect a consensus of interdisciplinary views within the Western Asset organization.

Q. What were the overall market conditions during the Fund’s reporting period?

A. During the fiscal year, the U.S. fixed-income market experienced periods of extreme volatility. Changing perceptions regarding the economy, inflation, deflation and future Federal Reserve Board (“Fed”)i monetary policy caused bond prices to fluctuate.

The yields on two- and ten-year Treasuries began the reporting period at 2.29% and 3.77%, respectively. Treasury yields moved higher from

Fund overview continued

May through early June 2008, as the economy performed better than expected. In addition, inflationary pressures mounted as oil prices surged to record levels. Over this period, riskier fixed-income asset classes, such as high-yield bonds and emerging market debt, rallied. However, beginning in mid-June, seizing credit markets triggered an extreme flight to quality. Investors’ risk aversion further intensified from September through November given the severe disruptions in the global financial markets. During this time, investors were drawn to the relative safety of Treasuries, while riskier portions of the bond market performed poorly.

Toward the end of the reporting period, Treasury yields moved higher, especially on the long end of the yield curveii. This was due to concerns regarding the massive amount of new government issuance that would be needed to fund the economic stimulus package. At the conclusion of the fiscal year, two- and ten-year Treasury yields were 0.91% and 3.16%, respectively.

The high-yield bond market experienced periods of heightened volatility during the fiscal year. While high-yield bond fundamentals did not significantly deteriorate, extremely challenging market technicals dragged down the asset class during most of 2008. These included the fallout from the subprime mortgage market, turmoil in the financial markets, forced selling by leveraged investors, illiquidity and a rapidly weakening global economic environment. All this led to heightened risk aversion, causing investors to flock to the safety of short-term Treasuries and abandon riskier assets, including high-yield bonds.

After plunging nearly 30% from September through November 2008 alone, the high-yield market staged an impressive rally from December 2008 through April 2009. This was triggered by improving technicals, optimism regarding the government’s initiatives to stabilize the financial system, some encouraging corporate earnings news, and tentative signs that the economic contraction may be decelerating. Collectively, investor risk appetite steadily returned and, despite rising default rates, demand for high-yield securities increased through the end of the reporting period. However, despite a strong rally during the last five months of the fiscal year, it was not enough to overcome the high-yield market’s earlier weakness. All told, the Barclays Capital U.S. Corporate High Yield 2% Issuer Cap Indexiii (the “Index”) returned -12.55% during the twelve months ended April 30, 2009.

Q. How did we respond to these changing market conditions?

A. When the reporting period began, the Fund was aggressively positioned, with a lower average quality rating than the Index. This stance was based on our expectations that there was little chance of a deep or lengthy recession.

In hindsight, this proved to be the wrong decision, as the turmoil in the financial markets during the fall of 2008 contributed to a severe global downturn that few people could have predicted just a year ago.

Given the rapidly weakening economy, we proactively adjusted the portfolio, using our fundamental credit research and relative value analysis to drive our decision-making. In particular, we moved to a somewhat more defensive posture by emphasizing areas that generally hold up relatively well during economic declines. We also took a more defensive stance within industries. For example, in the Automobiles sector, we decreased our exposure to General Motors Corp. in favor of GMAC LLC.

Performance review

For the twelve months ended April 30, 2009, Western Asset High Income Fund II Inc. returned -32.74% based on its net asset value (“NAV”)iv and -25.21% based on its New York Stock Exchange (“NYSE”) market price per share. The Fund’s unmanaged benchmarks, the Barclays Capital U.S. Corporate High Yield 2% Issuer Cap Index and the JPMorgan Emerging Markets Bond Index Global (“EMBI Global”)v, returned -12.55% and -4.52%, respectively, for the same period. The Lipper High Current Yield (Leveraged) Closed-End Funds Category Averagevi returned -32.94% over the same time frame. Please note that Lipper performance returns are based on each fund’s NAV.

During the twelve-month period, the Fund made distributions to shareholders totaling $1.13 per share. The performance table shows the Fund’s twelve-month total return based on its NAV and market price as of April 30, 2009. Past performance is no guarantee of future results.

PERFORMANCE SNAPSHOT as of April 30, 2009 (unaudited)

All figures represent past performance and are not a guarantee of future results.

*Total returns are based on changes in NAV or market price, respectively. Total returns assume the reinvestment of all distributions in additional shares in accordance with the Fund’s Dividend Reinvestment Plan.

Fund overview continued

Q. What were the leading contributors to performance?

A. During the reporting period, eight of the Fund’s ten largest high-yield overweights outperformed the Index. As mentioned, we increased our exposure to GMAC. Its bonds benefited as the Fed approved GMAC’s request to change its status to be a bank holding company. In doing so, it has already received $6 billion in federal government loans to help shore up its balance sheet. Investors welcomed this news and our holdings in GMAC posted a modest positive return despite the difficult environment.

In terms of sector and sub-sector allocations, our underweight, relative to the Index, to Media — Non-Cable and a slight underweight to Information Technology contributed to performance. A number of the Fund’s defensive positions were also beneficial to performance. For example, in the Health Care sector, our holdings in HCA Inc. and Tenet Healthcare Corp. outperformed the Index. Elsewhere, our position in Kansas City Southern Railway and our overweight in Sprint Capital Corp. contributed to the Fund’s performance versus the Index.

Q. What were the leading detractors from performance?†

A. Our credit quality positioning had a negative impact on the Fund’s performance. Given our expectations that any recession would be mild, the Fund overweighted CCC-rated securities and underweighted BB-rated issues. It was our belief that we would be more than compensated for the additional risks of investing in lower-quality securities given their incremental yields. This credit quality positioning was not rewarded, however, as CCC-rated bonds returned -30.4% and BB-rated issues returned -4.4% during the fiscal year.

Our sector positioning, as a whole, detracted from performance. Our overweights, relative to the Index, to the Energy and Automobiles sectors were the biggest drivers of sector underperformance. In addition, our exposure to Wireline1 companies was a significant detractor from performance, as these companies lost customers and market share to their Wireless1 counterparts. Our Gaming2 positions also negatively impacted performance. While Gaming companies had been fairly resilient during previous recessions, this has not been the case during the current economic downturn. The Fund was also hurt by its holding in Station Casinos Inc., which defaulted on its debt obligations. Other individual securities that detracted from performance were our holdings in Charter Communications and Energy Future Holdings Corp. Charter Communications’ balance sheet troubles led to it filing for bankruptcy during the reporting period. Energy

Future Holdings, a 2007 leveraged buyout, performed poorly given its highly-leveraged balance sheet.

The Fund’s minimal emerging market exposure detracted from relative performance. During the reporting period, the Fund’s emerging market debt benchmark, the EMBI Global, returned -4.52%, outperforming the high-yield market on a relative basis. The Fund’s continued underweight to emerging market debt was based on our belief that high-yield valuations were more attractive on a risk/reward basis.

The use of leverage by the Fund was a significant detractor from performance during the reporting period. Leverage magnifies returns on both the upside and on the downside. Given the high-yield market’s overall weakness during the reporting period, leverage amplified the Fund’s losses.

Looking for additional information?

The Fund is traded under the symbol “HIX” and its closing market price is available in most newspapers under the NYSE listings. The daily NAV is available on-line under the symbol “XHGIX” on most financial websites. Barron’s and The Wall Street Journal’s Monday edition both carry closed-end fund tables that provide additional information. In addition, the Fund issues a quarterly press release that can be found on most major financial websites, as well as www.leggmason.com/cef.

In a continuing effort to provide information concerning the Fund, shareholders may call 1-888-777-0102 (toll free), Monday through Friday from 8:00 a.m. to 6:00 p.m. Eastern Standard Time, for the Fund’s current NAV, market price and other information.

Thank you for your investment in Western Asset High Income Fund II Inc. As always, we appreciate that you have chosen us to manage your assets, and we remain focused on achieving the Fund’s investment goals.

Sincerely,

Western Asset Management Team

May 19, 2009

Fund overview continued

Fund at a glance (unaudited)

INVESTMENT BREAKDOWN (%) As a percent of total investments

Schedule of investments

April 30, 2009

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See Notes to Financial Statements.

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April 30, 2009

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April 30, 2009

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See Notes to Financial Statements.

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Schedule of investments continued

April 30, 2009

WESTERN ASSET HIGH INCOME FUND II INC.

See Notes to Financial Statements.

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Schedule of investments continued

April 30, 2009

WESTERN ASSET HIGH INCOME FUND II INC.