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

 

FORM N-Q

 

QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED
MANAGEMENT INVESTMENT COMPANY

 

Investment Company Act file number

811-8709

 

 

Western Asset High Income Fund II Inc.

(Exact name of registrant as specified in charter)

 

55 Water Street, New York, NY

 

10041

(Address of principal executive offices)

 

(Zip code)

 

Robert I. Frenkel, Esq.

Legg Mason & Co., LLC

100 First Stamford Place

Stamford, CT 06902

(Name and address of agent for service)

 

Registrant’s telephone number, including area code:

1-888-777-0102

 

 

Date of fiscal year end:

April 30

 

 

 

 

Date of reporting period:

July 31, 2009

 

 



 

ITEM 1.                  SCHEDULE OF INVESTMENTS

 



 

WESTERN ASSET HIGH INCOME FUND II INC.

 

FORM N-Q

JULY 31, 2009

 



 

Western Asset High Income Fund II Inc.

 

 

 

 

 

Schedule of Investments (unaudited)

 

July 31, 2009

 

Face

 

 

 

 

 

 

 

Amount†

 

 

 

Security

 

Value

 

CORPORATE BONDS & NOTES — 90.0%

 

 

 

CONSUMER DISCRETIONARY — 17.1%

 

 

 

Auto Components — 0.9%

 

 

 

8,458,000

 

 

 

Allison Transmission Inc., Senior Notes, 11.250% due 11/1/15 (a)(b)

 

$

6,977,850

 

 

 

 

 

Visteon Corp., Senior Notes:

 

 

 

1,031,000

 

 

 

8.250% due 8/1/10 (c)

 

23,198

 

11,079,000

 

 

 

12.250% due 12/31/16 (a)(c)

 

304,672

 

 

 

 

 

Total Auto Components

 

7,305,720

 

Automobiles — 0.3%

 

 

 

 

 

 

 

General Motors Corp.:

 

 

 

9,995,000

 

 

 

Notes, 7.200% due 1/15/11 (c)

 

1,499,250

 

7,855,000

 

 

 

Senior Debentures, 8.375% due 7/15/33 (c)

 

1,237,163

 

 

 

 

 

Total Automobiles

 

2,736,413

 

Diversified Consumer Services — 1.0%

 

 

 

5,940,000

 

 

 

Education Management LLC/Education Management Finance Corp., Senior Subordinated Notes, 10.250% due 6/1/16

 

6,073,650

 

 

 

 

 

Service Corp. International, Senior Notes:

 

 

 

1,200,000

 

 

 

7.625% due 10/1/18

 

1,155,000

 

1,090,000

 

 

 

7.500% due 4/1/27

 

885,625

 

 

 

 

 

Total Diversified Consumer Services

 

8,114,275

 

Hotels, Restaurants & Leisure — 5.1%

 

 

 

2,515,000

 

 

 

Ameristar Casinos Inc., Senior Notes, 9.250% due 6/1/14 (a)

 

2,603,025

 

1,000,000

 

 

 

Boyd Gaming Corp., Senior Subordinated Notes, 6.750% due 4/15/14

 

897,500

 

5,730,000

 

 

 

Caesars Entertainment Inc., Senior Subordinated Notes,
8.125% due 5/15/11

 

5,242,950

 

468,000

 

 

 

Choctaw Resort Development Enterprise, Senior Notes,
7.250% due 11/15/19 (a)

 

273,780

 

4,675,000

 

 

 

Denny’s Holdings Inc., Senior Notes, 10.000% due 10/1/12

 

4,698,375

 

2,985,000

 

 

 

Downstream Development Quapaw, Senior Notes, 12.000% due 10/15/15 (a)

 

1,716,375

 

 

 

 

 

El Pollo Loco Inc.:

 

 

 

3,770,000

 

 

 

Senior Notes, 11.750% due 11/15/13

 

3,223,350

 

2,530,000

 

 

 

Senior Secured Notes, 11.750% due 12/1/12 (a)

 

2,662,825

 

975,000

 

 

 

Fontainebleau Las Vegas Holdings LLC/Fontainebleau Las Vegas Capital Corp., 10.250% due 6/15/15 (a)(c)

 

34,125

 

4,780,000

 

 

 

Harrahs Operating Escrow LLC/Harrahs Escrow Corp., Senior Secured Notes, 11.250% due 6/1/17 (a)

 

4,863,650

 

3,725,000

 

 

 

Indianapolis Downs LLC & Capital Corp., Senior Secured Notes,
11.000% due 11/1/12 (a)

 

2,812,375

 

6,400,000

 

 

 

Inn of the Mountain Gods Resort & Casino, Senior Notes,
12.000% due 11/15/10 (c)(d)

 

2,624,000

 

 

 

 

 

MGM MIRAGE Inc.:

 

 

 

160,000

 

 

 

Senior Notes, 8.500% due 9/15/10

 

151,600

 

 

 

 

 

Senior Secured Notes:

 

 

 

890,000

 

 

 

10.375% due 5/15/14 (a)

 

958,975

 

2,135,000

 

 

 

11.125% due 11/15/17 (a)

 

2,359,175

 

420,000

 

 

 

Mohegan Tribal Gaming Authority, Senior Subordinated Notes,
6.875% due 2/15/15

 

291,900

 

3,040,000

 

 

 

Pinnacle Entertainment Inc., Senior Notes, 8.625% due 8/1/17 (a)

 

3,055,200

 

1,800,000

 

 

 

Snoqualmie Entertainment Authority, Senior Secured Notes,
5.384% due 2/1/14 (a)(e)

 

873,000

 

 

 

 

 

Station Casinos Inc.:

 

 

 

7,305,000

 

 

 

Senior Notes, 6.000% due 4/1/12 (c)(d)

 

2,228,025

 

1,450,000

 

 

 

Senior Subordinated Notes, 6.625% due 3/15/18 (c)(d)

 

39,875

 

 

 

 

 

Total Hotels, Restaurants & Leisure

 

41,610,080

 

Household Durables — 1.4%

 

 

 

497,000

 

 

 

American Greetings Corp., Senior Notes, 7.375% due 6/1/16

 

372,750

 

5,000,000

 

 

 

K Hovnanian Enterprises Inc., Senior Notes, 11.500% due 5/1/13

 

4,637,500

 

 

See Notes to Schedule of Investments.

 

1



 

Western Asset High Income Fund II Inc.

 

 

 

 

 

Schedule of Investments (unaudited) (continued)

 

July 31, 2009

 

Face
Amount†

 

 

 

Security

 

Value

 

Household Durables — 1.4% (continued)

 

 

 

4,055,000

 

 

 

Norcraft Cos. LP/Norcraft Finance Corp., Senior Subordinated Notes, 9.000% due 11/1/11

 

$

4,065,137

 

2,245,000

 

 

 

Norcraft Holdings LP/Norcraft Capital Corp., Senior Discount Notes, 9.750% due 9/1/12

 

2,143,975

 

 

 

 

 

Total Household Durables

 

11,219,362

 

Leisure Equipment & Products — 0.1%

 

 

 

600,000

 

 

 

WMG Acquisition Corp., Senior Secured Notes, 9.500% due 6/15/16 (a)

 

639,000

 

Media — 5.7%

 

 

 

 

 

 

 

Affinion Group Inc.:

 

 

 

 

 

 

 

Senior Notes:

 

 

 

3,270,000

 

 

 

10.125% due 10/15/13 (a)

 

3,253,650

 

755,000

 

 

 

10.125% due 10/15/13

 

751,225

 

6,800,000

 

 

 

Senior Subordinated Notes, 11.500% due 10/15/15

 

6,324,000

 

 

 

 

 

CCH I LLC/CCH I Capital Corp.:

 

 

 

1,980,000

 

 

 

Senior Notes, 11.000% due 10/1/15 (c)(d)

 

245,025

 

14,774,000

 

 

 

Senior Secured Notes, 11.000% due 10/1/15 (c)(d)

 

1,902,152

 

 

 

 

 

Cengage Learning Acquisitions Inc.:

 

 

 

2,255,000

 

 

 

Senior Notes, 10.500% due 1/15/15 (a)

 

1,950,575

 

2,550,000

 

 

 

Senior Subordinated Notes, 13.250% due 7/15/15 (a)

 

1,976,250

 

1,100,000

 

 

 

Charter Communications Holdings LLC, Senior Discount Notes,
12.125% due 1/15/12 (c)(d)

 

5,500

 

1,105,000

 

 

 

Charter Communications Holdings LLC/Charter Communications Holdings Capital Corp., Senior Discount Notes, 11.750% due 5/15/11 (c)(d)

 

5,636

 

8,660,000

 

 

 

Charter Communications Inc., Senior Secured Notes, 12.875% due 9/15/14 (a)(d)

 

9,396,100

 

254,000

 

 

 

CMP Susquehanna Corp., 4.774% due 5/15/14 (d)(e)(f)

 

107,950

 

2,935,000

 

 

 

CSC Holdings Inc., Senior Notes, 8.500% due 6/15/15 (a)

 

3,037,725

 

1,215,000

 

 

 

DIRECTV Holdings LLC/DIRECTV Financing Co. Inc., Senior Notes, 8.375% due 3/15/13

 

1,246,894

 

 

 

 

 

DISH DBS Corp., Senior Notes:

 

 

 

1,940,000

 

 

 

6.625% due 10/1/14

 

1,867,250

 

200,000

 

 

 

7.750% due 5/31/15

 

201,500

 

2,419,000

 

 

 

Globo Communicacoes e Participacoes SA, Bonds, 7.250% due 4/26/22 (a)(g)

 

2,434,119

 

4,190,000

 

 

 

Idearc Inc., Senior Notes, 8.000% due 11/15/16 (c)

 

204,262

 

1,695,000

 

 

 

R.H. Donnelley Corp., Senior Notes, 8.875% due 1/15/16 (c)

 

110,175

 

3,000,000

 

 

 

Sinclair Broadcast Group Inc., Senior Subordinated Notes,
8.000% due 3/15/12

 

2,317,500

 

2,525,000

 

 

 

Sun Media Corp., Senior Notes, 7.625% due 2/15/13

 

1,641,250

 

3,795,000

 

 

 

Univision Communications Inc., Senior Secured Notes,
12.000% due 7/1/14 (a)

 

4,060,650

 

1,265,000

 

 

 

UPC Holding BV, Senior Notes, 9.875% due 4/15/18 (a)

 

1,265,000

 

 

 

 

 

Virgin Media Finance PLC:

 

 

 

1,370,000

 

 

 

Senior Bonds, 9.500% due 8/15/16

 

1,411,100

 

1,025,000

 

 

 

Senior Notes, 9.125% due 8/15/16

 

1,040,375

 

 

 

 

 

Total Media

 

46,755,863

 

Multiline Retail — 1.0%

 

 

 

865,000

 

 

 

Dollar General Corp., Senior Notes, 10.625% due 7/15/15

 

968,800

 

 

 

 

 

Neiman Marcus Group Inc.:

 

 

 

8,015,844

 

 

 

Senior Notes, 9.000% due 10/15/15 (b)

 

5,971,804

 

1,080,000

 

 

 

Senior Secured Notes, 7.125% due 6/1/28

 

858,600

 

 

 

 

 

Total Multiline Retail

 

7,799,204

 

Specialty Retail — 1.0%

 

 

 

3,980,000

 

 

 

Blockbuster Inc., Senior Subordinated Notes, 9.000% due 9/1/12

 

1,731,300

 

2,350,000

 

 

 

Eye Care Centers of America, Senior Subordinated Notes, 10.750% due 2/15/15

 

2,361,750

 

300,000

 

 

 

Limited Brands Inc., Senior Notes, 8.500% due 6/15/19 (a)

 

302,440

 

 

See Notes to Schedule of Investments.

 

2



 

Western Asset High Income Fund II Inc.

 

 

 

 

 

Schedule of Investments (unaudited) (continued)

 

July 31, 2009

 

Face
Amount†

 

 

 

Security

 

Value

 

Specialty Retail — 1.0% (continued)

 

 

 

3,805,000

 

 

 

Michaels Stores Inc., Senior Notes, 10.000% due 11/1/14

 

$

3,595,725

 

 

 

 

 

Total Specialty Retail

 

7,991,215

 

Textiles, Apparel & Luxury Goods — 0.6%

 

 

 

4,455,000

 

 

 

Oxford Industries Inc., Senior Secured Notes, 11.375% due 7/15/15 (a)

 

4,677,750

 

 

 

 

 

TOTAL CONSUMER DISCRETIONARY

 

138,848,882

 

CONSUMER STAPLES — 1.0%

 

 

 

Food Products — 0.2%

 

 

 

 

 

 

 

Dole Food Co. Inc., Senior Notes:

 

 

 

715,000

 

 

 

7.250% due 6/15/10

 

711,425

 

1,150,000

 

 

 

8.875% due 3/15/11

 

1,147,125

 

130,000

 

 

 

13.875% due 3/15/14 (a)

 

146,250

 

 

 

 

 

Total Food Products

 

2,004,800

 

Household Products — 0.4%

 

 

 

1,265,000

 

 

 

American Achievement Corp., Senior Subordinated Notes,
8.250% due 4/1/12 (a)

 

1,246,025

 

2,100,000

 

 

 

Visant Holding Corp., Senior Notes, 8.750% due 12/1/13

 

2,121,000

 

 

 

 

 

Total Household Products

 

3,367,025

 

Tobacco — 0.4%

 

 

 

2,890,000

 

 

 

Alliance One International Inc., Senior Notes, 10.000% due 7/15/16 (a)

 

2,861,100

 

 

 

 

 

TOTAL CONSUMER STAPLES

 

8,232,925

 

ENERGY — 13.7%

 

 

 

Energy Equipment & Services — 1.1%

 

 

 

210,000

 

 

 

ANR Pipeline Co., Debentures, 9.625% due 11/1/21

 

283,765

 

2,690,000

 

 

 

Basic Energy Services Inc., Senior Secured Notes, 11.625% due 8/1/14 (a)

 

2,690,000

 

2,225,000

 

 

 

Complete Production Services Inc., Senior Notes, 8.000% due 12/15/16

 

1,913,500

 

1,145,000

 

 

 

GulfMark Offshore Inc., Senior Subordinated Notes, 7.750% due 7/15/14

 

1,076,300

 

3,015,000

 

 

 

Key Energy Services Inc., Senior Notes, 8.375% due 12/1/14

 

2,679,581

 

 

 

 

 

Total Energy Equipment & Services

 

8,643,146

 

Oil, Gas & Consumable Fuels — 12.6%

 

 

 

2,375,000

 

 

 

Arch Coal Inc., Senior Notes, 8.750% due 8/1/16 (a)

 

2,410,625

 

3,980,000

 

 

 

Atlas Pipeline Partners LP, Senior Notes, 8.750% due 6/15/18

 

3,203,900

 

7,595,000

 

 

 

Belden & Blake Corp., Secured Notes, 8.750% due 7/15/12

 

6,721,575

 

1,780,000

 

 

 

Berry Petroleum Co., Senior Notes, 10.250% due 6/1/14

 

1,869,000

 

 

 

 

 

Chesapeake Energy Corp., Senior Notes:

 

 

 

2,000,000

 

 

 

6.625% due 1/15/16

 

1,877,500

 

1,420,000

 

 

 

6.500% due 8/15/17

 

1,292,200

 

5,370,000

 

 

 

7.250% due 12/15/18

 

5,074,650

 

2,615,000

 

 

 

Compagnie Generale de Geophysique-Veritas, Senior Notes,
9.500% due 5/15/16 (a)

 

2,732,675

 

7,213,476

 

 

 

Corral Petroleum Holdings AB, Senior Secured Subordinated Bonds, 5.509% due 4/15/10 (a)(b)(e)

 

5,013,366

 

 

 

 

 

El Paso Corp.:

 

 

 

3,445,000

 

 

 

Medium-Term Notes, 7.800% due 8/1/31

 

3,093,693

 

5,200,000

 

 

 

Notes, 7.875% due 6/15/12

 

5,398,515

 

620,000

 

 

 

Encore Acquisition Co., Senior Subordinated Notes, 9.500% due 5/1/16

 

635,500

 

285,000

 

 

 

Enterprise Products Operating LLP, Junior Subordinated Notes,
8.375% due 8/1/66 (e)

 

248,262

 

2,565,000

 

 

 

Forest Oil Corp., Senior Notes, 8.500% due 2/15/14 (a)

 

2,616,300

 

153,000

 

 

 

Gazprom, Loan Participation Notes, 6.212% due 11/22/16 (a)

 

135,596

 

5,565,000

 

 

 

International Coal Group Inc., Senior Notes, 10.250% due 7/15/14

 

4,229,400

 

2,070,000

 

 

 

KazMunaiGaz Finance Sub B.V., Senior Notes, 8.375% due 7/2/13 (a)(g)

 

1,950,975

 

1,720,000

 

 

 

LUKOIL International Finance BV, Notes, 6.356% due 6/7/17 (a)(g)

 

1,591,000

 

 

 

 

 

Mariner Energy Inc., Senior Notes:

 

 

 

1,630,000

 

 

 

7.500% due 4/15/13

 

1,556,650

 

1,215,000

 

 

 

8.000% due 5/15/17

 

1,063,125

 

 

See Notes to Schedule of Investments.

 

3



 

Western Asset High Income Fund II Inc.

 

 

 

 

 

Schedule of Investments (unaudited) (continued)

 

July 31, 2009

 

Face
Amount†

 

 

 

Security

 

Value

 

Oil, Gas & Consumable Fuels — 12.6% (continued)

 

 

 

2,440,000

 

 

 

MarkWest Energy Partners LP/MarkWest Energy Finance Corp., Senior Notes, 8.750% due 4/15/18

 

$

2,281,400

 

 

 

 

 

OPTI Canada Inc., Senior Secured Notes:

 

 

 

2,210,000

 

 

 

7.875% due 12/15/14

 

1,458,600

 

775,000

 

 

 

8.250% due 12/15/14

 

515,375

 

2,000,000

 

 

 

Parallel Petroleum Corp., Senior Notes, 10.250% due 8/1/14

 

1,430,000

 

6,067,000

 

 

 

Pemex Project Funding Master Trust, Senior Bonds, 6.625% due 6/15/35 (g)

 

5,758,912

 

3,435,000

 

 

 

Petrohawk Energy Corp., Senior Notes, 9.125% due 7/15/13

 

3,580,987

 

1,610,000

 

 

 

Petroplus Finance Ltd., Senior Notes, 6.750% due 5/1/14 (a)

 

1,440,950

 

1,975,000

 

 

 

Plains Exploration & Production Co., Senior Notes, 10.000% due 3/1/16

 

2,145,344

 

 

 

 

 

Quicksilver Resources Inc., Senior Notes:

 

 

 

2,740,000

 

 

 

8.250% due 8/1/15

 

2,644,100

 

485,000

 

 

 

11.750% due 1/1/16

 

534,106

 

7,890,000

 

 

 

SandRidge Energy Inc., Senior Notes, 8.625% due 4/1/15 (b)

 

7,534,950

 

7,887,000

 

 

 

SemGroup LP, Senior Notes, 8.750% due 11/15/15 (a)(c)(d)

 

276,045

 

800,000

 

 

 

Targa Resources Partners LP, Senior Notes, 8.250% due 7/1/16

 

714,000

 

3,725,000

 

 

 

Teekay Corp., Senior Notes, 8.875% due 7/15/11

 

3,687,750

 

2,000,000

 

 

 

Tesoro Corp., Senior Notes, 6.250% due 11/1/12

 

1,940,000

 

2,910,000

 

 

 

VeraSun Energy Corp., Senior Notes, 9.375% due 6/1/17 (c)

 

392,850

 

2,515,000

 

 

 

W&T Offshore Inc., Senior Notes, 8.250% due 6/15/14 (a)

 

2,100,025

 

 

 

 

 

Whiting Petroleum Corp., Senior Subordinated Notes:

 

 

 

1,350,000

 

 

 

7.250% due 5/1/12

 

1,363,500

 

2,205,000

 

 

 

7.000% due 2/1/14

 

2,171,925

 

 

 

 

 

Williams Cos. Inc.:

 

 

 

3,629,000

 

 

 

Notes, 8.750% due 3/15/32

 

4,102,428

 

3,475,000

 

 

 

Senior Notes, 7.625% due 7/15/19

 

3,724,783

 

 

 

 

 

Total Oil, Gas & Consumable Fuels

 

102,512,537

 

 

 

 

 

TOTAL ENERGY

 

111,155,683

 

FINANCIALS — 11.0%

 

 

 

Capital Markets — 0.1%

 

 

 

2,715,000

 

 

 

Lehman Brothers Holdings Inc., Medium-Term Notes, Senior Notes, 5.250% due 2/6/12 (c)

 

481,913

 

Commercial Banks — 2.0%

 

 

 

1,910,000

 

 

 

BAC Capital Trust VI, Capital Securities, 5.625% due 3/8/35

 

1,328,997

 

 

 

 

 

ICICI Bank Ltd., Subordinated Bonds:

 

 

 

1,174,000

 

 

 

6.375% due 4/30/22 (a)(e)(g)

 

928,319

 

1,170,000

 

 

 

6.375% due 4/30/22 (a)(e)(g)

 

908,695

 

 

 

 

 

Royal Bank of Scotland Group PLC:

 

 

 

620,000

 

 

 

Subordinated Bonds, 5.050% due 1/8/15

 

489,902

 

1,455,000

 

 

 

Subordinated Notes, 5.000% due 11/12/13

 

1,257,207

 

 

 

 

 

RSHB Capital, Loan Participation Notes:

 

 

 

2,010,000

 

 

 

Notes, 9.000% due 6/11/14 (a)(g)

 

2,152,107

 

 

 

 

 

Secured Notes:

 

 

 

1,204,000

 

 

 

7.175% due 5/16/13 (a)(g)

 

1,208,575

 

1,720,000

 

 

 

7.125% due 1/14/14 (a)(g)

 

1,737,200

 

1,320,000

 

 

 

7.125% due 1/14/14 (a)(g)

 

1,321,188

 

1,055,000

 

 

 

Senior Secured Notes, 6.299% due 5/15/17 (a)(g)

 

954,775

 

3,110,000

 

 

 

Wells Fargo Capital XIII, Medium-Term Notes, 7.700% due 3/26/13 (e)(h)

 

2,707,750

 

1,100,000

 

 

 

Wells Fargo Capital XV, Junior Subordinated Notes, 9.750%
due 9/26/13 (e)(h)

 

1,120,190

 

 

 

 

 

Total Commercial Banks

 

16,114,905

 

Consumer Finance — 5.3%

 

 

 

6,140,000

 

 

 

FMG Finance Pty Ltd., Senior Secured Notes, 10.625% due 9/1/16 (a)

 

6,370,250

 

 

 

 

 

Ford Motor Credit Co., Senior Notes:

 

 

 

1,000,000

 

 

 

9.875% due 8/10/11

 

991,293

 

20,430,000

 

 

 

12.000% due 5/15/15

 

20,849,060

 

 

See Notes to Schedule of Investments.

 

4



 

Western Asset High Income Fund II Inc.

 

 

 

 

 

Schedule of Investments (unaudited) (continued)

 

July 31, 2009

 

Face
Amount†

 

 

 

Security

 

Value

 

Consumer Finance — 5.3% (continued)

 

 

 

2,760,000

 

 

 

Ford Motor Credit Co., LLC, Senior Notes, 7.500% due 8/1/12

 

$

2,549,009

 

 

 

 

 

GMAC LLC:

 

 

 

4,290,000

 

 

 

Debentures, zero coupon bond to yield 27.702% due 6/15/15

 

1,512,225

 

2,390,000

 

 

 

Senior Bonds, zero coupon bond to yield 37.540% due 12/1/12

 

1,396,855

 

 

 

 

 

Senior Notes:

 

 

 

180,000

 

 

 

7.000% due 2/1/12 (a)

 

164,700

 

3,166,000

 

 

 

6.875% due 8/28/12 (a)

 

2,896,890

 

6,140,000

 

 

 

6.750% due 12/1/14 (a)

 

5,341,800

 

1,031,000

 

 

 

8.000% due 11/1/31 (a)

 

799,025

 

259,000

 

 

 

Subordinated Notes, 8.000% due 12/31/18 (a)

 

199,430

 

 

 

 

 

Total Consumer Finance

 

43,070,537

 

Diversified Financial Services — 2.2%

 

 

 

2,160,000

 

 

 

Capital One Capital V, Notes, 10.250% due 8/15/39

 

2,202,975

 

2,890,000

 

 

 

CCM Merger Inc., Notes, 8.000% due 8/1/13 (a)

 

2,239,750

 

 

 

 

 

CIT Group Inc., Senior Notes:

 

 

 

950,000

 

 

 

4.125% due 11/3/09

 

562,084

 

3,455,000

 

 

 

0.759% due 3/12/10 (e)

 

2,025,494

 

330,000

 

 

 

JPMorgan Chase & Co., Junior Subordinated Notes,
7.900% due 4/30/18 (e)(h)

 

314,615

 

 

 

 

 

Leucadia National Corp., Senior Notes:

 

 

 

3,670,000

 

 

 

8.125% due 9/15/15

 

3,550,725

 

80,000

 

 

 

7.125% due 3/15/17

 

71,200

 

 

 

 

 

TNK-BP Finance SA:

 

 

 

230,000

 

 

 

6.625% due 3/20/17 (a)

 

198,375

 

200,000

 

 

 

7.875% due 3/13/18 (a)

 

183,500

 

 

 

 

 

Senior Notes:

 

 

 

1,540,000

 

 

 

7.500% due 7/18/16 (a)(g)

 

1,428,350

 

1,390,000

 

 

 

7.875% due 3/13/18 (a)(g)

 

1,271,850

 

4,000,000

 

 

 

Vanguard Health Holdings Co., I LLC, Senior Discount Notes, step bond to yield 10.653% due 10/1/15

 

4,050,000

 

 

 

 

 

Total Diversified Financial Services

 

18,098,918

 

Insurance — 0.5%

 

 

 

 

 

 

 

American International Group Inc.:

 

 

 

5,510,000

 

 

 

Junior Subordinated Notes, 8.175% due 5/15/58 (e)

 

1,446,375

 

 

 

 

 

Senior Notes:

 

 

 

2,605,000

 

 

 

5.450% due 5/18/17

 

1,357,612

 

735,000

 

 

 

8.250% due 8/15/18

 

434,989

 

1,100,000

 

 

 

MetLife Capital Trust IV, Junior Subordinated Notes,
7.875% due 12/15/37 (a)

 

937,367

 

 

 

 

 

Total Insurance

 

4,176,343

 

Real Estate Investment Trusts (REITs) — 0.3%

 

 

 

2,500,000

 

 

 

Host Marriott LP, Senior Notes, 7.125% due 11/1/13

 

2,437,500

 

Real Estate Management & Development — 0.5%

 

 

 

1,297,400

 

 

 

Ashton Woods USA LLC/Ashton Woods Finance Co., Senior Subordinated Notes, step bond to yield 23.322% due 6/30/15 (a)(d)(f)

 

486,525

 

 

 

 

 

Realogy Corp.:

 

 

 

4,100,000

 

 

 

Senior Notes, 10.500% due 4/15/14

 

1,886,000

 

4,695,000

 

 

 

Senior Subordinated Notes, 12.375% due 4/15/15

 

1,338,075

 

370,807

 

 

 

Senior Toggle Notes, 11.000% due 4/15/14 (b)

 

135,345

 

 

 

 

 

Total Real Estate Management & Development

 

3,845,945

 

Thrifts & Mortgage Finance — 0.1%

 

 

 

1,370,000

 

 

 

Ocwen Capital Trust I, Junior Subordinated Capital Securities,
10.875% due 8/1/27

 

1,109,700

 

 

 

 

 

TOTAL FINANCIALS

 

89,335,761

 

 

See Notes to Schedule of Investments.

 

5



 

Western Asset High Income Fund II Inc.

 

 

 

 

 

Schedule of Investments (unaudited) (continued)

 

July 31, 2009

 

Face
Amount†

 

 

 

Security

 

Value

 

HEALTH CARE — 6.8%

 

 

 

Health Care Equipment & Supplies — 0.6%

 

 

 

4,420,000

 

 

 

Biomet Inc., Senior Notes, 10.375% due 10/15/17 (b)

 

$

4,751,500

 

Health Care Providers & Services — 6.2%

 

 

 

6,175,000

 

 

 

CRC Health Corp., Senior Subordinated Notes, 10.750% due 2/1/16

 

4,044,625

 

2,350,000

 

 

 

DaVita Inc., Senior Notes, 6.625% due 3/15/13

 

2,320,625

 

 

 

 

 

HCA Inc.:

 

 

 

1,325,000

 

 

 

Debentures, 7.500% due 11/15/95

 

793,830

 

15,354,000

 

 

 

Senior Secured Notes, 9.625% due 11/15/16 (b)

 

16,044,930

 

 

 

 

 

Tenet Healthcare Corp., Senior Notes:

 

 

 

3,100,000

 

 

 

9.000% due 5/1/15 (a)

 

3,286,000

 

7,310,000

 

 

 

10.000% due 5/1/18 (a)

 

8,114,100

 

1,470,000

 

 

 

6.875% due 11/15/31

 

962,850

 

 

 

 

 

Universal Hospital Services Inc., Senior Secured Notes:

 

 

 

1,010,000

 

 

 

4.635% due 6/1/15 (e)

 

853,450

 

4,840,000

 

 

 

8.500% due 6/1/15 (b)

 

4,719,000

 

7,879,000

 

 

 

US Oncology Holdings Inc., Senior Notes, 7.654% due 3/15/12 (b)(e)

 

6,736,545

 

2,130,000

 

 

 

US Oncology Inc., Senior Secured Notes, 9.125% due 8/15/17 (a)

 

2,209,875

 

 

 

 

 

Total Health Care Providers & Services

 

50,085,830

 

Pharmaceuticals — 0.0%

 

 

 

11,725,000

 

 

 

Leiner Health Products Inc., Senior Subordinated Notes,
11.000% due 6/1/12 (c)(d)

 

58,625

 

 

 

 

 

TOTAL HEALTH CARE

 

54,895,955

 

INDUSTRIALS — 10.5%

 

 

 

Aerospace & Defense — 0.8%

 

 

 

 

 

 

 

Hawker Beechcraft Acquisition Co., Senior Notes:

 

 

 

415,000

 

 

 

8.500% due 4/1/15

 

243,813

 

8,463,000

 

 

 

8.875% due 4/1/15 (b)

 

4,104,555

 

106,119

 

 

 

Kac Acquisition Co., Subordinated Notes, 8.000% due 4/26/26 (c)(d)(f)

 

0

 

2,565,000

 

 

 

L-3 Communications Corp., Senior Subordinated Notes,
6.375% due 10/15/15

 

2,475,225

 

 

 

 

 

Total Aerospace & Defense

 

6,823,593

 

Air Freight & Logistics — 0.1%

 

 

 

500,000

 

 

 

TGI International Ltd., Senior Notes, 9.500% due 10/3/17 (a)

 

525,000

 

Airlines — 2.0%

 

 

 

 

 

 

 

Continental Airlines Inc.:

 

 

 

5,000,000

 

 

 

5.983% due 4/19/22

 

4,200,000

 

 

 

 

 

Pass-Through Certificates:

 

 

 

871,941

 

 

 

8.312% due 10/2/12

 

723,711

 

1,930,000

 

 

 

7.339% due 4/19/14

 

1,408,900

 

9,280,000

 

 

 

DAE Aviation Holdings Inc., Senior Notes, 11.250% due 8/1/15 (a)

 

5,521,600

 

 

 

 

 

Delta Air Lines Inc., Pass-Through Certificates:

 

 

 

2,135,000

 

 

 

7.711% due 9/18/11

 

1,793,400

 

1,714,895

 

 

 

8.954% due 8/10/14

 

1,153,267

 

1,542,853

 

 

 

6.821% due 8/10/22

 

1,311,425

 

167,472

 

 

 

United Airlines Inc., Pass-Through Certificates, 8.030% due 7/1/11

 

177,521

 

 

 

 

 

Total Airlines

 

16,289,824

 

Building Products — 1.9%

 

 

 

 

 

 

 

Associated Materials Inc.:

 

 

 

7,230,000

 

 

 

Senior Discount Notes, 11.250% due 3/1/14

 

3,108,900

 

3,195,000

 

 

 

Senior Subordinated Notes, 9.750% due 4/15/12

 

2,767,669

 

 

 

 

 

GTL Trade Finance Inc.:

 

 

 

2,360,000

 

 

 

7.250% due 10/20/17 (a)(g)

 

2,445,550

 

2,302,000

 

 

 

Senior Notes, 7.250% due 10/20/17 (a)(g)

 

2,385,447

 

3,870,000

 

 

 

Nortek Inc., Senior Secured Notes, 10.000% due 12/1/13

 

3,434,625

 

 

See Notes to Schedule of Investments.

 

6



 

Western Asset High Income Fund II Inc.

 

 

 

 

 

Schedule of Investments (unaudited) (continued)

 

July 31, 2009

 

Face
Amount†

 

 

 

Security

 

Value

 

Building Products — 1.9% (continued)

 

 

 

7,315,000

 

 

 

NTK Holdings Inc., Senior Discount Notes, step bond to yield 11.600% due 3/1/14

 

$

512,050

 

610,000

 

 

 

Owens Corning Inc., Subordinated Notes, 9.000% due 6/15/19

 

633,037

 

435,000

 

 

 

USG Corp., Senior Notes, 9.750% due 8/1/14 (a)

 

445,875

 

 

 

 

 

Total Building Products

 

15,733,153

 

Commercial Services & Supplies — 1.8%

 

 

 

 

 

 

 

Altegrity Inc., Senior Subordinated Notes:

 

 

 

1,060,000

 

 

 

10.500% due 11/1/15 (a)

 

906,300

 

4,775,000

 

 

 

11.750% due 5/1/16 (a)

 

3,843,875

 

4,104,000

 

 

 

DynCorp International LLC/DIV Capital Corp., Senior Subordinated Notes, 9.500% due 2/15/13

 

4,134,780

 

 

 

 

 

RSC Equipment Rental Inc.:

 

 

 

5,715,000

 

 

 

Senior Notes, 9.500% due 12/1/14

 

4,929,187

 

590,000

 

 

 

Senior Secured Notes, 10.000% due 7/15/17 (a)

 

623,925

 

 

 

 

 

Total Commercial Services & Supplies

 

14,438,067

 

Construction & Engineering — 0.5%

 

 

 

3,740,000

 

 

 

Odebrecht Finance Ltd., 7.500% due 10/18/17 (a)(g)

 

3,828,825

 

Machinery — 0.2%

 

 

 

1,390,000

 

 

 

American Railcar Industries Inc., Senior Notes, 7.500% due 3/1/14

 

1,278,800

 

560,000

 

 

 

Terex Corp., Senior Notes, 10.875% due 6/1/16

 

585,200

 

 

 

 

 

Total Machinery

 

1,864,000

 

Road & Rail — 2.0%

 

 

 

 

 

 

 

Kansas City Southern de Mexico, Senior Notes:

 

 

 

7,415,000

 

 

 

9.375% due 5/1/12

 

7,340,850

 

1,100,000

 

 

 

7.625% due 12/1/13

 

995,500

 

2,605,000

 

 

 

12.500% due 4/1/16 (a)

 

2,787,350

 

280,000

 

 

 

Kansas City Southern Railway, Senior Notes, 13.000% due 12/15/13

 

315,000

 

4,330,000

 

 

 

RailAmerica Inc., Senior Secured Notes, 9.250% due 7/1/17 (a)

 

4,481,550

 

 

 

 

 

Total Road & Rail

 

15,920,250

 

Trading Companies & Distributors — 1.0%

 

 

 

2,300,000

 

 

 

Ashtead Capital Inc., Notes, 9.000% due 8/15/16 (a)

 

1,989,500

 

770,000

 

 

 

Ashtead Holdings PLC, Senior Secured Notes, 8.625% due 8/1/15 (a)

 

666,050

 

3,045,000

 

 

 

H&E Equipment Services Inc., Senior Notes, 8.375% due 7/15/16

 

2,573,025

 

6,680,000

 

 

 

Penhall International Corp., Senior Secured Notes, 12.000% due 8/1/14 (a)(d)

 

2,471,600

 

 

 

 

 

Total Trading Companies & Distributors

 

7,700,175

 

Transportation Infrastructure — 0.2%

 

 

 

 

 

 

 

Swift Transportation Co., Senior Secured Notes:

 

 

 

1,345,000

 

 

 

8.633% due 5/15/15 (a)(e)

 

598,525

 

2,640,000

 

 

 

12.500% due 5/15/17 (a)

 

1,227,600

 

 

 

 

 

Total Transportation Infrastructure

 

1,826,125

 

 

 

 

 

TOTAL INDUSTRIALS

 

84,949,012

 

INFORMATION TECHNOLOGY — 1.6%

 

 

 

Communications Equipment — 0.5%

 

 

 

6,100,000

 

 

 

Lucent Technologies Inc., Debentures, 6.450% due 3/15/29

 

3,995,500

 

IT Services — 0.7%

 

 

 

 

 

 

 

Ceridian Corp., Senior Notes:

 

 

 

290,000

 

 

 

11.250% due 11/15/15

 

248,675

 

3,285,000

 

 

 

12.250% due 11/15/15 (b)

 

2,513,025

 

 

 

 

 

First Data Corp.:

 

 

 

3,100,000

 

 

 

5.625% due 11/1/11

 

2,371,500

 

 

 

 

 

Senior Notes:

 

 

 

550,000

 

 

 

9.875% due 9/24/15 (a)

 

466,812

 

 

See Notes to Schedule of Investments.

 

7



 

Western Asset High Income Fund II Inc.

 

 

 

 

 

Schedule of Investments (unaudited) (continued)

 

July 31, 2009

 

Face
Amount†

 

 

 

Security

 

Value

 

IT Services — 0.7% (continued)

 

 

 

440,000

 

 

 

9.875% due 9/24/15

 

$

373,450

 

 

 

 

 

Total IT Services

 

5,973,462

 

Semiconductors & Semiconductor Equipment — 0.4%

 

 

 

 

 

 

 

Freescale Semiconductor Inc.:

 

 

 

 

 

 

 

Senior Notes:

 

 

 

1,840,000

 

 

 

8.875% due 12/15/14

 

1,242,000

 

1,269,744

 

 

 

9.125% due 12/15/14 (b)

 

711,057

 

1,500,000

 

 

 

Senior Subordinated Notes, 10.125% due 12/15/16

 

780,000

 

890,000

 

 

 

Sensata Technologies B.V., Senior Notes, 8.000% due 5/1/14

 

725,350

 

 

 

 

 

Total Semiconductors & Semiconductor Equipment

 

3,458,407

 

 

 

 

 

TOTAL INFORMATION TECHNOLOGY

 

13,427,369

 

MATERIALS — 9.3%

 

 

 

Chemicals — 0.8%

 

 

 

2,385,000

 

 

 

Ashland Inc., Senior Notes, 9.125% due 6/1/17 (a)

 

2,522,137

 

 

 

 

 

Georgia Gulf Corp., Senior Notes:

 

 

 

2,000,000

 

 

 

9.500% due 10/15/14 (c)(d)

 

1,290,000

 

5,905,000

 

 

 

10.750% due 10/15/16 (c)(d)

 

1,033,375

 

220,000

 

 

 

Methanex Corp., Senior Notes, 8.750% due 8/15/12

 

218,900

 

1,215,000

 

 

 

Westlake Chemical Corp., Senior Notes, 6.625% due 1/15/16

 

1,123,875

 

 

 

 

 

Total Chemicals

 

6,188,287

 

Containers & Packaging — 0.8%

 

 

 

1,235,000

 

 

 

BWAY Corp., Senior Subordinated Notes, 10.000% due 4/15/14 (a)

 

1,259,700

 

2,485,000

 

 

 

Graham Packaging Co. L.P., Senior Subordinated Notes,
9.875% due 10/15/14

 

2,391,813

 

2,100,000

 

 

 

Radnor Holdings Inc., Senior Notes, 11.000% due 3/15/10 (c)(d)(f)

 

0

 

2,880,000

 

 

 

Solo Cup Co., Senior Secured Notes, 10.500% due 11/1/13 (a)

 

3,045,600

 

 

 

 

 

Total Containers & Packaging

 

6,697,113

 

Metals & Mining — 4.6%

 

 

 

 

 

 

 

Evraz Group SA, Notes:

 

 

 

1,590,000

 

 

 

8.875% due 4/24/13 (a)(g)

 

1,391,250

 

680,000

 

 

 

9.500% due 4/24/18 (a)

 

578,000

 

4,360,000

 

 

 

Freeport-McMoRan Copper & Gold Inc., Senior Notes, 6.875% due 2/1/14

 

4,514,239

 

3,245,000

 

 

 

Metals USA Inc., Senior Secured Notes, 11.125% due 12/1/15

 

2,969,175

 

8,713,532

 

 

 

Noranda Aluminium Acquisition Corp., Senior Notes, 6.163% due 5/15/15 (b)(e)

 

4,705,307

 

6,045,000

 

 

 

Novelis Inc., Senior Notes, 7.250% due 2/15/15

 

4,956,900

 

3,030,000

 

 

 

Rio Tinto Finance USA Ltd., Senior Notes, 9.000% due 5/1/19

 

3,570,743

 

5,900,000

 

 

 

Ryerson Inc., Senior Secured Notes, 12.000% due 11/1/15

 

5,280,500

 

 

 

 

 

Teck Resources Ltd., Senior Secured Notes:

 

 

 

1,355,000

 

 

 

9.750% due 5/15/14 (a)

 

1,514,213

 

1,000,000

 

 

 

10.250% due 5/15/16 (a)

 

1,137,500

 

5,000

 

 

 

10.750% due 5/15/19 (a)

 

5,844

 

 

 

 

 

Vale Overseas Ltd., Notes:

 

 

 

1,284,000

 

 

 

8.250% due 1/17/34 (g)

 

1,499,142

 

3,268,000

 

 

 

6.875% due 11/21/36 (g)

 

3,310,873

 

2,070,000

 

 

 

Vedanta Resources PLC, Senior Notes, 8.750% due 1/15/14 (a)(g)

 

2,044,125

 

 

 

 

 

Total Metals & Mining

 

37,477,811

 

Paper & Forest Products — 3.1%

 

 

 

9,600,000

 

 

 

Abitibi-Consolidated Co. of Canada, Senior Secured Notes,
13.750% due 4/1/11 (a)(c)

 

8,904,000

 

 

 

 

 

Appleton Papers Inc.:

 

 

 

1,470,000

 

 

 

Senior Notes, 8.125% due 6/15/11 (d)

 

1,047,375

 

5,610,000

 

 

 

Senior Subordinated Notes, 9.750% due 6/15/14 (d)

 

2,103,750

 

3,910,000

 

 

 

Georgia-Pacific LLC, Senior Notes, 8.250% due 5/1/16 (a)

 

4,066,400

 

 

See Notes to Schedule of Investments.

 

8



 

Western Asset High Income Fund II Inc.

 

 

 

 

 

Schedule of Investments (unaudited) (continued)

 

July 31, 2009

 

Face
Amount†

 

 

 

Security

 

Value

 

Paper & Forest Products — 3.1% (continued)

 

 

 

 

 

 

 

NewPage Corp., Senior Secured Notes:

 

 

 

7,325,000

 

 

 

7.278% due 5/1/12 (e)

 

$

3,113,125

 

105,000

 

 

 

10.000% due 5/1/12

 

47,250

 

3,963,128

 

 

 

Newpage Holding Corp., Senior Notes, 8.579% due 11/1/13 (b)(e)

 

812,441

 

1,070,000

 

 

 

PE Paper Escrow GmbH, Senior Secured Notes, 12.000% due 8/1/14 (a)

 

1,070,000

 

1,935,000

 

 

 

Smurfit Capital Funding PLC, Debentures, 7.500% due 11/20/25

 

1,460,925

 

2,940,000

 

 

 

Verso Paper Holdings LLC, Senior Secured Notes, 11.500% due 7/1/14 (a)

 

2,748,900

 

 

 

 

 

Total Paper & Forest Products

 

25,374,166

 

 

 

 

 

TOTAL MATERIALS

 

75,737,377

 

TELECOMMUNICATION SERVICES — 10.1%

 

 

 

Diversified Telecommunication Services — 6.1%

 

 

 

 

 

 

 

Axtel SAB de CV, Senior Notes:

 

 

 

4,740,000

 

 

 

7.625% due 2/1/17 (a)(g)

 

4,040,850

 

370,000

 

 

 

7.625% due 2/1/17 (a)(g)

 

316,350

 

2,880,000

 

 

 

CC Holdings GS V LLC, Senior Notes, 7.750% due 5/1/17 (a)

 

2,952,000

 

1,305,000

 

 

 

Cincinnati Bell Telephone Co., Senior Debentures, 6.300% due 12/1/28

 

864,563

 

5,441,000

 

 

 

Hawaiian Telcom Communications Inc., Senior Subordinated Notes, 12.500% due 5/1/15 (c)(d)

 

6,801

 

1,925,000

 

 

 

Intelsat Bermuda Ltd., Senior Notes, 11.250% due 6/15/16

 

2,059,750

 

25,000

 

 

 

Intelsat Corp., Senior Notes, 9.250% due 8/15/14

 

25,438

 

3,140,000

 

 

 

Intelsat Intermediate Holding Co., Ltd., Senior Discount Notes, step bond to yield 11.892% due 2/1/15

 

3,045,800

 

 

 

 

 

Intelsat Jackson Holdings Ltd.:

 

 

 

6,275,000

 

 

 

9.500% due 6/15/16

 

6,526,000

 

5,755,000

 

 

 

Senior Notes, 11.500% due 6/15/16

 

5,942,037

 

 

 

 

 

Level 3 Financing Inc., Senior Notes:

 

 

 

2,470,000

 

 

 

12.250% due 3/15/13

 

2,488,525

 

5,080,000

 

 

 

9.250% due 11/1/14

 

4,457,700

 

3,135,000

 

 

 

Nordic Telephone Co. Holdings, Senior Secured Bonds,
8.875% due 5/1/16 (a)

 

3,197,700

 

270,000

 

 

 

SBA Telecommunications Inc., Senior Notes, 8.250% due 8/15/19 (a)

 

275,400

 

1,435,000

 

 

 

Telcordia Technologies Inc., Senior Subordinated Notes,
10.000% due 3/15/13 (a)

 

861,000

 

2,220,000

 

 

 

UBS Luxembourg SA for OJSC Vimpel Communications, Loan Participation Notes, 8.250% due 5/23/16 (a)(g)

 

2,000,775

 

700,000

 

 

 

Vimpel Communications, Loan Participation Notes, 8.375% due 4/30/13 (a)

 

680,750

 

 

 

 

 

Wind Acquisition Finance SA:

 

 

 

3,770,000

 

 

 

Senior Bonds, 10.750% due 12/1/15 (a)

 

4,015,050

 

1,485,000

 

 

 

Senior Notes, 11.750% due 7/15/17 (a)

 

1,596,375

 

4,370,000

 

 

 

Windstream Corp., Senior Notes, 8.625% due 8/1/16

 

4,457,400

 

 

 

 

 

Total Diversified Telecommunication Services

 

49,810,264

 

Wireless Telecommunication Services — 4.0%

 

 

 

3,130,000

 

 

 

ALLTEL Communications Inc., Senior Notes, 10.375% due 12/1/17 (a)(b)

 

3,795,782

 

1,370,000

 

 

 

Cricket Communications Inc., Senior Secured Notes, 7.750% due 5/15/16 (a)

 

1,370,000

 

210,000

 

 

 

iPCS Inc., Senior Secured Notes, 3.153% due 5/1/13 (e)

 

176,400

 

490,000

 

 

 

MetroPCS Wireless Inc., Senior Notes, 9.250% due 11/1/14

 

509,600

 

 

 

 

 

Sprint Capital Corp., Senior Notes:

 

 

 

1,450,000

 

 

 

7.625% due 1/30/11

 

1,468,125

 

5,330,000

 

 

 

8.375% due 3/15/12

 

5,423,275

 

985,000

 

 

 

6.875% due 11/15/28

 

748,600

 

8,040,000

 

 

 

8.750% due 3/15/32

 

6,964,650

 

13,015,000

 

 

 

True Move Co., Ltd., Notes, 10.750% due 12/16/13 (a)(g)

 

11,583,350

 

 

 

 

 

Total Wireless Telecommunication Services

 

32,039,782

 

 

 

 

 

TOTAL TELECOMMUNICATION SERVICES

 

81,850,046

 

UTILITIES — 8.9%

 

 

 

Electric Utilities — 3.7%

 

 

 

2,880,000

 

 

 

EEB International Ltd., Senior Bonds, 8.750% due 10/31/14 (a)(g)

 

3,060,000

 

 

See Notes to Schedule of Investments.

 

9



 

Western Asset High Income Fund II Inc.

 

 

 

 

 

Schedule of Investments (unaudited) (continued)

 

July 31, 2009

 

Face
Amount†

 

 

 

Security

 

Value

 

Electric Utilities — 3.7% (continued)

 

 

 

202,000

 

 

 

Enersis SA, Notes, 7.375% due 1/15/14

 

$

218,736

 

 

 

 

 

Texas Competitive Electric Holdings Co. LLC, Senior Notes:

 

 

 

30,560,000

 

 

 

10.250% due 11/1/15

 

24,142,400

 

4,890,438

 

 

 

10.500% due 11/1/16 (b)

 

2,763,097

 

 

 

 

 

Total Electric Utilities

 

30,184,233

 

Gas Utilities — 0.2%

 

 

 

1,887,000

 

 

 

Suburban Propane Partners LP/Suburban Energy Finance Corp., Senior Notes, 6.875% due 12/15/13

 

1,820,955

 

Independent Power Producers & Energy Traders — 4.8%

 

 

 

 

 

 

 

AES Corp., Senior Notes:

 

 

 

1,900,000

 

 

 

9.375% due 9/15/10

 

1,952,250

 

7,290,000

 

 

 

8.000% due 10/15/17

 

7,180,650

 

 

 

 

 

Dynegy Holdings Inc.:

 

 

 

3,975,000

 

 

 

Senior Debentures, 7.625% due 10/15/26

 

2,563,875

 

1,985,000

 

 

 

Senior Notes, 7.750% due 6/1/19

 

1,590,481

 

4,100,000

 

 

 

Dynegy Inc., Bonds, 7.670% due 11/8/16

 

3,772,000

 

 

 

 

 

Edison Mission Energy, Senior Notes:

 

 

 

2,890,000

 

 

 

7.750% due 6/15/16

 

2,442,050

 

2,750,000

 

 

 

7.200% due 5/15/19

 

2,096,875

 

4,605,000

 

 

 

7.625% due 5/15/27

 

3,039,300

 

7,096,600

 

 

 

Energy Future Holdings Corp., Senior Notes, 11.250% due 11/1/17 (b)

 

5,286,967

 

 

 

 

 

Mirant Mid Atlantic LLC, Pass-Through Certificates:

 

 

 

585,916

 

 

 

9.125% due 6/30/17

 

591,775

 

2,143,448

 

 

 

10.060% due 12/30/28

 

2,122,013

 

1,360,000

 

 

 

Mirant North America LLC, Senior Notes, 7.375% due 12/31/13

 

1,349,800

 

 

 

 

 

NRG Energy Inc., Senior Notes:

 

 

 

2,750,000

 

 

 

7.250% due 2/1/14

 

2,708,750

 

1,190,000

 

 

 

7.375% due 1/15/17

 

1,151,325

 

1,625,000

 

 

 

RRI Energy Inc., Senior Notes, 7.875% due 6/15/17

 

1,507,188

 

 

 

 

 

Total Independent Power Producers & Energy Traders

 

39,355,299

 

Multi-Utilities — 0.2%

 

 

 

1,250,000

 

 

 

Empresas Publicas de Medellin ESP, Senior Notes, 7.625% due 7/29/19 (a)

 

1,302,500

 

 

 

 

 

TOTAL UTILITIES

 

72,662,987

 

 

 

 

 

TOTAL CORPORATE BONDS & NOTES
(Cost — $829,128,906)

 

731,095,997

 

ASSET-BACKED SECURITY — 0.0%

 

 

 

FINANCIAL — 0.0%

 

 

 

Diversified Financial Services — 0.0%

 

 

 

3,698,937

 

 

 

Airplanes Pass-Through Trust, Subordinated Notes, 10.875% due 3/15/19 (c)(d)(f) (Cost - $3,942,677)

 

0

 

COLLATERALIZED MORTGAGE OBLIGATION — 0.1%

 

 

 

2,389,824

 

 

 

Countrywide Home Loan Mortgage Pass-Through Trust, 2.379% due 4/20/35 (e)(f) (Cost - $1,455,681)

 

905,389

 

COLLATERALIZED SENIOR LOANS — 2.5%

 

 

 

CONSUMER DISCRETIONARY — 0.7%

 

 

 

Media — 0.6%

 

 

 

1,936,610

 

 

 

Idearc Inc., Term Loan B, 3.460% due 11/1/14 (e)

 

894,069

 

4,000,000

 

 

 

Newsday LLC, Term Loan, 9.750% due 7/15/13 (e)

 

4,060,000

 

 

 

 

 

Total Media

 

4,954,069

 

Specialty Retail — 0.1%

 

 

 

500,000

 

 

 

Michaels Stores Inc., Term Loan B, 0.000% due 10/31/13 (e)

 

413,214

 

 

 

 

 

TOTAL CONSUMER DISCRETIONARY

 

5,367,283

 

 

See Notes to Schedule of Investments.

 

10



 

Western Asset High Income Fund II Inc.

 

 

 

 

 

Schedule of Investments (unaudited) (continued)

 

July 31, 2009

 

Face
Amount†

 

 

 

Security

 

Value

 

ENERGY — 0.8%

 

 

 

Energy Equipment & Services — 0.5%

 

 

 

5,487,694

 

 

 

Turbo Beta Ltd., Term Loan, 14.500% due 3/15/18 (d)(e)

 

$

3,923,702

 

Oil, Gas & Consumable Fuels — 0.3%

 

 

 

 

 

 

 

Ashmore Energy International:

 

 

 

279,613

 

 

 

Synthetic Revolving Credit Facility, 3.288% due 3/30/14 (e)

 

238,370

 

1,948,026

 

 

 

Term Loan, 4.220% due 3/30/14 (e)

 

1,660,692

 

3,000,000

 

 

 

Stallion Oilfield Services, Term Loan, 8.506% due 7/31/12 (e)

 

1,092,501

 

 

 

 

 

Total Oil, Gas & Consumable Fuels

 

2,991,563

 

 

 

 

 

TOTAL ENERGY

 

6,915,265

 

INDUSTRIALS — 0.5%

 

 

 

Aerospace & Defense — 0.2%

 

 

 

21,127

 

 

 

Hawker Beechcraft Acquisition Co., Term Loan, 2.598% due 3/26/14 (e)

 

14,445

 

2,477,958

 

 

 

Hawker Beechcraft, Term Loan B, 2.388% due 3/26/14 (e)

 

1,694,304

 

 

 

 

 

Total Aerospace & Defense

 

1,708,749

 

Airlines — 0.2%

 

 

 

3,050,000

 

 

 

United Airlines Inc., Term Loan B, 2.313% due 1/12/14 (e)

 

1,743,267

 

Commercial Services & Supplies — 0.1%

 

 

 

500,000

 

 

 

Rental Services Corp., Term Loan, 4.479% due 12/1/13 (e)

 

410,000

 

Trading Companies & Distributors — 0.0%

 

 

 

2,500,449

 

 

 

Penhall International Corp., Term Loan, 9.995% due 4/1/12 (e)

 

150,027

 

 

 

 

 

TOTAL INDUSTRIALS

 

4,012,043

 

MATERIALS — 0.2%

 

 

 

Chemicals — 0.0%

 

 

 

699,310

 

 

 

Lyondell Chemical Co., Term Loan, 5.819% due 12/20/14 (e)

 

305,599

 

Containers & Packaging — 0.2%

 

 

 

134,085

 

 

 

Berry Plastics Corp., Senior Term Loan, 8.161% due 6/15/14 (e)

 

36,873

 

500,000

 

 

 

Berry Plastics Group Inc., Term Loan C, 0.000% due 4/3/15

 

426,375

 

990,405

 

 

 

Graphic Packaging, Term Loan B, 2.509% due 5/3/14 (e)

 

944,805

 

 

 

 

 

Total Containers & Packaging

 

1,408,053

 

Paper & Forest Products — 0.0%

 

 

 

1,171,169

 

 

 

Verso Paper Holdings LLC, Term Loan, 6.733% due 2/1/13 (e)

 

263,513

 

 

 

 

 

TOTAL MATERIALS

 

1,977,165

 

TELECOMMUNICATION SERVICES — 0.3%

 

 

 

Diversified Telecommunication Services — 0.3%

 

 

 

2,000,000

 

 

 

Level 3 Communications Inc., Term Loan, 11.500% due 3/13/14 (e)

 

2,065,834

 

 

 

 

 

TOTAL COLLATERALIZED SENIOR LOANS
(Cost — $26,833,124)

 

20,337,590

 

CONVERTIBLE BONDS & NOTES — 0.9%

 

 

 

CONSUMER DISCRETIONARY — 0.5%

 

 

 

Media — 0.5%

 

 

 

4,590,000

 

 

 

Virgin Media Inc., Senior Notes, 6.500% due 11/15/16 (a)

 

4,010,513

 

INDUSTRIALS — 0.4%

 

 

 

Airlines — 0.0%

 

 

 

234,819

 

 

 

Delta Air Lines Inc., Pass-Through Certificates, 7.379% due 5/18/10

 

229,536

 

Marine — 0.4%

 

 

 

3,895,000

 

 

 

Horizon Lines Inc., Senior Notes, 4.250% due 8/15/12

 

2,745,975

 

 

 

 

 

TOTAL INDUSTRIALS

 

2,975,511

 

 

 

 

 

TOTAL CONVERTIBLE BONDS & NOTES
(Cost — $5,738,797)

 

6,986,024

 

 

See Notes to Schedule of Investments.

 

11



 

Western Asset High Income Fund II Inc.

 

 

 

 

 

Schedule of Investments (unaudited) (continued)

 

July 31, 2009

 

Face
Amount†

 

 

 

Security

 

Value

 

SOVEREIGN BONDS — 3.7%

 

 

 

Argentina — 0.2%

 

 

 

 

 

 

 

Republic of Argentina:

 

 

 

1,400,000

 

EUR

 

9.250% due 10/21/02 (c)

 

$

334,291

 

300,000

 

EUR

 

9.000% due 6/20/03 (c)

 

71,634

 

250,000

 

EUR

 

10.250% due 1/26/07 (c)

 

59,695

 

275,000

 

EUR

 

8.000% due 2/26/08 (c)

 

65,664

 

665,000

 

 

 

Bonds, 7.000% due 9/12/13

 

392,147

 

97,000

 

EUR

 

GDP Linked Securities, 1.262% due 12/15/35 (e)

 

4,771

 

 

 

 

 

Medium-Term Notes:

 

 

 

1,175,000

 

EUR

 

7.000% due 3/18/04 (c)

 

280,566

 

600,000

 

EUR

 

8.125% due 10/4/04 (c)

 

143,268

 

525,000

 

EUR

 

9.000% due 5/24/05 (a)(c)

 

125,359

 

 

 

 

 

Total Argentina

 

1,477,395

 

Brazil — 1.3%

 

 

 

 

 

 

 

Brazil Nota do Tesouro Nacional:

 

 

 

1,000

 

BRL

 

10.000% due 1/1/10

 

539

 

12,268,000

 

BRL

 

10.000% due 7/1/10

 

6,628,611

 

7,743,000

 

BRL

 

10.000% due 1/1/12

 

4,061,506

 

 

 

 

 

Total Brazil

 

10,690,656

 

Indonesia — 0.4%

 

 

 

 

 

 

 

Republic of Indonesia:

 

 

 

11,011,000,000

 

IDR

 

10.250% due 7/15/22

 

1,087,736

 

7,031,000,000

 

IDR

 

11.000% due 9/15/25

 

703,552

 

6,948,000,000

 

IDR

 

10.250% due 7/15/27

 

644,944

 

8,327,000,000

 

IDR

 

Bonds, 9.750% due 5/15/37

 

712,807

 

 

 

 

 

Total Indonesia

 

3,149,039

 

Panama — 0.6%

 

 

 

 

 

 

 

Republic of Panama:

 

 

 

1,097,000

 

 

 

9.375% due 4/1/29 (g)

 

1,387,705

 

3,370,000

 

 

 

6.700% due 1/26/36 (g)

 

3,412,125

 

 

 

 

 

Total Panama

 

4,799,830

 

Russia — 0.1%

 

 

 

336,960

 

 

 

Russian Federation, 7.500% due 3/31/30 (a)

 

344,036

 

Turkey — 0.7%

 

 

 

 

 

 

 

Republic of Turkey:

 

 

 

490,000

 

 

 

7.000% due 6/5/20 (g)

 

504,700

 

1,175,000

 

 

 

11.875% due 1/15/30 (g)

 

1,841,812

 

594,000

 

 

 

Bonds, 7.000% due 9/26/16 (g)

 

623,700

 

2,784,000

 

 

 

Notes, 6.875% due 3/17/36 (g)

 

2,658,720

 

 

 

 

 

Total Turkey

 

5,628,932

 

United Arab Emirates — 0.1%

 

 

 

1,060,000

 

 

 

MDC-GMTN B.V., Senior Notes, 5.750% due 5/6/14 (a)

 

1,090,276

 

Venezuela — 0.3%

 

 

 

 

 

 

 

Bolivarian Republic of Venezuela:

 

 

 

3,370,000

 

 

 

5.750% due 2/26/16 (a)(g)

 

2,005,150

 

 

See Notes to Schedule of Investments.

 

12



 

Western Asset High Income Fund II Inc.

 

 

 

 

 

Schedule of Investments (unaudited) (continued)

 

July 31, 2009

 

Face
Amount†

 

 

 

Security

 

Value

 

Venezuela — 0.3% (continued)

 

 

 

1,164,000

 

 

 

Collective Action Securities, 9.375% due 1/13/34 (g)

 

$

759,510

 

 

 

 

 

Total Venezuela

 

2,764,660

 

 

 

 

 

TOTAL SOVEREIGN BONDS
(Cost — $30,981,845)

 

29,944,824

 

 

 

 

 

 

 

 

 

Shares

 

 

 

 

 

 

 

COMMON STOCKS — 0.0%

 

 

 

CONSUMER DISCRETIONARY — 0.0%

 

 

 

Household Durables — 0.0%

 

 

 

18,861

 

 

 

Mattress Holding Corp. (d)(f)*

 

0

 

CONSUMER STAPLES — 0.0%

 

 

 

Food Products — 0.0%

 

 

 

6,729

 

 

 

Aurora Foods Inc. (d)(f)*

 

0

 

TELECOMMUNICATION SERVICES — 0.0%

 

 

 

Diversified Telecommunication Services — 0.0%

 

 

 

870

 

 

 

McLeodUSA Inc., Class A Shares (d)(f)*

 

0

 

 

 

 

 

TOTAL COMMON STOCKS
(Cost — $20,183)

 

0

 

CONVERTIBLE PREFERRED STOCKS — 0.7%

 

 

 

FINANCIALS — 0.7%

 

 

 

Diversified Financial Services — 0.7%

 

 

 

6,812

 

 

 

Bank of America Corp., 7.250% (Cost - $6,579,053)

 

5,722,080

 

ESCROWED SHARES — 0.0%

 

 

 

CONSUMER DISCRETIONARY — 0.0%

 

 

 

Textiles, Apparel & Luxury Goods — 0.0%

 

 

 

2,025,000

 

 

 

Pillowtex Corp., 9.000% due 12/15/49 (c)(d)(f) (Cost - $0)

 

0

 

PREFERRED STOCKS — 0.5%

 

 

 

CONSUMER DISCRETIONARY — 0.2%

 

 

 

Automobiles — 0.2%

 

 

 

101,500

 

 

 

Corts-Ford Motor Co., 7.400%

 

1,537,725

 

1,800

 

 

 

Corts-Ford Motor Co., 8.000%

 

28,260

 

2,700

 

 

 

Ford Motor Co., Series F, 7.550%

 

39,609

 

 

 

 

 

Total Automobiles

 

1,605,594

 

Media — 0.0%

 

 

 

59,329

 

 

 

CMP Susquehanna Radio Holdings Corp., 0.000% (a)(e)(f)*

 

25,215

 

7

 

 

 

ION Media Networks Inc., Series B, 12.000% (d)(f)*

 

0

 

 

 

 

 

Total Media

 

25,215

 

 

 

 

 

TOTAL CONSUMER DISCRETIONARY

 

1,630,809

 

FINANCIALS — 0.3%

 

 

 

Consumer Finance — 0.1%

 

 

 

2,521

 

 

 

Preferred Blocker Inc., 7.000% (a)

 

1,160,999

 

Diversified Financial Services — 0.2%

 

 

 

8,200

 

 

 

Preferred Plus, Series FMC1 Trust, Senior Debentures, 8.250%

 

130,216

 

12,600

 

 

 

Preferred Plus, Trust, Series FRD-1, 7.400%

 

189,000

 

69,100

 

 

 

Saturns, Series F 2003-5, 8.125%

 

1,095,235

 

 

 

 

 

 

 

1,414,451

 

Thrifts & Mortgage Finance — 0.0%

 

 

 

84,700

 

 

 

Federal National Mortgage Association (FNMA), 8.250% (i)*

 

157,542

 

 

 

 

 

TOTAL FINANCIALS

 

2,732,992

 

 

 

 

 

TOTAL PREFERRED STOCKS
(Cost — $6,263,477)

 

4,363,801

 

 

See Notes to Schedule of Investments.

 

13



 

Western Asset High Income Fund II Inc.

 

 

 

 

 

Schedule of Investments (unaudited) (continued)

 

July 31, 2009

 

Warrants

 

 

 

Security

 

Value

 

WARRANTS — 0.1%

 

 

 

18,500

 

 

 

Bolivarian Republic of Venezuela, Oil-linked payment obligations, Expires 4/15/20

 

$

388,500

 

3,488

 

 

 

Buffets Restaurant Holdings, Expires 4/28/14(d)(f)*

 

0

 

67,797

 

 

 

CNB Capital Trust, Expires 3/23/19(a)(f)*

 

1,864

 

325

 

 

 

Cybernet Internet Services International Inc., Expires 7/1/09(a)(d)(f)*

 

0

 

265

 

 

 

GT Group Telecom Inc., Class B Shares, Expires 2/1/10(a)(d)(f)*

 

0

 

2,750

 

 

 

Leap Wireless International Inc., Expires 4/15/10(a)(d)(f)*

 

0

 

1

 

 

 

Turbo Cayman Ltd., Expires 11/1/14(f)*

 

0

 

 

 

 

 

TOTAL WARRANTS
(Cost — $62,579)

 

390,364

 

 

 

 

 

TOTAL INVESTMENTS BEFORE SHORT-TERM INVESTMENT
(Cost — $911,006,322)

 

799,746,069

 

 

 

 

 

 

 

 

 

Face
Amount†

 

 

 

 

 

 

 

SHORT-TERM INVESTMENT‡ — 1.5%

 

 

 

Repurchase Agreement — 1.5%

 

 

 

12,521,000

 

 

 

Morgan Stanley tri-party repurchase agreement dated 7/31/09, 0.150% due 8/3/09; Proceeds at maturity - $12,521,157; (Fully collateralized by U.S. government agency obligations, 6.750% due 9/15/29; Market value - $13,041,327) (Cost - $12,521,000)

 

12,521,000

 

 

 

 

 

TOTAL INVESTMENTS — 100.0% (Cost — $923,527,322#)

 

$

812,267,069

 

 

*

Non-income producing security.

Face amount denominated in U.S. dollars, unless otherwise noted.

(a)

Security is exempt from registration under Rule 144A of the Securities Act of 1933. This security may be resold in transactions that are exempt from registration, normally to qualified institutional buyers. This security has been deemed liquid pursuant to guidelines approved by the Board of Directors, unless otherwise noted.

(b)

Payment-in-kind security for which part of the income earned may be paid as additional principal.

(c)

Security is currently in default.

(d)

Illiquid security.

(e)

Variable rate security. Interest rate disclosed is that which is in effect at July 31, 2009.

(f)

Security is valued in good faith at fair value by or under the direction of the Board of Directors (See Note 1).

(g)

All or a portion of this security is held by the counterparty as collateral for open reverse repurchase agreements.

(h)

Security has no maturity date. The date shown represents the next call date.

(i)

On September 7, 2008, the Federal Housing Finance Agency placed Fannie Mae and Freddie Mac into conservatorship.

Under Statement of Financial Accounting Standards No. 157, all securities are deemed Level 2. Please refer to Note 1 of the Notes to Schedule of Investments.

#

Aggregate cost for federal income tax purposes is substantially the same.

 

Abbreviations used in this schedule:

BRL

-

Brazilian Real

EUR

-

Euro

GDP

-

Gross Domestic Product

GMAC

-

General Motors Acceptance Corp.

IDR

-

Indonesian Rupiah

OJSC

-

Open Joint Stock Company

 

See Notes to Schedule of Investments.

 

14



 

Notes to Schedule of Investments (unaudited)

 

1. Organization and Significant Accounting Policies

 

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

 

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

 

(a) Investment Valuation.  Debt securities are valued at the mean between the last quoted bid and asked prices provided by an independent pricing service that are based on transactions in debt obligations, quotations from bond dealers, market transactions in comparable securities and various other relationships between securities. Publicly traded foreign government debt securities are typically traded internationally in the over-the-counter market, and are valued at the mean between the last quoted bid and asked prices as of the close of business of that market. Equity securities for which market quotations are available are valued at the last reported sales price or official closing price on the primary market or exchange on which they trade. When prices are not readily available, or are determined not to reflect fair value, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded, but before the Fund calculates its net asset value, the Fund may value these securities at fair value as determined in accordance with the procedures approved by the Fund’s Board of Directors. Short-term obligations with maturities of 60 days or less are valued at amortized cost, which approximates fair value.

 

The Fund adopted Statement of Financial Accounting Standards No. 157 (“FAS 157”).  FAS 157 establishes a single definition of fair value, creates a three-tier hierarchy as a framework for measuring fair value based on inputs used to value the Fund’s investments, and requires additional disclosure about fair value.  The hierarchy of inputs is summarized below.

 

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

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

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

 

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

 

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

 

Description

 

Quoted Prices
(Level 1)

 

Other Significant
Observable Inputs
(Level 2)

 

Significant
Unobservable
Inputs
(Level 3)

 

Total

 

Long-term investments:

 

 

 

 

 

 

 

 

 

Corporate bonds & notes

 

 

$

730,501,522

 

$

594,475

 

$

731,095,997

 

Asset-backed security

 

 

 

0

*

0

*

Collateralized mortgage obligation

 

 

905,389

 

 

905,389

 

Collateralized senior loans

 

 

20,337,590

 

 

20,337,590

 

Convertible bonds & notes

 

 

6,986,024

 

 

6,986,024

 

Sovereign bonds

 

 

29,944,824

 

 

29,944,824

 

Common stocks:

 

 

 

 

 

 

 

 

 

Consumer discretionary

 

 

 

0

*

0

*

Consumer staples

 

 

 

0

*

0

*

Telecommunication services

 

 

 

0

*

0

*

Convertible preferred stocks:

 

 

 

 

 

 

 

 

 

Financials

 

$

5,722,080

 

 

 

5,722,080

 

Escrowed shares:

 

 

 

 

 

 

 

 

 

Consumer discretionary

 

 

 

0

*

0

*

Preferred stocks:

 

 

 

 

 

 

 

 

 

Consumer discretionary

 

1,605,594

 

 

25,215

 

1,630,809

 

Financials

 

1,571,993

 

1,160,999

 

 

2,732,992

 

Warrants

 

 

388,500

 

1,864

 

390,364

 

Total long-term investments

 

8,899,667

 

790,224,848

 

621,554

 

799,746,069

 

Short-term investment †

 

 

12,521,000

 

 

12,521,000

 

Total investments

 

$

8,899,667

 

$

802,745,848

 

$

621,554

 

$

812,267,069

 

 

* Amount represents less than $1.

† See Schedule of Investments for additional detailed categorizations.

 

15



 

Notes to Schedule of Investments (unaudited) (continued)

 

Following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value:

 

 

 

Corporate

 

Asset-

 

Common Stocks

 

Escrowed
Shares -

 

Preferred
Stocks -

 

 

 

 

 

Investments in Securities

 

Bonds &
Notes

 

Backed
Securities

 

Consumer Discretionary

 

Consumer
Staples

 

Telecommunication
Services

 

Consumer
Discretionary

 

Consumer
Discretionary

 

Warrants

 

TOTAL

 

Balance as of April 30, 2009

 

$

2,705,414

 

$

0

*

$

0

*

$

0

*

$

0

*

$

0

*

$

25,215

 

$

1,864

 

$

2,732,493

 

Accrued premiums/discounts

 

28,224

 

 

 

 

 

 

 

 

28,224

 

Realized gain/(loss)(1)

 

47,715

 

 

(4,205,140

)

 

 

 

 

 

(4,157,425

)

Change in unrealized appreciation (depreciation) (2)

 

14,174

 

 

4,213,035

 

 

 

 

 

 

4,227,209

 

Net purchases (sales)

 

(440,409

)

 

(7,895

)

 

 

 

 

 

(448,304

)

Net transfers in and/or out of Level 3

 

(1,760,643

)

 

 

 

 

 

 

 

(1,760,643

)

Balance as of July 31, 2009

 

$

594,475

 

$

0

*

$

0

*

$

0

*

$

0

*

$

0

*

$

25,215

 

$

1,864

 

$

621,554

 

Net unrealized appreciation (depreciation) for investments in securities still held at July 31, 2009(2)

 

$

(2,268,860

)

$

(3,942,677

)

$

(189

)

$

(18,090

)

$

(1,903

)

$

0

*

$

(80,500

)

$

(60,715

)

$

(6,372,934

)

 

*

Amount represents less than $1.

 

 

(1)

This amount is included in net realized gain (loss) from investment transactions.

 

 

(2)

Change in unrealized appreciation (depreciation) includes net unrealized appreciation (depreciation) resulting from changes in investment values during the reporting period and the reversal of previously recorded unrealized appreciation (depreciation) when gains or losses are realized.

 

(b) Repurchase Agreements.  When entering into repurchase agreements, it is the Fund’s policy that its custodian or a third party custodian take possession of the underlying collateral securities, the market value of which, at all times, at least equals the principal amount of the repurchase transaction, including accrued interest. To the extent that any repurchase transaction exceeds one business day, the value of the collateral is marked-to-market daily to ensure the adequacy of the collateral. If the seller defaults, and the market value of the collateral declines or if bankruptcy proceedings are commenced with respect to the seller of the security, realization of the collateral by the Fund may be delayed or limited.

 

(c) Reverse Repurchase Agreements.  The Fund may enter into a reverse repurchase agreement in which the Fund sells a portfolio security at a specified price with an agreement to purchase the same or substantially the same security from the same counterparty at a fixed or determinable price at a future date. When entering into reverse repurchase agreements, the Fund’s custodian delivers to the counterparty liquid assets, the market value of which, at the inception of the transaction, at least equals the repurchase price (including accrued interest). The Fund pays interest on amounts obtained pursuant to reverse repurchase agreements. Reverse repurchase agreements are considered to be borrowings, which may create leverage risk to the Fund.

 

(d) Foreign Currency Translation. Investment securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts based upon prevailing exchange rates at the date of valuation.  Purchases and sales of investment securities and income and expense items denominated in foreign currencies are translated into U.S. dollar amounts based upon prevailing exchange rates on the respective dates of such transactions.

 

16



 

Notes to Schedule of Investments (unaudited) (continued)

 

Foreign security and currency transactions may involve certain considerations and risks not typically associated with those of U.S. dollar denominated transactions as a result of, among other factors, the possibility of lower levels of governmental supervision and regulation of foreign securities markets and the possibility of political or economic instability.

 

(e) Credit and Market Risk.  The Fund invests in high-yield and emerging market instruments that are subject to certain credit and market risks. The yields of high-yield and emerging market debt obligations reflect, among other things, perceived credit and market risks. The Fund’s investment in securities rated below investment grade typically involves risks not associated with higher rated securities including, among others, greater risk related to timely and ultimate payment of interest and principal, greater market price volatility and less liquid secondary market trading. The consequences of political, social, economic or diplomatic changes may have disruptive effects on the market prices of investments held by the Fund. The Fund’s investment in non-U.S. dollar denominated securities may also result in foreign currency losses caused by devaluations and exchange rate fluctuations.

 

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

 

2.  Investments

 

At July 31, 2009, the aggregate gross unrealized appreciation and depreciation of investments for federal income tax purposes were substantially as follows:

 

Gross unrealized appreciation

 

$

54,279,843

 

Gross unrealized depreciation

 

(165,540,096

)

Net unrealized depreciation

 

$

(111,260,253

)

 

Transactions in reverse repurchase agreements for the Fund during the three months ended July 31, 2009 were as follows:

 

Average

 

Weighted

 

Maximum

 

Daily

 

Average

 

Amount

 

Balance *

 

Interest Rate*

 

Outstanding

 

$

42,531,690

 

2.585%

 

$

43,505,394

 

 

*  Average based on number of days the Fund had reverse repurchase agreements outstanding.

 

Interest rates on reverse repurchase agreements ranged from 1.500% to 3.250% during the three months ended July 31, 2009. Interest expense incurred on reverse repurchase agreements totaled $280,952.

 

At July 31, 2009, the Fund had the following open reverse repurchase agreements:

 

Face

 

 

 

 

Amount

 

Security

 

Value

 

 

 

 

 

$

2,246,286

 

Reverse Repurchase Agreement with Credit Suisse, dated 5/1/09 bearing 2.000% to be repurchased at $2,259,889 on 8/18/09, collateralized by: $4,740,000 Axtel SAB de CV, 7.625% due 2/1/17; Market value (including accrued interest) $4,223,527

 

$

2,246,286

 

 

 

 

 

1,319,967

 

Reverse Repurchase Agreement with Credit Suisse, dated 5/1/09 bearing 1.500% to be repurchased at $1,325,962 on 8/18/09, collateralized by: $2,302,000 GTL Trade Finance Inc., 7.250% due 10/20/17; Market value (including accrued interest) $2,433,327

 

1,319,967

 

 

 

 

 

2,021,844

 

Reverse Repurchase Agreement with Credit Suisse, dated 4/23/09 bearing 3.000% to be repurchased at $2,041,557 on 8/18/09, collateralized by: $3,740,000 Odebrecht Finance Ltd., 7.500% due 10/18/17; Market value (including accrued interest) $3,910,829

 

2,021,844

 

17



 

Notes to Schedule of Investments (unaudited) (continued)

 

Face

 

 

 

 

Amount

 

Security

 

Value

 

 

 

 

 

$

1,369,905

 

Reverse Repurchase Agreement with Credit Suisse, dated 6/26/09 bearing 3.000% to be repurchased at $1,375,955 on 8/18/09, collateralized by: $3,370,000 Bolivarian Republic of Venezuela, 5.750% due 2/26/16; Market value (including accrued interest) $2,089,657

 

$

1,369,905

 

 

 

 

 

1,412,226

 

Reverse Repurchase Agreement with Credit Suisse, dated 6/26/09 bearing 2.000% to be repurchased at $1,416,384 on 8/18/09, collateralized by: $2,010,000 RSHB Capital, 9.000% due 6/11/14; Market value (including accrued interest) $2,178,303

 

1,412,226

 

 

 

 

 

942,652

 

Reverse Repurchase Agreement with Credit Suisse, dated 4/23/09 bearing 2.000% to be repurchased at $948,779 on 8/18/09, collateralized by: $1,097,000 Republic of Panama, 9.375% due 4/1/29; Market value (including accrued interest) $1,422,548

 

942,652

 

 

 

 

 

2,315,527

 

Reverse Repurchase Agreement with Credit Suisse, dated 4/23/09 bearing 2.000% to be repurchased at $2,330,578 on 8/18/09, collateralized by: $3,370,000 Republic of Panama, 6.700% due 1/26/36; Market value (including accrued interest) $3,417,033

 

2,315,527

 

 

 

 

 

4,004,220

 

Reverse Repurchase Agreement with Credit Suisse, dated 5/1/09 bearing 2.000% to be repurchased at $4,028,468 on 8/18/09, collateralized by: $6,067,000 Pemex Project Funding Master Trust, 6.625% due 6/15/35; Market value (including accrued interest) $5,812,723

 

4,004,220

 

 

 

 

 

765,142

 

Reverse Repurchase Agreement with Credit Suisse, dated 5/1/09 bearing 2.000% to be repurchased at $769,775 on 8/18/09, collateralized by: $1,204,000 RSHB Capital, 7.175% due 5/16/13; Market value (including accrued interest) $1,227,120

 

765,142

 

 

 

 

 

3,613,750

 

Reverse Repurchase Agreement with Credit Suisse, dated 6/22/09 bearing 3.000% to be repurchased at $3,628,506 on 8/10/09, collateralized by: $12,500,000 True Move Co., Ltd., 10.750% due 12/16/13; Market value (including accrued interest) $11,301,230

 

3,613,750

 

 

 

 

 

1,393,550

 

Reverse Repurchase Agreement with Credit Suisse, dated 5/1/09 bearing 2.000% to be repurchased at $1,401,989 on 8/18/09, collateralized by: $1,175,000 Republic of Turkey, 11.875% due 1/15/30; Market value (including accrued interest) $1,849,017

 

1,393,550

 

 

 

 

 

1,863,888

 

Reverse Repurchase Agreement with Credit Suisse, dated 4/23/09 bearing 2.000% to be repurchased at $1,876,003 on 8/18/09, collateralized by: $2,784,000 Republic of Turkey, 6.875% due 3/17/36; Market value (including accrued interest) $2,731,015

 

1,863,888

 

 

 

 

 

904,321

 

Reverse Repurchase Agreement with Credit Suisse, dated 5/1/09 bearing 2.000% to be repurchased at $909,797 on 8/18/09, collateralized by: $1,284,000 Vale Overseas Ltd., 8.250% due 1/17/34; Market value (including accrued interest) $1,504,035

 

904,321

 

 

 

 

 

1,964,068

 

Reverse Repurchase Agreement with Credit Suisse, dated 5/1/09 bearing 2.000% to be repurchased at $1,975,962 on 8/18/09, collateralized by: $3,268,000 Vale Overseas Ltd., 6.875% due 11/21/36; Market value (including accrued interest) $3,356,052

 

1,964,068

 

18



 

Notes to Schedule of Investments (unaudited) (continued)

 

Face

 

 

 

 

Amount

 

Security

 

Value

 

 

 

 

 

$

1,041,831

 

Reverse Repurchase Agreement with Credit Suisse, dated 4/23/09 bearing 3.000% to be repurchased at $1,051,989 on 8/18/09, collateralized by: $2,070,000 Vedanta Resources PLC, 8.750% due 1/15/14; Market value (including accrued interest) $2,053,477

 

$

1,041,831

 

 

 

 

 

495,864

 

Reverse Repurchase Agreement with Credit Suisse, dated 4/23/09 bearing 3.000% to be repurchased at $500,699 on 8/18/09, collateralized by: $1,164,000 Bolivarian Republic of Venezuela, 9.375% due 1/13/34; Market value (including accrued interest) $765,737

 

495,864

 

 

 

 

 

1,400,660

 

Reverse Repurchase Agreement with Credit Suisse, dated 5/5/09 bearing 1.500% to be repurchased at $1,406,788 on 8/18/09, collateralized by: $2,360,000 GTL Trade Finance Inc., 7.250% due 10/20/17; Market value (including accrued interest) $2,494,636

 

1,400,660

 

 

 

 

 

961,480

 

Reverse Repurchase Agreement with Credit Suisse, dated 4/23/09 bearing 3.000% to be repurchased at $970,854 on 8/18/09, collateralized by: $1,720,000 LUKOIL International Finance BV, 6.356% due 6/7/17; Market value (including accrued interest) $1,608,026

 

961,480

 

 

 

 

 

1,771,200

 

Reverse Repurchase Agreement with JPMorgan Chase & Co., dated 4/21/09 bearing 3.250% to be repurchased at $1,790,388 on 8/19/09, collateralized by: $2,880,000 EEB International Ltd., 8.750% due 10/31/14; Market value (including accrued interest) $3,125,410

 

1,771,200

 

 

 

 

 

729,810

 

Reverse Repurchase Agreement with JPMorgan Chase & Co., dated 4/21/09 bearing 3.250% to be repurchased at $737,716 on 8/19/09, collateralized by: $1,590,000 Evraz Group SA, 8.875% due 4/24/13; Market value (including accrued interest) $1,430,191

 

729,810

 

 

 

 

 

1,430,838

 

Reverse Repurchase Agreement with JPMorgan Chase & Co., dated 4/21/09 bearing 3.250% to be repurchased at $1,446,339 on 8/19/09, collateralized by: $2,419,000 Globo Communicacoes e Participacoes SA, 7.250% due 4/26/22; Market value (including accrued interest) $2,481,557

 

1,430,838

 

 

 

 

 

459,034

 

Reverse Repurchase Agreement with JPMorgan Chase & Co., dated 4/21/09 bearing 3.250% to be repurchased at $464,007 on 8/19/09, collateralized by: $1,174,000 ICICI Bank Ltd., 6.375% due 4/30/22; Market value (including accrued interest) $947,746

 

459,034

 

 

 

 

 

1,210,950

 

Reverse Repurchase Agreement with JPMorgan Chase & Co., dated 4/21/09 bearing 3.250% to be repurchased at $1,224,069 on 8/19/09, collateralized by: $2,070,000 KazMunaiGaz Finance Sub B.V., 8.375% due 7/2/13; Market value (including accrued interest) $1,966,050

 

1,210,950

 

 

 

 

 

546,490

 

Reverse Repurchase Agreement with JPMorgan Chase & Co., dated 4/21/09 bearing 3.250% to be repurchased at $552,410 on 8/19/09, collateralized by: $1,055,000 RSHB Capital, 6.299% due 5/15/17; Market value (including accrued interest) $969,222

 

546,490

 

 

 

 

 

745,800

 

Reverse Repurchase Agreement with JPMorgan Chase & Co., dated 4/21/09 bearing 3.250% to be repurchased at $753,880 on 8/19/09, collateralized by: $1,320,000 RSHB Capital, 7.125% due 1/14/14; Market value (including accrued interest) $1,326,299

 

745,800

 

19



 

Notes to Schedule of Investments (unaudited) (continued)

 

Face

 

 

 

 

Amount

 

Security

 

Value

 

 

 

 

 

$

395,430

 

Reverse Repurchase Agreement with JPMorgan Chase & Co., dated 4/21/09 bearing 3.250% to be repurchased at $399,714 on 8/19/09, collateralized by: $490,000 Republic of Turkey, 7.000% due 6/5/20; Market value (including accrued interest) $510,299

 

$

395,430

 

 

 

 

 

479,655

 

Reverse Repurchase Agreement with JPMorgan Chase & Co., dated 4/21/09 bearing 3.250% to be repurchased at $484,851 on 8/19/09, collateralized by: $594,000 Republic of Turkey, 7.000% due 9/26/16; Market value (including accrued interest) $638,389

 

479,655

 

 

 

 

 

161,875

 

Reverse Repurchase Agreement with JPMorgan Chase & Co., dated 4/21/09 bearing 3.250% to be repurchased at $163,629 on 8/19/09, collateralized by: $370,000 Axtel SAB de CV, 7.625% due 2/1/17; Market value (including accrued interest) $330,610

 

161,875

 

 

 

 

 

1,087,800

 

Reverse Repurchase Agreement with JPMorgan Chase & Co., dated 4/21/09 bearing 3.250% to be repurchased at $1,099,585 on 8/19/09, collateralized by: $2,220,000 UBS Luxembourg SA for OJSC Vimpel Communications, 8.250% due 5/23/16; Market value (including accrued interest) $2,036,609

 

1,087,800

 

 

 

 

 

781,550

 

Reverse Repurchase Agreement with UBS Securities LLC, dated 2/27/09 bearing 2.500% to be repurchased at $792,133 on 9/10/09, collateralized by: $1,540,000 TNK-BP Finance SA, 7.500% due 7/18/16; Market value (including accrued interest) $1,433,372

 

781,550

 

 

 

 

 

688,050

 

Reverse Repurchase Agreement with UBS Securities LLC, dated 2/27/09 bearing 2.500% to be repurchased at $697,367 on 9/10/09, collateralized by: $1,390,000 TNK-BP Finance SA, 7.875% due 3/13/18; Market value (including accrued interest) $1,314,386

 

688,050

 

 

 

 

 

520,650

 

Reverse Repurchase Agreement with UBS Securities LLC, dated 2/27/09 bearing 2.500% to be repurchased at $527,700 on 9/10/09, collateralized by: $1,170,000 ICICI Bank Ltd., 6.375% due 4/30/22; Market value (including accrued interest) $928,055

 

520,650

 

 

 

 

 

877,200

 

Reverse Repurchase Agreement with UBS Securities LLC, dated 2/27/09 bearing 2.500% to be repurchased at $889,079 on 9/10/09, collateralized by: $1,720,000 RSHB Capital, 7.125% due 1/14/14; Market value (including accrued interest) $1,743,860

 

877,200

 

 

 

 

 

 

 

Total Reverse Repurchase Agreements

 

 

 

 

(Proceeds — $41,923,513)

 

$

41,923,513

 

3. Derivative Instruments and Hedging Activities

 

Financial Accounting Standards Board Statement of Financial Accounting Standards No. 161, “Disclosure about Derivative Instruments and Hedging Activities,” requires enhanced disclosure about an entity’s derivative and hedging activities.

 

At July 31, 2009, the Fund did not hold any derivative instruments.

 

20



 

ITEM 2.                                                   CONTROLS AND PROCEDURES.

 

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

 

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

 

ITEM 3.                                                   EXHIBITS.

 

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

 



 

SIGNATURES

 

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

 

Western Asset High Income Fund II Inc.

 

 

 

 

 

By:

/s/ R. Jay Gerken

 

 

R. Jay Gerken

 

 

Chief Executive Officer

 

 

 

 

 

Date:

  September 28, 2009

 

 

 

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

 

By:

/s/ R. Jay Gerken

 

 

R. Jay Gerken

 

 

Chief Executive Officer

 

 

 

 

 

Date:

  September 28, 2009

 

 

 

 

 

By:

/s/ Kaprel Ozsolak

 

 

Kaprel Ozsolak

 

 

Chief Financial Officer

 

 

 

 

 

Date:

  September 28, 2009