|
INVESTMENT PRODUCTS: NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE
VALUE
|
Fund objectives
The Fund seeks to maximize current income. As a secondary objective, the Fund seeks capital appreciation to the extent consistent with its objective of seeking to maximize current income.
Under normal market conditions, the Fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in high-yield debt securities. In
addition, the Fund may invest up to 35% of its total assets in debt securities of issuers located in emerging market countries.
|
|
|
II
|
|
Western Asset High Income Fund II Inc.
|
Letter from the chairman
Dear Shareholder,
We are pleased to provide the semi-annual report of Western Asset High Income Fund II Inc. for the six-month
reporting period ended October 31, 2019. Please read on for Fund performance information during the Funds reporting period.
As always, we
remain committed to providing you with excellent service and a full spectrum of investment choices. We also remain committed to supplementing the support you receive from your financial advisor. One way we accomplish this is through our website,
www.lmcef.com. Here you can gain immediate access to market and investment information, including:
|
|
Fund prices and performance,
|
|
|
Market insights and commentaries from our portfolio managers, and
|
|
|
A host of educational resources.
|
We look
forward to helping you meet your financial goals.
Sincerely,
Jane Trust, CFA
Chairman, President and Chief Executive Officer
November 29, 2019
|
|
|
Western Asset High Income Fund II Inc.
|
|
III
|
Performance review
For the six months ended October 31, 2019, Western Asset High Income Fund II Inc. returned 3.60% based on its net asset value
(NAV)i and 4.82% based on its New York Stock Exchange
(NYSE) market price per share. The Funds unmanaged benchmarks, the Bloomberg Barclays U.S. Corporate High Yield 2% Issuer Cap Indexii and the JPMorgan Emerging Markets Bond Index Globaliii, returned 2.69% and 5.41%, respectively for the same period. The Lipper High Yield (Leveraged)
Closed-End Funds Category Averageiv
returned 1.86% over the same time frame. Please note that Lipper performance returns are based on each funds NAV.
During this six-month period, the Fund made distributions to shareholders totaling $0.28 per share. As of October 31, 2019, the Fund estimates that 96% of the distributions were sourced from net investment income and 4%
constituted a return of capital.* The performance table shows the Funds six-month total return based on its NAV and market price as of October 31, 2019. Past performance is no guarantee of future
results.
|
|
|
|
|
Performance Snapshot as of October 31, 2019
(unaudited)
|
|
Price Per Share
|
|
6-Month
Total Return**
|
|
$ 7.29 (NAV)
|
|
|
3.60
|
%
|
$ 6.73 (Market Price)
|
|
|
4.82
|
%
|
All figures represent past performance and are not a guarantee of future results. Performance figures for periods shorter than
one year represent cumulative figures and are not annualized.
** Total returns are based on changes in NAV or market price, respectively. Returns
reflect the deduction of all Fund expenses, including management fees, operating expenses, and other Fund expenses. Returns do not reflect the deduction of brokerage commissions or taxes that investors may pay on distributions or the sale of shares.
Total return assumes the reinvestment of all distributions, including returns of capital, if any, at NAV.
Total return assumes the reinvestment of all distributions, including returns of capital, if any, in additional shares in accordance with the Funds
Dividend Reinvestment Plan.
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. Barrons and the Wall Street Journals 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.lmcef.com (click on the name of the Fund).
*
|
These estimates are not for tax purposes. The Fund will issue a Form 1099 with final composition of the distributions for tax purposes after year-end. A
return of capital is not taxable and results in a reduction in the tax basis of a shareholders investment. For more information about a distributions composition, please refer to the Funds distribution press release or, if
applicable, the Section 19 notice located in the press release section of our website, www.lmcef.com (click on the name of the Fund).
|
|
|
|
IV
|
|
Western Asset High Income Fund II Inc.
|
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 5:30 p.m. Eastern Time, for the Funds 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 Funds investment goals.
Sincerely,
Jane Trust, CFA
Chairman, President and Chief Executive Officer
November 18, 2019
RISKS: The Fund is a diversified closed-end management
investment company designed primarily as a long-term investment and not as a trading vehicle. The Fund is not intended to be a complete investment program and, due to the uncertainty inherent in all investments, there can be no assurance that the
Fund will achieve its investment objective. The Funds common stock is traded on the New York Stock Exchange. Similar to stocks, the Funds share price will fluctuate with market conditions and, at the time of sale, may be worth more or
less than the original investment. Shares of closed-end funds often trade at a discount to their net asset value. Diversification does not assure against market loss. The Funds investments are subject to
a number of risks, such as credit risk, inflation risk and interest rate risk. As interest rates rise, bond prices fall, reducing the value of the Funds holdings. The Fund may use derivatives, such as options and futures, which can be
illiquid, may disproportionately increase losses, and have a potentially large impact on Fund performance. High-yield bonds, known as junk bonds, involve greater credit and liquidity risks than investment grade bonds. Foreign securities
are subject to certain risks not associated with domestic investing, such as currency fluctuations and changes in political and economic conditions which could result in significant fluctuations. These risks are magnified in emerging markets. The
Fund is also permitted purchases of equity securities. Equity securities generally have greater price volatility than fixed income securities. Leverage may result in greater volatility of NAV and the market price of common shares and increases a
shareholders risk of loss.
All investments are subject to risk including the possible loss of principal. Past performance is no guarantee of
future results. All index performance reflects no deduction for fees, expenses or taxes. Please note that an investor cannot invest directly in an index.
|
|
|
Western Asset High Income Fund II Inc.
|
|
V
|
Performance review (contd)
i
|
Net asset value (NAV) is calculated by subtracting total liabilities, including liabilities associated with financial leverage (if any), from the
closing value of all securities held by the Fund (plus all other assets) and dividing the result (total net assets) by the total number of the common shares outstanding. The NAV fluctuates with changes in the market prices of securities in which the
Fund has invested. However, the price at which an investor may buy or sell shares of the Fund is the Funds market price as determined by supply of and demand for the Funds shares.
|
ii
|
The Bloomberg Barclays U.S. Corporate High Yield 2% Issuer Cap Index is an index of the 2% Issuer Cap component of the Bloomberg Barclays U.S. Corporate
High Yield Index, which covers the U.S. dollar-denominated, non-investment grade, fixed-rate, taxable corporate bond market.
|
iii
|
The JPMorgan Emerging Markets Bond Index Global (EMBI Global) tracks total returns for U.S. dollar-denominated debt instruments issued by emerging
market sovereign and quasi-sovereign entities: Brady bonds, loans, Eurobonds and local market instruments.
|
iv
|
Lipper, Inc., a wholly-owned subsidiary of Reuters, provides independent insight on global collective investments. Returns are based on the six-month period ended October 31, 2019, including the reinvestment of all distributions, including returns of capital, if any, calculated among the 39 funds in the Funds Lipper category.
|
|
|
|
VI
|
|
Western Asset High Income Fund II Inc.
|
Fund at a
glance (unaudited)
Investment breakdown (%) as a percent of total investments
|
The bar graph above represents the composition of the Funds investments as of October 31, 2019 and April 30, 2019 and does not include
derivatives, such as forward foreign currency contracts. The Fund is actively managed. As a result, the composition of the Funds investments is subject to change at any time.
|
|
Represents less than 0.1%.
|
|
|
|
Western Asset High Income Fund II Inc. 2019 Semi-Annual Report
|
|
1
|
Schedule of investments (unaudited)
October
31, 2019
Western Asset High Income Fund II Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security
|
|
Rate
|
|
|
Maturity
Date
|
|
|
Face
Amount
|
|
|
Value
|
|
Corporate Bonds & Notes 107.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Communication Services 19.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diversified Telecommunication Services 2.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cogent Communications Group Inc., Senior Secured Notes
|
|
|
5.375
|
%
|
|
|
3/1/22
|
|
|
|
1,120,000
|
|
|
$
|
1,170,400
|
(a)(b)
|
Intelsat Jackson Holdings SA, Senior Notes
|
|
|
5.500
|
%
|
|
|
8/1/23
|
|
|
|
1,000,000
|
|
|
|
940,000
|
|
Intelsat Jackson Holdings SA, Senior Secured Notes
|
|
|
8.000
|
%
|
|
|
2/15/24
|
|
|
|
2,660,000
|
|
|
|
2,738,975
|
(a)(b)
|
Telecom Italia Capital SA, Senior Notes
|
|
|
6.000
|
%
|
|
|
9/30/34
|
|
|
|
2,660,000
|
|
|
|
2,852,850
|
|
Telecom Italia SpA, Senior Notes
|
|
|
5.303
|
%
|
|
|
5/30/24
|
|
|
|
1,220,000
|
|
|
|
1,309,975
|
(a)(b)
|
UPCB Finance IV Ltd., Senior Secured Notes
|
|
|
5.375
|
%
|
|
|
1/15/25
|
|
|
|
300,000
|
|
|
|
310,875
|
(a)
|
Windstream Services LLC/Windstream Finance Corp., Secured Notes
|
|
|
10.500
|
%
|
|
|
6/30/24
|
|
|
|
4,089,000
|
|
|
|
2,248,950
|
*(a)(b)(c)
|
Windstream Services LLC/Windstream Finance Corp., Secured Notes
|
|
|
9.000
|
%
|
|
|
6/30/25
|
|
|
|
1,225,000
|
|
|
|
640,063
|
*(a)(b)(c)
|
Total Diversified Telecommunication Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,212,088
|
|
Entertainment 1.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Netflix Inc., Senior Notes
|
|
|
5.875
|
%
|
|
|
11/15/28
|
|
|
|
2,755,000
|
|
|
|
3,040,831
|
(b)
|
Netflix Inc., Senior Notes
|
|
|
6.375
|
%
|
|
|
5/15/29
|
|
|
|
2,305,000
|
|
|
|
2,593,125
|
(a)(b)
|
Netflix Inc., Senior Notes
|
|
|
4.875
|
%
|
|
|
6/15/30
|
|
|
|
860,000
|
|
|
|
871,610
|
(a)
|
Total Entertainment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,505,566
|
|
Interactive Media & Services 0.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Match Group Inc., Senior Notes
|
|
|
6.375
|
%
|
|
|
6/1/24
|
|
|
|
1,170,000
|
|
|
|
1,231,425
|
(b)
|
Match Group Inc., Senior Notes
|
|
|
5.000
|
%
|
|
|
12/15/27
|
|
|
|
920,000
|
|
|
|
964,850
|
(a)(b)
|
Total Interactive Media & Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,196,275
|
|
Media 9.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Altice France SA, Senior Secured Notes
|
|
|
7.375
|
%
|
|
|
5/1/26
|
|
|
|
7,950,000
|
|
|
|
8,533,093
|
(a)(b)
|
Altice France SA, Senior Secured Notes
|
|
|
8.125
|
%
|
|
|
2/1/27
|
|
|
|
8,790,000
|
|
|
|
9,767,887
|
(a)(b)
|
Altice Luxembourg SA, Senior Secured Notes
|
|
|
10.500
|
%
|
|
|
5/15/27
|
|
|
|
1,670,000
|
|
|
|
1,893,362
|
(a)
|
CCO Holdings LLC/CCO Holdings Capital Corp., Senior Notes
|
|
|
5.125
|
%
|
|
|
5/1/27
|
|
|
|
4,850,000
|
|
|
|
5,122,812
|
(a)(b)
|
CCO Holdings LLC/CCO Holdings Capital Corp., Senior Notes
|
|
|
5.875
|
%
|
|
|
5/1/27
|
|
|
|
1,100,000
|
|
|
|
1,168,750
|
(a)(b)
|
CCO Holdings LLC/CCO Holdings Capital Corp., Senior Notes
|
|
|
5.000
|
%
|
|
|
2/1/28
|
|
|
|
8,060,000
|
|
|
|
8,450,104
|
(a)(b)
|
DISH DBS Corp., Senior Notes
|
|
|
5.875
|
%
|
|
|
11/15/24
|
|
|
|
6,180,000
|
|
|
|
6,218,625
|
(b)
|
DISH DBS Corp., Senior Notes
|
|
|
7.750
|
%
|
|
|
7/1/26
|
|
|
|
13,359,000
|
|
|
|
13,510,625
|
(b)
|
UPC Holding BV, Senior Secured Notes
|
|
|
5.500
|
%
|
|
|
1/15/28
|
|
|
|
3,010,000
|
|
|
|
3,077,725
|
(a)(b)
|
See Notes to Financial
Statements.
|
|
|
2
|
|
Western Asset High Income Fund II Inc. 2019 Semi-Annual Report
|
Western Asset High Income Fund II Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security
|
|
Rate
|
|
|
Maturity
Date
|
|
|
Face
Amount
|
|
|
Value
|
|
Media continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Virgin Media Finance PLC, Senior Notes
|
|
|
6.000
|
%
|
|
|
10/15/24
|
|
|
|
1,710,000
|
|
|
$
|
1,769,850
|
(a)(b)
|
Virgin Media Secured Finance PLC, Senior Secured Notes
|
|
|
5.500
|
%
|
|
|
8/15/26
|
|
|
|
1,610,000
|
|
|
|
1,696,538
|
(a)
|
Virgin Media Secured Finance PLC, Senior Secured Notes
|
|
|
5.500
|
%
|
|
|
5/15/29
|
|
|
|
500,000
|
|
|
|
532,500
|
(a)
|
Total Media
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61,741,871
|
|
Wireless Telecommunication Services 6.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CSC Holdings LLC, Senior Notes
|
|
|
6.625
|
%
|
|
|
10/15/25
|
|
|
|
2,510,000
|
|
|
|
2,679,425
|
(a)(b)
|
CSC Holdings LLC, Senior Notes
|
|
|
10.875
|
%
|
|
|
10/15/25
|
|
|
|
5,649,000
|
|
|
|
6,385,262
|
(a)(b)
|
CSC Holdings LLC, Senior Notes
|
|
|
5.375
|
%
|
|
|
2/1/28
|
|
|
|
1,000,000
|
|
|
|
1,060,000
|
(a)(b)
|
CSC Holdings LLC, Senior Notes
|
|
|
6.500
|
%
|
|
|
2/1/29
|
|
|
|
1,930,000
|
|
|
|
2,159,187
|
(a)
|
Sprint Capital Corp., Senior Notes
|
|
|
6.875
|
%
|
|
|
11/15/28
|
|
|
|
2,200,000
|
|
|
|
2,402,796
|
(b)
|
Sprint Capital Corp., Senior Notes
|
|
|
8.750
|
%
|
|
|
3/15/32
|
|
|
|
5,170,000
|
|
|
|
6,317,120
|
(b)
|
Sprint Communications Inc., Senior Notes
|
|
|
7.000
|
%
|
|
|
8/15/20
|
|
|
|
2,300,000
|
|
|
|
2,375,141
|
(b)
|
Sprint Communications Inc., Senior Notes
|
|
|
11.500
|
%
|
|
|
11/15/21
|
|
|
|
4,285,000
|
|
|
|
4,975,956
|
(b)
|
Sprint Corp., Senior Notes
|
|
|
7.250
|
%
|
|
|
9/15/21
|
|
|
|
4,400,000
|
|
|
|
4,706,064
|
(b)
|
Sprint Corp., Senior Notes
|
|
|
7.875
|
%
|
|
|
9/15/23
|
|
|
|
110,000
|
|
|
|
121,688
|
(b)
|
T-Mobile USA Inc., Senior Notes
|
|
|
6.000
|
%
|
|
|
3/1/23
|
|
|
|
1,900,000
|
|
|
|
1,942,750
|
(b)
|
T-Mobile USA Inc., Senior Notes
|
|
|
6.500
|
%
|
|
|
1/15/26
|
|
|
|
310,000
|
|
|
|
332,506
|
(b)
|
VEON Holdings BV, Senior Notes
|
|
|
7.504
|
%
|
|
|
3/1/22
|
|
|
|
1,620,000
|
|
|
|
1,796,078
|
(d)
|
VEON Holdings BV, Senior Notes
|
|
|
7.504
|
%
|
|
|
3/1/22
|
|
|
|
700,000
|
|
|
|
776,083
|
(a)(b)
|
Vimpel Communications Via VIP Finance Ireland Ltd. OJSC, Senior Notes
|
|
|
7.748
|
%
|
|
|
2/2/21
|
|
|
|
2,300,000
|
|
|
|
2,458,153
|
(a)(b)
|
Total Wireless Telecommunication Services
|
|
|
|
|
|
|
|
|
|
|
|
40,488,209
|
|
Total Communication Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
123,144,009
|
|
Consumer Discretionary 12.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auto Components 2.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adient Global Holdings Ltd., Senior Notes
|
|
|
4.875
|
%
|
|
|
8/15/26
|
|
|
|
5,333,000
|
|
|
|
4,226,402
|
(a)(b)
|
Adient US LLC, Senior Secured Notes
|
|
|
7.000
|
%
|
|
|
5/15/26
|
|
|
|
2,290,000
|
|
|
|
2,418,813
|
(a)
|
American Axle & Manufacturing Inc., Senior Notes
|
|
|
6.250
|
%
|
|
|
4/1/25
|
|
|
|
209,000
|
|
|
|
202,208
|
|
American Axle & Manufacturing Inc., Senior Notes
|
|
|
6.250
|
%
|
|
|
3/15/26
|
|
|
|
1,650,000
|
|
|
|
1,575,750
|
(b)
|
American Axle & Manufacturing Inc., Senior Notes
|
|
|
6.500
|
%
|
|
|
4/1/27
|
|
|
|
4,121,000
|
|
|
|
3,920,101
|
(b)
|
JB Poindexter & Co. Inc., Senior Notes
|
|
|
7.125
|
%
|
|
|
4/15/26
|
|
|
|
3,800,000
|
|
|
|
3,980,500
|
(a)(b)
|
Total Auto Components
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,323,774
|
|
Diversified Consumer Services 2.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMN Healthcare Inc., Senior Notes
|
|
|
4.625
|
%
|
|
|
10/1/27
|
|
|
|
620,000
|
|
|
|
633,101
|
(a)
|
Carriage Services Inc., Senior Notes
|
|
|
6.625
|
%
|
|
|
6/1/26
|
|
|
|
3,920,000
|
|
|
|
4,096,400
|
(a)(b)
|
See Notes to Financial
Statements.
|
|
|
Western Asset High Income Fund II Inc. 2019 Semi-Annual Report
|
|
3
|
Schedule of investments
(unaudited) (contd)
October 31, 2019
Western Asset High Income Fund II Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security
|
|
Rate
|
|
|
Maturity
Date
|
|
|
Face
Amount
|
|
|
Value
|
|
Diversified Consumer Services continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime Security Services Borrower LLC/Prime Finance Inc., Secured Notes
|
|
|
9.250
|
%
|
|
|
5/15/23
|
|
|
|
2,910,000
|
|
|
$
|
3,066,776
|
(a)(b)
|
Prime Security Services Borrower LLC/Prime Finance Inc., Senior Secured Notes
|
|
|
5.250
|
%
|
|
|
4/15/24
|
|
|
|
970,000
|
|
|
|
995,462
|
(a)
|
Prime Security Services Borrower LLC/Prime Finance Inc., Senior Secured Notes
|
|
|
5.750
|
%
|
|
|
4/15/26
|
|
|
|
3,290,000
|
|
|
|
3,379,488
|
(a)
|
Service Corp. International, Senior Notes
|
|
|
7.500
|
%
|
|
|
4/1/27
|
|
|
|
2,090,000
|
|
|
|
2,560,250
|
(b)
|
Weight Watchers International Inc., Senior Notes
|
|
|
8.625
|
%
|
|
|
12/1/25
|
|
|
|
1,000,000
|
|
|
|
1,035,000
|
(a)
|
Total Diversified Consumer Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,766,477
|
|
Hotels, Restaurants & Leisure 2.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1011778 BC ULC/New Red Finance Inc.,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Notes
|
|
|
4.250
|
%
|
|
|
5/15/24
|
|
|
|
2,950,000
|
|
|
|
3,034,813
|
(a)
|
MGM China Holdings Ltd., Senior Notes
|
|
|
5.875
|
%
|
|
|
5/15/26
|
|
|
|
1,440,000
|
|
|
|
1,526,400
|
(a)
|
Saga PLC, Senior Notes
|
|
|
3.375
|
%
|
|
|
5/12/24
|
|
|
|
3,910,000
|
GBP
|
|
|
4,393,122
|
(d)
|
Silversea Cruise Finance Ltd., Senior Secured Notes
|
|
|
7.250
|
%
|
|
|
2/1/25
|
|
|
|
1,803,000
|
|
|
|
1,925,820
|
(a)(b)
|
Viking Cruises Ltd., Senior Notes
|
|
|
6.250
|
%
|
|
|
5/15/25
|
|
|
|
2,950,000
|
|
|
|
3,090,125
|
(a)(b)
|
Viking Cruises Ltd., Senior Notes
|
|
|
5.875
|
%
|
|
|
9/15/27
|
|
|
|
750,000
|
|
|
|
798,750
|
(a)
|
VOC Escrow Ltd., Senior Secured Notes
|
|
|
5.000
|
%
|
|
|
2/15/28
|
|
|
|
3,270,000
|
|
|
|
3,417,150
|
(a)(b)
|
Total Hotels, Restaurants & Leisure
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,186,180
|
|
Household Durables 0.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lennar Corp., Senior Notes
|
|
|
5.000
|
%
|
|
|
6/15/27
|
|
|
|
3,140,000
|
|
|
|
3,402,975
|
(b)
|
Specialty Retail 3.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maxeda DIY Holding BV, Senior Secured Notes
|
|
|
6.125
|
%
|
|
|
7/15/22
|
|
|
|
2,233,000
|
EUR
|
|
|
2,383,698
|
(d)
|
Maxeda DIY Holding BV, Senior Secured Notes
|
|
|
6.125
|
%
|
|
|
7/15/22
|
|
|
|
790,000
|
EUR
|
|
|
843,315
|
(a)
|
Party City Holdings Inc., Senior Notes
|
|
|
6.625
|
%
|
|
|
8/1/26
|
|
|
|
6,400,000
|
|
|
|
6,240,000
|
(a)(b)
|
PetSmart Inc., Senior Secured Notes
|
|
|
5.875
|
%
|
|
|
6/1/25
|
|
|
|
9,690,000
|
|
|
|
9,594,360
|
(a)(b)
|
Sally Holdings LLC/Sally Capital Inc., Senior Notes
|
|
|
5.625
|
%
|
|
|
12/1/25
|
|
|
|
4,670,000
|
|
|
|
4,833,450
|
(b)
|
Total Specialty Retail
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,894,823
|
|
Textiles, Apparel & Luxury Goods 0.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CBR Fashion Finance BV, Senior Secured Notes
|
|
|
5.125
|
%
|
|
|
10/1/22
|
|
|
|
1,000,000
|
EUR
|
|
|
1,119,062
|
(d)
|
Hanesbrands Inc., Senior Notes
|
|
|
4.875
|
%
|
|
|
5/15/26
|
|
|
|
1,300,000
|
|
|
|
1,381,250
|
(a)(b)
|
Total Textiles, Apparel & Luxury Goods
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,500,312
|
|
Total Consumer Discretionary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80,074,541
|
|
See Notes to Financial
Statements.
|
|
|
4
|
|
Western Asset High Income Fund II Inc. 2019 Semi-Annual Report
|
Western Asset High Income Fund II Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security
|
|
Rate
|
|
|
Maturity
Date
|
|
|
Face
Amount
|
|
|
Value
|
|
Consumer Staples 1.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Food Products 1.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pilgrims Pride Corp., Senior Notes
|
|
|
5.750
|
%
|
|
|
3/15/25
|
|
|
|
330,000
|
|
|
$
|
343,200
|
(a)
|
Pilgrims Pride Corp., Senior Notes
|
|
|
5.875
|
%
|
|
|
9/30/27
|
|
|
|
5,365,000
|
|
|
|
5,768,824
|
(a)(b)
|
Total Food Products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,112,024
|
|
Household Products 0.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Spectrum Brands Inc., Senior Notes
|
|
|
6.125
|
%
|
|
|
12/15/24
|
|
|
|
1,720,000
|
|
|
|
1,786,650
|
(b)
|
Spectrum Brands Inc., Senior Notes
|
|
|
5.750
|
%
|
|
|
7/15/25
|
|
|
|
3,060,000
|
|
|
|
3,205,350
|
(b)
|
Total Household Products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,992,000
|
|
Total Consumer Staples
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,104,024
|
|
Energy 21.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy Equipment & Services 0.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transocean Inc., Senior Notes
|
|
|
9.000
|
%
|
|
|
7/15/23
|
|
|
|
378,000
|
|
|
|
386,505
|
(a)(b)
|
Transocean Inc., Senior Notes
|
|
|
6.800
|
%
|
|
|
3/15/38
|
|
|
|
1,035,000
|
|
|
|
642,994
|
(b)
|
Total Energy Equipment & Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,029,499
|
|
Oil, Gas & Consumable Fuels 21.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andeavor Logistics LP/Tesoro Logistics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance Corp., Senior Notes
|
|
|
6.375
|
%
|
|
|
5/1/24
|
|
|
|
810,000
|
|
|
|
840,612
|
(b)
|
Berry Petroleum Co. LLC, Senior Notes
|
|
|
7.000
|
%
|
|
|
2/15/26
|
|
|
|
2,660,000
|
|
|
|
2,487,100
|
(a)
|
Blue Racer Midstream LLC/Blue Racer Finance Corp., Senior Notes
|
|
|
6.125
|
%
|
|
|
11/15/22
|
|
|
|
2,260,000
|
|
|
|
2,231,750
|
(a)(b)
|
Blue Racer Midstream LLC/Blue Racer Finance Corp., Senior Notes
|
|
|
6.625
|
%
|
|
|
7/15/26
|
|
|
|
4,170,000
|
|
|
|
3,919,800
|
(a)(b)
|
Chesapeake Energy Corp., Senior Notes
|
|
|
6.875
|
%
|
|
|
11/15/20
|
|
|
|
4,340,000
|
|
|
|
4,318,300
|
(b)
|
Chesapeake Energy Corp., Senior Notes
|
|
|
5.375
|
%
|
|
|
6/15/21
|
|
|
|
940,000
|
|
|
|
869,500
|
(b)
|
Chesapeake Energy Corp., Senior Notes
|
|
|
5.750
|
%
|
|
|
3/15/23
|
|
|
|
700,000
|
|
|
|
514,500
|
(b)
|
Continental Resources Inc., Senior Notes
|
|
|
4.900
|
%
|
|
|
6/1/44
|
|
|
|
3,220,000
|
|
|
|
3,187,846
|
(b)
|
Ecopetrol SA, Senior Notes
|
|
|
5.375
|
%
|
|
|
6/26/26
|
|
|
|
3,000,000
|
|
|
|
3,379,200
|
(b)
|
Ecopetrol SA, Senior Notes
|
|
|
5.875
|
%
|
|
|
5/28/45
|
|
|
|
2,500,000
|
|
|
|
2,891,250
|
(b)
|
Gazprom OAO Via Gaz Capital SA, Senior Notes
|
|
|
6.510
|
%
|
|
|
3/7/22
|
|
|
|
2,550,000
|
|
|
|
2,774,607
|
(a)(b)
|
Genesis Energy LP/Genesis Energy Finance Corp., Senior Notes
|
|
|
6.250
|
%
|
|
|
5/15/26
|
|
|
|
354,000
|
|
|
|
329,220
|
(b)
|
KazMunayGas National Co. JSC, Senior Notes
|
|
|
4.750
|
%
|
|
|
4/19/27
|
|
|
|
3,000,000
|
|
|
|
3,280,830
|
(a)(b)
|
Kinder Morgan Inc., Senior Notes
|
|
|
7.750
|
%
|
|
|
1/15/32
|
|
|
|
1,950,000
|
|
|
|
2,686,967
|
(b)
|
Lukoil International Finance BV, Senior Notes
|
|
|
4.563
|
%
|
|
|
4/24/23
|
|
|
|
2,040,000
|
|
|
|
2,157,455
|
(a)(b)
|
Lukoil International Finance BV, Senior Notes
|
|
|
4.750
|
%
|
|
|
11/2/26
|
|
|
|
1,230,000
|
|
|
|
1,349,990
|
(a)(b)
|
MEG Energy Corp., Senior Notes
|
|
|
7.000
|
%
|
|
|
3/31/24
|
|
|
|
8,210,000
|
|
|
|
7,737,925
|
(a)(b)
|
See Notes to Financial
Statements.
|
|
|
Western Asset High Income Fund II Inc. 2019 Semi-Annual Report
|
|
5
|
Schedule of investments
(unaudited) (contd)
October 31, 2019
Western Asset High Income Fund II Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security
|
|
Rate
|
|
|
Maturity
Date
|
|
|
Face
Amount
|
|
|
Value
|
|
Oil, Gas & Consumable Fuels continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NGPL PipeCo LLC, Senior Notes
|
|
|
7.768
|
%
|
|
|
12/15/37
|
|
|
|
1,900,000
|
|
|
$
|
2,456,185
|
(a)(b)
|
Oasis Petroleum Inc., Senior Notes
|
|
|
6.500
|
%
|
|
|
11/1/21
|
|
|
|
3,238,000
|
|
|
|
3,124,670
|
(b)
|
Oasis Petroleum Inc., Senior Notes
|
|
|
6.875
|
%
|
|
|
3/15/22
|
|
|
|
920,000
|
|
|
|
811,900
|
|
Oasis Petroleum Inc., Senior Notes
|
|
|
6.875
|
%
|
|
|
1/15/23
|
|
|
|
5,479,000
|
|
|
|
4,766,730
|
(b)
|
Petrobras Global Finance BV, Senior Notes
|
|
|
4.375
|
%
|
|
|
5/20/23
|
|
|
|
800,000
|
|
|
|
835,600
|
|
Petrobras Global Finance BV, Senior Notes
|
|
|
5.999
|
%
|
|
|
1/27/28
|
|
|
|
4,320,000
|
|
|
|
4,879,710
|
(b)
|
Petrobras Global Finance BV, Senior Notes
|
|
|
5.750
|
%
|
|
|
2/1/29
|
|
|
|
10,320,000
|
|
|
|
11,502,672
|
(b)
|
Petrobras Global Finance BV, Senior Notes
|
|
|
6.750
|
%
|
|
|
1/27/41
|
|
|
|
6,620,000
|
|
|
|
7,683,337
|
|
Petroleos de Venezuela SA, Senior Notes
|
|
|
6.000
|
%
|
|
|
5/16/24
|
|
|
|
620,000
|
|
|
|
41,850
|
*(c)(d)
|
Petroleos Mexicanos, Senior Notes
|
|
|
6.500
|
%
|
|
|
6/2/41
|
|
|
|
2,970,000
|
|
|
|
2,947,725
|
|
Range Resources Corp., Senior Notes
|
|
|
5.000
|
%
|
|
|
3/15/23
|
|
|
|
7,030,000
|
|
|
|
6,116,100
|
|
Range Resources Corp., Senior Notes
|
|
|
4.875
|
%
|
|
|
5/15/25
|
|
|
|
5,125,000
|
|
|
|
4,138,438
|
(b)
|
Rockies Express Pipeline LLC, Senior Notes
|
|
|
7.500
|
%
|
|
|
7/15/38
|
|
|
|
1,330,000
|
|
|
|
1,481,288
|
(a)(b)
|
Rockies Express Pipeline LLC, Senior Notes
|
|
|
6.875
|
%
|
|
|
4/15/40
|
|
|
|
1,430,000
|
|
|
|
1,515,943
|
(a)(b)
|
Targa Resources Partners LP/Targa Resources Partners Finance Corp., Senior Notes
|
|
|
5.875
|
%
|
|
|
4/15/26
|
|
|
|
1,400,000
|
|
|
|
1,466,640
|
(b)
|
Targa Resources Partners LP/Targa Resources Partners Finance Corp., Senior Notes
|
|
|
6.500
|
%
|
|
|
7/15/27
|
|
|
|
1,150,000
|
|
|
|
1,233,398
|
(a)
|
Targa Resources Partners LP/Targa Resources Partners Finance Corp., Senior Notes
|
|
|
5.000
|
%
|
|
|
1/15/28
|
|
|
|
6,255,000
|
|
|
|
6,208,087
|
(b)
|
Targa Resources Partners LP/Targa Resources Partners Finance Corp., Senior Notes
|
|
|
6.875
|
%
|
|
|
1/15/29
|
|
|
|
1,430,000
|
|
|
|
1,549,763
|
(a)
|
Transportadora de Gas del Sur SA, Senior Notes
|
|
|
6.750
|
%
|
|
|
5/2/25
|
|
|
|
6,400,000
|
|
|
|
5,398,400
|
(a)(b)
|
Western Midstream Operating LP, Senior Notes
|
|
|
4.750
|
%
|
|
|
8/15/28
|
|
|
|
2,250,000
|
|
|
|
2,184,108
|
|
Western Midstream Operating LP, Senior Notes
|
|
|
5.450
|
%
|
|
|
4/1/44
|
|
|
|
1,000,000
|
|
|
|
870,590
|
|
Western Midstream Operating LP, Senior Notes
|
|
|
5.500
|
%
|
|
|
8/15/48
|
|
|
|
3,940,000
|
|
|
|
3,422,147
|
|
Williams Cos. Inc., Senior Notes
|
|
|
3.700
|
%
|
|
|
1/15/23
|
|
|
|
1,040,000
|
|
|
|
1,076,914
|
(b)
|
Williams Cos. Inc., Senior Notes
|
|
|
4.550
|
%
|
|
|
6/24/24
|
|
|
|
1,280,000
|
|
|
|
1,381,688
|
(b)
|
Williams Cos. Inc., Senior Notes
|
|
|
7.500
|
%
|
|
|
1/15/31
|
|
|
|
780,000
|
|
|
|
1,023,806
|
(b)
|
Williams Cos. Inc., Senior Notes
|
|
|
5.750
|
%
|
|
|
6/24/44
|
|
|
|
3,900,000
|
|
|
|
4,507,292
|
(b)
|
See Notes to Financial
Statements.
|
|
|
6
|
|
Western Asset High Income Fund II Inc. 2019 Semi-Annual Report
|
Western Asset High Income Fund II Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security
|
|
Rate
|
|
|
Maturity
Date
|
|
|
Face
Amount
|
|
|
Value
|
|
Oil, Gas & Consumable Fuels continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WPX Energy Inc., Senior Notes
|
|
|
8.250
|
%
|
|
|
8/1/23
|
|
|
|
1,070,000
|
|
|
$
|
1,198,400
|
(b)
|
YPF SA, Senior Notes
|
|
|
8.500
|
%
|
|
|
7/28/25
|
|
|
|
5,680,000
|
|
|
|
4,526,960
|
(a)
|
Total Oil, Gas & Consumable Fuels
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
133,307,193
|
|
Total Energy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
134,336,692
|
|
Financials 17.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banks 13.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank of America Corp., Junior Subordinated Notes (6.500% to 10/23/24 then 3 mo. USD LIBOR + 4.174%)
|
|
|
6.500
|
%
|
|
|
10/23/24
|
|
|
|
2,550,000
|
|
|
|
2,893,192
|
(b)(e)(f)
|
Barclays Bank PLC, Subordinated Notes
|
|
|
10.179
|
%
|
|
|
6/12/21
|
|
|
|
1,970,000
|
|
|
|
2,206,072
|
(a)(b)
|
Barclays Bank PLC, Subordinated Notes
|
|
|
7.625
|
%
|
|
|
11/21/22
|
|
|
|
2,950,000
|
|
|
|
3,301,684
|
(b)
|
Barclays PLC, Junior Subordinated Notes (8.000% to 6/15/24 then 5 year Treasury Constant Maturity Rate +
5.672%)
|
|
|
8.000
|
%
|
|
|
6/15/24
|
|
|
|
2,120,000
|
|
|
|
2,314,966
|
(b)(e)(f)
|
Barclays PLC, Subordinated Notes (5.088% to 6/20/29 then 3 mo. USD LIBOR + 3.054%)
|
|
|
5.088
|
%
|
|
|
6/20/30
|
|
|
|
3,250,000
|
|
|
|
3,536,320
|
(f)
|
BBVA Bancomer SA, Subordinated Notes (5.125% to 1/17/28 then 5 year Treasury Constant Maturity Rate +
2.650%)
|
|
|
5.125
|
%
|
|
|
1/18/33
|
|
|
|
4,500,000
|
|
|
|
4,398,795
|
(a)(f)
|
BNP Paribas SA, Junior Subordinated Notes (7.375% to 8/19/25 then USD 5 year ICE Swap Rate + 5.150%)
|
|
|
7.375
|
%
|
|
|
8/19/25
|
|
|
|
1,820,000
|
|
|
|
2,058,156
|
(a)(b)(e)(f)
|
CIT Group Inc., Senior Notes
|
|
|
5.000
|
%
|
|
|
8/15/22
|
|
|
|
1,060,000
|
|
|
|
1,129,504
|
(b)
|
CIT Group Inc., Senior Notes
|
|
|
5.000
|
%
|
|
|
8/1/23
|
|
|
|
2,801,000
|
|
|
|
3,028,581
|
(b)
|
Citigroup Inc., Junior Subordinated Notes (5.950% to 5/15/25 then 3 mo. USD LIBOR + 3.905%)
|
|
|
5.950
|
%
|
|
|
5/15/25
|
|
|
|
1,750,000
|
|
|
|
1,873,996
|
(b)(e)(f)
|
Citigroup Inc., Junior Subordinated Notes (6.300% to 5/15/24 then 3 mo. USD LIBOR + 3.423%)
|
|
|
6.300
|
%
|
|
|
5/15/24
|
|
|
|
10,120,000
|
|
|
|
10,891,296
|
(b)(e)(f)
|
Credit Agricole SA, Junior Subordinated Notes (8.125% to 12/23/25 then USD 5 year ICE Swap Rate +
6.185%)
|
|
|
8.125
|
%
|
|
|
12/23/25
|
|
|
|
2,510,000
|
|
|
|
3,012,166
|
(a)(b)(e)(f)
|
HSBC Holdings PLC, Junior Subordinated Notes (6.000% to 5/22/27 then USD 5 year ICE Swap Rate +
3.746%)
|
|
|
6.000
|
%
|
|
|
5/22/27
|
|
|
|
2,640,000
|
|
|
|
2,744,333
|
(b)(e)(f)
|
HSBC Holdings PLC, Junior Subordinated Notes (6.500% to 3/23/28 then USD 5 year ICE Swap Rate +
3.606%)
|
|
|
6.500
|
%
|
|
|
3/23/28
|
|
|
|
2,910,000
|
|
|
|
3,083,582
|
(b)(e)(f)
|
Intesa Sanpaolo SpA, Subordinated Notes
|
|
|
5.017
|
%
|
|
|
6/26/24
|
|
|
|
8,230,000
|
|
|
|
8,596,730
|
(a)
|
See Notes to Financial
Statements.
|
|
|
Western Asset High Income Fund II Inc. 2019 Semi-Annual Report
|
|
7
|
Schedule of investments
(unaudited) (contd)
October 31, 2019
Western Asset High Income Fund II Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security
|
|
Rate
|
|
|
Maturity
Date
|
|
|
Face
Amount
|
|
|
Value
|
|
Banks continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intesa Sanpaolo SpA, Subordinated Notes
|
|
|
5.710
|
%
|
|
|
1/15/26
|
|
|
|
7,490,000
|
|
|
$
|
8,036,244
|
(a)(b)
|
JPMorgan Chase & Co., Junior Subordinated Notes (6.000% to 8/1/23 then 3 mo. USD LIBOR +
3.300%)
|
|
|
6.000
|
%
|
|
|
8/1/23
|
|
|
|
1,570,000
|
|
|
|
1,686,235
|
(b)(e)(f)
|
JPMorgan Chase & Co., Junior Subordinated Notes (6.100% to 10/1/24 then 3 mo. USD LIBOR +
3.330%)
|
|
|
6.100
|
%
|
|
|
10/1/24
|
|
|
|
2,410,000
|
|
|
|
2,647,469
|
(b)(e)(f)
|
Royal Bank of Scotland Group PLC, Junior Subordinated Notes (7.648% to 9/30/31 then 3 mo. USD LIBOR +
2.500%)
|
|
|
7.648
|
%
|
|
|
9/30/31
|
|
|
|
3,530,000
|
|
|
|
5,031,309
|
(b)(e)(f)
|
Royal Bank of Scotland Group PLC, Junior Subordinated Notes (8.625% to 8/15/21 then USD 5 year ICE Swap Rate +
7.598%)
|
|
|
8.625
|
%
|
|
|
8/15/21
|
|
|
|
1,370,000
|
|
|
|
1,479,600
|
(b)(e)(f)
|
Santander UK Group Holdings PLC, Junior Subordinated Notes (7.375% to 6/24/22 then GBP 5 year Swap Rate +
5.543%)
|
|
|
7.375
|
%
|
|
|
6/24/22
|
|
|
|
1,640,000
|
GBP
|
|
|
2,285,023
|
(b)(d)(e)(f)
|
TC Ziraat Bankasi AS, Senior Notes
|
|
|
5.125
|
%
|
|
|
9/29/23
|
|
|
|
2,530,000
|
|
|
|
2,412,810
|
(a)(b)
|
UniCredit SpA, Subordinated Notes (7.296% to 4/2/29 then USD 5 year ICE Swap Rate + 4.914%)
|
|
|
7.296
|
%
|
|
|
4/2/34
|
|
|
|
2,840,000
|
|
|
|
3,314,675
|
(a)(f)
|
Total Banks
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81,962,738
|
|
Capital Markets 2.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Suisse Group AG, Junior Subordinated Notes (7.250% to 9/12/25 then
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USD 5 year ICE Swap Rate + 4.332%)
|
|
|
7.250
|
%
|
|
|
9/12/25
|
|
|
|
3,920,000
|
|
|
|
4,266,352
|
(a)(b)(e)(f)
|
Donnelley Financial Solutions Inc., Senior Notes
|
|
|
8.250
|
%
|
|
|
10/15/24
|
|
|
|
2,080,000
|
|
|
|
2,168,400
|
(b)
|
Goldman Sachs Group Inc., Subordinated Notes
|
|
|
6.750
|
%
|
|
|
10/1/37
|
|
|
|
2,320,000
|
|
|
|
3,160,771
|
(b)
|
UBS Group AG, Junior Subordinated Notes (7.000% to 1/31/24 then USD 5 year ICE Swap Rate + 4.344%)
|
|
|
7.000
|
%
|
|
|
1/31/24
|
|
|
|
3,290,000
|
|
|
|
3,532,637
|
(a)(e)(f)
|
Total Capital Markets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,128,160
|
|
Consumer Finance 0.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Navient Corp., Senior Notes
|
|
|
5.875
|
%
|
|
|
10/25/24
|
|
|
|
1,170,000
|
|
|
|
1,210,950
|
(b)
|
Navient Corp., Senior Notes
|
|
|
6.750
|
%
|
|
|
6/15/26
|
|
|
|
1,990,000
|
|
|
|
2,084,525
|
|
Total Consumer Finance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,295,475
|
|
Diversified Financial Services 1.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AerCap Ireland Capital DAC/AerCap
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Aviation Trust, Senior Notes
|
|
|
4.625
|
%
|
|
|
10/30/20
|
|
|
|
890,000
|
|
|
|
912,194
|
|
See Notes to Financial
Statements.
|
|
|
8
|
|
Western Asset High Income Fund II Inc. 2019 Semi-Annual Report
|
Western Asset High Income Fund II Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security
|
|
Rate
|
|
|
Maturity
Date
|
|
|
Face
Amount
|
|
|
Value
|
|
Diversified Financial Services continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AerCap Ireland Capital DAC/AerCap
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Aviation Trust, Senior Notes
|
|
|
4.625
|
%
|
|
|
7/1/22
|
|
|
|
1,390,000
|
|
|
$
|
1,471,842
|
|
Allied Universal Holdco LLC/Allied Universal Finance Corp., Senior Secured Notes
|
|
|
6.625
|
%
|
|
|
7/15/26
|
|
|
|
1,670,000
|
|
|
|
1,786,900
|
(a)
|
DAE Funding LLC, Senior Notes
|
|
|
5.750
|
%
|
|
|
11/15/23
|
|
|
|
993,000
|
|
|
|
1,042,650
|
(a)
|
Global Aircraft Leasing Co. Ltd., Senior Notes (6.500% Cash or 7.250% PIK)
|
|
|
6.500
|
%
|
|
|
9/15/24
|
|
|
|
3,020,000
|
|
|
|
3,098,369
|
(a)(b)(g)
|
International Lease Finance Corp., Senior Notes
|
|
|
8.250
|
%
|
|
|
12/15/20
|
|
|
|
2,160,000
|
|
|
|
2,306,078
|
(b)
|
International Lease Finance Corp., Senior Notes
|
|
|
5.875
|
%
|
|
|
8/15/22
|
|
|
|
760,000
|
|
|
|
833,461
|
(b)
|
Total Diversified Financial Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,451,494
|
|
Insurance 0.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MetLife Capital Trust IV, Junior Subordinated Notes
|
|
|
7.875
|
%
|
|
|
12/15/37
|
|
|
|
1,100,000
|
|
|
|
1,462,005
|
(a)(b)
|
Total Financials
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
111,299,872
|
|
Health Care 9.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health Care Providers & Services 4.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Air Medical Group Holdings Inc., Senior Notes
|
|
|
6.375
|
%
|
|
|
5/15/23
|
|
|
|
1,520,000
|
|
|
|
1,299,600
|
(a)(b)
|
Centene Corp., Senior Notes
|
|
|
6.125
|
%
|
|
|
2/15/24
|
|
|
|
810,000
|
|
|
|
843,161
|
(b)
|
Centene Corp., Senior Notes
|
|
|
4.750
|
%
|
|
|
1/15/25
|
|
|
|
1,860,000
|
|
|
|
1,928,839
|
(b)
|
CHS/Community Health Systems Inc., Senior Secured Notes
|
|
|
8.000
|
%
|
|
|
3/15/26
|
|
|
|
2,200,000
|
|
|
|
2,156,000
|
(a)(b)
|
DaVita Inc., Senior Notes
|
|
|
5.125
|
%
|
|
|
7/15/24
|
|
|
|
2,460,000
|
|
|
|
2,517,244
|
(b)
|
DaVita Inc., Senior Notes
|
|
|
5.000
|
%
|
|
|
5/1/25
|
|
|
|
2,010,000
|
|
|
|
2,038,040
|
(b)
|
HCA Inc., Senior Notes
|
|
|
5.625
|
%
|
|
|
9/1/28
|
|
|
|
5,760,000
|
|
|
|
6,487,200
|
(b)
|
HCA Inc., Senior Notes
|
|
|
7.500
|
%
|
|
|
11/15/95
|
|
|
|
2,205,000
|
|
|
|
2,475,112
|
(b)
|
HCA Inc., Senior Secured Notes
|
|
|
5.250
|
%
|
|
|
6/15/26
|
|
|
|
1,090,000
|
|
|
|
1,221,353
|
(b)
|
Magellan Health Inc., Senior Notes
|
|
|
4.900
|
%
|
|
|
9/22/24
|
|
|
|
4,030,000
|
|
|
|
4,009,850
|
(b)
|
Tenet Healthcare Corp., Secured Notes
|
|
|
5.125
|
%
|
|
|
5/1/25
|
|
|
|
2,500,000
|
|
|
|
2,565,625
|
(b)
|
Tenet Healthcare Corp., Secured Notes
|
|
|
6.250
|
%
|
|
|
2/1/27
|
|
|
|
2,000,000
|
|
|
|
2,121,680
|
(a)(b)
|
Total Health Care Providers & Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,663,704
|
|
Pharmaceuticals 5.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bausch Health Americas Inc., Senior Notes
|
|
|
8.500
|
%
|
|
|
1/31/27
|
|
|
|
4,660,000
|
|
|
|
5,241,102
|
(a)
|
Bausch Health Cos. Inc., Senior Notes
|
|
|
5.875
|
%
|
|
|
5/15/23
|
|
|
|
786,000
|
|
|
|
800,737
|
(a)(b)
|
Bausch Health Cos. Inc., Senior Notes
|
|
|
6.125
|
%
|
|
|
4/15/25
|
|
|
|
5,510,000
|
|
|
|
5,733,844
|
(a)(b)
|
Bausch Health Cos. Inc., Senior Notes
|
|
|
9.000
|
%
|
|
|
12/15/25
|
|
|
|
500,000
|
|
|
|
563,225
|
(a)(b)
|
See Notes to Financial
Statements.
|
|
|
Western Asset High Income Fund II Inc. 2019 Semi-Annual Report
|
|
9
|
Schedule of investments
(unaudited) (contd)
October 31, 2019
Western Asset High Income Fund II Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security
|
|
Rate
|
|
|
Maturity
Date
|
|
|
Face
Amount
|
|
|
Value
|
|
Pharmaceuticals continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bausch Health Cos. Inc., Senior Secured Notes
|
|
|
7.000
|
%
|
|
|
3/15/24
|
|
|
|
740,000
|
|
|
$
|
776,020
|
(a)(b)
|
Teva Pharmaceutical Finance Co. BV, Senior Notes
|
|
|
3.650
|
%
|
|
|
11/10/21
|
|
|
|
1,070,000
|
|
|
|
1,031,319
|
|
Teva Pharmaceutical Finance Co. BV, Senior Notes
|
|
|
2.950
|
%
|
|
|
12/18/22
|
|
|
|
9,888,000
|
|
|
|
9,035,160
|
|
Teva Pharmaceutical Finance IV BV, Senior Notes
|
|
|
3.650
|
%
|
|
|
11/10/21
|
|
|
|
340,000
|
|
|
|
327,675
|
|
Teva Pharmaceutical Finance Netherlands III BV, Senior Notes
|
|
|
2.800
|
%
|
|
|
7/21/23
|
|
|
|
8,600,000
|
|
|
|
7,460,500
|
(b)
|
Total Pharmaceuticals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,969,582
|
|
Total Health Care
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,633,286
|
|
Industrials 6.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Air Freight & Logistics 0.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
XPO Logistics Inc., Senior Notes
|
|
|
6.500
|
%
|
|
|
6/15/22
|
|
|
|
754,000
|
|
|
|
770,022
|
(a)(b)
|
Airlines 0.7%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continental Airlines Pass-Through Trust
|
|
|
5.983
|
%
|
|
|
4/19/22
|
|
|
|
3,236,047
|
|
|
|
3,432,216
|
(b)
|
Delta Air Lines Pass-Through Trust
|
|
|
8.021
|
%
|
|
|
8/10/22
|
|
|
|
576,634
|
|
|
|
637,386
|
(b)
|
Total Airlines
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,069,602
|
|
Building Products 0.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standard Industries Inc., Senior Notes
|
|
|
5.000
|
%
|
|
|
2/15/27
|
|
|
|
3,170,000
|
|
|
|
3,316,613
|
(a)(b)
|
Standard Industries Inc., Senior Notes
|
|
|
4.750
|
%
|
|
|
1/15/28
|
|
|
|
2,345,000
|
|
|
|
2,441,731
|
(a)(b)
|
Total Building Products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,758,344
|
|
Commercial Services & Supplies 2.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GFL Environmental Inc., Senior Notes
|
|
|
8.500
|
%
|
|
|
5/1/27
|
|
|
|
2,340,000
|
|
|
|
2,579,850
|
(a)
|
United Rentals North America Inc., Senior Notes
|
|
|
5.500
|
%
|
|
|
7/15/25
|
|
|
|
230,000
|
|
|
|
239,763
|
|
United Rentals North America Inc., Senior Notes
|
|
|
6.500
|
%
|
|
|
12/15/26
|
|
|
|
7,840,000
|
|
|
|
8,516,200
|
(b)
|
United Rentals North America Inc., Senior Notes
|
|
|
5.500
|
%
|
|
|
5/15/27
|
|
|
|
156,000
|
|
|
|
165,360
|
|
United Rentals North America Inc., Senior Notes
|
|
|
4.875
|
%
|
|
|
1/15/28
|
|
|
|
4,075,000
|
|
|
|
4,222,719
|
(b)
|
Total Commercial Services & Supplies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,723,892
|
|
Containers & Packaging 0.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hercule Debtco Sarl, Senior Secured Notes (6.750% Cash or 7.500% PIK)
|
|
|
6.750
|
%
|
|
|
6/30/24
|
|
|
|
2,050,000
|
EUR
|
|
|
2,034,865
|
(a)(g)
|
See Notes to Financial
Statements.
|
|
|
10
|
|
Western Asset High Income Fund II Inc. 2019 Semi-Annual Report
|
Western Asset High Income Fund II Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security
|
|
Rate
|
|
|
Maturity
Date
|
|
|
Face
Amount
|
|
|
Value
|
|
Industrial Conglomerates 0.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Electric Co., Junior Subordinated Notes (5.000% to 1/21/21 then 3 mo. USD LIBOR + 3.330%)
|
|
|
5.000
|
%
|
|
|
1/21/21
|
|
|
|
1,780,000
|
|
|
$
|
1,718,181
|
(b)(e)(f)
|
Machinery 0.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allison Transmission Inc., Senior Notes
|
|
|
5.000
|
%
|
|
|
10/1/24
|
|
|
|
570,000
|
|
|
|
584,962
|
(a)(b)
|
Allison Transmission Inc., Senior Notes
|
|
|
4.750
|
%
|
|
|
10/1/27
|
|
|
|
1,690,000
|
|
|
|
1,740,700
|
(a)(b)
|
Total Machinery
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,325,662
|
|
Marine 0.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Navios Maritime Acquisition Corp./Navios Acquisition Finance U.S. Inc., Senior Secured Notes
|
|
|
8.125
|
%
|
|
|
11/15/21
|
|
|
|
3,610,000
|
|
|
|
2,960,200
|
(a)(b)
|
Trading Companies & Distributors 0.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beacon Roofing Supply Inc., Senior Notes
|
|
|
4.875
|
%
|
|
|
11/1/25
|
|
|
|
2,470,000
|
|
|
|
2,436,161
|
(a)(b)
|
Total Industrials
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,796,929
|
|
Information Technology 1.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Communications Equipment 0.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CommScope Inc., Senior Notes
|
|
|
8.250
|
%
|
|
|
3/1/27
|
|
|
|
3,131,000
|
|
|
|
2,977,518
|
(a)
|
CommScope Technologies LLC, Senior Notes
|
|
|
6.000
|
%
|
|
|
6/15/25
|
|
|
|
80,000
|
|
|
|
71,476
|
(a)
|
Total Communications Equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,048,994
|
|
Software 0.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
j2 Cloud Services LLC/j2 Global Co-Obligor Inc., Senior Notes
|
|
|
6.000
|
%
|
|
|
7/15/25
|
|
|
|
640,000
|
|
|
|
682,400
|
(a)(b)
|
Technology Hardware, Storage & Peripherals
0.9%
|
|
Dell International LLC/EMC Corp., Senior Notes
|
|
|
7.125
|
%
|
|
|
6/15/24
|
|
|
|
740,000
|
|
|
|
785,510
|
(a)(b)
|
Seagate HDD Cayman, Senior Notes
|
|
|
4.750
|
%
|
|
|
6/1/23
|
|
|
|
1,700,000
|
|
|
|
1,794,811
|
(b)
|
Seagate HDD Cayman, Senior Notes
|
|
|
4.750
|
%
|
|
|
1/1/25
|
|
|
|
850,000
|
|
|
|
900,024
|
(b)
|
Seagate HDD Cayman, Senior Notes
|
|
|
4.875
|
%
|
|
|
6/1/27
|
|
|
|
495,000
|
|
|
|
524,039
|
|
Western Digital Corp., Senior Notes
|
|
|
4.750
|
%
|
|
|
2/15/26
|
|
|
|
1,798,000
|
|
|
|
1,840,748
|
(b)
|
Total Technology Hardware, Storage & Peripherals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,845,132
|
|
Total Information Technology
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,576,526
|
|
Materials 12.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chemicals 0.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Braskem America Finance Co., Senior Notes
|
|
|
7.125
|
%
|
|
|
7/22/41
|
|
|
|
700,000
|
|
|
|
829,500
|
(b)(d)
|
Braskem Netherlands Finance BV, Senior Notes
|
|
|
3.500
|
%
|
|
|
1/10/23
|
|
|
|
600,000
|
|
|
|
611,256
|
(d)
|
Mexichem SAB de CV, Senior Notes
|
|
|
5.875
|
%
|
|
|
9/17/44
|
|
|
|
2,000,000
|
|
|
|
2,109,000
|
(a)
|
Total Chemicals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,549,756
|
|
See Notes to Financial
Statements.
|
|
|
Western Asset High Income Fund II Inc. 2019 Semi-Annual Report
|
|
11
|
Schedule of investments
(unaudited) (contd)
October 31, 2019
Western Asset High Income Fund II Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security
|
|
Rate
|
|
|
Maturity
Date
|
|
|
Face
Amount
|
|
|
Value
|
|
Construction Materials 0.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cemex SAB de CV, Senior Secured Notes
|
|
|
6.125
|
%
|
|
|
5/5/25
|
|
|
|
1,530,000
|
|
|
$
|
1,589,288
|
(a)(b)
|
Containers & Packaging 4.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ARD Securities Finance SARL, Senior Secured Notes (8.750% PIK)
|
|
|
8.750
|
%
|
|
|
1/31/23
|
|
|
|
5,852,518
|
|
|
|
6,115,881
|
(a)(b)(g)
|
Ardagh Packaging Finance PLC/Ardagh Holdings USA Inc., Senior Notes
|
|
|
6.000
|
%
|
|
|
2/15/25
|
|
|
|
7,158,000
|
|
|
|
7,533,795
|
(a)(b)
|
Greif Inc., Senior Notes
|
|
|
6.500
|
%
|
|
|
3/1/27
|
|
|
|
2,930,000
|
|
|
|
3,157,075
|
(a)
|
Pactiv LLC, Senior Notes
|
|
|
7.950
|
%
|
|
|
12/15/25
|
|
|
|
920,000
|
|
|
|
998,200
|
(b)
|
Pactiv LLC, Senior Notes
|
|
|
8.375
|
%
|
|
|
4/15/27
|
|
|
|
4,310,000
|
|
|
|
4,676,350
|
(b)
|
Trivium Packaging Finance BV, Senior Notes
|
|
|
8.500
|
%
|
|
|
8/15/27
|
|
|
|
1,230,000
|
|
|
|
1,314,563
|
(a)
|
Trivium Packaging Finance BV, Senior Secured Notes
|
|
|
5.500
|
%
|
|
|
8/15/26
|
|
|
|
1,680,000
|
|
|
|
1,764,000
|
(a)
|
Total Containers & Packaging
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,559,864
|
|
Metals & Mining 6.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alcoa Nederland Holding BV, Senior Notes
|
|
|
6.750
|
%
|
|
|
9/30/24
|
|
|
|
1,020,000
|
|
|
|
1,077,375
|
(a)(b)
|
Alcoa Nederland Holding BV, Senior Notes
|
|
|
7.000
|
%
|
|
|
9/30/26
|
|
|
|
2,450,000
|
|
|
|
2,673,563
|
(a)(b)
|
Alcoa Nederland Holding BV, Senior Notes
|
|
|
6.125
|
%
|
|
|
5/15/28
|
|
|
|
2,416,000
|
|
|
|
2,597,200
|
(a)(b)
|
Anglo American Capital PLC, Senior Notes
|
|
|
4.125
|
%
|
|
|
4/15/21
|
|
|
|
590,000
|
|
|
|
602,880
|
(a)(b)
|
Anglo American Capital PLC, Senior Notes
|
|
|
4.875
|
%
|
|
|
5/14/25
|
|
|
|
2,040,000
|
|
|
|
2,217,256
|
(a)(b)
|
ArcelorMittal, Senior Notes
|
|
|
7.000
|
%
|
|
|
10/15/39
|
|
|
|
3,200,000
|
|
|
|
3,918,704
|
(b)
|
First Quantum Minerals Ltd., Senior Notes
|
|
|
7.000
|
%
|
|
|
2/15/21
|
|
|
|
2,944,000
|
|
|
|
2,964,240
|
(a)(b)
|
First Quantum Minerals Ltd., Senior Notes
|
|
|
7.250
|
%
|
|
|
5/15/22
|
|
|
|
1,250,000
|
|
|
|
1,256,250
|
(a)
|
First Quantum Minerals Ltd., Senior Notes
|
|
|
7.250
|
%
|
|
|
4/1/23
|
|
|
|
600,000
|
|
|
|
604,875
|
(a)
|
Freeport-McMoRan Inc., Senior Notes
|
|
|
4.000
|
%
|
|
|
11/14/21
|
|
|
|
1,060,000
|
|
|
|
1,083,850
|
(b)
|
Freeport-McMoRan Inc., Senior Notes
|
|
|
3.550
|
%
|
|
|
3/1/22
|
|
|
|
760,000
|
|
|
|
770,450
|
(b)
|
Freeport-McMoRan Inc., Senior Notes
|
|
|
3.875
|
%
|
|
|
3/15/23
|
|
|
|
910,000
|
|
|
|
925,925
|
(b)
|
Freeport-McMoRan Inc., Senior Notes
|
|
|
4.550
|
%
|
|
|
11/14/24
|
|
|
|
4,605,000
|
|
|
|
4,800,712
|
(b)
|
Freeport-McMoRan Inc., Senior Notes
|
|
|
5.400
|
%
|
|
|
11/14/34
|
|
|
|
1,320,000
|
|
|
|
1,295,250
|
(b)
|
Freeport-McMoRan Inc., Senior Notes
|
|
|
5.450
|
%
|
|
|
3/15/43
|
|
|
|
6,060,000
|
|
|
|
5,666,100
|
(b)
|
Hudbay Minerals Inc., Senior Notes
|
|
|
7.250
|
%
|
|
|
1/15/23
|
|
|
|
1,180,000
|
|
|
|
1,224,132
|
(a)(b)
|
Hudbay Minerals Inc., Senior Notes
|
|
|
7.625
|
%
|
|
|
1/15/25
|
|
|
|
690,000
|
|
|
|
705,956
|
(a)(b)
|
Vale Overseas Ltd., Senior Notes
|
|
|
4.375
|
%
|
|
|
1/11/22
|
|
|
|
1,784,000
|
|
|
|
1,866,064
|
(b)
|
Vale Overseas Ltd., Senior Notes
|
|
|
6.875
|
%
|
|
|
11/21/36
|
|
|
|
2,960,000
|
|
|
|
3,779,920
|
(b)
|
Total Metals & Mining
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,030,702
|
|
Paper & Forest Products 1.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mercer International Inc., Senior Notes
|
|
|
6.500
|
%
|
|
|
2/1/24
|
|
|
|
1,039,000
|
|
|
|
1,074,066
|
(b)
|
See Notes to Financial
Statements.
|
|
|
12
|
|
Western Asset High Income Fund II Inc. 2019 Semi-Annual Report
|
|
|
|
Western Asset High Income Fund II Inc. 2019 Semi-Annual Report
|
|
21
|
Statement of assets and liabilities (unaudited)
October 31, 2019
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
Investments, at value (Cost $814,482,563)
|
|
$
|
873,370,250
|
|
Foreign currency, at value (Cost $1,542,040)
|
|
|
1,485,083
|
|
Cash
|
|
|
23,526
|
|
Interest receivable
|
|
|
13,113,569
|
|
Receivable for securities sold
|
|
|
2,508,824
|
|
Prepaid expenses
|
|
|
21,688
|
|
Total Assets
|
|
|
890,522,940
|
|
|
|
Liabilities:
|
|
|
|
|
Loan payable (Note 5)
|
|
|
246,500,000
|
|
Payable for open reverse repurchase agreements (Note 3)
|
|
|
15,754,500
|
|
Distributions payable
|
|
|
4,002,342
|
|
Payable for securities purchased
|
|
|
1,178,017
|
|
Investment management fee payable
|
|
|
579,678
|
|
Unrealized depreciation on forward foreign currency contracts
|
|
|
282,267
|
|
Interest payable
|
|
|
227,962
|
|
Directors fees payable
|
|
|
1,024
|
|
Accrued expenses
|
|
|
1,009,509
|
|
Total Liabilities
|
|
|
269,535,299
|
|
Total Net Assets
|
|
$
|
620,987,641
|
|
|
|
Net Assets:
|
|
|
|
|
Par value ($0.001 par value; 85,156,216 shares issued and outstanding; 100,000,000 shares authorized)
|
|
$
|
85,156
|
|
Paid-in capital in excess of par value
|
|
|
752,543,350
|
|
Total distributable earnings (loss)
|
|
|
(131,640,865)
|
|
Total Net Assets
|
|
$
|
620,987,641
|
|
|
|
Shares Outstanding
|
|
|
85,156,216
|
|
|
|
Net Asset Value
|
|
|
$7.29
|
|
See Notes to Financial
Statements.
|
|
|
22
|
|
Western Asset High Income Fund II Inc. 2019 Semi-Annual Report
|
Statement of operations (unaudited)
For the
Six Months Ended October 31, 2019
|
|
|
|
|
|
|
Investment Income:
|
|
|
|
|
Interest
|
|
$
|
31,358,414
|
|
Dividends
|
|
|
188,826
|
|
Less: Foreign taxes withheld
|
|
|
(20,292)
|
|
Total Investment Income
|
|
|
31,526,948
|
|
|
|
Expenses:
|
|
|
|
|
Interest expense (Notes 3 and 5)
|
|
|
3,853,597
|
|
Investment management fee (Note 2)
|
|
|
3,557,692
|
|
Transfer agent fees
|
|
|
1,098,961
|
|
Legal fees
|
|
|
127,491
|
|
Directors fees
|
|
|
80,439
|
|
Audit and tax fees
|
|
|
40,269
|
|
Stock exchange listing fees
|
|
|
21,991
|
|
Shareholder reports
|
|
|
13,564
|
|
Custody fees
|
|
|
8,017
|
|
Insurance
|
|
|
4,501
|
|
Fund accounting fees
|
|
|
4,022
|
|
Miscellaneous expenses
|
|
|
43,882
|
|
Total Expenses
|
|
|
8,854,426
|
|
Less: Fee waivers and/or expense reimbursements (Note 2)
|
|
|
(111,178)
|
|
Net Expenses
|
|
|
8,743,248
|
|
Net Investment Income
|
|
|
22,783,700
|
|
|
|
Realized and Unrealized Gain (Loss) on Investments, Futures Contracts,
Forward Foreign Currency Contracts and Foreign Currency
Transactions (Notes 1, 3 and 4):
|
|
|
|
|
Net Realized Gain (Loss) From:
|
|
|
|
|
Investment transactions
|
|
|
(22,250,328)
|
|
Futures contracts
|
|
|
627,740
|
|
Forward foreign currency contracts
|
|
|
664,679
|
|
Foreign currency transactions
|
|
|
(71,604)
|
|
Net Realized Loss
|
|
|
(21,029,513)
|
|
Change in Net Unrealized Appreciation (Depreciation) From:
|
|
|
|
|
Investments
|
|
|
21,297,569
|
|
Forward foreign currency contracts
|
|
|
(351,077)
|
|
Foreign currencies
|
|
|
(57,157)
|
|
Change in Net Unrealized Appreciation (Depreciation)
|
|
|
20,889,335
|
|
Net Loss on Investments, Futures Contracts, Forward Foreign Currency Contracts and Foreign Currency Transactions
|
|
|
(140,178)
|
|
Increase in Net Assets From Operations
|
|
$
|
22,643,522
|
|
See Notes to Financial
Statements.
|
|
|
Western Asset High Income Fund II Inc. 2019 Semi-Annual Report
|
|
23
|
Statements of changes in net assets
|
|
|
|
|
|
|
|
|
For the Six Months Ended October 31, 2019 (unaudited)
and the Year Ended April 30, 2019
|
|
October 31
|
|
|
April 30
|
|
|
|
|
Operations:
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
22,783,700
|
|
|
$
|
44,946,190
|
|
Net realized loss
|
|
|
(21,029,513)
|
|
|
|
(32,167,235)
|
|
Change in net unrealized appreciation (depreciation)
|
|
|
20,889,335
|
|
|
|
25,690,297
|
|
Increase in Net Assets From Operations
|
|
|
22,643,522
|
|
|
|
38,469,252
|
|
|
|
|
Distributions to Shareholders From (Note 1):
|
|
|
|
|
|
|
|
|
Total distributable earnings
|
|
|
(23,801,162)
|
|
|
|
(42,981,123)
|
|
Return of capital
|
|
|
|
|
|
|
(3,911,661)
|
|
Decrease in Net Assets From Distributions to
Shareholders
|
|
|
(23,801,162)
|
|
|
|
(46,892,784)
|
|
|
|
|
Fund Share Transactions:
|
|
|
|
|
|
|
|
|
Cost of shares repurchased (0 and 1,047,640 shares repurchased, respectively)
|
|
|
|
|
|
|
(6,268,230)
|
|
Decrease in Net Assets From Fund Share Transactions
|
|
|
|
|
|
|
(6,268,230)
|
|
Decrease in Net Assets
|
|
|
(1,157,640)
|
|
|
|
(14,691,762)
|
|
|
|
|
Net Assets:
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
622,145,281
|
|
|
|
636,837,043
|
|
End of period
|
|
$
|
620,987,641
|
|
|
$
|
622,145,281
|
|
See Notes to Financial
Statements.
|
|
|
24
|
|
Western Asset High Income Fund II Inc. 2019 Semi-Annual Report
|
Statement of cash flows (unaudited)
For the
Six Months Ended October 31, 2019
|
|
|
|
|
|
|
Increase (Decrease) in Cash:
|
|
|
|
|
Cash Provided (Used) by Operating Activities:
|
|
Net increase in net assets resulting from operations
|
|
$
|
22,643,522
|
|
Adjustments to reconcile net increase in net assets resulting from operations to net cash provided (used) by operating
activities:
|
|
|
|
|
Purchases of portfolio securities
|
|
|
(238,237,103)
|
|
Sales of portfolio securities
|
|
|
244,752,850
|
|
Net purchases, sales and maturities of short-term investments
|
|
|
1,277,732
|
|
Payment-in-kind
|
|
|
(121,521)
|
|
Net amortization of premium (accretion of discount)
|
|
|
(4,944,343)
|
|
Decrease in receivable for securities sold
|
|
|
7,034,107
|
|
Decrease in interest receivable
|
|
|
460,626
|
|
Decrease in prepaid expenses
|
|
|
17,628
|
|
Decrease in payable for securities purchased
|
|
|
(15,303,127)
|
|
Increase in investment management fee payable
|
|
|
19,933
|
|
Decrease in Directors fees payable
|
|
|
(6,173)
|
|
Decrease in interest payable
|
|
|
(31,360)
|
|
Increase in accrued expenses
|
|
|
814,752
|
|
Net realized loss on investments
|
|
|
22,250,328
|
|
Change in net unrealized appreciation (depreciation) of investments and forward foreign currency
contracts
|
|
|
(20,946,492)
|
|
Net Cash Provided by Operating Activities*
|
|
|
19,681,359
|
|
|
|
Cash Flows From Financing Activities:
|
|
|
|
|
Distributions paid on common stock
|
|
|
(23,716,006)
|
|
Increase in payable for reverse repurchase agreements
|
|
|
4,631,500
|
|
Net Cash Used in Financing Activities
|
|
|
(19,084,506)
|
|
Net Increase in Cash and Restricted Cash
|
|
|
596,853
|
|
Cash and restricted cash at beginning of period
|
|
|
911,756
|
|
Cash and restricted cash at end of period
|
|
$
|
1,508,609
|
|
*
|
Included in operating expenses is cash of $3,884,957 paid for interest on borrowings.
|
|
The following table provides a reconciliation of cash and restricted cash reported within the Statement of Assets and Liabilities that sums to the total
of such amounts shown on the Statement of Cash Flows.
|
|
|
|
|
|
|
|
October 31, 2019
|
|
Cash
|
|
$
|
1,508,609
|
|
Restricted cash
|
|
|
|
|
Total cash and restricted cash shown in the Statement of Cash Flows
|
|
$
|
1,508,609
|
|
See Notes to Financial
Statements.
|
|
|
Western Asset High Income Fund II Inc. 2019 Semi-Annual Report
|
|
25
|
Financial highlights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For a share of capital stock outstanding throughout each year ended April 30,
unless
otherwise noted:
|
|
|
|
20191,2
|
|
|
20191
|
|
|
20181
|
|
|
20171
|
|
|
20161
|
|
|
20151
|
|
|
|
|
|
|
|
|
Net asset value, beginning of period
|
|
|
$7.31
|
|
|
|
$7.39
|
|
|
|
$7.78
|
|
|
|
$7.12
|
|
|
|
$8.57
|
|
|
|
$9.47
|
|
|
|
|
|
|
|
|
Income (loss) from operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
0.27
|
|
|
|
0.52
|
|
|
|
0.56
|
|
|
|
0.66
|
|
|
|
0.73
|
|
|
|
0.79
|
|
Net realized and unrealized gain (loss)
|
|
|
(0.01)
|
|
|
|
(0.06)
|
|
|
|
(0.37)
|
|
|
|
0.69
|
|
|
|
(1.36)
|
|
|
|
(0.86)
|
|
Total income (loss) from operations
|
|
|
0.26
|
|
|
|
0.46
|
|
|
|
0.19
|
|
|
|
1.35
|
|
|
|
(0.63)
|
|
|
|
(0.07)
|
|
|
|
|
|
|
|
|
Less distributions from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
(0.28)
|
3
|
|
|
(0.50)
|
|
|
|
(0.57)
|
|
|
|
(0.63)
|
|
|
|
(0.82)
|
|
|
|
(0.83)
|
|
Return of capital
|
|
|
|
|
|
|
(0.05)
|
|
|
|
(0.01)
|
|
|
|
(0.06)
|
|
|
|
|
|
|
|
|
|
Total distributions
|
|
|
(0.28)
|
|
|
|
(0.55)
|
|
|
|
(0.58)
|
|
|
|
(0.69)
|
|
|
|
(0.82)
|
|
|
|
(0.83)
|
|
Anti-dilutive impact of repurchase plan
|
|
|
|
|
|
|
0.01
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, end of period
|
|
|
$7.29
|
|
|
|
$7.31
|
|
|
|
$7.39
|
|
|
|
$7.78
|
|
|
|
$7.12
|
|
|
|
$8.57
|
|
|
|
|
|
|
|
|
Market price, end of period
|
|
|
$6.73
|
|
|
|
$6.69
|
|
|
|
$6.55
|
|
|
|
$7.42
|
|
|
|
$6.90
|
|
|
|
$8.15
|
|
Total return, based on NAV5,6
|
|
|
3.60
|
%
|
|
|
6.77
|
%
|
|
|
2.41
|
%
|
|
|
19.76
|
%
|
|
|
(7.12)
|
%
|
|
|
(0.65)
|
%
|
Total return, based on Market Price7
|
|
|
4.82
|
%
|
|
|
11.29
|
%
|
|
|
(4.15)
|
%
|
|
|
18.36
|
%
|
|
|
(4.40)
|
%
|
|
|
(4.54)
|
%
|
|
|
|
|
|
|
|
Net assets, end of period (millions)
|
|
|
$621
|
|
|
|
$622
|
|
|
|
$637
|
|
|
|
$671
|
|
|
|
$614
|
|
|
|
$738
|
|
|
|
|
|
|
|
|
Ratios to average net assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross expenses
|
|
|
2.82
|
%8
|
|
|
2.47
|
%
|
|
|
1.97
|
%
|
|
|
1.73
|
%
|
|
|
1.59
|
%
|
|
|
1.45
|
%
|
Net expenses
|
|
|
2.79
|
8,9
|
|
|
2.45
|
9
|
|
|
1.97
|
|
|
|
1.73
|
|
|
|
1.59
|
|
|
|
1.45
|
|
Net investment income
|
|
|
7.26
|
8
|
|
|
7.31
|
|
|
|
7.26
|
|
|
|
8.72
|
|
|
|
9.78
|
|
|
|
8.90
|
|
|
|
|
|
|
|
|
Portfolio turnover rate
|
|
|
27
|
%
|
|
|
105
|
%
|
|
|
91
|
%
|
|
|
77
|
%
|
|
|
65
|
%
|
|
|
41
|
%
|
|
|
|
|
|
|
|
Supplemental data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Outstanding, End of Period (000s)
|
|
|
$246,500
|
|
|
|
$246,500
|
|
|
|
$235,000
|
|
|
|
$240,000
|
|
|
|
$240,000
|
|
|
|
$260,000
|
|
Asset Coverage Ratio for Loan
Outstanding10
|
|
|
352
|
%
|
|
|
352
|
%
|
|
|
371
|
%
|
|
|
380
|
%
|
|
|
356
|
%
|
|
|
384
|
%
|
Asset Coverage, per $1,000 Principal Amount of Loan Outstanding10
|
|
|
$3,519
|
|
|
|
$3,524
|
|
|
|
$3,710
|
|
|
|
$3,796
|
|
|
|
$3,557
|
|
|
|
$3,840
|
|
Weighted Average Loan (000s)
|
|
|
$246,500
|
|
|
|
$242,889
|
|
|
|
$239,548
|
|
|
|
$240,000
|
|
|
|
$241,803
|
|
|
|
$251,712
|
|
Weighted Average Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate on Loan
|
|
|
2.97
|
%
|
|
|
3.08
|
%
|
|
|
2.17
|
%
|
|
|
1.41
|
%
|
|
|
1.05
|
%
|
|
|
0.91
|
%
|
See Notes to Financial
Statements.
|
|
|
26
|
|
Western Asset High Income Fund II Inc. 2019 Semi-Annual Report
|
1
|
Per share amounts have been calculated using the average shares method.
|
2
|
For the six months ended October 31, 2019 (unaudited).
|
3
|
The actual source of the Funds current fiscal year distributions may be from net investment income, return of capital or a combination of both.
Shareholders will be informed of the tax characteristics of the distributions after the close of the fiscal year.
|
4
|
The repurchase plan was completed at an average repurchase price of $5.98 for 1,047,640 shares and $6,268,230 for the year ended April 30, 2019.
|
5
|
Performance figures may reflect compensating balance arrangements, fee waivers and/or expense reimbursements. In the absence of compensating balance
arrangements, fee waivers and/or expense reimbursements, the total return would have been lower. Past performance is no guarantee of future results. Total returns for periods of less than one year are not annualized.
|
6
|
The total return calculation assumes that distributions are reinvested at NAV. Past performance is no guarantee of future results. Total returns for periods of
less than one year are not annualized.
|
7
|
The total return calculation assumes that distributions are reinvested in accordance with the Funds dividend reinvestment plan. Past performance is no
guarantee of future results. Total returns for periods of less than one year are not annualized.
|
9
|
Reflects fee waivers and/or expense reimbursements.
|
10
|
Represents value of net assets plus the loan outstanding at the end of the period divided by the loan outstanding at the end of the period.
|
See Notes to Financial
Statements.
|
|
|
Western Asset High Income Fund II Inc. 2019 Semi-Annual Report
|
|
27
|
Notes to financial statements (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. On October 31, 2019, the Board of Directors of the Fund approved amendments to the Funds bylaws.
The amended and restated bylaws were subsequently filed on Form 8-K and are available on the SECs website at www.sec.gov.
The following are significant accounting policies consistently followed by the Fund and are in conformity with U.S. generally accepted accounting principles (GAAP). Estimates and assumptions are
required to be made regarding assets, liabilities and changes in net assets resulting from operations when financial statements are prepared. Changes in the economic environment, financial markets and any other parameters used in determining these
estimates could cause actual results to differ. Subsequent events have been evaluated through the date the financial statements were issued.
(a) Investment valuation. The valuations for fixed income securities (which may include, but are not limited to, corporate, government,
municipal, mortgage-backed, collateralized mortgage obligations and asset-backed securities) and certain derivative instruments are typically the prices supplied by independent third party pricing services, which may use market prices or
broker/dealer quotations or a variety of valuation techniques and methodologies. The independent third party pricing services use inputs that are observable such as issuer details, interest rates, yield curves, prepayment speeds, credit
risks/spreads, default rates and quoted prices for similar securities. Investments in open-end funds are valued at the closing net asset value per share of each fund on the day of valuation. Futures contracts
are valued daily at the settlement price established by the board of trade or exchange on which they are traded. 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 the Fund holds securities or other assets that are denominated in a foreign currency, the Fund will normally use the currency exchange rates as of 4:00 p.m. (Eastern Time). If independent third
party pricing services are unable to supply prices for a portfolio investment, or if the prices supplied are deemed by the manager to be unreliable, the market price may be determined by the manager using quotations from one or more broker/dealers
or at the transaction price if the security has recently been purchased and no value has yet been obtained from a pricing service or pricing broker. When reliable prices are not readily available, 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 values these securities as determined in accordance with procedures
approved by the Funds Board of Directors.
|
|
|
28
|
|
Western Asset High Income Fund II Inc. 2019 Semi-Annual Report
|
The Board of Directors is responsible for the valuation process and has delegated the supervision of the daily
valuation process to the Legg Mason North Atlantic Fund Valuation Committee (the Valuation Committee). The Valuation Committee, pursuant to the policies adopted by the Board of Directors, is responsible for making fair value
determinations, evaluating the effectiveness of the Funds pricing policies, and reporting to the Board of Directors. When determining the reliability of third party pricing information for investments owned by the Fund, the Valuation
Committee, among other things, conducts due diligence reviews of pricing vendors, monitors the daily change in prices and reviews transactions among market participants.
The Valuation Committee will consider pricing methodologies it deems relevant and appropriate when making fair value determinations. Examples of possible methodologies include, but are not limited to, multiple of
earnings; discount from market of a similar freely traded security; discounted cash-flow analysis; book value or a multiple thereof; risk premium/yield analysis; yield to maturity; and/or fundamental investment analysis. The Valuation Committee will
also consider factors it deems relevant and appropriate in light of the facts and circumstances. Examples of possible factors include, but are not limited to, the type of security; the issuers financial statements; the purchase price of the
security; the discount from market value of unrestricted securities of the same class at the time of purchase; analysts research and observations from financial institutions; information regarding any transactions or offers with respect to the
security; the existence of merger proposals or tender offers affecting the security; the price and extent of public trading in similar securities of the issuer or comparable companies; and the existence of a shelf registration for restricted
securities.
For each portfolio security that has been fair valued pursuant to the policies adopted by the Board of Directors, the fair value price is
compared against the last available and next available market quotations. The Valuation Committee reviews the results of such back testing monthly and fair valuation occurrences are reported to the Board of Directors quarterly.
The Fund uses valuation techniques to measure fair value that are consistent with the market approach and/or income approach, depending on the type of security and
the particular circumstance. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable securities. The income approach uses valuation techniques to discount estimated future
cash flows to present value.
|
|
|
Western Asset High Income Fund II Inc. 2019 Semi-Annual Report
|
|
29
|
Notes to financial statements
(unaudited) (contd)
GAAP establishes a disclosure hierarchy that categorizes the inputs to valuation techniques used to value assets and liabilities at measurement date. These inputs
are summarized in the three broad levels listed 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 Funds own assumptions in determining the fair value of investments)
|
The inputs or methodologies used to value 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 Funds assets and liabilities carried at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
Description
|
|
Quoted Prices
(Level 1)
|
|
|
Other Significant
Observable Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
|
|
Long-Term Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Bonds & Notes
|
|
|
|
|
|
$
|
666,300,760
|
|
|
|
|
|
|
$
|
666,300,760
|
|
Sovereign Bonds
|
|
|
|
|
|
|
106,670,005
|
|
|
|
|
|
|
|
106,670,005
|
|
Senior Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Communication Services
|
|
|
|
|
|
|
11,517,018
|
|
|
$
|
1,440,000
|
|
|
|
12,957,018
|
|
Health Care
|
|
|
|
|
|
|
1,139,543
|
|
|
|
1,743,450
|
|
|
|
2,882,993
|
|
Other Senior Loans
|
|
|
|
|
|
|
45,245,658
|
|
|
|
|
|
|
|
45,245,658
|
|
U.S. Government & Agency Obligations
|
|
|
|
|
|
|
25,639,190
|
|
|
|
|
|
|
|
25,639,190
|
|
Convertible Bonds & Notes
|
|
|
|
|
|
|
7,038,151
|
|
|
|
|
|
|
|
7,038,151
|
|
Preferred Stocks
|
|
$
|
4,114,678
|
|
|
|
|
|
|
|
|
|
|
|
4,114,678
|
|
Common Stocks:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Discretionary
|
|
|
|
|
|
|
|
|
|
|
38,543
|
|
|
|
38,543
|
|
Energy
|
|
|
|
|
|
|
|
|
|
|
138,929
|
|
|
|
138,929
|
|
Utilities
|
|
|
|
|
|
|
|
|
|
|
1,252,460
|
|
|
|
1,252,460
|
|
Non-U.S. Treasury Inflation Protected Securities
|
|
|
|
|
|
|
141,349
|
|
|
|
|
|
|
|
141,349
|
|
Total Long-Term Investments
|
|
|
4,114,678
|
|
|
|
863,691,674
|
|
|
|
4,613,382
|
|
|
|
872,419,734
|
|
Short-Term Investments
|
|
|
950,516
|
|
|
|
|
|
|
|
|
|
|
|
950,516
|
|
Total Investments
|
|
$
|
5,065,194
|
|
|
$
|
863,691,674
|
|
|
$
|
4,613,382
|
|
|
$
|
873,370,250
|
|
|
|
|
30
|
|
Western Asset High Income Fund II Inc. 2019 Semi-Annual Report
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
Description
|
|
Quoted Prices
(Level 1)
|
|
|
Other Significant
Observable Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
|
|
Other Financial Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward Foreign Currency Contracts
|
|
|
|
|
|
$
|
282,267
|
|
|
|
|
|
|
$
|
282,267
|
|
|
See Schedule of Investments for additional detailed categorizations.
|
(b) Futures contracts. The Fund uses futures contracts generally to gain exposure to, or hedge against, changes in interest rates or gain
exposure to, or hedge against, changes in certain asset classes. A futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a specified date.
Upon entering into a futures contract, the Fund is required to deposit cash or securities with a broker in an amount equal to a certain percentage of the contract
amount. This is known as the initial margin and subsequent payments (variation margin) are made or received by the Fund each day, depending on the daily fluctuation in the value of the contract. For
certain futures, including foreign denominated futures, variation margin is not settled daily, but is recorded as a net variation margin payable or receivable. The daily changes in contract value are recorded as unrealized gains or losses in the
Statement of Operations and the Fund recognizes a realized gain or loss when the contract is closed.
Futures contracts involve, to varying degrees, risk
of loss in excess of the amounts reflected in the financial statements. In addition, there is the risk that the Fund may not be able to enter into a closing transaction because of an illiquid secondary market.
(c) Forward foreign currency contracts. The Fund enters into a forward foreign currency
contract to hedge against foreign currency exchange rate risk on its non-U.S. dollar denominated securities or to facilitate settlement of a foreign currency denominated portfolio transaction. A forward
foreign currency contract is an agreement between two parties to buy and sell a currency at a set price with delivery and settlement at a future date. The contract is
marked-to-market daily and the change in value is recorded by the Fund as an unrealized gain or loss. When a forward foreign currency contract is closed, through either
delivery or offset by entering into another forward foreign currency contract, the Fund recognizes a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value of the contract at the time
it is closed.
Non-deliverable forward foreign currency exchange contracts are settled with the counterparty in
cash without the delivery of foreign currency.
Forward foreign currency contracts involve elements of market risk in excess of the amounts reflected on
the Statement of Assets and Liabilities. The Fund bears the risk of an unfavorable change in the foreign exchange rate underlying the forward foreign currency contract.
|
|
|
Western Asset High Income Fund II Inc. 2019 Semi-Annual Report
|
|
31
|
Notes to financial statements
(unaudited) (contd)
Risks may also arise upon entering into these contracts from the potential inability of the counterparties to meet the terms of their contracts.
(d) Loan participations. The Fund may invest in loans arranged through private negotiation
between one or more financial institutions. The Funds investment in any such loan may be in the form of a participation in or an assignment of the loan. In connection with purchasing participations, the Fund generally will have no right to
enforce compliance by the borrower with the terms of the loan agreement related to the loan, or any rights of off-set against the borrower and the Fund may not benefit directly from any collateral supporting
the loan in which it has purchased the participation.
The Fund assumes the credit risk of the borrower, the lender that is selling the participation and
any other persons interpositioned between the Fund and the borrower. In the event of the insolvency of the lender selling the participation, the Fund may be treated as a general creditor of the lender and may not benefit from any off-set between the lender and the borrower.
(e) Unfunded loan commitments. The Fund may enter into certain credit agreements where all or a portion of the total amount committed may be unfunded. The Fund is obligated to fund these commitments at the borrowers discretion. The
commitments are disclosed in the accompanying Schedule of Investments. At October 31, 2019, the Fund had sufficient cash and/or securities to cover these commitments.
(f) Repurchase agreements. The Fund may enter into repurchase agreements with institutions that its subadviser has determined are creditworthy.
Each repurchase agreement is recorded at cost. Under the terms of a typical repurchase agreement, the Fund acquires a debt security subject to an obligation of the seller to repurchase, and of the Fund to resell, the security at an agreed-upon price
and time, thereby determining the yield during the Funds holding period. When entering into repurchase agreements, it is the Funds policy that its custodian or a third party custodian, acting on the Funds behalf, 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 maturity exceeds one
business day, the value of the collateral is marked-to-market and measured against the value of the agreement in an effort to ensure the adequacy of the collateral. If
the counterparty defaults, the Fund generally has the right to use the collateral to satisfy the terms of the repurchase transaction. However, if the market value of the collateral declines during the period in which the Fund seeks to assert its
rights 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.
(g) Reverse repurchase agreements. The Fund may enter into reverse repurchase agreements. Under the terms of a typical reverse repurchase
agreement, a fund sells a security subject to an obligation to repurchase the security from the buyer at an agreed upon time
|
|
|
32
|
|
Western Asset High Income Fund II Inc. 2019 Semi-Annual Report
|
and price. In the event the buyer of securities under a reverse repurchase agreement files for bankruptcy or becomes insolvent, the Funds use of the proceeds of the agreement may be
restricted pending a determination by the counterparty, or its trustee or receiver, whether to enforce the Funds obligation to repurchase the securities. In entering into reverse repurchase agreements, the Fund will maintain cash, U.S.
government securities or other liquid debt obligations at least equal in value to its obligations with respect to reverse repurchase agreements or will take other actions permitted by law to cover its obligations. If the market value of the
collateral declines during the period, the Fund may be required to post additional collateral to cover its obligation. Cash collateral that has been pledged to cover obligations of the Fund under reverse repurchase agreements, if any, will be
reported separately in the Statement of Assets and Liabilities. Securities pledged as collateral are noted in the Schedule of Investments. Interest payments made on reverse repurchase agreements are recognized as a component of Interest
expense on the Statement of Operations. In periods of increased demand for the security, the Fund may receive a fee for use of the security by the counterparty, which may result in interest income to the Fund.
(h) Cash flow information. The Fund invests in securities and distributes dividends from net
investment income and net realized gains, which are paid in cash and may be reinvested at the discretion of shareholders. These activities are reported in the Statement of Changes in Net Assets and additional information on cash receipts and cash
payments are presented in the Statement of Cash Flows.
(i) 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 on 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.
The Fund does not isolate that portion of the results of operations resulting from fluctuations in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss on investments.
Net realized foreign exchange gains or losses arise from sales of foreign currencies, including gains and losses on forward foreign currency contracts, currency
gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Funds books and the U.S. dollar equivalent
of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the values of assets and liabilities, other than investments in securities, on the date of valuation, resulting from changes in exchange
rates.
|
|
|
Western Asset High Income Fund II Inc. 2019 Semi-Annual Report
|
|
33
|
Notes to financial statements
(unaudited) (contd)
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.
(j) 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 Funds investments in securities rated below investment grade
typically involve 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 Funds investments in non-U.S. dollar denominated
securities may also result in foreign currency losses caused by devaluations and exchange rate fluctuations.
(k) Foreign investment
risks. The Funds investments in foreign securities may involve risks not present in domestic investments. Since securities may be denominated in foreign currencies, may require settlement in
foreign currencies or pay interest or dividends in foreign currencies, changes in the relationship of these foreign currencies to the U.S. dollar can significantly affect the value of the investments and earnings of the Fund. Foreign investments may
also subject the Fund to foreign government exchange restrictions, expropriation, taxation or other political, social or economic developments, all of which affect the market and/or credit risk of the investments.
(l) Counterparty risk and credit-risk-related contingent features of derivative instruments.
The Fund may invest in certain securities or engage in other transactions, where the Fund is exposed to counterparty credit risk in addition to broader market risks. The Fund may invest in securities of issuers, which may also be considered
counterparties as trading partners in other transactions. This may increase the risk of loss in the event of default or bankruptcy by the counterparty or if the counterparty otherwise fails to meet its contractual obligations. The Funds
subadviser attempts to mitigate counterparty risk by (i) periodically assessing the creditworthiness of its trading partners, (ii) monitoring and/or limiting the amount of its net exposure to each individual counterparty based on its
assessment and (iii) requiring collateral from the counterparty for certain transactions. Market events and changes in overall economic conditions may impact the assessment of such counterparty risk by the subadviser. In addition, declines in
the values of underlying collateral received may expose the Fund to increased risk of loss.
With exchange traded and centrally cleared derivatives,
there is less counterparty risk to the Fund since the exchange or clearinghouse, as counterparty to such instruments, guarantees against a possible default. The clearinghouse stands between the buyer and the seller
|
|
|
34
|
|
Western Asset High Income Fund II Inc. 2019 Semi-Annual Report
|
of the contract; therefore, the credit risk is limited to failure of the clearinghouse. While offset rights may exist under applicable law, the Fund does not have a contractual right of offset
against a clearing broker or clearinghouse in the event of a default of the clearing broker or clearinghouse.
The Fund has entered into master
agreements, such as an International Swaps and Derivatives Association, Inc. Master Agreement (ISDA Master Agreement) or similar agreement, with certain of its derivative counterparties that govern over-the-counter derivatives and provide for general obligations, representations, agreements, collateral posting terms, netting provisions in the event of default or termination and credit related contingent
features. The credit related contingent features include, but are not limited to, a percentage decrease in the Funds net assets or NAV over a specified period of time. If these credit related contingent features were triggered, the derivatives
counterparty could terminate the positions and demand payment or require additional collateral.
Under an ISDA Master Agreement, the Fund may, under
certain circumstances, offset with the counterparty certain derivative financial instruments payables and/or receivables with collateral held and/or posted and create one single net payment. However, absent an event of default by the
counterparty or a termination of the agreement, the terms of the ISDA Master Agreements do not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions
between the Fund and the applicable counterparty. The enforceability of the right to offset may vary by jurisdiction.
Collateral requirements differ by
type of derivative. Collateral or margin requirements are set by the broker or exchange clearinghouse for exchange traded derivatives while collateral terms are contract specific for
over-the-counter traded derivatives. Cash collateral that has been pledged to cover obligations of the Fund under derivative contracts, if any, will be reported
separately in the Statement of Assets and Liabilities. Securities pledged as collateral, if any, for the same purpose are noted in the Schedule of Investments.
As of October 31, 2019, the Fund held forward foreign currency contracts with credit related contingent features which had a liability position of $282,267. If a contingent feature in the master agreements
would have been triggered, the Fund would have been required to pay this amount to its derivatives counterparties.
(m) Security
transactions and investment income. Security transactions are accounted for on a trade date basis. Interest income (including interest income from payment-in-kind securities), adjusted for amortization of premium and accretion of discount, is recorded on the accrual basis. Paydown gains and losses on mortgage- and asset-backed securities are recorded as
adjustments to interest income. Dividend income is recorded on the ex-dividend date for dividends received in cash and/or securities. Foreign dividend income is recorded on the
ex-dividend date or as soon as practicable after the Fund determines the existence of
|
|
|
Western Asset High Income Fund II Inc. 2019 Semi-Annual Report
|
|
35
|
Notes to financial statements
(unaudited) (contd)
a dividend declaration after exercising reasonable due diligence. The cost of investments sold is determined by use of the specific identification method. To the
extent any issuer defaults or a credit event occurs that impacts the issuer, the Fund may halt any additional interest income accruals and consider the realizability of interest accrued up to the date of default or credit event.
(n) Distributions to shareholders. Distributions from net investment income of the Fund, if
any, are declared quarterly and paid on a monthly basis. The actual source of the Funds current fiscal year distributions may be from net investment income, return of capital or a combination of both. Shareholders will be informed of the tax
characteristics of the distributions after the close of the fiscal year. Distributions of net realized gains, if any, are declared at least annually. Distributions to shareholders of the Fund are recorded on the
ex-dividend date and are determined in accordance with income tax regulations, which may differ from GAAP.
(o) Compensating balance arrangements. The Fund has an arrangement with its custodian bank whereby a portion of the custodians fees is
paid indirectly by credits earned on the Funds cash on deposit with the bank.
(p) Federal and other taxes. It is the Funds policy to comply with the federal income and excise tax requirements of the Internal Revenue Code of 1986 (the Code), as amended, applicable to regulated investment companies.
Accordingly, the Fund intends to distribute its taxable income and net realized gains, if any, to shareholders in accordance with timing requirements imposed by the Code. Therefore, no federal or state income tax provision is required in the
Funds financial statements.
Management has analyzed the Funds tax positions taken on income tax returns for all open tax years and has
concluded that as of April 30, 2019, no provision for income tax is required in the Funds financial statements. The Funds federal and state income and federal excise tax returns for tax years for which the applicable statutes of
limitations have not expired are subject to examination by the Internal Revenue Service and state departments of revenue.
Under the applicable foreign
tax laws, a withholding tax may be imposed on interest, dividends and capital gains at various rates.
(q)
Reclassification. GAAP requires that certain components of net assets be reclassified to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on
net assets or net asset value per share.
2. Investment management agreement and other transactions with affiliates
Legg Mason Partners Fund Advisor, LLC (LMPFA) is the Funds investment manager. Western Asset Management Company, LLC (Western Asset),
Western Asset Management Company Limited (Western Asset Limited) and Western Asset Management Company Pte.
|
|
|
36
|
|
Western Asset High Income Fund II Inc. 2019 Semi-Annual Report
|
Ltd. (Western Asset Singapore) are the Funds subadvisers. LMPFA, Western Asset, Western Asset Limited and Western Asset Singapore are wholly-owned subsidiaries of Legg Mason,
Inc. (Legg Mason).
LMPFA provides administrative and certain oversight services to the Fund. The Fund pays LMPFA an investment management
fee, calculated daily and paid monthly, at an annual rate of 0.80% of the Funds average weekly net assets plus the proceeds of any outstanding borrowings used for leverage and any proceeds from the issuance of preferred stock.
LMPFA delegates to Western Asset the day-to-day portfolio management of the Fund.
Western Asset Limited and Western Asset Singapore provide certain subadvisory services to the Fund relating to currency transactions and investments in non-U.S. dollar denominated debt securities. Western
Asset Limited and Western Asset Singapore do not receive any compensation from the Fund and are paid by Western Asset for their services to the Fund. For its services, LMPFA pays Western Asset monthly 70% of the net management fee it receives from
the Fund. In turn, Western Asset pays Western Asset Limited and Western Asset Singapore a monthly subadvisory fee in an amount equal to 100% of the management fee paid to Western Asset on the assets that Western Asset allocates to each such non-U.S. subadviser to manage.
Effective December 1, 2018, LMPFA implemented a voluntary investment management
fee waiver of 0.025% that will continue until November 30, 2019.
During the six months ended October 31, 2019, fees waived and/or expenses
reimbursed amounted to $111,178.
During periods in which the Fund utilizes financial leverage, the fees paid to LMPFA will be higher than if the Fund
did not utilize leverage because the fees are calculated as a percentage of the Funds assets, including those investments purchased with leverage.
All officers and one Director of the Fund are employees of Legg Mason or its affiliates and do not receive compensation from the Fund.
3. Investments
During the six months ended
October 31, 2019, the aggregate cost of purchases and proceeds from sales of investments (excluding short-term investments) and U.S. Government & Agency Obligations were as follows:
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
U.S. Government &
Agency Obligations
|
|
Purchases
|
|
$
|
218,514,437
|
|
|
$
|
19,722,666
|
|
Sales
|
|
|
230,941,940
|
|
|
|
13,810,910
|
|
|
|
|
Western Asset High Income Fund II Inc. 2019 Semi-Annual Report
|
|
37
|
Notes to financial statements
(unaudited) (contd)
At October 31, 2019, the aggregate cost of investments and the aggregate gross unrealized appreciation and depreciation of investments for federal income tax
purposes were substantially as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
Gross
Unrealized
Appreciation
|
|
|
Gross
Unrealized
Depreciation
|
|
|
Net
Unrealized
Appreciation
(Depreciation)
|
|
Securities
|
|
$
|
814,482,563
|
|
|
$
|
82,477,214
|
|
|
$
|
(23,589,527)
|
|
|
$
|
58,887,687
|
|
Forward foreign currency contracts
|
|
|
|
|
|
|
|
|
|
|
(282,267)
|
|
|
|
(282,267)
|
|
Transactions in reverse repurchase agreements for the Fund during the six months ended October 31, 2019 were as follows:
|
|
|
|
|
Average Daily
Balance*
|
|
Weighted Average
Interest Rate
|
|
Maximum Amount
Outstanding
|
$13,964,514
|
|
2.464%
|
|
$15,754,500
|
*
|
Averages based on the number of days that the Fund had reverse repurchase agreements outstanding.
|
Interest rates on reverse repurchase agreements ranged from 1.990% to 2.600% during the six months ended October 31, 2019. Interest expense incurred on reverse
repurchase agreements totaled $172,966.
4. Derivative instruments and hedging activities
Below is a table, grouped by derivative type, that provides information about the fair value and the location of derivatives within the Statement of Assets and
Liabilities at October 31, 2019.
|
|
|
|
|
LIABILITY
DERIVATIVES1
|
|
|
|
Foreign
Exchange Risk
|
|
Forward foreign currency contracts
|
|
$
|
282,267
|
|
1
|
Generally, the balance sheet location for asset derivatives is receivables/net unrealized appreciation (depreciation) and for liability derivatives is
payables/net unrealized appreciation (depreciation).
|
|
|
|
38
|
|
Western Asset High Income Fund II Inc. 2019 Semi-Annual Report
|
The following tables provide information about the effect of derivatives and hedging activities on the Funds
Statement of Operations for the six months ended October 31, 2019. The first table provides additional detail about the amounts and sources of gains (losses) realized on derivatives during the period. The second table provides additional
information about the change in unrealized appreciation (depreciation) resulting from the Funds derivatives and hedging activities during the period.
|
|
|
|
|
|
|
|
|
|
|
|
|
AMOUNT OF REALIZED GAIN (LOSS) ON DERIVATIVES RECOGNIZED
|
|
|
|
Interest
Rate Risk
|
|
|
Foreign
Exchange Risk
|
|
|
Total
|
|
Futures contracts
|
|
$
|
627,740
|
|
|
|
|
|
|
$
|
627,740
|
|
Forward foreign currency contracts
|
|
|
|
|
|
$
|
664,679
|
|
|
|
664,679
|
|
Total
|
|
$
|
627,740
|
|
|
$
|
664,679
|
|
|
$
|
1,292,419
|
|
|
|
|
|
|
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) ON DERIVATIVES RECOGNIZED
|
|
|
|
Foreign
Exchange Risk
|
|
Forward foreign currency contracts
|
|
$
|
(351,077)
|
|
During the six months ended October 31, 2019, the volume of derivative activity for the Fund was as follows:
|
|
|
|
|
|
|
Average Market
Value
|
|
Futures contracts (to sell)
|
|
$
|
2,558,476
|
|
Forward foreign currency contracts (to buy)
|
|
|
1,267,197
|
|
Forward foreign currency contracts (to sell)
|
|
|
12,487,899
|
|
|
At October 31, 2019, there were no open positions held in this derivative.
|
The following table presents the Funds OTC derivative assets and liabilities by counterparty net of amounts available for offset under an ISDA Master
Agreement and net of the related collateral pledged (received) by the Fund as of October 31, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Counterparty
|
|
Gross Assets
Subject to
Master
Agreements
|
|
|
Gross
Liabilities
Subject to
Master
Agreements1
|
|
|
Net Assets
(Liabilities)
Subject to
Master
Agreements
|
|
Collateral
Pledged
(Received)
|
|
|
Net
Amount2
|
|
Barclays Bank PLC
|
|
|
|
|
|
$
|
(32,942)
|
|
|
$(32,942)
|
|
|
|
|
|
$
|
(32,942)
|
|
BNP Paribas SA
|
|
|
|
|
|
|
(18,793)
|
|
|
(18,793)
|
|
|
|
|
|
|
(18,793)
|
|
Citibank N.A.
|
|
|
|
|
|
|
(230,532)
|
|
|
(230,532)
|
|
|
|
|
|
|
(230,532)
|
|
Total
|
|
|
|
|
|
$
|
(282,267)
|
|
|
$(282,267)
|
|
|
|
|
|
$
|
(282,267)
|
|
1
|
Absent an event of default or early termination, derivative assets and liabilities are presented gross and not offset in the Statement of Assets and Liabilities.
|
2
|
Represents the net amount receivable (payable) from (to) the counterparty in the event of default.
|
|
|
|
Western Asset High Income Fund II Inc. 2019 Semi-Annual Report
|
|
39
|
Notes to financial statements
(unaudited) (contd)
5. Loan
The Fund has a revolving credit
agreement with Pershing LLC that allows the Fund to borrow up to an aggregate amount of $300,000,000, subject to approval by Pershing LLC, and renews daily for a 180-day term unless notice to the contrary is
given to the Fund. The interest on the loan is calculated at a variable rate based on the one-month LIBOR plus any applicable margin. To the extent of the borrowing outstanding, the Fund is required to
maintain collateral in a special custody account at the Funds custodian on behalf of Pershing LLC. The Funds credit agreement contains customary covenants that, among other things, may limit the Funds ability to pay distributions
in certain circumstances, incur additional debt, change its fundamental investment policies and engage in certain transactions, including mergers and consolidations, and require asset coverage ratios in addition to those required by the 1940 Act. In
addition, the credit agreement may be subject to early termination under certain conditions and may contain other provisions that could limit the Funds ability to utilize borrowing under the agreement. Interest expense related to this loan for
the six months ended October 31, 2019 was $3,679,911. For the six months ended October 31, 2019, the Fund had an average daily loan balance outstanding of $246,500,000 and the weighted average interest rate was 2.97%. At October 31,
2019, the Fund had $246,500,000 of borrowings outstanding.
6. Distributions subsequent to October 31, 2019
The following distributions have been declared by the Funds Board of Directors and are payable subsequent to the period end of this report:
|
|
|
|
|
|
|
|
|
Record Date
|
|
Payable Date
|
|
|
Amount
|
|
10/18/2019
|
|
|
11/1/2019
|
|
|
$
|
0.0470
|
|
11/22/2019
|
|
|
12/2/2019
|
|
|
$
|
0.0470
|
|
12/20/2019
|
|
|
12/31/2019
|
|
|
$
|
0.0485
|
|
1/24/2020
|
|
|
2/3/2020
|
|
|
$
|
0.0485
|
|
2/21/2020
|
|
|
3/2/2020
|
|
|
$
|
0.0485
|
|
7. Stock repurchase program
On November 16, 2015, the Fund announced that the Funds Board of Directors (the Board) had authorized the Fund to repurchase in the open market up to approximately 10% of the Funds
outstanding common stock when the Funds shares are trading at a discount to net asset value. The Board has directed management of the Fund to repurchase shares of common stock at such times and in such amounts as management reasonably believes
may enhance stockholder value. The Fund is under no obligation to purchase shares at any specific discount levels or in any specific amounts. During the six months ended October 31, 2019, the Fund did not repurchase any shares.
Since the commencement of the stock repurchase program through October 31, 2019, the Fund repurchased 1,047,640 shares or 1.22% of its common shares
outstanding for a total
|
|
|
40
|
|
Western Asset High Income Fund II Inc. 2019 Semi-Annual Report
|
amount of $6,268,230. The anti-dilutive impact of these share repurchases is included in the Financial Highlights.
8. Deferred capital losses
As of April 30, 2019, the Fund had deferred capital losses of
$157,779,640, which have no expiration date, that will be available to offset future taxable capital gains.
|
|
|
Western Asset High Income Fund II Inc. 2019 Semi-Annual Report
|
|
41
|
Additional shareholder information (unaudited)
Results of annual meeting of shareholders
The Annual Meeting of Shareholders of Western Asset High Income Fund II Inc. was held on October 25, 2019 for the purpose of considering and voting upon the
proposals presented at the Meeting. The following table provides information concerning the matters voted upon at the Meeting:
Election of directors
|
|
|
|
|
|
|
|
|
Nominees
|
|
Votes For
|
|
|
Votes
Withheld
|
|
Carol L. Colman, CFA*
|
|
|
29,443,152
|
|
|
|
2,425,950
|
|
William R. Hutchinson*
|
|
|
29,428,566
|
|
|
|
2,440,536
|
|
Jane E. Trust, CFA*
|
|
|
29,452,878
|
|
|
|
2,416,224
|
|
David Basile**
|
|
|
14,578,049
|
|
|
|
482,183
|
|
Stephen J. Flanagan**
|
|
|
14,575,643
|
|
|
|
484,625
|
|
Frederic Gabriel**
|
|
|
14,572,437
|
|
|
|
487,795
|
|
*
|
Board of Directors nominee
|
**
|
Saba Capital Management L.P. nominee
|
At October 31, 2019, in addition to Carol L. Colman, William R. Hutchinson and Jane Trust, the other Directors of the Fund were as follows:
Robert D. Agdern
Daniel P. Cronin
Paolo M. Cucchi
Eileen A. Kamerick
Nisha Kumar
Non-Binding Proposal to Declassify Board of Directors
A non-binding proposal put forth by Saba Capital Management, L.P. requesting that the Board of Directors take all necessary
steps in its power to declassify the Board of Directors.
|
|
|
|
|
For
|
|
Against
|
|
Abstain
|
25,075,023
|
|
19,550,501
|
|
2,303,802
|
|
|
|
42
|
|
Western Asset High Income Fund II Inc.
|
Dividend reinvestment plan (unaudited)
Unless you elect to receive distributions in cash (i.e., opt-out), all dividends, including any capital gain dividends and
return of capital distributions, on your Common Stock will be automatically reinvested by Computershare Trust Company, N.A., as agent for the stockholders (the Plan Agent), in additional shares of Common Stock under the Funds
Dividend Reinvestment Plan (the Plan). You may elect not to participate in the Plan by contacting the Plan Agent. If you do not participate, you will receive all cash distributions paid by check mailed directly to you by Computershare
Trust Company, N.A., as dividend paying agent.
If you participate in the Plan, the number of shares of Common Stock you will receive will be determined
as follows:
(1) If the market price of the Common Stock (plus $0.03 per share commission) on the payment date (or, if the payment date
is not a NYSE trading day, the immediately preceding trading day) is equal to or exceeds the net asset value per share of the Common Stock at the close of trading on the NYSE on the payment date, the Fund will issue new Common Stock at a price equal
to the greater of (a) the net asset value per share at the close of trading on the NYSE on the payment date or (b) 95% of the market price per share of the Common Stock on the payment date.
(2) If the net asset value per share of the Common Stock exceeds the market price of the Common Stock (plus $0.03 per share commission) at the close
of trading on the NYSE on the payment date, the Plan Agent will receive the dividend or distribution in cash and will buy Common Stock in the open market, on the NYSE or elsewhere, for your account as soon as practicable commencing on the trading
day following the payment date and terminating no later than the earlier of (a) 30 days after the dividend or distribution payment date, or (b) the payment date for the next succeeding dividend or distribution to be made to the stockholders;
except when necessary to comply with applicable provisions of the federal securities laws. If during this period: (i) the market price (plus $0.03 per share commission) rises so that it equals or exceeds the net asset value per share of the
Common Stock at the close of trading on the NYSE on the payment date before the Plan Agent has completed the open market purchases or (ii) if the Plan Agent is unable to invest the full amount eligible to be reinvested in open market purchases,
the Plan Agent will cease purchasing Common Stock in the open market and the Fund shall issue the remaining Common Stock at a price per share equal to the greater of (a) the net asset value per share at the close of trading on the NYSE on the
day prior to the issuance of shares for reinvestment or (b) 95% of the then current market price per share.
Common Stock in your account will be held by
the Plan Agent in non-certificated form. Any proxy you receive will include all shares of Common Stock you have received under the Plan. You may withdraw from the Plan (i.e.,
opt-out) by notifying the Plan Agent in writing at 462 South 4th Street, Suite 1600, Louisville, KY 40202 or by calling the Plan Agent at 1-888-888-0151. Such withdrawal will be effective immediately if notice is received by the Plan Agent not less than ten business days prior to any dividend or distribution record date;
|
|
|
Western Asset High Income Fund II Inc.
|
|
43
|
Dividend reinvestment plan
(unaudited) (contd)
otherwise such withdrawal will be effective as soon as practicable after the Plan Agents investment of the most recently declared dividend or distribution on
the Common Stock.
Plan participants who sell their shares will be charged a service charge (currently $5.00 per transaction) and the Plan Agent is
authorized to deduct brokerage charges actually incurred from the proceeds (currently $0.05 per share commission). There is no service charge for reinvestment of your dividends or distributions in Common Stock. However, all participants will pay a
pro rata share of brokerage commissions incurred by the Plan Agent when it makes open market purchases. Because all dividends and distributions will be automatically reinvested in additional shares of Common Stock, this allows you to add to your
investment through dollar cost averaging, which may lower the average cost of your Common Stock over time. Dollar cost averaging is a technique for lowering the average cost per share over time if the Funds net asset value declines. While
dollar cost averaging has definite advantages, it cannot assure profit or protect against loss in declining markets.
Automatically reinvesting dividends
and distributions does not mean that you do not have to pay income taxes due upon receiving dividends and distributions. Investors will be subject to income tax on amounts reinvested under the Plan.
The Fund reserves the right to amend or terminate the Plan if, in the judgment of the Board of Directors, the change is warranted. The Plan may be terminated,
amended or supplemented by the Fund upon notice in writing mailed to stockholders at least 30 days prior to the record date for the payment of any dividend or distribution by the Fund for which the termination or amendment is to be effective. Upon
any termination, you will be sent cash for any fractional share of Common Stock in your account. You may elect to notify the Plan Agent in advance of such termination to have the Plan Agent sell part or all of your Common Stock on your behalf.
Additional information about the Plan and your account may be obtained from the Plan Agent at 462 South 4th Street, Suite 1600, Louisville, KY 40202 or by calling the Plan Agent at 1-888-888-0151.
|
|
|
44
|
|
Western Asset High Income Fund II Inc.
|
(This page intentionally left blank.)
(This page intentionally left blank.)
Western Asset
High Income Fund II Inc.
Directors
Robert D. Agdern
Carol L. Colman
Daniel P. Cronin
Paolo M. Cucchi
William R. Hutchinson
Eileen A. Kamerick
Nisha Kumar
Jane Trust
Chairman
Officers
Jane Trust
President and Chief Executive Officer
Christopher Berarducci
Treasurer and Principal Financial Officer*
Todd F. Kuehl
Principal Financial Officer
Jenna Bailey
Identity Theft Prevention Officer
Robert I.
Frenkel
Secretary and Chief Legal Officer
Thomas
C. Mandia
Assistant Secretary
Jeanne M. Kelly
Senior Vice President
*
|
Effective September 27, 2019, Mr. Berarducci became Treasurer and Principal Financial Officer.
|
Western Asset High Income Fund II Inc.
620 Eighth Avenue
49th Floor
New York, NY 10018
Investment Manager
Legg Mason Partners Fund Advisor, LLC
Subadvisers
Western Asset Management
Company, LLC
Western Asset Management Company Limited
Western Asset Management Company Pte. Ltd.
Custodian
The Bank of New York Mellon
Transfer agent
Computershare
Inc.
462 South 4th Street, Suite 1600
Louisville, KY
40202
Independent registered public accounting firm
PricewaterhouseCoopers LLP
Baltimore, MD
Legal counsel
Simpson Thacher & Bartlett LLP
425 Lexington Avenue
New York, NY 10017
New York Stock Exchange Symbol
HIX
Legg Mason Funds Privacy and Security Notice
Your Privacy and the Security of Your Personal Information is Very Important to the Legg Mason Funds
This Privacy and Security Notice (the Privacy Notice) addresses the Legg Mason Funds privacy and data protection practices with respect to
nonpublic personal information the Funds receive. The Legg Mason Funds include any funds sold by the Funds distributor, Legg Mason Investor Services, LLC, as well as Legg Mason-sponsored closed-end
funds. The provisions of this Privacy Notice apply to your information both while you are a shareholder and after you are no longer invested with the Funds.
The Type of Nonpublic Personal Information the Funds Collect About You
The Funds collect and
maintain nonpublic personal information about you in connection with your shareholder account. Such information may include, but is not limited to:
|
|
Personal information included on applications or other forms;
|
|
|
Account balances, transactions, and mutual fund holdings and positions;
|
|
|
Bank account information, legal documents, and identity verification documentation;
|
|
|
Online account access user IDs, passwords, security challenge question responses; and
|
|
|
Information received from consumer reporting agencies regarding credit history and creditworthiness (such as the amount of an individuals total debt,
payment history, etc.).
|
How the Funds Use Nonpublic Personal Information About You
The Funds do not sell or share your nonpublic personal information with third parties or with affiliates for their marketing purposes, or with other financial
institutions or affiliates for joint marketing purposes, unless you have authorized the Funds to do so. The Funds do not disclose any nonpublic personal information about you except as may be required to perform transactions or services you have
authorized or as permitted or required by law. The Funds may disclose information about you to:
|
|
Employees, agents, and affiliates on a need to know basis to enable the Funds to conduct ordinary business or to comply with obligations to
government regulators;
|
|
|
Service providers, including the Funds affiliates, who assist the Funds as part of the ordinary course of business (such as printing, mailing services, or
processing or servicing your account with us) or otherwise perform services on the Funds behalf, including companies that may perform statistical analysis, market research and marketing services solely for the Funds;
|
|
|
Permit access to transfer, whether in the United States or countries outside of the United States to such Funds employees, agents and affiliates and
service providers as required to enable the Funds to conduct ordinary business, or to comply with obligations to government regulators;
|
|
|
The Funds representatives such as legal counsel, accountants and auditors to enable the Funds to conduct ordinary business, or to comply with obligations
to government regulators;
|
|
|
Fiduciaries or representatives acting on your behalf, such as an IRA custodian or trustee of a grantor trust.
|
|
NOT PART OF THE SEMI-ANNUAL REPORT
|
Legg Mason Funds Privacy and Security Notice (contd)
Except as otherwise permitted by applicable law, companies acting on the Funds
behalf, including those outside the United States, are contractually obligated to keep nonpublic personal information the Funds provide to them confidential and to use the information the Funds share only to provide the services the Funds ask them
to perform.
The Funds may disclose nonpublic personal information about you when necessary to enforce their rights or protect against fraud, or as
permitted or required by applicable law, such as in connection with a law enforcement or regulatory request, subpoena, or similar legal process. In the event of a corporate action or in the event a Fund service provider changes, the Funds may be
required to disclose your nonpublic personal information to third parties. While it is the Funds practice to obtain protections for disclosed information in these types of transactions, the Funds cannot guarantee their privacy policy will
remain unchanged.
Keeping You Informed of the Funds Privacy and Security Practices
The Funds will notify you annually of their privacy policy as required by federal law. While the Funds reserve the right to modify this policy at any time they
will notify you promptly if this privacy policy changes.
The Funds Security Practices
The Funds maintain appropriate physical, electronic and procedural safeguards designed to guard your nonpublic personal information. The Funds internal data
security policies restrict access to your nonpublic personal information to authorized employees, who may use your nonpublic personal information for Fund business purposes only.
Although the Funds strive to protect your nonpublic personal information, they cannot ensure or warrant the security of any information you provide or transmit to them, and you do so at your own risk. In the event
of a breach of the confidentiality or security of your nonpublic personal information, the Funds will attempt to notify you as necessary so you can take appropriate protective steps. If you have consented to the Funds using electronic communications
or electronic delivery of statements, they may notify you under such circumstances using the most current email address you have on record with them.
In
order for the Funds to provide effective service to you, keeping your account information accurate is very important. If you believe that your account information is incomplete, not accurate or not current, if you have questions about the
Funds privacy practices, or our use of your nonpublic personal information, write the Funds using the contact information on your account statements, email the Funds by clicking on the Contact Us section of the Funds website at
www.leggmason.com, or contact the Funds at 1-888-777-0102.
Revised April 2018
|
NOT PART OF THE
SEMI-ANNUAL REPORT
|
Western Asset High Income Fund II Inc.
Western Asset High Income Fund II Inc.
620 Eighth Avenue
49th Floor
New York, NY 10018
Notice is hereby given in accordance with Section 23(c) of the Investment Company Act of 1940, as amended, that from time to time the Fund may purchase, at market prices, shares of its stock.
The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each
fiscal year as an exhibit to its reports on Form N-PORT. The Funds Forms N-PORT are available on the SECs website at www.sec.gov. To obtain information on
Forms N-PORT, shareholders can call the Fund at 1-888-777-0102.
Information on how the Fund voted proxies relating to portfolio securities during the prior 12-month period ended June 30th
of each year and a description of the policies and procedures that the Fund uses to determine how to vote proxies related to portfolio transactions are available (1) without charge, upon request, by calling 1-888-777-0102, (2) at www.lmcef.com and (3) on the SECs website at www.sec.gov.
This report is transmitted to the shareholders of Western Asset High Income Fund II Inc. for their information. This is not a prospectus, circular or representation intended for use in the purchase of shares of the
Fund or any securities mentioned in this report.
Computershare Inc.
462 South 4th Street, Suite 1600
Louisville, KY 40202
WAS0022 12/19 SR19-3748