Edgar Filing: WESTERN ASSET HIGH INCOME FUND II INC.

Western Asset High Income Fund II Inc.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number 811-08709

Western Asset High Income Fund II Inc.

(Exact name of registrant as specified in charter)

620 Eighth Avenue, 49^th Floor, New York, NY 10018

(Address of principal executive offices) (Zip code)

Robert I. Frenkel, Esq.

Legg Mason & Co., LLC

100 First Stamford Place

Stamford, CT 06902

(Name and address of agent for service)

Registrant’s telephone number, including area code: (888) 777-0102

Date of fiscal year end: April 30

Date of reporting period: April 30, 2015

ITEM 1.

REPORT TO STOCKHOLDERS.

The Annual Report to Stockholders is filed herewith.

LOGO


Annual Report		April 30, 2015

WESTERN ASSET

HIGH INCOME FUND II INC.

(HIX)

LOGO

INVESTMENT PRODUCTS: NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE


What’s inside
Letter from the chairman			II
Investment commentary			III
Fund overview			1
Fund at a glance			7
Spread duration			8
Effective duration			9
Schedule of investments			10
Statement of assets and liabilities			28
Statement of operations			29
Statements of changes in net assets			30
Statement of cash flows			31
Financial highlights			32
Notes to financial statements			33
Report of independent registered public accounting firm			50
Board approval of management and subadvisory agreements			51
Additional information			57
Annual chief executive officer and principal financial officer certifications			63
Other shareholder communications regarding accounting matters			64
Dividend reinvestment plan			65
Important tax information			69

Fund objectives

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.

Letter from the chairman

LOGO

Dear Shareholder,

We are pleased to provide the annual report of Western Asset High Income Fund II Inc. for the twelve-month reporting period ended April 30, 2015. Please read on for a detailed look at prevailing economic and market conditions during the Fund’s reporting period and to learn how those conditions have affected Fund performance.

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,

LOGO

Kenneth D. Fuller

Chairman, President and Chief Executive Officer

May 29, 2015


II		Western Asset High Income Fund II Inc.

Investment commentary

Economic review

The U.S. economy expanded moderately during the twelve month period ended April 30, 2015 (the “reporting period”). The U.S. Department of Commerce reported that second quarter 2014 U.S. gross domestic product (“GDP”)ⁱ growth was 4.6%. The economy then gained momentum as third quarter GDP growth was 5.0%, its strongest reading since the third quarter of 2003. This was driven by contributions from personal consumption expenditures (“PCE”), exports, nonresidential fixed investment and government spending. However, fourth quarter 2014 GDP growth slowed to a modest 2.2%. The deceleration in growth primarily reflected an upturn in imports, a downturn in federal government spending and moderating nonresidential fixed investment. After the reporting period ended, the U.S. Department of Commerce reported that its second estimate for first quarter 2015 GDP was -0.7%. This downturn was attributed to a number of factors, including negative contributions from exports, nonresidential fixed investment, and state and local government spending.

Activity in the U.S. manufacturing sector also moderated during the reporting period. Based on the Institute for Supply Management’s Purchasing Managers’ Index (“PMI”)ⁱⁱ, U.S. manufacturing expanded during all twelve months of the reporting period (a reading below 50 indicates a contraction, whereas a reading above 50 indicates an expansion). After a reading of 55.6 in May 2014, the PMI generally rose over the next several months, reaching a high of 58.1 in August, its best reading since April 2011. Manufacturing activity then decelerated over much of the last seven months of the reporting period and the PMI was 51.5 in April 2015.

The labor market was largely a tailwind for the economy during the reporting period. When the period began, unemployment was 6.3%, as reported by the U.S. Department of Labor. Unemployment generally declined during the reporting period and was 5.4% in April 2015, its lowest level since May 2008.

The Federal Reserve Board (“Fed”)ⁱⁱⁱ took a number of actions as it sought to meet its dual mandate of fostering maximum employment and price stability. As it has since December 2008, the Fed kept the federal funds rate^iv at a historically low range between zero and 0.25%. The Fed ended its asset purchase program that was announced in December 2012. In December 2014, the Fed said that “it can be patient in beginning to normalize the stance of monetary policy.” Finally, at its meeting that ended on April 29, 2015, the Fed said, “…economic growth slowed during the winter months, in part reflecting transitory factors…The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.”

As always, thank you for your confidence in our stewardship of your assets.

Sincerely,

LOGO

Kenneth D. Fuller

Chairman, President and Chief Executive Officer

May 29, 2015


Western Asset High Income Fund II Inc.		III

Investment commentary (cont’d)

All investments are subject to risk including the possible loss of principal. Past performance is no guarantee of future results.

ⁱ	Gross domestic product (“GDP”) is the market value of all final goods and services produced within a country in a given period of time.

ⁱⁱ	The Institute for Supply Management’s PMI is based on a survey of purchasing executives who buy the raw materials for manufacturing at more than 350 companies. It offers an early reading on the health of the U.S. manufacturing sector.

ⁱⁱⁱ	The Federal Reserve Board (“Fed”) is responsible for the formulation of policies designed to promote economic growth, full employment, stable prices and a sustainable pattern of international trade and payments.

^iv	The federal funds rate is the rate charged by one depository institution on an overnight sale of immediately available funds (balances at the Federal Reserve) to another depository institution; the rate may vary from depository institution to depository institution and from day to day.


IV		Western Asset High Income Fund II Inc.

Fund overview

Q. What is the Fund’s investment strategy?

A. 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. The Fund may invest up to 35% of its total assets in debt securities of issuers located in emerging market countries. It may also invest up to 30% of its assets in zero coupon securities, pay-in-kind bonds and deferred payment securities, and up to 20% of its assets in equity securities. The Fund may utilize a variety of derivative instruments for investment or risk management purposes, such as options, futures contracts, swap agreements including credit default swaps. We employ an actively managed approach that is risk-controlled and assimilates top-down macroeconomic views with industry sector insights and bottom-up credit research to derive the general framework for the Fund’s predominantly non-investment grade credit mandate. This framework provides the foundation for how the portfolio is positioned with respect to risk (aggressive, neutral, conservative), as well as identifying sector overweights and underweights.

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

At Western Asset Management Company (“Western Asset”), the Fund’s subadviser, we utilize a fixed-income team approach, with decisions derived from interaction among various investment management sector specialists. The sector teams are comprised of Western Asset’s senior portfolio management personnel, research analysts and an in-house economist. Under this team approach, management of client fixed-income portfolios will reflect a consensus of interdisciplinary views within the Western Asset organization. The individuals responsible for development of investment strategy, day-to-day portfolio management, oversight and coordination of the Fund are S. Kenneth Leech, Michael C. Buchanan and Christopher F. Kilpatrick.

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

A. The spread sectors (non-Treasuries) experienced several periods of volatility and produced mixed results versus equal-durationⁱ Treasuries over the twelve months ended April 30, 2015. Risk aversion was prevalent at times given mixed economic data, questions surrounding the outlook for global growth, changing monetary policy by the Federal Reserve Board (“Fed”)ⁱⁱ, and numerous geopolitical issues. However, these factors were overshadowed at times by solid demand from investors looking to generate incremental yield.

Short-term Treasury yields moved higher, whereas long-term Treasury yields declined during the twelve months ended April 30,


Western Asset High Income Fund II Inc. 2015 Annual Report		1

Fund overview (cont’d)

2015. Two-year Treasury yields rose from 0.42% at the beginning of the period to 0.58% at the end of the period. Their peak of 0.73% occurred toward the end of December 2014, and again on March 6, 2015, and they were as low as 0.34% on October 15, 2014. Ten-year Treasury yields were 2.67% at the beginning of the period, which was also their peak for the twelve months ended April 30, 2015. Ten-year Treasury yields reached a low of 1.68% at the end of January and early February 2015 and they ended the reporting period at 2.05%.

The Barclays U.S. Aggregate Indexⁱⁱⁱ returned 4.46% for the twelve months ended April 30, 2015. Comparatively, riskier fixed-income securities, including high-yield bonds and emerging market debt, produced mixed results. Over the fiscal year, the Barclays U.S. Corporate High Yield — 2% Issuer Cap Index (the “Index”)^iv returned 2.59%. Elsewhere, the JPMorgan Emerging Markets Bond Index Global (“EMBI Global”)^v returned 4.50% for the twelve months ended April 30, 2015.

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

A. A number of adjustments were made to the Fund’s portfolio during the reporting period. In terms of sector positioning, we increased the Fund’s allocations to Financials, and Energy. We maintained our Communications¹ exposure, as we felt the relatively stable cash flow characteristics of this sector would help offset some of the secured and unsecured Energy risk we added. We remained positive on Financials during the reporting period, marginally adding to our overweight position. Financials continued to post consistent fundamental results, along with increased capital ratios. In addition, they are still constrained by regulators from returning excessive amounts of capital to shareholders — a positive for fixed income investors. While we entered the third and fourth quarters of 2014 with what proved to be too much lower-quality Energy exposure, we did add more B-rated and BB-rated Energy names, such as California Resources Corp. These additions, thus far, have proved an attractive entry point as energy prices stabilized then moved higher toward the end of the reporting period. We felt we were adding both income for shareholders and an opportunity for longer-term capital appreciation. In contrast, we reduced the Fund’s position in Basic Industry² given concerns over fundamental performance, specifically in the Metals & Mining portion of the sector. Finally, we actively participated in the new issue market and purchased securities that we felt were attractively valued.

From a credit quality perspective, we reduced the Fund’s underperforming overweight exposure to CCC-rated securities and reduced our underweight allocation to BB-rated securities. These ratings adjustments were made to reduce the Fund’s overall risk exposure.

We continued to emphasize credit risk over interest rate risk. However, we increased the effective duration of the portfolio during the reporting period, as it became apparent that low developed market sovereign yields

¹	Communications consists of the following industries: Media — Cable, Media — Non-Cable and Telecommunications.

²	Basic Industry consists of the following industries: Chemicals, Metals & Mining and Paper.


2		Western Asset High Income Fund II Inc. 2015 Annual Report

were making U.S. government bonds appear relatively attractive. We ended the period at 3.43 years, roughly 0.37 of a year longer versus the beginning of the period.

The Fund employed U.S. Treasury futures to reduce the duration of the Fund. The use of these instruments ultimately detracted from the Fund’s performance. However the Fund’s Treasury futures have been beneficial recently as interest rates have moved higher off their January 2015 trough. High-yield index swaps (CDX), which were used to manage our high-yield exposure, were a small contributor to performance. We ended the period with no high-yield index swaps. Finally, currency forwards were used to hedge the Fund’s euro-denominated bonds back to U.S. dollars. These currency hedges contributed significantly to results with the U.S. dollar strengthening versus the euro, as we anticipated that the European Central Bank (“ECB”)^vi would embarks on U.S- inspired quantitative easing programs. Overall, the use of derivative instruments were additive to the Fund’s performance during the reporting period.

During the reporting period, we tactically utilized leverage in the Fund. We ended the period with liabilities as a percentage of gross assets of approximately 26%, which was roughly 2% higher than at the beginning of the period. The use of leverage was additive for results given the positive performance of the Fund’s high-yield exposure.

Performance review

For the twelve months ended April 30, 2015, Western Asset High Income Fund II Inc. returned -0.65% based on its net asset value (“NAV”)^vii and -4.54% based on its New York Stock Exchange (“NYSE”) market price per share. The Fund’s unmanaged benchmarks, the Barclays U.S. Corporate High Yield — 2% Issuer Cap Index and the EMBI Global, returned 2.59% and 4.50%, respectively, for the same period. The Lipper High Yield (Leveraged) Closed-End Funds Category Average^viii returned 1.02% over the same time frame. Please note that Lipper performance returns are based on each fund’s NAV.

During the twelve-month period, the Fund made distributions to shareholders totaling $0.83 per share*. The performance table shows the Fund’s twelve-month total return based on its NAV and market price as of April 30, 2015. Past performance is no guarantee of future results.


Performance Snapshot as of April 30, 2015
Price Per Share	12-Month Total Return**
$8.57 (NAV)		-0.65	%†
$8.15 (Market Price)		-4.54	%‡

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

** Total returns are based on changes in NAV or market price, respectively. 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 at NAV.

‡ Total return assumes the reinvestment of all distributions in additional shares in accordance with the Fund’s Dividend Reinvestment Plan.

*	For the character of distributions paid during the fiscal year ended April 30, 2015, please refer to page 48 of this report.


Western Asset High Income Fund II Inc. 2015 Annual Report		3

Fund overview (cont’d)

Q. What were the leading contributors to performance?

A. Despite underperforming the Index, the Fund’s concentrations in select outperforming sectors added to relative results during the reporting period. In particular, the Fund’s overweight to the Transportation sector¹ was beneficial for results. The sector performed well as it was viewed as being a beneficiary of falling oil prices. In addition, an overweight to the Financials sector contributed to the Fund’s results.

A number of individual holdings contributed to performance, including our overweight positions in Physiotherapy Associates Holdings and Vimplecom Communications and Vimplecom Holdings BV. Physiotherapy Associates Holdings is a national provider of outpatient rehabilitation and orthotics and prosthetics services. The company experienced headwinds due to both billing and accounting issues, and in May 2013, restructured its balance sheet as bondholders led the reorganization of the credit. In doing so, Western received equity in exchange for our original bond position and participated in the new financing of a secured loan. The valuation of the company has improved since the workout took place due to successful management initiatives. We remain positive regarding the prospects for further recovery and believe the company is well positioned, which includes more than 500 outpatient rehabilitation clinics in 34 states. Vimplecom is a large publically traded multinational telecommunications provider operating in several countries. The company continued to experience heightened volatility given its exposure to countries such as Russia, Ukraine and Italy. The company posted disappointing results due to macro sluggishness in several of their markets as well as currency fluctuations. Its bonds traded significantly lower and we added exposure. We felt adding risk was appropriate and the company would maintain its relatively higher quality balance sheet and its ability to generate positive free cash flow. Additionally, we felt that Vimplecom would continue to look for asset sale opportunities and Russian and Ukrainian relations only needed to stabilize for its bonds to move significantly higher. As we write this report, its bonds have approximately fully recovered to their pre-crisis values.

Q. What were the leading detractors from performance?

A. The largest detractor from the Fund’s relative performance during the reporting period was its sector positioning. In particular, the Fund’s overweight in lower-quality Energy (the worst performing sector in the Index) negatively impacted results. Falling oil prices from an increase in supply and fears of lower global demand and slowing global growth sent several of our positions significantly lower. Elsewhere, an overweight to Basic Industry, specifically our Metals and Mining exposure, detracted from performance.

Our ratings and duration biases also detracted from results. We reduced both our underweight to BB-rated securities and our overweight to CCC-rated securities, but our efforts proved to be too little too late, as longer duration, higher quality bonds remained in favor. This trend reversed during the latter part of the reporting period

¹	Transportation consists of the following industries: Airlines, Railroads and other transportation-related services.


4		Western Asset High Income Fund II Inc. 2015 Annual Report

as the Fed prepares to exit U.S. quantitative easing and rates have marginally risen off their recent lows.

Security selection, overall, also detracted from performance. In particular, overweight positions in select energy issuers, including Hercules Offshore, Quicksilver Resources and Samson Investment Co., were negative for performance. These three energy-related companies were hurt by the previously mentioned sharply declining oil prices. Despite posting unimpressive performance for the reporting period, we do feel the portfolio stabilized and showed positive momentum both at the end of the period and after the reporting period ended. We expect to maintain our longer-term proven track record of providing both an attractive income opportunity for shareholders and positive capital appreciation relative to the market.

Looking for additional information?

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

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 Fund’s current NAV, market price and other information.

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

Sincerely,

Western Asset Management Company

May 19, 2015

RISKS: The Fund’s investments are subject to credit risk, inflation risk and interest rate risk. As interest rates rise, bond prices fall generally, reducing the value of the Fund’s 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 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. Leverage may result in greater volatility of NAV and the market price of common shares and increases a shareholder’s risk of loss.

Portfolio holdings and breakdowns are as of April 30, 2015 and are subject to change and may not be representative of the portfolio managers’ current or future investments. Please refer to pages 10 through 27 for a list and percentage breakdown of the Fund’s holdings.

The mention of sector breakdowns is for informational purposes only and should not be construed as a recommendation to purchase or sell any securities. The information provided regarding such sectors is not a sufficient basis upon which to make an investment decision. Investors seeking financial advice regarding the appropriateness of investing in any securities or investment strategies discussed should consult


Western Asset High Income Fund II Inc. 2015 Annual Report		5

Fund overview (cont’d)

their financial professional. The Fund’s top five sector holdings (as a percentage of net assets) as of April 30, 2015 were: Consumer Discretionary (22.9%), Industrials (20.4%), Energy (19.6%), Financials (17.6%) and Materials (14.6%). The Fund’s portfolio composition is subject to change at any time.

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.

The information provided is not intended to be a forecast of future events, a guarantee of future results or investment advice. Views expressed may differ from those of the firm as a whole.

ⁱ	Duration is the measure of the price sensitivity of a fixed-income security to an interest rate change of 100 basis points. Calculation is based on the weighted average of the present values for all cash flows.

ⁱⁱ	The Federal Reserve Board (“Fed”) is responsible for the formulation of policies designed to promote economic growth, full employment, stable prices, and a sustainable pattern of international trade and payments.

ⁱⁱⁱ	The Barclays U.S. Aggregate Index is a broad-based bond index comprised of government, corporate, mortgage- and asset-backed issues, rated investment grade or higher, and having at least one year to maturity.

^iv	The Barclays U.S. Corporate High Yield — 2% Issuer Cap Index is an index of the 2% Issuer Cap component of the Barclays U.S. Corporate High Yield Index, which covers the U.S. dollar-denominated, non-investment grade, fixed-rate, taxable corporate bond market.

^v	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.

^vi	The European Central Bank (“ECB”) is responsible for the monetary system of the European Union and the euro currency.

^vii

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 Fund’s market price as determined by supply of and demand for the Fund’s shares.

^viii

Lipper, Inc., a wholly-owned subsidiary of Reuters, provides independent insight on global collective investments. Returns are based on the twelve-month period ended April 30, 2015, including the reinvestment of all distributions, including returns of capital, if any, calculated among the 32 funds in the Fund’s Lipper category.


6		Western Asset High Income Fund II Inc. 2015 Annual Report

Fund at a glance^† (unaudited)

Investment breakdown (%) as a percent of total investments

LOGO

†

The bar graph above represents the composition of the Fund’s investments as of April 30, 2015 and April 30, 2014 and does not include derivatives, such as futures contracts, swap contracts and forward foreign currency contracts. The Fund is actively managed. As a result, the composition of the Fund’s investments is subject to change at any time.

‡	Represents less than 0.1%.


Western Asset High Income Fund II Inc. 2015 Annual Report		7

Spread duration (unaudited)

Economic exposure — April 30, 2015

LOGO


Total Spread Duration
HIX		— 3.43 years
Benchmark		— 4.80 years

Spread duration measures the sensitivity to changes in spreads. The spread over Treasuries is the annual risk-premium demanded by investors to hold non-Treasury securities. Spread duration is quantified as the % change in price resulting from a 100 basis points change in spreads. For a security with positive spread duration, an increase in spreads would result in a price decline and a decline in spreads would result in a price increase. This chart highlights the market sector exposure of the Fund’s sectors relative to the selected benchmark sectors as of the end of the reporting period.


Benchmark		— 80% of Barclays U.S. Corporate High Yield — 2% Issuer Cap Index and 20% of JPMorgan Emerging Markets Bond Index Global
EM		— Emerging Markets
HIX		— Western Asset High Income Fund II Inc.
HY		— High Yield
IG Credit		— Investment Grade Credit


8		Western Asset High Income Fund II Inc. 2015 Annual Report

Effective duration (unaudited)

Interest rate exposure — April 30, 2015

LOGO


Total Effective Duration
HIX		— 3.42 years
Benchmark		— 4.83 years

Effective duration measures the sensitivity to changes in relevant interest rates. Effective duration is quantified as the % change in price resulting from a 100 basis points change in interest rates. For a security with positive effective duration, an increase in interest rates would result in a price decline and a decline in interest rates would result in a price increase. This chart highlights the interest rate exposure of the Fund’s sectors relative to the selected benchmark sectors as of the end of the reporting period.


Benchmark		— 80% of Barclays U.S. Corporate High Yield — 2% Issuer Cap Index and 20% of JPMorgan Emerging Markets Bond Index Global
EM		— Emerging Markets
HIX		— Western Asset High Income Fund II Inc.
HY		— High Yield
IG Credit		— Investment Grade Credit


Western Asset High Income Fund II Inc. 2015 Annual Report		9

Schedule of investments

April 30, 2015

Western Asset High Income Fund II Inc.


Security	Rate			Maturity Date		Face Amount†			Value
Corporate Bonds & Notes — 120.9%
Consumer Discretionary — 21.9%
Auto Components — 0.4%
Europcar Groupe SA, Senior Notes		11.500	%		5/15/17		380,000	^EUR	$	483,218	^(a)
Europcar Groupe SA, Senior Notes		9.375	%		4/15/18		2,010,000	^EUR		2,382,233	^(a)
Total Auto Components										2,865,451
Automobiles — 0.4%
Chrysler Group LLC/CG Co.-Issuer Inc., Secured Notes		8.250	%		6/15/21		2,482,000			2,745,713	^(b)
Diversified Consumer Services — 0.8%
Co-operative Group Holdings 2011 Ltd., Senior Notes		6.875	%		7/8/20		337,000	^GBP		563,798	^(c)
Co-operative Group Holdings 2011 Ltd., Senior Notes		7.500	%		7/8/26		500,000	^GBP		857,419
Service Corp. International, Senior Notes		7.500	%		4/1/27		2,090,000			2,455,750	^(b)
StoneMor Partners LP/Cornerstone Family Services of WV, Senior Bonds		7.875	%		6/1/21		1,810,000			1,914,075	^(b)
Total Diversified Consumer Services										5,791,042
Hotels, Restaurants & Leisure — 5.1%
24 Hour Holdings III LLC, Senior Notes		8.000	%		6/1/22		1,940,000			1,726,600	^(a)
Bossier Casino Venture Holdco Inc., Senior Secured Bonds		14.000	%		2/9/18		3,360,800			3,094,961	^(a)(d)(e)(f)
Boyd Gaming Corp., Senior Notes		9.125	%		12/1/18		1,470,000			1,541,662	^(b)
Carlson Travel Holdings Inc., Senior Notes		7.500	%		8/15/19		1,010,000			1,030,200	^(a)(d)
Carrols Restaurant Group Inc., Secured Notes		8.000	%		5/1/22		1,910,000			1,991,175	^(a)
CCM Merger Inc., Senior Notes		9.125	%		5/1/19		3,360,000			3,666,600	^(a)(b)
CEC Entertainment Inc., Senior Notes		8.000	%		2/15/22		3,760,000			3,868,100
Downstream Development Quapaw, Senior Secured Notes		10.500	%		7/1/19		2,580,000			2,438,100	^(a)(b)
Fontainebleau Las Vegas Holdings LLC/Fontainebleau Las Vegas Capital Corp., Senior Secured Notes		10.250	%		6/15/15		975,000			4,924	^(a)(g)
Gala Electric Casinos Ltd., Secured Notes		11.500	%		6/1/19		1,724,000	^GBP		2,765,424	^(c)
Greektown Holdings LLC/Greektown Mothership Corp., Senior Secured Notes		8.875	%		3/15/19		2,270,000			2,411,875	^(a)
International Game Technology PLC, Senior Secured Notes		6.500	%		2/15/25		2,740,000			2,671,500	^(a)
Landry’s Holdings II Inc., Senior Notes		10.250	%		1/1/18		1,530,000			1,598,850	^(a)(b)
Landry’s Inc., Senior Notes		9.375	%		5/1/20		6,978,000			7,501,350	^(a)(b)
MGM Resorts International, Senior Notes		6.625	%		12/15/21		310,000			333,250	^(b)
Nathan’s Famous Inc., Senior Secured Notes		10.000	%		3/15/20		740,000			793,650	^(a)
Rivers Pittsburgh Borrower LP/Rivers Pittsburgh Finance Corp., Senior Secured Notes		9.500	%		6/15/19		514,000			542,270	^(a)(b)
Total Hotels, Restaurants & Leisure										37,980,491
Household Durables — 2.3%
Century Intermediate Holding Co. 2, Senior Notes		9.750	%		2/15/19		3,860,000			4,110,900	^(a)(b)(d)
Shea Homes LP/Shea Homes Funding Corp., Senior Notes		6.125	%		4/1/25		3,120,000			3,213,600	^(a)

See Notes to Financial Statements.


10		Western Asset High Income Fund II Inc. 2015 Annual Report

Western Asset High Income Fund II Inc.


Security	Rate			Maturity Date		Face Amount†			Value
Household Durables — continued
William Lyon Homes Inc., Senior Notes		8.500	%		11/15/20		2,980,000		$	3,248,200	^(b)
William Lyon Homes Inc., Senior Notes		7.000	%		8/15/22		2,320,000			2,430,200
Woodside Homes Co., LLC/Woodside Homes Finance Inc., Senior Notes		6.750	%		12/15/21		3,940,000			3,782,400	^(a)(b)
Total Household Durables										16,785,300
Media — 10.4%
Carmike Cinemas Inc., Secured Notes		7.375	%		5/15/19		1,040,000			1,103,648	^(b)
CCO Holdings LLC/CCO Holdings Capital Corp., Senior Notes		8.125	%		4/30/20		5,050,000			5,285,835	^(b)
CCO Holdings LLC/CCO Holdings Capital Corp., Senior Notes		5.875	%		5/1/27		3,500,000			3,456,250	^(a)
Clear Channel Worldwide Holdings Inc., Senior Notes		6.500	%		11/15/22		900,000			947,250	^(b)
Clear Channel Worldwide Holdings Inc., Senior Subordinated Notes		7.625	%		3/15/20		260,000			272,350	^(b)
CSC Holdings Inc., Senior Debentures		7.875	%		2/15/18		1,500,000			1,698,750	^(b)
CSC Holdings LLC, Senior Notes		6.750	%		11/15/21		230,000			260,763	^(b)
CSC Holdings LLC, Senior Notes		5.250	%		6/1/24		3,150,000			3,287,812	^(a)
DISH DBS Corp., Senior Notes		7.875	%		9/1/19		1,815,000			2,053,219	^(b)
DISH DBS Corp., Senior Notes		6.750	%		6/1/21		2,270,000			2,409,219	^(b)
DISH DBS Corp., Senior Notes		5.875	%		11/15/24		6,090,000			6,013,875
Gibson Brands Inc., Senior Secured Notes		8.875	%		8/1/18		2,710,000			2,784,525	^(a)(b)
iHeartCommunications Inc., Senior Notes		10.000	%		1/15/18		2,630,000			2,311,113
MDC Partners Inc., Senior Notes		6.750	%		4/1/20		800,000			815,000	^(a)
New Cotai LLC/New Cotai Capital Corp., Senior Secured Notes		10.625	%		5/1/19		2,737,605			2,723,917	^(a)(b)(d)
Numericable-SFR, Senior Secured Bonds		6.000	%		5/15/22		4,980,000			5,107,612	^(a)(b)
Numericable-SFR, Senior Secured Bonds		6.250	%		5/15/24		4,590,000			4,722,008	^(a)
Polish Television Holding BV, Senior Secured Bonds		11.000	%		1/15/21		198,000	^EUR		267,345	^(a)(d)
Time Warner Cable Inc., Senior Notes		8.750	%		2/14/19		2,500,000			2,953,570	^(b)
Time Warner Cable Inc., Senior Notes		8.250	%		4/1/19		1,336,000			1,562,110	^(b)
TVN Finance Corp. III AB, Senior Bonds		7.375	%		12/15/20		1,258,000	^EUR		1,575,468	^(a)
Univision Communications Inc., Senior Notes		8.500	%		5/15/21		4,450,000			4,789,312	^(a)(b)
UPC Holding BV, Junior Secured Subordinated Notes		6.375	%		9/15/22		5,060,000	^EUR		6,163,649	^(a)
UPCB Finance II Ltd., Senior Notes		6.375	%		7/1/20		887,000	^EUR		1,039,442	^(c)
Virgin Media Finance PLC, Senior Notes		6.375	%		4/15/23		5,620,000			5,943,150	^(a)(b)
Virgin Media Finance PLC, Senior Notes		6.000	%		10/15/24		3,990,000			4,142,119	^(a)(b)
WMG Acquisition Corp., Senior Notes		6.750	%		4/15/22		3,150,000			3,008,250	^(a)
Total Media										76,697,561

See Notes to Financial Statements.


Western Asset High Income Fund II Inc. 2015 Annual Report		11

Schedule of investments (cont’d)

April 30, 2015

Western Asset High Income Fund II Inc.


Security	Rate			Maturity Date		Face Amount†		Value
Multiline Retail — 0.5%
Neiman Marcus Group LLC, Senior Secured Notes		7.125	%		6/1/28		660,000	$	681,450	^(b)
Neiman Marcus Group Ltd. LLC, Senior Notes		8.750	%		10/15/21		2,940,000		3,175,200	^(a)(b)(d)
Total Multiline Retail									3,856,650
Specialty Retail — 1.9%
American Greetings Corp., Senior Notes		7.375	%		12/1/21		2,480,000		2,662,900	^(b)
Guitar Center Inc., Senior Secured Bonds		6.500	%		4/15/19		6,850,000		6,062,250	^(a)
Hot Topic Inc., Senior Secured Notes		9.250	%		6/15/21		1,570,000		1,711,300	^(a)(b)
Spencer Spirit Holdings Inc., Senior Notes		9.000	%		5/1/18		3,408,000		3,459,120	^(a)(b)(d)
Total Specialty Retail									13,895,570
Textiles, Apparel & Luxury Goods — 0.1%
Empire Today LLC/Empire Today Finance Corp., Senior Secured Notes		11.375	%		2/1/17		1,300,000		1,183,000	^(a)(b)
Total Consumer Discretionary									161,800,778
Consumer Staples — 4.3%
Beverages — 1.0%
Carolina Beverage Group LLC/Carolina Beverage Group Finance Inc., Secured Notes		10.625	%		8/1/18		2,610,000		2,557,800	^(a)(b)
Cott Beverages Inc., Senior Notes		6.750	%		1/1/20		2,140,000		2,247,000	^(a)
DS Services of America Inc., Secured Notes		10.000	%		9/1/21		2,390,000		2,820,200	^(a)
Total Beverages									7,625,000
Food & Staples Retailing — 0.8%
Beverages & More Inc., Senior Secured Notes		10.000	%		11/15/18		3,610,000		3,614,512	^(a)(b)
Family Tree Escrow LLC, Senior Notes		5.750	%		3/1/23		2,210,000		2,331,550	^(a)
Total Food & Staples Retailing									5,946,062
Food Products — 1.8%
Dole Food Co. Inc., Senior Secured Notes		7.250	%		5/1/19		3,070,000		3,146,750	^(a)(b)
Hearthside Group Holdings LLC/Hearthside Finance Co., Senior Notes		6.500	%		5/1/22		2,970,000		2,984,850	^(a)
Pilgrim’s Pride Corp., Senior Notes		5.750	%		3/15/25		3,090,000		3,174,975	^(a)
Simmons Foods Inc., Secured Notes		7.875	%		10/1/21		4,050,000		3,948,750	^(a)
Virgolino de Oliveira Finance SA, Senior Secured Notes		10.875	%		1/13/20		2,700,000		327,375	^(a)(g)
Total Food Products									13,582,700
Household Products — 0.3%
Spectrum Brands Inc., Senior Notes		6.125	%		12/15/24		1,630,000		1,735,950	^(a)(b)
Sun Products Corp., Senior Notes		7.750	%		3/15/21		590,000		522,888	^(a)
Total Household Products									2,258,838
Tobacco — 0.4%
Alliance One International Inc., Secured Notes		9.875	%		7/15/21		2,940,000		2,572,500
Total Consumer Staples									31,985,100

See Notes to Financial Statements.


12		Western Asset High Income Fund II Inc. 2015 Annual Report

Western Asset High Income Fund II Inc.


Security	Rate			Maturity Date		Face Amount†		Value
Energy — 18.0%
Energy Equipment & Services — 2.5%
Atwood Oceanics Inc., Senior Notes		6.500	%		2/1/20		2,503,000	$	2,459,197	^(b)
CGG, Senior Notes		7.750	%		5/15/17		378,000		372,330	^(b)
CGG, Senior Notes		6.500	%		6/1/21		2,520,000		2,053,800
CGG, Senior Notes		6.875	%		1/15/22		480,000		393,600
Gulfmark Offshore Inc., Senior Notes		6.375	%		3/15/22		1,600,000		1,272,000	^(b)
Hercules Offshore Inc., Senior Notes		7.500	%		10/1/21		1,885,000		579,638	^(a)(f)
Hercules Offshore Inc., Senior Notes		6.750	%		4/1/22		4,225,000		1,278,063	^(a)(f)
KCA Deutag UK Finance PLC, Senior Secured Notes		7.250	%		5/15/21		1,280,000		1,104,000	^(a)
Key Energy Services Inc., Senior Notes		6.750	%		3/1/21		990,000		663,300
Parker Drilling Co., Senior Notes		7.500	%		8/1/20		3,250,000		2,916,875
SESI LLC, Senior Notes		7.125	%		12/15/21		2,780,000		2,905,100	^(b)
Sierra Hamilton LLC/Sierra Hamilton Finance Inc., Senior Secured Notes		12.250	%		12/15/18		2,730,000		2,033,850	^(a)(b)
TMK OAO Via TMK Capital SA, Senior Notes		6.750	%		4/3/20		210,000		180,810	^(a)
Total Energy Equipment & Services									18,212,563
Oil, Gas & Consumable Fuels — 15.5%
Approach Resources Inc., Senior Notes		7.000	%		6/15/21		650,000		589,875
Arch Coal Inc., Senior Notes		7.250	%		6/15/21		3,700,000		823,250
Berry Petroleum Co., Senior Notes		6.375	%		9/15/22		1,570,000		1,299,175
Blue Racer Midstream LLC/Blue Racer Finance Corp., Senior Notes		6.125	%		11/15/22		1,740,000		1,818,300	^(a)
California Resources Corp., Senior Notes		5.500	%		9/15/21		1,920,000		1,828,800
California Resources Corp., Senior Notes		6.000	%		11/15/24		5,620,000		5,310,900
Calumet Specialty Products Partners LP/Calumet Finance Corp., Senior Notes		6.500	%		4/15/21		520,000		520,000
Calumet Specialty Products Partners LP/Calumet Finance Corp., Senior Notes		7.625	%		1/15/22		2,130,000		2,172,600
Carrizo Oil & Gas Inc., Senior Notes		7.500	%		9/15/20		1,750,000		1,850,275	^(b)
Chesapeake Energy Corp., Senior Notes		6.875	%		11/15/20		2,100,000		2,168,250	^(b)
Comstock Resources Inc., Senior Notes		9.500	%		6/15/20		4,980,000		2,514,900	^(b)
Crestwood Midstream Partners LP, Senior Notes		6.125	%		3/1/22		2,919,000		3,028,462
CrownRock LP/CrownRock Finance Inc., Senior Notes		7.750	%		2/15/23		2,130,000		2,268,450	^(a)
EDC Finance Ltd., Senior Notes		4.875	%		4/17/20		570,000		513,000	^(a)
El Paso Corp., Medium-Term Notes		7.800	%		8/1/31		1,952,000		2,347,134	^(b)
Endeavor Energy Resources LP/EER Finance Inc., Senior Notes		8.125	%		9/15/23		1,140,000		1,188,450	^(a)
Enterprise Products Operating LLC, Junior Subordinated Notes		8.375	%		8/1/66		285,000		303,582	^(b)(h)
EP Energy LLC/EP Energy Finance Inc., Senior Notes		9.375	%		5/1/20		910,000		978,250	^(b)

See Notes to Financial Statements.


Western Asset High Income Fund II Inc. 2015 Annual Report		13

Schedule of investments (cont’d)

April 30, 2015

Western Asset High Income Fund II Inc.


Security	Rate			Maturity Date		Face Amount†		Value
Oil, Gas & Consumable Fuels — continued
Globe Luxembourg SCA, Senior Secured Notes		9.625	%		5/1/18		5,270,000	$	5,006,500	^(a)(b)
Halcon Resources Corp., Secured Notes		8.625	%		2/1/20		2,350,000		2,451,344	^(a)
Halcon Resources Corp., Senior Notes		9.750	%		7/15/20		3,793,000		3,129,225
Halcon Resources Corp., Senior Notes		8.875	%		5/15/21		8,490,000		6,673,140	^(b)
Lonestar Resources America Inc., Senior Notes		8.750	%		4/15/19		1,080,000		864,000	^(a)
LUKOIL International Finance BV, Bonds		6.356	%		6/7/17		1,720,000		1,790,210	^(c)
Magnum Hunter Resources Corp., Senior Notes		9.750	%		5/15/20		7,190,000		6,578,850	^(b)
MEG Energy Corp., Senior Notes		6.375	%		1/30/23		5,020,000		4,919,600	^(a)
Milagro Oil & Gas Inc., Secured Notes		10.500	%		5/15/16		3,290,000		822,500	^(g)
Murray Energy Corp., Senior Secured Notes		11.250	%		4/15/21		4,860,000		4,969,350	^(a)
Natural Resource Partners LP/Natural Resource Partners Finance Corp., Senior Notes		9.125	%		10/1/18		2,240,000		2,200,800	^(b)
Natural Resource Partners LP/Natural Resource Partners Finance Corp., Senior Notes		9.125	%		10/1/18		710,000		697,575	^(a)
New Gulf Resources LLC/NGR Finance Corp., Senior Secured Notes		11.750	%		5/15/19		2,910,000		2,284,350
Novatek Finance Ltd., Notes		6.604	%		2/3/21		2,300,000		2,254,690	^(a)
Pacific Rubiales Energy Corp., Senior Notes		5.375	%		1/26/19		2,350,000		1,845,220	^(a)
Parsley Energy LLC/Parsley Finance Corp., Senior Notes		7.500	%		2/15/22		1,330,000		1,396,500	^(a)
Petrobras Global Finance BV, Senior Notes		7.250	%		3/17/44		3,000,000		2,961,750
Petroleos de Venezuela SA, Senior Notes		8.500	%		11/2/17		1,124,000		872,224	^(c)
Puma International Financing SA, Senior Bonds		6.750	%		2/1/21		4,610,000		4,817,450	^(a)(b)
Quicksilver Resources Inc., Senior Notes		11.000	%		7/1/21		1,335,000		176,888	^(g)
Rice Energy Inc., Senior Notes		7.250	%		5/1/23		1,960,000		2,048,200	^(a)
Rosneft Finance SA, Senior Notes		7.500	%		7/18/16		270,000		277,425	^(a)
Rosneft Finance SA, Senior Notes		6.625	%		3/20/17		230,000		232,243	^(c)
Rosneft Finance SA, Senior Notes		7.875	%		3/13/18		1,390,000		1,422,317	^(a)(b)
RSP Permian Inc., Senior Notes		6.625	%		10/1/22		5,280,000		5,507,040	^(a)
Samson Investment Co., Senior Notes		9.750	%		2/15/20		2,730,000		344,662
Sanchez Energy Corp., Senior Notes		6.125	%		1/15/23		9,940,000		9,790,900
Shelf Drilling Holdings Ltd., Senior Secured Notes		8.625	%		11/1/18		1,810,000		1,579,225	^(a)
Summit Midstream Holdings LLC/Summit Midstream Finance Corp., Senior Notes		7.500	%		7/1/21		1,370,000		1,431,650	^(b)
Teine Energy Ltd., Senior Notes		6.875	%		9/30/22		1,130,000		1,127,175	^(a)
Whiting Canadian Holding Co. ULC, Senior Notes		8.125	%		12/1/19		2,720,000		2,900,064	^(b)
Total Oil, Gas & Consumable Fuels									114,896,720
Total Energy									133,109,283

See Notes to Financial Statements.


14		Western Asset High Income Fund II Inc. 2015 Annual Report

Western Asset High Income Fund II Inc.


Security	Rate			Maturity Date		Face Amount†			Value
Financials — 13.8%
Banks — 6.8%
Bank of America Corp., Junior Subordinated Notes		6.500	%		10/23/24		1,190,000		$	1,267,350	^(b)(h)(i)
Barclays Bank PLC, Subordinated Notes		10.179	%		6/12/21		3,710,000			5,019,849	^(a)(b)
Barclays Bank PLC, Subordinated Notes		7.625	%		11/21/22		5,000,000			5,866,875	^(b)
Barclays PLC, Junior Subordinated Bonds		8.250	%		12/15/18		800,000			853,758	^(b)(h)(i)
Citigroup Inc., Junior Subordinated Bonds		6.300	%		5/15/24		950,000			963,585	^(h)(i)
Citigroup Inc., Junior Subordinated Bonds		5.950	%		5/15/25		820,000			816,668	^(h)(i)
Credit Agricole SA, Junior Subordinated Notes		7.875	%		1/23/24		1,350,000			1,447,812	^(a)(h)(i)
Credit Agricole SA, Subordinated Notes		8.375	%		10/13/19		3,180,000			3,773,865	^(a)(b)(h)(i)
HSBC Holdings PLC, Junior Subordinated Bonds		6.375	%		9/17/24		1,560,000			1,614,990	^(b)(h)(i)
HSBC Holdings PLC, Junior Subordinated Bonds		6.375	%		3/30/25		2,000,000			2,070,000	^(h)(i)
Intesa Sanpaolo SpA, Senior Notes		3.625	%		8/12/15		3,920,000			3,946,531	^(a)(b)
JPMorgan Chase & Co., Junior Subordinated Bonds		6.000	%		8/1/23		1,270,000			1,311,275	^(b)(h)(i)
JPMorgan Chase & Co., Junior Subordinated Notes		6.100	%		10/1/24		2,410,000			2,500,375	^(b)(h)(i)
M&T Bank Corp., Junior Subordinated Bonds		6.875	%		6/15/16		4,400,000			4,554,000	^(b)(i)
Novo Banco SA, Senior Notes		5.875	%		11/9/15		1,500,000	^EUR		1,696,065	^(c)
Royal Bank of Scotland Group PLC, Junior Subordinated Bonds		7.648	%		9/30/31		3,530,000			4,518,400	^(b)(h)(i)
Royal Bank of Scotland Group PLC, Subordinated Notes		6.100	%		6/10/23		1,470,000			1,617,498	^(b)
Royal Bank of Scotland NV, Subordinated Notes		7.750	%		5/15/23		650,000			782,697	^(b)
Royal Bank of Scotland PLC, Subordinated Notes		13.125	%		3/19/22		4,860,000	^AUD		4,453,163	^(c)(h)
Wells Fargo & Co., Junior Subordinated Bonds		5.875	%		6/15/25		1,140,000			1,212,675	^(h)(i)
Total Banks										50,287,431
Capital Markets — 0.6%
Credit Suisse Group AG, Junior Subordinated Notes		6.250	%		12/18/24		1,350,000			1,340,550	^(a)(h)(i)
Goldman Sachs Group Inc., Subordinated Notes		6.750	%		10/1/37		2,320,000			2,923,430	^(b)
Total Capital Markets										4,263,980
Consumer Finance — 0.6%
SLM Corp., Medium-Term Notes, Senior Notes		8.450	%		6/15/18		2,230,000			2,493,586	^(b)
Stearns Holdings Inc., Senior Secured Notes		9.375	%		8/15/20		1,250,000			1,246,875	^(a)(b)
TMX Finance LLC/TitleMax Finance Corp., Senior Secured Notes		8.500	%		9/15/18		1,110,000			799,200	^(a)(b)
Total Consumer Finance										4,539,661
Diversified Financial Services — 2.5%
Argos Merger Sub Inc., Senior Notes		7.125	%		3/15/23		4,760,000			5,009,900	^(a)
International Lease Finance Corp., Senior Notes		5.750	%		5/15/16		800,000			828,000	^(b)
International Lease Finance Corp., Senior Notes		8.750	%		3/15/17		3,385,000			3,769,536	^(b)
International Lease Finance Corp., Senior Notes		8.875	%		9/1/17		5,180,000			5,898,725	^(b)

See Notes to Financial Statements.


Western Asset High Income Fund II Inc. 2015 Annual Report		15

Schedule of investments (cont’d)

April 30, 2015

Western Asset High Income Fund II Inc.


Security	Rate			Maturity Date		Face Amount†		Value
Diversified Financial Services — continued
International Lease Finance Corp., Senior Notes		8.250	%		12/15/20		2,160,000	$	2,651,400	^(b)
ZFS Finance USA Trust II, Bonds		6.450	%		12/15/65		500,000		521,750	^(a)(b)(h)
Total Diversified Financial Services									18,679,311
Insurance — 0.9%
Fidelity & Guaranty Life Holdings Inc., Senior Notes		6.375	%		4/1/21		1,450,000		1,529,750	^(a)(b)
Genworth Holdings Inc., Senior Notes		4.900	%		8/15/23		1,780,000		1,557,500
Liberty Mutual Group Inc., Junior Subordinated Bonds		7.800	%		3/15/37		1,750,000		2,161,425	^(a)(b)
MetLife Capital Trust IV, Junior Subordinated Notes		7.875	%		12/15/37		1,100,000		1,463,000	^(a)(b)
Total Insurance									6,711,675
Real Estate Management & Development — 2.4%
Caesars Entertainment Resort Properties LLC, Secured Notes		11.000	%		10/1/21		1,430,000		1,287,000
Caesars Entertainment Resort Properties LLC, Senior Secured Notes		8.000	%		10/1/20		5,450,000		5,477,250
Communications Sales & Leasing Inc., Senior Notes		8.250	%		10/15/23		2,900,000		2,983,375	^(a)
Greystar Real Estate Partners LLC, Senior Secured Notes		8.250	%		12/1/22		3,110,000		3,304,375	^(a)(b)
Howard Hughes Corp., Senior Notes		6.875	%		10/1/21		4,140,000		4,388,400	^(a)(b)
Total Real Estate Management & Development									17,440,400
Total Financials									101,922,458
Health Care — 9.8%
Health Care Equipment & Supplies — 2.4%
ConvaTec Finance International SA, Senior Notes		8.250	%		1/15/19		1,610,000		1,625,094	^(a)(b)(d)
DJO Finance LLC/DJO Finance Corp., Senior Notes		7.750	%		4/15/18		750,000		781,058
DJO Finance LLC/DJO Finance Corp., Senior Notes		9.875	%		4/15/18		4,390,000		4,609,500	^(b)
DJO Finance LLC/DJO Finance Corp., Senior Subordinated Notes		9.750	%		10/15/17		590,000		607,700
DJO Finco Inc./DJO Finance LLC/DJO Finance Corp., Secured Notes		8.125	%		6/15/21		4,930,000		5,016,275	^(a)
Lantheus Medical Imaging Inc., Senior Notes		9.750	%		5/15/17		5,070,000		5,000,287	^(b)
Total Health Care Equipment & Supplies									17,639,914
Health Care Providers & Services — 4.5%
Acadia Healthcare Co. Inc., Senior Notes		12.875	%		11/1/18		1,248,000		1,391,520	^(b)
Acadia Healthcare Co. Inc., Senior Notes		6.125	%		3/15/21		1,540,000		1,599,675	^(b)
CHS/Community Health Systems Inc., Senior Notes		8.000	%		11/15/19		4,590,000		4,876,875	^(b)
ExamWorks Group Inc., Senior Notes		9.000	%		7/15/19		5,000,000		5,306,250	^(b)
Fresenius U.S. Finance II Inc., Senior Notes		9.000	%		7/15/15		1,020,000		1,039,125	^(a)(b)
HCA Inc., Debentures		7.500	%		11/15/95		2,205,000		2,171,925	^(b)
IASIS Healthcare LLC/IASIS Capital Corp., Senior Notes		8.375	%		5/15/19		3,520,000		3,660,800	^(b)

See Notes to Financial Statements.


16		Western Asset High Income Fund II Inc. 2015 Annual Report

Western Asset High Income Fund II Inc.


Security	Rate			Maturity Date		Face Amount†			Value
Health Care Providers & Services — continued
Jaguar Holding Co. II/Jaguar Merger Sub Inc., Senior Notes		9.500	%		12/1/19		1,020,000		$	1,100,325	^(a)(b)
Kindred Healthcare Inc., Senior Secured Notes		8.750	%		1/15/23		760,000			849,300	^(a)
Labco SAS, Senior Secured Notes		8.500	%		1/15/18		254,000	^EUR		300,747	^(a)
Surgical Care Affiliates Inc., Senior Notes		6.000	%		4/1/23		1,210,000			1,243,275	^(a)
Tenet Healthcare Corp., Senior Notes		8.125	%		4/1/22		2,870,000			3,139,063	^(b)
Tenet Healthcare Corp., Senior Secured Notes		6.000	%		10/1/20		2,580,000			2,760,600	^(b)
Universal Hospital Services Inc., Secured Notes		7.625	%		8/15/20		4,100,000			3,618,250
Total Health Care Providers & Services										33,057,730
Pharmaceuticals — 2.9%
Concordia Healthcare Corp., Senior Notes		7.000	%		4/15/23		4,090,000			4,161,575	^(a)
ConvaTec Healthcare E SA, Senior Notes		10.875	%		12/15/18		2,500,000	^EUR		2,982,570	^(b)(c)
JLL/Delta Dutch Newco BV, Senior Notes		7.500	%		2/1/22		2,830,000			2,978,575	^(a)(b)
JLL/Delta Dutch Pledgeco BV, Senior Notes		8.750	%		5/1/20		4,990,000			5,052,375	^(a)(d)
Valeant Pharmaceuticals International Inc., Senior Notes		6.125	%		4/15/25		6,260,000			6,475,187	^(a)
Total Pharmaceuticals										21,650,282
Total Health Care										72,347,926
Industrials — 19.9%
Aerospace & Defense — 1.6%
Aerojet Rocketdyne Holdings Inc., Secured Notes		7.125	%		3/15/21		1,490,000			1,605,475	^(b)
CBC Ammo LLC/CBC FinCo Inc., Senior Notes		7.250	%		11/15/21		4,430,000			4,053,450	^(a)(b)
Ducommun Inc., Senior Notes		9.750	%		7/15/18		1,960,000			2,087,400	^(b)
Erickson Inc., Secured Notes		8.250	%		5/1/20		3,234,000			2,627,625	^(b)
LMI Aerospace Inc., Secured Notes		7.375	%		7/15/19		1,400,000			1,422,750	^(a)(b)
Total Aerospace & Defense										11,796,700
Air Freight & Logistics — 0.5%
XPO Logistics Inc., Senior Notes		7.875	%		9/1/19		3,610,000			3,849,162	^(a)(b)
Airlines — 1.8%
Air Canada, Pass-Through Trust, Secured Notes		6.625	%		5/15/18		1,100,000			1,173,590	^(a)
American Airlines, Pass-Through Trust, Secured Notes		7.000	%		1/31/18		1,088,034			1,183,237	^(a)(b)
Delta Air Lines Inc., Pass-Through Certificates, Secured Notes		8.021	%		8/10/22		1,181,303			1,379,172	^(b)
Delta Air Lines Inc., Pass-Through Certificates, Subordinated Secured Notes		9.750	%		12/17/16		503,828			559,249	^(b)
Heathrow Finance PLC, Senior Secured Notes		7.125	%		3/1/17		2,450,000	^GBP		4,085,768	^(b)(c)
United Airlines Inc., Pass-Through Certificates		5.983	%		4/19/22		4,042,551			4,547,870	^(b)
Total Airlines										12,928,886
Building Products — 0.4%
Ashton Woods USA LLC/Ashton Woods Finance Co., Senior Notes		6.875	%		2/15/21		2,851,000			2,708,450	^(a)(b)

See Notes to Financial Statements.


Western Asset High Income Fund II Inc. 2015 Annual Report		17

Schedule of investments (cont’d)

April 30, 2015

Western Asset High Income Fund II Inc.


Security	Rate			Maturity Date		Face Amount†			Value
Commercial Services & Supplies — 3.3%
Garda World Security Corp., Senior Notes		7.250	%		11/15/21		1,530,000		$	1,530,000	^(a)
JM Huber Corp., Senior Notes		9.875	%		11/1/19		1,490,000			1,616,650	^(a)(b)
Monitronics International Inc., Senior Notes		9.125	%		4/1/20		6,080,000			6,049,600	^(b)
RSC Equipment Rental Inc./RSC Holdings III LLC, Senior Notes		8.250	%		2/1/21		739,000			800,891	^(b)
Taylor Morrison Communities Inc./Monarch Communities Inc., Senior Notes		7.750	%		4/15/20		4,686,000			4,958,397	^(a)(b)
Taylor Morrison Communities Inc./Monarch Communities Inc., Senior Notes		7.750	%		4/15/20		1,186,000			1,254,942	^(a)(b)
Taylor Morrison Communities Inc./Monarch Communities Inc., Senior Notes		5.250	%		4/15/21		1,241,000			1,250,308	^(a)(b)
United Rentals North America Inc., Senior Notes		7.625	%		4/15/22		3,018,000			3,342,435	^(b)
West Corp., Senior Notes		5.375	%		7/15/22		3,850,000			3,720,063	^(a)
Total Commercial Services & Supplies										24,523,286
Construction & Engineering — 2.9%
Astaldi SpA, Senior Bonds		7.125	%		12/1/20		1,070,000	^EUR		1,299,368	^(a)
Astaldi SpA, Senior Notes		7.125	%		12/1/20		240,000	^EUR		291,110	^(c)
Ausdrill Finance Pty Ltd., Senior Notes		6.875	%		11/1/19		2,420,000			2,032,800	^(a)
Brundage-Bone Concrete Pumping Inc., Senior Secured Notes		10.375	%		9/1/21		2,380,000			2,499,000	^(a)(b)
Empresas ICA SAB de CV, Senior Notes		8.875	%		5/29/24		3,237,000			2,832,375	^(a)
Michael Baker Holdings LLC/Michael Baker Finance Corp., Senior Notes		8.875	%		4/15/19		3,110,000			2,861,200	^(a)(b)(d)
Michael Baker International LLC/CDL Acquisition Co. Inc., Senior Secured Notes		8.250	%		10/15/18		3,670,000			3,596,600	^(a)(b)
Modular Space Corp., Secured Notes		10.250	%		1/31/19		2,970,000			2,420,550	^(a)
Odebrecht Finance Ltd., Senior Notes		4.375	%		4/25/25		4,240,000			3,657,000	^(a)
Total Construction & Engineering										21,490,003
Electrical Equipment — 0.6%
International Wire Group Holdings Inc., Senior Secured Notes		8.500	%		10/15/17		1,970,000			2,053,725	^(a)(b)
NES Rentals Holdings Inc., Senior Secured Notes		7.875	%		5/1/18		1,800,000			1,854,000	^(a)(b)
Trionista TopCo GmbH, Senior Subordinated Notes		6.875	%		4/30/21		150,000	^EUR		182,660	^(a)
Total Electrical Equipment										4,090,385
Industrial Conglomerates — 0.3%
Leucadia National Corp., Senior Notes		8.125	%		9/15/15		2,490,000			2,553,744	^(b)
Machinery — 2.5%
CTP Transportation Products LLC/CTP Finance Inc., Senior Secured Notes		8.250	%		12/15/19		1,200,000			1,278,000	^(a)(b)
Dematic SA/DH Services Luxembourg Sarl, Senior Notes		7.750	%		12/15/20		5,370,000			5,678,775	^(a)(b)
Gardner Denver Inc., Senior Notes		6.875	%		8/15/21		1,070,000			1,000,450	^(a)(b)

See Notes to Financial Statements.


18		Western Asset High Income Fund II Inc. 2015 Annual Report

Western Asset High Income Fund II Inc.


Security	Rate			Maturity Date		Face Amount†			Value
Machinery — continued
Global Brass and Copper Inc., Senior Secured Notes		9.500	%		6/1/19		2,390,000		$	2,611,075	^(b)
KION Finance SA, Senior Secured Notes		6.750	%		2/15/20		3,027,000	^EUR		3,658,200	^(a)
KraussMaffei Group GmbH, Senior Secured Notes		8.750	%		12/15/20		630,000	^EUR		776,366	^(a)
KraussMaffei Group GmbH, Senior Secured Notes		8.750	%		12/15/20		412,200	^EUR		507,966	^(c)
SIG Combibloc Holdings SCA, Senior Bonds		7.750	%		2/15/23		800,000	^EUR		964,528	^(a)
SPL Logistics Escrow LLC/SPL Logistics Finance Corp., Senior Secured Notes		8.875	%		8/1/20		1,760,000			1,861,200	^(a)(b)
Total Machinery										18,336,560
Marine — 1.1%
Horizon Lines LLC, Senior Secured Notes		11.000	%		10/15/16		1,842,000			1,851,210	^(f)
Navios Maritime Acquisition Corp./Navios Acquisition Finance U.S. Inc., Senior Secured Notes		8.125	%		11/15/21		4,110,000			4,223,025	^(a)(b)
Ultrapetrol Bahamas Ltd., Senior Secured Notes		8.875	%		6/15/21		2,150,000			1,988,750
Total Marine										8,062,985
Road & Rail — 2.4%
Flexi-Van Leasing Inc., Senior Notes		7.875	%		8/15/18		2,500,000			2,575,000	^(a)(b)
Florida East Coast Holdings Corp., Senior Notes		9.750	%		5/1/20		3,390,000			3,279,825	^(a)(b)
Florida East Coast Holdings Corp., Senior Secured Notes		6.750	%		5/1/19		1,860,000			1,855,350	^(a)
Jack Cooper Holdings Corp., Senior Secured Notes		10.250	%		6/1/20		5,530,000			4,797,275	^(a)(b)
Jurassic Holdings III Inc., Secured Notes		6.875	%		2/15/21		2,210,000			1,911,650	^(a)
Quality Distribution LLC/QD Capital Corp., Secured Notes		9.875	%		11/1/18		3,022,000			3,184,432	^(b)
Total Road & Rail										17,603,532
Trading Companies & Distributors — 0.5%
H&E Equipment Services Inc., Senior Notes		7.000	%		9/1/22		3,150,000			3,315,375	^(b)
Transportation — 1.8%
CMA CGM, Senior Notes		8.500	%		4/15/17		3,140,000			3,226,350	^(a)(b)
Hapag-Lloyd AG, Senior Notes		9.750	%		10/15/17		3,490,000			3,664,500	^(a)(b)
Neovia Logistics Intermediate Holdings LLC/Logistics Intermediate Finance Corp., Senior Notes		10.000	%		2/15/18		3,890,000			3,919,175	^(a)(b)(d)
Syncreon Group BV/Syncreon Global Finance U.S. Inc., Senior Notes		8.625	%		11/1/21		3,400,000			2,771,000	^(a)
Total Transportation										13,581,025
Transportation Infrastructure — 0.2%
Aguila 3 SA, Senior Secured Notes		7.875	%		1/31/18		1,700,000			1,721,250	^(a)(b)
Total Industrials										146,561,343
Information Technology — 3.3%
Electronic Equipment, Instruments & Components — 0.4%
Interface Security Systems Holdings Inc./Interface Security Systems LLC, Senior Secured Notes		9.250	%		1/15/18		2,590,000			2,635,325	^(b)

See Notes to Financial Statements.


Western Asset High Income Fund II Inc. 2015 Annual Report		19

Schedule of investments (cont’d)

April 30, 2015

Western Asset High Income Fund II Inc.


Security	Rate			Maturity Date		Face Amount†			Value
Internet Software & Services — 0.5%
Ancestry.com Inc., Senior Notes		9.625	%		10/15/18		1,390,000		$	1,429,962	^(a)(d)
Ancestry.com Inc., Senior Notes		11.000	%		12/15/20		2,100,000			2,399,250	^(b)
Total Internet Software & Services										3,829,212
IT Services — 1.8%
Compiler Finance Subordinated Inc., Senior Notes		7.000	%		5/1/21		3,583,000			2,705,165	^(a)(b)
First Data Corp., Secured Notes		8.250	%		1/15/21		810,000			862,901	^(a)(b)
First Data Corp., Senior Notes		12.625	%		1/15/21		4,760,000			5,631,080	^(b)
First Data Corp., Senior Subordinated Notes		11.750	%		8/15/21		3,535,000			4,074,088	^(b)
Total IT Services										13,273,234
Software — 0.6%
Activision Blizzard Inc., Senior Notes		5.625	%		9/15/21		2,510,000			2,688,838	^(a)(b)
Audatex North America Inc., Senior Notes		6.000	%		6/15/21		1,390,000			1,440,818	^(a)(b)
Total Software										4,129,656
Total Information Technology										23,867,427
Materials — 13.7%
Chemicals — 1.0%
Eco Services Operations LLC/Eco Finance Corp., Senior Notes		8.500	%		11/1/22		1,530,000			1,568,250	^(a)(b)
Hexion Inc., Senior Secured Notes		8.875	%		2/1/18		2,240,000			2,002,000
HIG BBC Intermediate Holdings LLC/HIG BBC Holdings Corp., Senior Notes		10.500	%		9/15/18		1,500,000			1,410,000	^(a)(d)
KP Germany Erste GmbH, Senior Secured Notes		11.625	%		7/15/17		680,000	^EUR		828,438	^(a)
KP Germany Erste GmbH, Senior Secured Notes		11.625	%		7/15/17		530,000	^EUR		645,695	^(c)
Techniplas LLC, Senior Secured Notes		10.000	%		5/1/20		880,000			910,800	^(a)
Total Chemicals										7,365,183
Construction Materials — 0.6%
Cemex SAB de CV, Senior Secured Notes		5.700	%		1/11/25		810,000			813,807	^(a)
Cemex SAB de CV, Senior Secured Notes		6.125	%		5/5/25		740,000			761,238	^(a)
Hardwoods Acquisition Inc., Senior Secured Notes		7.500	%		8/1/21		2,540,000			2,444,750	^(a)
NWH Escrow Corp., Senior Secured Notes		7.500	%		8/1/21		790,000			748,525	^(a)
Total Construction Materials										4,768,320
Containers & Packaging — 3.8%
Ardagh Finance Holdings SA, Senior Notes		8.625	%		6/15/19		2,526,101			2,709,244	^(a)(d)
Ardagh Packaging Finance PLC, Senior Notes		9.125	%		10/15/20		3,170,000			3,423,600	^(a)(b)
Ardagh Packaging Finance PLC/Ardagh MP Holdings USA Inc., Senior Notes		6.250	%		1/31/19		930,000			953,250	^(a)
Ardagh Packaging Finance PLC/Ardagh MP Holdings USA Inc., Senior Notes		9.125	%		10/15/20		1,220,000			1,311,500	^(a)(b)
Ardagh Packaging Finance PLC/Ardagh MP Holdings USA Inc., Senior Notes		7.000	%		11/15/20		871,765			895,738	^(a)(b)

See Notes to Financial Statements.


20		Western Asset High Income Fund II Inc. 2015 Annual Report

Western Asset High Income Fund II Inc.


Security	Rate			Maturity Date		Face Amount†			Value
Containers & Packaging — continued
Ardagh Packaging Finance PLC/Ardagh MP Holdings USA Inc., Senior Notes		6.750	%		1/31/21		2,970,000		$	3,096,225	^(a)
BWAY Holding Co., Senior Notes		9.125	%		8/15/21		4,070,000			4,212,450	^(a)(b)
Coveris Holdings SA, Senior Notes		7.875	%		11/1/19		3,490,000			3,559,800	^(a)
Pactiv LLC, Senior Bonds		8.375	%		4/15/27		3,320,000			3,436,200	^(b)
Pactiv LLC, Senior Notes		7.950	%		12/15/25		920,000			943,000	^(b)
PaperWorks Industries Inc., Senior Secured Notes		9.500	%		8/15/19		2,000,000			2,027,500	^(a)(b)
Reynolds Group Issuer Inc./Reynolds Group Issuer LLC/Reynolds Group Issuer (Luxembourg) SA, Senior Notes		8.500	%		5/15/18		1,340,000			1,375,175	^(b)
Total Containers & Packaging										27,943,682
Metals & Mining — 7.0%
Barminco Finance Pty Ltd., Senior Notes		9.000	%		6/1/18		2,530,000			2,431,962	^(a)(b)
Coeur Mining Inc., Senior Notes		7.875	%		2/1/21		2,780,000			2,363,000	^(b)
Evraz Group SA, Notes		9.500	%		4/24/18		680,000			702,100	^(a)(b)
Evraz Group SA, Notes		6.750	%		4/27/18		2,390,000			2,282,450	^(a)(j)
Evraz Group SA, Senior Notes		9.500	%		4/24/18		330,000			340,725	^(c)
FMG Resources (August 2006) Pty Ltd., Senior Notes		6.875	%		2/1/18		1,733,333			1,798,333	^(a)
FMG Resources (August 2006) Pty Ltd., Senior Notes		6.875	%		4/1/22		2,930,000			2,230,463	^(a)(b)
FMG Resources (August 2006) Pty Ltd., Senior Secured Notes		9.750	%		3/1/22		3,420,000			3,533,287	^(a)
GTL Trade Finance Inc., Senior Bonds		5.893	%		4/29/24		2,996,000			3,040,940	^(a)(j)
Midwest Vanadium Pty Ltd., Senior Secured Notes		11.500	%		2/15/18		3,070,000			230,250	^(a)(f)(g)
Mirabela Nickel Ltd.		1.000	%		9/10/44		32,532			0	^(e)(f)(k)
Prince Mineral Holding Corp., Senior Secured Notes		11.500	%		12/15/19		1,570,000			1,517,013	^(a)(b)
Rain CII Carbon LLC/CII Carbon Corp., Senior Secured Notes		8.250	%		1/15/21		4,490,000			4,175,700	^(a)(b)
Rio Tinto Finance USA Ltd., Senior Notes		9.000	%		5/1/19		1,820,000			2,290,727	^(b)
Ryerson Inc./Joseph T. Ryerson & Son Inc., Senior Secured Notes		9.000	%		10/15/17		3,960,000			4,037,022	^(b)
Schaeffler Holding Finance BV, Senior Secured Bonds		6.875	%		8/15/18		3,230,000			3,379,387	^(a)(d)
Schaeffler Holding Finance BV, Senior Secured Notes		6.875	%		8/15/18		2,040,000	^EUR		2,403,312	^(a)(d)
Schaeffler Holding Finance BV, Senior Secured Notes		6.750	%		11/15/22		3,330,000			3,663,000	^(a)(b)(d)
St. Barbara Ltd., Senior Secured Notes		8.875	%		4/15/18		1,600,000			1,464,000	^(a)(b)
Steel Dynamics Inc., Senior Notes		6.125	%		8/15/19		1,300,000			1,394,250	^(b)
Thompson Creek Metals Co. Inc., Senior Secured Notes		9.750	%		12/1/17		1,950,000			2,052,570	^(b)
Vale Overseas Ltd., Notes		8.250	%		1/17/34		1,784,000			2,061,016
Vedanta Resources PLC, Senior Notes		6.750	%		6/7/16		3,630,000			3,734,181	^(a)
Vedanta Resources PLC, Senior Notes		6.000	%		1/31/19		760,000			720,100	^(a)
Total Metals & Mining										51,845,788

See Notes to Financial Statements.


Western Asset High Income Fund II Inc. 2015 Annual Report		21

Schedule of investments (cont’d)

April 30, 2015

Western Asset High Income Fund II Inc.


Security	Rate			Maturity Date		Face Amount†			Value
Paper & Forest Products — 1.3%
Appvion Inc., Secured Notes		9.000	%		6/1/20		4,800,000		$	3,168,000	^(a)(b)
Fibria Overseas Finance Ltd., Senior Notes		5.250	%		5/12/24		1,340,000			1,386,900	^(b)
Resolute Forest Products Inc., Senior Notes		5.875	%		5/15/23		2,030,000			1,966,563
Verso Paper Holdings LLC/Verso Paper Inc., Senior Secured Bonds		11.750	%		1/15/19		1,610,000			1,420,825
Verso Paper Holdings LLC/Verso Paper Inc., Senior Secured Notes		11.750	%		1/15/19		1,768,000			1,122,680	^(b)
Verso Paper Holdings LLC/Verso Paper Inc., Senior Secured Notes		11.750	%		1/15/19		260,000			228,800
Total Paper & Forest Products										9,293,768
Total Materials										101,216,741
Telecommunication Services — 12.1%
Diversified Telecommunication Services — 5.0%
Axtel SAB de CV, Senior Secured Notes		9.000	%		1/31/20		2,544,000			2,454,960	^(a)
CenturyLink Inc., Senior Notes		5.800	%		3/15/22		6,600,000			6,880,500	^(b)
CenturyLink Inc., Senior Notes		5.625	%		4/1/25		110,000			110,413	^(a)
Intelsat Jackson Holdings SA, Senior Bonds		5.500	%		8/1/23		1,250,000			1,181,250
Intelsat Jackson Holdings SA, Senior Notes		7.250	%		10/15/20		6,670,000			6,894,279	^(b)
Intelsat Luxembourg SA, Senior Bonds		8.125	%		6/1/23		2,070,000			1,905,042	^(b)
Level 3 Financing Inc., Senior Notes		7.000	%		6/1/20		750,000			805,312	^(b)
Level 3 Financing Inc., Senior Notes		8.625	%		7/15/20		4,090,000			4,447,875	^(b)
Level 3 Financing Inc., Senior Notes		6.125	%		1/15/21		1,260,000			1,337,175	^(b)
Verizon Communications Inc., Senior Notes		5.150	%		9/15/23		3,550,000			4,013,619	^(b)
Windstream Corp., Senior Notes		7.750	%		10/1/21		520,000			513,500
Windstream Corp., Senior Notes		7.500	%		4/1/23		6,690,000			6,372,225	^(b)
Total Diversified Telecommunication Services										36,916,150
Wireless Telecommunication Services — 7.1%
Altice Financing SA, Senior Secured Notes		5.250	%		2/15/23		270,000	^EUR		319,237	^(a)
Altice Financing SA, Senior Secured Notes		6.625	%		2/15/23		6,240,000			6,458,400	^(a)
Altice Finco SA, Senior Notes		7.625	%		2/15/25		1,020,000			1,044,863	^(a)
Oi SA, Senior Notes		5.750	%		2/10/22		1,770,000			1,500,075	^(a)
Sprint Capital Corp., Senior Notes		6.875	%		11/15/28		3,530,000			3,203,475	^(b)
Sprint Capital Corp., Senior Notes		8.750	%		3/15/32		8,465,000			8,697,787	^(b)
Sprint Communications Inc., Senior Notes		9.000	%		11/15/18		7,200,000			8,210,232	^(a)(b)
Sprint Corp., Senior Notes		7.875	%		9/15/23		6,930,000			6,973,312	^(b)
Syniverse Holdings Inc., Senior Notes		9.125	%		1/15/19		2,831,000			2,675,295	^(b)
T-Mobile USA Inc., Senior Notes		6.542	%		4/28/20		1,090,000			1,153,983	^(b)
T-Mobile USA Inc., Senior Notes		6.633	%		4/28/21		140,000			148,225	^(b)

See Notes to Financial Statements.


22		Western Asset High Income Fund II Inc. 2015 Annual Report

Western Asset High Income Fund II Inc.


Security	Rate			Maturity Date		Face Amount†			Value
Wireless Telecommunication Services — continued
T-Mobile USA Inc., Senior Notes		6.000	%		3/1/23		4,970,000		$	5,077,104	^(b)
Vimpel Communications Via VIP Finance Ireland Ltd. OJSC, Senior Notes		9.125	%		4/30/18		2,220,000			2,366,520	^(c)
Vimpel Communications Via VIP Finance Ireland Ltd. OJSC, Senior Notes		7.748	%		2/2/21		2,300,000			2,337,904	^(a)
VimpelCom Holdings BV, Senior Notes		7.504	%		3/1/22		1,620,000			1,611,900	^(c)
VimpelCom Holdings BV, Senior Notes		7.504	%		3/1/22		700,000			696,500	^(a)
Total Wireless Telecommunication Services										52,474,812
Total Telecommunication Services										89,390,962
Utilities — 4.1%
Electric Utilities — 1.7%
AES Red Oak LLC, Secured Notes		9.200	%		11/30/29		4,380,000			4,894,650	^(b)
GenOn REMA LLC, Pass-Through Certificates		9.237	%		7/2/17		2,092,921			2,228,961	^(b)
GenOn REMA LLC, Pass-Through Certificates		9.681	%		7/2/26		4,320,000			4,687,200	^(b)
Midwest Generation LLC, Pass-Through Certificates		8.560	%		1/2/16		433,028			433,028
Total Electric Utilities										12,243,839
Independent Power and Renewable Electricity Producers — 2.4%
Calpine Corp., Senior Secured Notes		7.875	%		1/15/23		2,927,000			3,234,335	^(a)(b)
Foresight Energy LLC/Foresight Energy Corp., Senior Notes		7.875	%		8/15/21		4,480,000			4,368,000	^(a)(b)
Mirant Mid Atlantic LLC, Pass-Through Certificates		9.125	%		6/30/17		280,365			297,887	^(b)
Mirant Mid Atlantic LLC, Pass-Through Certificates		10.060	%		12/30/28		7,190,293			7,976,731	^(b)
TerraForm Power Operating LLC, Senior Notes		5.875	%		2/1/23		1,970,000			2,058,650	^(a)
Total Independent Power and Renewable Electricity Producers										17,935,603
Total Utilities										30,179,442
Total Corporate Bonds & Notes (Cost — $887,603,513)										892,381,460
Collateralized Mortgage Obligations — 0.1%
Countrywide Home Loan Mortgage Pass-Through Trust, 2004-HYB5 7A1 (Cost — $722,117)		2.389	%		4/20/35		1,101,495			931,586	^(h)
Convertible Bonds & Notes — 0.4%
Materials — 0.3%
Chemicals — 0.1%
Hercules Inc., Junior Subordinated Bonds		6.500	%		6/30/29		802,000			734,331
Metals & Mining — 0.2%
Mirabela Nickel Ltd., Senior Secured Bonds		9.500	%		6/24/19		1,979,775			1,455,135	^(a)(d)(f)
Total Materials										2,189,466
Telecommunication Services — 0.1%
Diversified Telecommunication Services — 0.1%
Axtel SAB de CV, Senior Secured Notes		9.000	%		1/31/20		2,900,100	^MXN		359,157	^(a)
Total Convertible Bonds & Notes (Cost — $3,117,904)										2,548,623

See Notes to Financial Statements.


Western Asset High Income Fund II Inc. 2015 Annual Report		23

Schedule of investments (cont’d)

April 30, 2015

Western Asset High Income Fund II Inc.

Security

Rate

Maturity
Date

Face
Amount†

Value

Senior Loans — 3.2%

Consumer Discretionary — 0.5%

Hotels, Restaurants & Leisure — 0.3%

Equinox Holdings Inc., Second Lien Term Loan

9.750

7/31/20

2,510,000

2,560,200

^(l)(m)

Textiles, Apparel & Luxury Goods — 0.2%

TOMS Shoes LLC, Term Loan B

6.500

10/28/20

1,590,000

1,478,037

^(l)(m)

Total Consumer Discretionary

4,038,237

Consumer Staples — 0.1%

Food Products — 0.1%

AdvancePierre Foods Inc., Second Lien Term Loan

9.500

10/10/17

1,080,000

1,086,750

^(l)(m)

Energy — 0.5%

Oil, Gas & Consumable Fuels — 0.5%

Murray Energy Corp., Term Loan B2

—

3/19/21

1,740,000

1,726,950

⁽ⁿ⁾

Westmoreland Coal Co., Term Loan B

7.500

12/16/20

2,034,900

2,014,551

^(l)(m)

Total Energy

3,741,501

Health Care — 0.7%

Health Care Providers & Services — 0.7%

Physiotherapy Associates Holdings Inc., Exit Term Loan

11.000

1/2/17

2,280,000

2,278,575

^(f)(l)(m)

Radnet Management Inc., Second Lien Term Loan

8.000

3/25/21

2,620,000

2,629,825

^(l)(m)

Total Health Care

4,908,400

Materials — 0.5%

Chemicals — 0.5%

Kerling PLC, EUR Term Loan

10.000

6/30/16

1,200,000

^EUR

1,362,578

^(l)(m)

Kronos Inc., Second Lien Term Loan

9.750

4/30/20

1,918,495

1,982,046

^(l)(m)

Total Materials

3,344,624

Utilities — 0.9%

Electric Utilities — 0.3%

Panda Temple Power LLC, 2015 Term Loan B

7.250

3/4/22

2,310,000

2,286,900

^(l)(m)

Independent Power and Renewable Electricity Producers — 0.6%

Energy Future Intermediate Holding Co., LLC, DIP Term Loan

4.250

6/19/16

4,245,032

4,275,099

^(l)(m)

Total Utilities

6,561,999

Total Senior Loans (Cost — $23,679,088)

23,681,511

Sovereign Bonds — 2.0%

Argentina — 0.1%

Republic of Argentina, Senior Bonds

7.000

10/3/15

470,000

461,373

Brazil — 0.7%

Federative Republic of Brazil, Notes

10.000

1/1/17

15,782,000

^BRL

4,999,379

See Notes to Financial Statements.


24		Western Asset High Income Fund II Inc. 2015 Annual Report

Western Asset High Income Fund II Inc.

Security

Rate

Maturity
Date

Face
Amount†

Value

Hungary — 0.2%

Republic of Hungary, Senior Notes

5.750

11/22/23

1,658,000

1,913,747

Turkey — 0.6%

Republic of Turkey, Senior Bonds

11.875

1/15/30

1,175,000

2,051,437

Republic of Turkey, Senior Notes

6.875

3/17/36

2,064,000

2,520,247

Total Turkey

4,571,684

Venezuela — 0.4%

Bolivarian Republic of Venezuela, Senior Bonds

9.250

9/15/27

3,050,000

1,509,750

Bolivarian Republic of Venezuela, Senior Bonds

9.375

1/13/34

1,164,000

532,530

Bolivarian Republic of Venezuela, Senior Notes

7.750

10/13/19

2,246,000

1,050,005

^(c)

Total Venezuela

3,092,285

Total Sovereign Bonds (Cost — $19,701,060)

15,038,468

Common Stocks — 3.9%

Consumer Discretionary — 0.5%

Automobiles — 0.5%

Ford Motor Co.

200,627

3,169,907

General Motors Co.

19,356

678,621

Total Automobiles

3,848,528

Hotels, Restaurants & Leisure — 0.0%

Bossier Casino Venture Holdco Inc.

166,350

*^(e)(f)(k)

Total Consumer Discretionary

3,848,528

Energy — 0.9%

Energy Equipment & Services — 0.9%

KCAD Holdings I Ltd.

533,873,172

6,533,540

*^(e)(f)

Financials — 1.5%

Banks — 1.5%

Citigroup Inc.

143,529

7,652,966

JPMorgan Chase & Co.

48,547

3,071,083

Total Banks

10,724,049

Diversified Financial Services — 0.0%

PB Investors II LLC

60,468

*^(e)(f)(k)

Total Financials

10,724,049

Health Care — 0.4%

Health Care Providers & Services — 0.4%

Physiotherapy Associates Holdings Inc.

31,500

2,614,500

*^(e)(f)

See Notes to Financial Statements.


Western Asset High Income Fund II Inc. 2015 Annual Report		25

Schedule of investments (cont’d)

April 30, 2015

Western Asset High Income Fund II Inc.

Security

Value

Industrials — 0.5%

Marine — 0.5%

DeepOcean Group Holding AS

198,468

2,928,197

*^(e)(f)

Horizon Lines Inc., Class A Shares

1,490,060

1,043,042

*^(f)

Total Industrials

3,971,239

Materials — 0.1%

Metals & Mining — 0.1%

Mirabela Nickel Ltd.

6,589,511

701,798

Total Common Stocks (Cost — $37,017,213)

28,393,654

Rate

Convertible Preferred Stocks — 0.2%

Energy — 0.2%

Oil, Gas & Consumable Fuels — 0.2%

Rex Energy Corp.

6.000

18,100

814,862

SandRidge Energy Inc.

8.500

17,400

708,006

Total Convertible Preferred Stocks (Cost — $3,451,725)

1,522,868

Preferred Stocks — 2.3%

Financials — 2.3%

Consumer Finance — 1.7%

GMAC Capital Trust I

8.125

489,100

12,853,548

^(h)

Diversified Financial Services — 0.6%

Citigroup Capital XIII

7.875

168,125

4,352,756

^(b)(h)

Total Preferred Stocks (Cost — $16,143,736)

17,206,304

Expiration
Date

Warrants

Warrants — 0.0%

Bolivarian Republic of Venezuela, Oil-linked payment obligations (Cost — $0)

4/15/20

18,500

173,438

Total Investments — 133.0% (Cost — $991,436,356#)

981,877,912

Liabilities in Excess of Other Assets — (33.0)%

(243,458,561

)

Total Net Assets — 100.0%

738,419,351

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

*	Non-income producing security.

^(a)

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

^(b)	All or a portion of this security is pledged as collateral pursuant to the loan agreement (See Note 5).

See Notes to Financial Statements.


26		Western Asset High Income Fund II Inc. 2015 Annual Report

Western Asset High Income Fund II Inc.

^(c)

Security is exempt from registration under Regulation S of the Securities Act of 1933. Regulation S applies to securities offerings that are made outside of the United States and do not involve direct selling efforts in the United States. This security has been deemed liquid pursuant to guidelines approved by the Board of Directors, unless otherwise noted.

^(d)	Payment-in-kind security for which the issuer has the option at each interest payment date of making interest payments in cash or additional debt securities.

^(e)	Security is valued in good faith in accordance with procedures approved by the Board of Directors (See Note 1).

^(f)	Illiquid security (unaudited).

^(g)	The coupon payment on these securities is currently in default as of April 30, 2015.

^(h)	Variable rate security. Interest rate disclosed is as of the most recent information available.

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

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

^(k)	Value is less than $1.

^(l)	Interest rates disclosed represent the effective rates on senior loans. Ranges in interest rates are attributable to multiple contracts under the same loan.

^(m)	Senior loans may be considered restricted in that the Fund ordinarily is contractually obligated to receive approval from the agent bank and/or borrower prior to the disposition of a senior loan.

⁽ⁿ⁾	All or a portion of this loan is unfunded as of April 30, 2015. The interest rate for fully unfunded term loans is to be determined.

#	Aggregate cost for federal income tax purposes is $996,578,817.


Abbreviations used in this schedule:
AUD		— Australian Dollar
BRL		— Brazilian Real
DIP		— Debtor-in-Possession
EUR		— Euro
GBP		— British Pound
MXN		— Mexican Peso
OJSC		— Open Joint Stock Company

See Notes to Financial Statements.


Western Asset High Income Fund II Inc. 2015 Annual Report		27

Statement of assets and liabilities

April 30, 2015



Assets:
Investments, at value (Cost — $991,436,356)	$	981,877,912
Foreign currency, at value (Cost — $597,509)		572,661
Cash		9,652,549
Interest and dividends receivable		19,525,615
Receivable for securities sold		6,061,522
Unrealized appreciation on forward foreign currency contracts		1,245,241
Deposits with brokers for open futures contracts		274,991
Receivable from broker — variation margin on open futures contracts		29,058
Deposits with brokers for centrally cleared swap contracts		1,516
Prepaid expenses		66,038
*Total Assets*		*1,019,307,103*

Liabilities:
Loan payable (Note 5)		260,000,000
Payable for securities purchased		16,903,410
Payable for open reverse repurchase agreements (Note 3)		3,003,672
Investment management fee payable		658,028
Interest payable (Notes 3 and 5)		93,679
Unrealized depreciation on forward foreign currency contracts		59,790
Directors’ fees payable		8,925
Accrued expenses		160,248
*Total Liabilities*		*280,887,752*
Total Net Assets	$	738,419,351

Net Assets:
Par value ($0.001 par value; 86,203,856 shares issued and outstanding; 100,000,000 shares authorized)	$	86,204
Paid-in capital in excess of par value		1,018,286,198
Undistributed net investment income		6,366,428
Accumulated net realized loss on investments, futures contracts, swap contracts and foreign currency transactions		(277,723,036)
Net unrealized depreciation on investments, futures contracts and foreign currencies		(8,596,443)
Total Net Assets	$	738,419,351

Shares Outstanding		86,203,856

Net Asset Value		$8.57

See Notes to Financial Statements.


28		Western Asset High Income Fund II Inc. 2015 Annual Report

Statement of operations

For the Year Ended April 30, 2015



Investment Income:
Interest	$	77,890,233
Dividends		1,782,787
*Total Investment Income*		*79,673,020*

Expenses:
Investment management fee (Note 2)		8,247,006
Interest expense (Notes 3 and 5)		2,380,245
Transfer agent fees		125,553
Directors’ fees		122,059
Audit and tax fees		82,630
Legal fees		74,933
Stock exchange listing fees		69,957
Shareholder reports		37,726
Custody fees		24,612
Insurance		15,166
Miscellaneous expenses		15,802
*Total Expenses*		*11,195,689*
Net Investment Income		68,477,331

Realized and Unrealized Gain (Loss) on Investments, Futures Contracts, Swap Contracts and Foreign Currency Transactions (Notes 1, 3 and 4):
Net Realized Gain (Loss) From:
Investment transactions		(23,886,934)
Futures contracts		(3,506,831)
Swap contracts		358,297
Foreign currency transactions		9,420,361
*Net Realized Loss*		*(17,615,107)*
Change in Net Unrealized Appreciation (Depreciation) From:
Investments		(59,767,321)
Futures contracts		(196,395)
Swap contracts		(155,610)
Foreign currencies		2,491,842
*Change in Net Unrealized Appreciation (Depreciation)*		*(57,627,484)*
Net Loss on Investments, Futures Contracts, Swap Contracts and Foreign Currency Transactions		(75,242,591)
Decrease in Net Assets from Operations	$	(6,765,260)

See Notes to Financial Statements.


Western Asset High Income Fund II Inc. 2015 Annual Report		29

Statements of changes in net assets


For the Years Ended April 30,	2015		2014

Operations:
Net investment income	$	68,477,331	$	73,192,507
Net realized gain (loss)		(17,615,107)		12,272,770
Change in net unrealized appreciation (depreciation)		(57,627,484)		(16,777,986)
*Increase (Decrease) in Net Assets from Operations*		*(6,765,260)*		*68,687,291*

Distributions to Shareholders From (Note 1):
Net investment income		(71,447,776)		(76,216,170)
*Decrease in Net Assets from Distributions to Shareholders*		*(71,447,776)*		*(76,216,170)*

Fund Share Transactions:
Reinvestment of distributions (36,676 and 153,861 shares issued, respectively)		328,250		1,430,378
*Increase in Net Assets from Fund Share Transactions*		*328,250*		*1,430,378*
*Decrease in Net Assets*		*(77,884,786)*		*(6,098,501)*

Net Assets:
Beginning of year		816,304,137		822,402,638
End of year*	$	738,419,351	$	816,304,137
*Includes undistributed net investment income of:		$6,366,428		$1,099,103

See Notes to Financial Statements.


30		Western Asset High Income Fund II Inc. 2015 Annual Report

Statement of cash flows

For the Year Ended April 30, 2015



Increase (Decrease) in Cash:
Cash Provided (Used) by Operating Activities:
Net decrease in net assets resulting from operations	$	(6,765,260)
Adjustments to Reconcile Net Decrease in Net Assets Resulting from Operations to Net Cash Provided (used) by Operating Activities:
Purchases of portfolio securities		(421,802,321)
Sales of portfolio securities		410,020,116
Net purchases, sales and maturities of short-term investments		15,900,000
Payment-in-kind		(1,862,501)
Net amortization of premium (accretion of discount)		760,493
Increase in receivable for securities sold		(1,781,578)
Decrease in interest and dividends receivable		1,482,212
Increase in receivable from broker — variation margin on open futures contracts		(29,058)
Increase in prepaid expenses		(2,732)
Decrease in deposits with brokers for open futures contracts		586,016
Decrease in deposits with brokers for centrally cleared swap contracts		1,376,639
Decrease in payable for securities purchased		(4,953,030)
Decrease in investment management fee payable		(50,250)
Decrease in Directors’ fees payable		(838)
Decrease in interest payable		(18,556)
Decrease in accrued expenses		(11,202)
Decrease in payable to broker — variation margin on open futures contracts		(282,680)
Decrease in payable to broker — variation margin on open centrally cleared swap contracts		(11,667)
Net realized loss on investments		23,886,934
Change in unrealized depreciation of investments and forward foreign currency transactions		57,206,926
Net Cash Provided by Operating Activities*		*73,647,663*

Cash Flows from Financing Activities:
Distributions paid on common stock		(71,119,526)
Increase in loan payable		5,000,000
Decrease in payable for reverse repurchase agreements		(4,147,908)
*Net Cash Used in Financing Activities*		*(70,267,434)*
Net Increase in Cash		3,380,229
Cash at Beginning of Year		6,844,981
Cash at End of Year	$	10,225,210

Non-Cash Financing Activities:
Proceeds from reinvestment of distributions	$	328,250

*	Included in operating expenses is cash of $2,398,801 paid for interest on borrowings.

See Notes to Financial Statements.


Western Asset High Income Fund II Inc. 2015 Annual Report		31

Financial highlights


For a share of capital stock outstanding throughout each year ended April 30:
	2015¹			2014¹			2013¹			2012¹			2011¹

Net asset value, beginning of year		$9.47			$9.56			$8.86			$9.57			$9.00

Income (loss) from operations:
Net investment income		0.79			0.85			0.90			0.96			1.00
Net realized and unrealized gain (loss)		(0.86)			(0.05)			0.77			(0.67)			0.62
*Total income (loss) from operations*		*(0.07)*			*0.80*			*1.67*			*0.29*			*1.62*

Less distributions from:
Net investment income		(0.83)			(0.89)			(0.97)			(1.00)			(1.05)
*Total distributions*		*(0.83)*			*(0.89)*			*(0.97)*			*(1.00)*			*(1.05)*

Net asset value, end of year		$8.57			$9.47			$9.56			$8.86			$9.57

Market price, end of year		$8.15			$9.39			$10.20			$10.10			$10.04
*Total return based on NAV^2,3*		*(0.65)*	%		*8.89*	%		*20.03*	%		*3.80*	%		*19.40*	%
*Total return, based on Market Price⁴*		*(4.54)*	%		*1.30*	%		*11.68*	%		*11.89*	%		*14.54*	%

Net assets, end of year (000s)		$738,419			$816,304			$822,403			$756,448			$807,319

Ratios to average net assets:
Gross expenses		1.45	%		1.45	%		1.41	%		1.51	%		1.61	%
Net expenses⁵		1.45			1.45			1.41			1.51			1.61
Net investment income		8.90			9.10			9.84			10.93			11.03

Portfolio turnover rate		41	%		45	%		52	%		45	%		84	%

Supplemental data:
Loan outstanding, end of year (000s)		$260,000			$255,000			$215,000			$215,000			$190,000
Asset coverage ratio for loan outstanding⁶		384	%		420	%		483	%		452	%		525	%
Asset coverage, per $1,000 principal amount of loan outstanding⁶		3,840			4,201	⁷		4,825	⁷		4,518	⁷		5,249	⁷
Weighted average loan (000s)		$251,712			$248,493			$215,000			$211,038			$197,170
Weighted average interest rate on loan		0.91	%		0.92	%		0.97	%		1.09	%		1.49	%

¹	Per share amounts have been calculated using the average shares method.

²	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.

³	The total return calculation assumes that distributions are reinvested at NAV. Past performance is no guarantee of future results.

⁴	The total return calculation assumes that distributions are reinvested in accordance with the Fund’s dividend reinvestment plan. Past performance is no guarantee of future results.

⁵	The impact of compensating balance arrangements, if any, was less than 0.01%.

⁶	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.

⁷	Added to conform to current period presentation.

See Notes to Financial Statements.


32		Western Asset High Income Fund II Inc. 2015 Annual Report

Notes to financial statements

1. Organization and significant accounting policies

Western Asset High Income Fund II Inc. (the “Fund”) was incorporated in Maryland and is registered as a diversified, closed-end management investment company under the Investment Company Act of 1940, as amended (the “1940 Act”). The Fund seeks to maximize current income by investing at least 80% of its net assets, plus any borrowings for investment purposes, in high-yield debt securities. As a secondary objective, the Fund seeks capital appreciation to the extent consistent with its objective of seeking to maximize current income.

The following are significant accounting policies consistently followed by the Fund and are in conformity with U.S. generally accepted accounting principles (“GAAP”). 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. Short-term fixed income securities that will mature in 60 days or less are valued at amortized cost, unless it is determined that using this method would not reflect an investment’s fair value. 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 Fund’s Board of Directors.


Western Asset High Income Fund II Inc. 2015 Annual Report		33

Notes to financial statements (cont’d)

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 (formerly, Legg Mason North American 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 Fund’s 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 issuer’s 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.

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.)


34		Western Asset High Income Fund II Inc. 2015 Annual Report

Level 3 — significant unobservable inputs (including the Fund’s 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 Fund’s 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:
Consumer discretionary		—	$	158,705,817	$	3,094,961		$	161,800,778
Industrials		—		138,891,815		7,669,528			146,561,343
Materials		—		101,216,741		0	*		101,216,741
Utilities		—		24,761,327		5,418,115			30,179,442
Other corporate bonds & notes		—		452,623,156		—			452,623,156
Collateralized mortgage obligations		—		931,586		—			931,586
Convertible bonds & notes		—		2,548,623		—			2,548,623
Senior loans:
Consumer discretionary		—		1,478,037		2,560,200			4,038,237
Energy		—		1,726,950		2,014,551			3,741,501
Health care		—		2,278,575		2,629,825			4,908,400
Other senior loans		—		10,993,373		—			10,993,373
Sovereign bonds		—		15,038,468		—			15,038,468
Common stocks:
Consumer discretionary	$	3,848,528		—		0	*		3,848,528
Energy		—		—		6,533,540			6,533,540
Financials		10,724,049		—		0	*		10,724,049
Health care		—		—		2,614,500			2,614,500
Industrials		1,043,042		—		2,928,197			3,971,239
Materials		—		701,798		—			701,798
Convertible preferred stocks		708,006		814,862		—			1,522,868
Preferred stocks		17,206,304		—		—			17,206,304
Warrants		—		173,438		—			173,438
Total investments	$	33,529,929	$	912,884,566	$	35,463,417		$	981,877,912
Other financial instruments:
Forward foreign currency contracts		—	$	1,245,241		—		$	1,245,241
Total	$	33,529,929	$	914,129,807	$	35,463,417		$	983,123,153


Western Asset High Income Fund II Inc. 2015 Annual Report		35

Notes to financial statements (cont’d)


LIABILITIES
Description	Quoted Prices (Level 1)		Other Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Other financial instruments:
Futures contracts	$	182,838		—		—	$	182,838
Forward foreign currency contracts		—	$	59,790		—		59,790
Total	$	182,838	$	59,790		—	$	242,628

†	See Schedule of Investments for additional detailed categorizations.

*	Amount represents less than $1.

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


	Corporate Bonds & Notes										Senior Loans
Investments in Securities	Consumer Discretionary		Industrials		Materials			Utilities			Consumer Discretionary		Energy		Health Care		Total
Balance as of April 30, 2014	$	2,878,399		—	$	609,500		$	0	*		—		—		—	$	3,487,899
Accrued premiums/discounts		50,708		—		45,423			—			—	$	2,247	$	2,519		100,897
Realized gain (loss)¹		43		—		4,128			(1,703,131)			—		123		—		(1,698,837)
Change in unrealized appreciation (depreciation)²		(271,696)		—		(49,551)			1,720,949			—		28,281		32,832		1,460,815
Purchases		437,550		—		—			—			—		1,989,000		2,594,474		5,021,024
Sales		(43)		—		(609,500)			(17,818)			—		(5,100)		—		(632,461)
Transfers into Level 3³		—	$	7,669,528					5,418,115		$	2,560,200		—		—		15,647,843
Transfers out of Level 3		—		—		—			—			—		—		—		—
Balance as of April 30, 2015	$	3,094,961	$	7,669,528	$	0	*	$	5,418,115		$	2,560,200	$	2,014,551	$	2,629,825	$	23,387,180
Net change in unrealized appreciation (depreciation) for investments in securities still held at April 30, 2015²	$	(271,696)		—	$	(49,551)			—			—	$	28,281	$	32,832	$	(260,134)


	Common Stocks
Investments in Securities	Consumer Discretionary			Energy		Financials			Health Care		Industrials		Warrants		Total
Balance as of April 30, 2014	$	332,700		$	3,651,159	$	0	*	$	1,512,000	$	7,068,061	$	455,563	$	13,019,483
Accrued premiums/discounts		—			—		—			—		—		—		—
Realized gain (loss)		—			—		—			—		—		—		—
Change in unrealized appreciation (depreciation)²		(332,700)			2,882,381		—			1,102,500		(4,139,864)		(282,125)		(769,808)
Purchases					—		—					—		—		—
Sales		—			—		—			—		—		—		—
Transfers into Level 3		—			—		—			—		—		—		—
Transfers out of Level 3⁴		—			—		—			—		—		(173,438)		(173,438)
Balance as of April 30, 2015	$	0	*	$	6,533,540	$	0	*	$	2,614,500	$	2,928,197		—	$	12,076,237
Net change in unrealized appreciation (depreciation) for investments in securities still held at April 30, 2015²	$	(332,700)		$	2,882,381		—		$	1,102,500	$	(4,139,864)	$	(282,125)	$	(769,808)


36		Western Asset High Income Fund II Inc. 2015 Annual Report

*	Amount Represents less than $1.

The Fund’s policy is to recognize transfers between levels as of the end of the reporting period.

¹	This amount is included in net realized gain (loss) from investment transactions in the accompanying Statement of Operations.

This amount is included in the change in net unrealized appreciation (depreciation) in the accompanying Statement of Operations. Change in unrealized appreciation (depreciation) includes net unrealized appreciation (depreciation) resulting from changes in investment values during the reporting period and the reversal of previously recorded unrealized appreciation (depreciation) when gains or losses are realized.

³	Transferred into Level 3 as a result of the unavailability of a quoted price in an active market for an identical investment or the unavailability of other significant observable inputs.

⁴	Transferred out of Level 3 as a result of the availability of a quoted price in an active market for an identical investment or the availability of other significant observable inputs.

(b) Repurchase agreements. The Fund may enter into repurchase agreements with institutions that its investment adviser 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 Fund’s holding period. When entering into repurchase agreements, it is the Fund’s policy that its custodian or a third party custodian, acting on the Fund’s 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.

(c) 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 and price. In the event the buyer of securities under a reverse repurchase agreement files for bankruptcy or becomes insolvent, the Fund’s 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 Fund’s 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. 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.


Western Asset High Income Fund II Inc. 2015 Annual Report		37

Notes to financial statements (cont’d)

(d) Loan participations. The Fund may invest in loans arranged through private negotiation between one or more financial institutions. The Fund’s 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 which may be unfunded. The Fund is obligated to fund these commitments at the borrower’s discretion. The commitments are disclosed in the accompanying Schedule of Investments. At April 30, 2015, the Fund had sufficient cash and/or securities to cover these commitments.

(f) 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.

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. Risks may also arise upon entering into these contracts from the potential inability of the counterparties to meet the terms of their contracts.

(g) 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 cash equivalents 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


38		Western Asset High Income Fund II Inc. 2015 Annual Report

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. Futures contracts are valued daily at the settlement price established by the board of trade or exchange on which they are traded. 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.

(h) 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 Fund’s 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.

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.

(i) Swap agreements. The Fund invests in swaps for the purpose of managing its exposure to interest rate, credit or market risk, or for other purposes, including to increase the Fund’s return. The use of swaps involves risks that are different from those associated with other portfolio transactions. Swap agreements are privately negotiated in the over-the-counter market (“OTC Swaps”) or may be executed on a registered exchange (“Centrally Cleared Swaps”). Unlike Centrally Cleared Swaps, the Fund has credit exposure to the counterparties of OTC Swaps.


Western Asset High Income Fund II Inc. 2015 Annual Report		39

Notes to financial statements (cont’d)

Swap contracts are marked-to-market daily and changes in value are recorded as unrealized appreciation (depreciation). The daily change in valuation of Centrally Cleared Swaps, if any, is recorded as a receivable or payable for variation margin on the Statement of Assets and Liabilities. Gains or losses are realized upon termination of the swap agreement. Collateral, in the form of restricted cash or securities, may be required to be held in segregated accounts with the Fund’s custodian in compliance with the terms of the swap contracts. Securities posted as collateral for swap contracts are identified in the Schedule of Investments and restricted cash, if any, is identified on the Statement of Assets and Liabilities. Risks may exceed amounts recorded in the Statement of Assets and Liabilities. These risks include changes in the returns of the underlying instruments, failure of the counterparties to perform under the contracts’ terms, and the possible lack of liquidity with respect to the swap agreements.

OTC swap payments received or made at the beginning of the measurement period are reflected as a premium or deposit, respectively, on the Statement of Assets and Liabilities. These upfront payments are amortized over the life of the swap and are recognized as realized gain or loss in the Statement of Operations. Net periodic payments received or paid by the Fund are recognized as a realized gain or loss in the Statement of Operations.

The Fund’s maximum exposure in the event of a defined credit event on a credit default swap to sell protection is the notional amount. As of April 30, 2015, the Fund did not hold any credit default swaps to sell protection.

For average notional amounts of swaps held during the year ended April 30, 2015, see Note 4.

Credit default swaps

The Fund enters into credit default swap (“CDS”) contracts for investment purposes, to manage its credit risk or to add leverage. CDS agreements involve one party making a stream of payments to another party in exchange for the right to receive a specified return in the event of a default by a third party, typically corporate or sovereign issuers, on a specified obligation, or in the event of a write-down, principal shortfall, interest shortfall or default of all or part of the referenced entities comprising a credit index. The Fund may use a CDS to provide protection against defaults of the issuers (i.e., to reduce risk where the Fund has exposure to an issuer) or to take an active long or short position with respect to the likelihood of a particular issuer’s default. As a seller of protection, the Fund generally receives an upfront payment or a stream of payments throughout the term of the swap provided that there is no credit event. If the Fund is a seller of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the maximum potential amount of future payments (undiscounted) that the Fund could be required to make under a credit default swap agreement would be an amount equal to the notional amount of the agreement. These amounts of potential payments will be partially offset by any recovery of values from the respective referenced obligations. As a seller of protection, the Fund effectively adds leverage to its portfolio because, in addition to its total net assets, the


40		Western Asset High Income Fund II Inc. 2015 Annual Report

Fund is subject to investment exposure on the notional amount of the swap. As a buyer of protection, the Fund generally receives an amount up to the notional value of the swap if a credit event occurs.

Implied spreads are the theoretical prices a lender receives for credit default protection. When spreads rise, market perceived credit risk rises and when spreads fall, market perceived credit risk falls. The implied credit spread of a particular referenced entity reflects the cost of buying/selling protection and may include upfront payments required to enter into the agreement. Wider credit spreads and decreasing market values, when compared to the notional amount of the swap, represent a deterioration of the referenced entity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement. Credit spreads utilized in determining the period end market value of credit default swap agreements on corporate or sovereign issues are disclosed in the Notes to Financial Statements and serve as an indicator of the current status of the payment/performance risk and represent the likelihood or risk of default for credit derivatives. For credit default swap agreements on asset-backed securities and credit indices, the quoted market prices and resulting values, particularly in relation to the notional amount of the contract as well as the annual payment rate, serve as an indication of the current status of the payment/performance risk.

The Fund’s maximum risk of loss from counterparty risk, as the protection buyer, is the fair value of the contract (this risk is mitigated by the posting of collateral by the counterparty to the Fund to cover the Fund’s exposure to the counterparty). As the protection seller, the Fund’s maximum risk is the notional amount of the contract. Credit default swaps are considered to have credit risk-related contingent features since they require payment by the protection seller to the protection buyer upon the occurrence of a defined credit event.

Entering into a CDS agreement involves, to varying degrees, elements of credit, market and documentation risk in excess of the related amounts recognized on the Statement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparty to the agreement may default on its obligation to perform or disagree as to the meaning of the contractual terms in the agreement, and that there will be unfavorable changes in net interest rates.

(j) 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.

(k) Foreign investment risks. The Fund’s 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


Western Asset High Income Fund II Inc. 2015 Annual Report		41

Notes to financial statements (cont’d)

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) Credit and market risk. The Fund invests in high-yield and emerging market instruments that are subject to certain credit and market risks. The yields of high-yield and emerging market debt obligations reflect, among other things, perceived credit and market risks. The Fund’s 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 Fund’s investments in non-U.S. dollar denominated securities may also result in foreign currency losses caused by devaluations and exchange rate fluctuations.

Investments in securities that are collateralized by residential real estate mortgages are subject to certain credit and liquidity risks. When market conditions result in an increase in default rates of the underlying mortgages and the foreclosure values of underlying real estate properties are materially below the outstanding amount of these underlying mortgages, collection of the full amount of accrued interest and principal on these investments may be doubtful. Such market conditions may significantly impair the value and liquidity of these investments and may result in a lack of correlation between their credit ratings and values.

(m) 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 Fund’s investment manager 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 investment manager. In addition, declines in the values of underlying collateral received may expose the Fund to increased risk of loss.

The Fund has entered into master agreements with certain of its derivative counterparties that provide for general obligations, representations, agreements, collateral, events 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 Fund’s 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.


42		Western Asset High Income Fund II Inc. 2015 Annual Report

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.

Absent an event of default by the counterparty or a termination of the agreement, the terms of the 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.

As of April 30, 2015, the Fund held forward foreign currency contracts with credit related contingent features which had a liability position of $59,790. 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.

(n) Security transactions and investment income. Security transactions are accounted for on a trade date basis. Interest income, 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. Foreign dividend income is recorded on the ex-dividend date or as soon as practicable after the Fund determines the existence of 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.

(o) Distributions to shareholders. Distributions from net investment income of the Fund, if any, are declared quarterly and paid on a monthly basis. 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.

(p) Compensating balance arrangements. The Fund has an arrangement with its custodian bank whereby a portion of the custodian’s fees is paid indirectly by credits earned on the Fund’s cash on deposit with the bank.

(q) Federal and other taxes. It is the Fund’s 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 Fund’s financial statements.


Western Asset High Income Fund II Inc. 2015 Annual Report		43

Notes to financial statements (cont’d)

Management has analyzed the Fund’s tax positions taken on income tax returns for all open tax years and has concluded that as of April 30, 2015, no provision for income tax is required in the Fund’s financial statements. The Fund’s 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.

(r) 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. During the current year, the following reclassifications have been made:


	Undistributed Net Investment Income		Accumulated Net Realized Loss
(a)	$	8,237,770	$	(8,237,770)

^(a)	Reclassifications are due to foreign currency transactions treated as ordinary income for tax purposes, differences between book and tax amortization of premium on fixed income securities and book/tax differences in the treatment of swap contracts.

2. Investment management agreement and other transactions with affiliates

Legg Mason Partners Fund Advisor, LLC (“LMPFA”) is the Fund’s investment manager. Western Asset Management Company (“Western Asset”), Western Asset Management Company Limited (“Western Asset Limited”) and Western Asset Management Company Pte. Ltd. (“Western Singapore”) are the Fund’s subadvisers. LMPFA, Western Asset, Western Asset Limited and Western 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 Fund’s average weekly net assets plus the proceeds of any outstanding borrowings used for leverage.

LMPFA delegates to Western Asset the day-to-day portfolio management of the Fund. Western Singapore and Western Asset Limited 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 70% of the net management fee it receives from the Fund. In turn, Western Asset pays Western Singapore and Western Asset Limited a subadvisory fee of 0.30% on assets managed by each subadviser.

During periods in which the Fund utilizes financial leverage, the fees which are payable to the investment manager as a percentage of the Fund’s net assets will be higher than if the Fund did not utilize leverage because the fees are calculated as a percentage of the Fund’s assets, including those investments purchased with leverage.


44		Western Asset High Income Fund II Inc. 2015 Annual Report

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 year ended April 30, 2015, the aggregate cost of purchases and proceeds from sales of investments (excluding short-term investments) were as follows:


Purchases	$	421,802,321
Sales		410,020,116

At April 30, 2015, the aggregate gross unrealized appreciation and depreciation of investments for federal income tax purposes were as follows:


Gross unrealized appreciation	$	50,498,275
Gross unrealized depreciation		(65,199,180)
Net unrealized depreciation	$	(14,700,905)

At April 30, 2015, the Fund had the following open futures contracts:


	Number of Contracts		Expiration Date		Basis Value		Market Value		Unrealized Depreciation
Contracts to Sell:
U.S. Treasury 5-Year Notes		277		6/15	$	33,093,951	$	33,276,789	$	(182,838)

At April 30, 2015, the Fund had the following open forward foreign currency contracts:


Currency Purchased		Currency Sold		Counterparty	Settlement Date		Unrealized Appreciation (Depreciation)
EUR	3,700,000	USD	3,979,457	Citibank, N.A.		5/13/15	$	175,513
EUR	2,950,000	USD	3,131,207	Citibank, N.A.		5/13/15		181,538
EUR	1,645,000	USD	1,781,933	Citibank, N.A.		5/13/15		65,343
EUR	365,554	USD	395,600	Citibank, N.A.		5/13/15		14,904
USD	16,791,480	EUR	14,694,373	Citibank, N.A.		5/13/15		290,222
USD	917,256	EUR	800,000	Citibank, N.A.		5/13/15		18,884
USD	1,844,621	GBP	1,210,000	Citibank, N.A.		5/13/15		(12,607)
EUR	1,540,168	USD	1,669,065	UBS AG		5/13/15		60,489
GBP	198,610	USD	298,346	UBS AG		5/13/15		6,500
USD	24,694,475	EUR	21,605,872	UBS AG		5/13/15		431,848
USD	6,531,094	GBP	4,285,804	UBS AG		5/13/15		(47,183)
Total							$	1,185,451


Abbreviations used in this table:
EUR		— Euro
GBP		— British Pound
USD		— United States Dollar


Western Asset High Income Fund II Inc. 2015 Annual Report		45

Notes to financial statements (cont’d)

Transactions in reverse repurchase agreements for the Fund during the year ended April 30, 2015 were as follows:


Average Daily Balance*	Weighted Average Interest Rate*	Maximum Amount Outstanding
$7,431,873	0.73%	$8,757,323

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

Interest rates on reverse repurchase agreements ranged from 0.25% to 0.95% during the year ended April 30, 2015. Interest expense incurred on reverse repurchase agreements totaled $54,347.

At April 30, 2015, the Fund had the following open reverse repurchase agreements:

Counterparty

Rate

Effective
Date

Maturity
Date

Face Amount
of Reverse
Repurchase
Agreements

Credit Suisse

0.85%

5/5/14

TBD

511,000

Credit Suisse

0.85%

8/12/14

TBD

2,492,672

3,003,672

*	TBD — To Be Determined; These reverse repurchase agreements have no maturity dates because they are renewed daily and can be terminated by either the Fund or the counterparty in accordance with the terms of the agreements.

On April 30, 2015, the total market value of underlying collateral (refer to the Schedule of Investments for positions held at the counterparty as collateral for reverse repurchase agreements) for open reverse repurchase agreements was $3,709,440.

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 April 30, 2015.


ASSET DERIVATIVES¹
	Foreign Exchange Risk
Forward foreign currency contracts	$	1,245,241


LIABILITY DERIVATIVES¹
	Interest Rate Risk		Foreign Exchange Risk		Total
Futures contracts²	$	182,838		—	$	182,838
Forward foreign currency contracts		—	$	59,790		59,790
Total	$	182,838	$	59,790	$	242,628

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).

²	Includes cumulative appreciation (depreciation) of futures contracts as reported in the footnotes. Only variation margin is reported within the receivables and/or payables on the Statement of Assets and Liabilities.


46		Western Asset High Income Fund II Inc. 2015 Annual Report

The following tables provide information about the effect of derivatives and hedging activities on the Fund’s Statement of Operations for the year ended April 30, 2015. 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 Fund’s derivatives and hedging activities during the period.


AMOUNT OF REALIZED GAIN (LOSS) ON DERIVATIVES RECOGNIZED
	Interest Rate Risk		Foreign Exchange Risk		Credit Risk		Total
Futures contracts	$	(3,506,831)		—		—	$	(3,506,831)
Swap contracts		—			$	358,297		358,297
Forward foreign currency contracts¹		—	$	9,979,747		—		9,979,747
Total	$	(3,506,831)	$	9,979,747	$	358,297	$	6,831,213

¹	Net realized gain (loss) from forward foreign currency contracts is reported in net realized gain (loss) from foreign currency transactions in the Statement of Operations.


CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) ON DERIVATIVES RECOGNIZED
	Interest Rate Risk		Foreign Exchange Risk		Credit Risk		Total
Futures contracts	$	(196,395)		—		—	$	(196,395)
Swap contracts		—		—	$	(155,610)		(155,610)
Forward foreign currency contracts¹		—	$	2,560,395		—		2,560,395
Total	$	(196,395)	$	2,560,395	$	(155,610)	$	2,208,390

¹	The change in unrealized appreciation (depreciation) from forward foreign currency contracts is reported in the change in net unrealized appreciation (depreciation) from foreign currencies in the Statement of Operations.

During the year ended April 30, 2015, the volume of derivative activity for the Fund was as follows:


	Average Market Value
Futures contracts (to sell)	$	78,917,636
Forward foreign currency contracts (to buy)		4,426,670
Forward foreign currency contracts (to sell)		66,866,953

	Average Notional Balance
Credit default swap contracts (to buy protection)†	$	9,610,438

†	At April 30, 2015, there were no open positions held in this derivative.

The following table presents by financial instrument, the Fund’s derivative assets net of the related collateral received by the Fund at April 30, 2015:


	Gross Amount of Derivative Assets in the Statement of Assets and Liabilities¹		Collateral Received		Net Amount
Futures contracts²	$	29,058		—	$	29,058
Forward foreign currency contracts		1,245,241		—		1,245,241
Total	$	1,274,299		—	$	1,274,299


Western Asset High Income Fund II Inc. 2015 Annual Report		47

Notes to financial statements (cont’d)

The following table presents by financial instrument, the Fund’s derivative liabilities net of the related collateral pledged by the Fund at April 30, 2015:


	Gross Amount of Derivative Liabilities in the Statement of Assets and Liabilities¹		Collateral Pledged		Net Amount
Forward foreign currency contracts	$	59,790		—	$	59,790

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	Amount represents the current day’s variation margin as reported in the Statement of Assets and Liabilities. It differs from the cumulative appreciation (depreciation) presented in the previous table.

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 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 Fund’s custodian on behalf of Pershing LLC. The Fund’s credit agreement contains customary covenants that, among other things, may limit the Fund’s 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 Fund’s ability to utilize borrowing under the agreement. Interest expense related to this loan for the year ended April 30, 2015 was $2,325,898. For the year ended April 30, 2015, the Fund had an average daily loan balance outstanding of $251,712,329 and the weighted average interest rate was 0.91%. At April 30, 2015, the Fund had $260,000,000 of borrowings outstanding.

6. Distributions subsequent to April 30, 2015

The following distributions have been declared by the Fund’s Board of Directors and are payable subsequent to the period end of this report:


Record Date	Payable Date		Amount
5/22/15		5/29/15	$	0.0690
6/19/15		6/26/15	$	0.0690
7/24/15		7/31/15	$	0.0690
8/21/15		8/28/15	$	0.0690

7. Income tax information and distributions to shareholders

The tax character of distributions paid during the fiscal years ended April 30, was as follows:


	2015		2014
Distributions Paid From:
Ordinary income	$	71,447,776	$	76,216,170


48		Western Asset High Income Fund II Inc. 2015 Annual Report

As of April 30, 2015, the components of accumulated earnings on a tax basis were as follows:


Undistributed ordinary income — net	$	7,787,706
Deferred capital losses*		(23,380,131)
Capital loss carryforward**		(249,383,282)
Other book/tax temporary differences^(a)		(1,238,440)
Unrealized appreciation (depreciation)^(b)		(13,738,904)
Total accumulated earnings (losses) — net	$	(279,953,051)

These capital losses have been deferred in the current year as either short-term or long-term losses. The losses will be deemed to occur on the first day of the next taxable year in the same character as they were originally deferred and will be available to offset future taxable capital gains. These losses must be utilized before any of the Fund’s capital loss carryforward may be utilized.

**	As of April 30, 2015, the Fund had the following net capital loss carryforward remaining:


Year of Expiration	Amount
4/30/2017	$	(65,770,134	)
4/30/2018		(181,154,391	)
4/30/2019		(2,458,757	)
	$	(249,383,282	)

These amounts will be available to offset any future taxable capital gains.

^(a)

Other book/tax temporary differences are attributable to the realization for tax purposes of unrealized gains / losses on certain futures and foreign currency contracts, book/tax difference in the accrual of interest income on securities in default and book/tax differences in the timing of the deductibility of various expenses.

^(b)	The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable to the tax deferral of losses on wash sales and the difference between book and tax amortization methods for premiums on fixed income securities.


Western Asset High Income Fund II Inc. 2015 Annual Report		49

Report of independent registered public accounting firm

The Board of Directors and Shareholders

Western Asset High Income Fund II Inc.:

We have audited the accompanying statement of assets and liabilities of Western Asset High Income Fund II Inc. (the “Fund”), including the schedule of investments, as of April 30, 2015, and the related statement of operations and cash flows for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of April 30, 2015, by correspondence with the custodian and brokers or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Western Asset High Income Fund II Inc. as of April 30, 2015, the results of its operations and cash flows for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.

LOGO

New York, New York

June 18, 2015


50		Western Asset High Income Fund II Inc. 2015 Annual Report

Board approval of management and subadvisory agreements (unaudited)

Background

The Investment Company Act of 1940, as amended (the “1940 Act”), requires that the Board of Directors (the “Board”) of Western Asset High Income Fund II Inc. (the “Fund”), including a majority of its members who are not considered to be “interested persons” under the 1940 Act (the “Independent Directors”) voting separately, approve on an annual basis the continuation of the investment management contract (the “Management Agreement”) with the Fund’s manager, Legg Mason Partners Fund Advisor, LLC (the “Manager”), and the sub-advisory agreements (individually, a “Sub-Advisory Agreement,” and collectively, the “Sub-Advisory Agreements”) with the Manager’s affiliates, Western Asset Management Company (“Western Asset”), Western Asset Management Company Pte. Ltd. in Singapore (“Western Asset Singapore”) and Western Asset Management Company Limited in London (“Western Asset London”). Western Asset, Western Asset Singapore and Western Asset London collectively are hereinafter referred to as the “Sub-Advisers,” and Western Asset Singapore and Western Asset London together are hereinafter referred to as the “Non-U.S. Sub-Advisers.” At a meeting (the “Contract Renewal Meeting”) held in-person on November 12 and 13, 2014, the Board, including the Independent Directors, considered and approved the continuation of each of the Management Agreement and the Sub-Advisory Agreements for an additional one-year term. To assist in its consideration of the renewals of the Management Agreement and the Sub-Advisory Agreements, the Board received and considered a variety of information (together with the information provided at the Contract Renewal Meeting, the “Contract Renewal Information”) about the Manager and the Sub-Advisers, as well as the management and sub-advisory arrangements for the Fund and the other closed-end funds in the same complex under the Board’s supervision (collectively, the “Legg Mason Closed-end Funds”), certain portions of which are discussed below. A presentation made by the Manager and Western Asset to the Board at the Contract Renewal Meeting in connection with its evaluations of the Management Agreement and the Sub-Advisory Agreements encompassed the Fund and other Legg Mason Closed-end Funds. In addition to the Contract Renewal Information, the Board received performance and other information throughout the year related to the respective services rendered by the Manager and the Sub-Advisers to the Fund. The Board’s evaluation took into account the information received throughout the year and also reflected the knowledge and familiarity gained as members of the Boards of the Fund and other Legg Mason Closed-end Funds with respect to the services provided to the Fund by the Manager and the Sub-Advisers.

The Manager provides the Fund with investment advisory and administrative services pursuant to the Management Agreement and the Sub-Advisers together provide, or in the case of the Non-U.S. Sub-Advisers help to provide, the Fund with certain investment sub-advisory services pursuant to the Sub-Advisory Agreements. The discussion below covers both the advisory and administrative functions being rendered by the Manager, each such function being encompassed by the Management Agreement, and the investment sub-advisory functions being rendered by the Sub-Advisers.


Western Asset High Income Fund II Inc.		51

Board approval of management and subadvisory agreements (unaudited) (cont’d)

Board approval of management agreement and sub-advisory agreements

In its deliberations regarding renewal of the Management Agreement and the Sub-Advisory Agreements, the Board, including the Independent Directors, considered the factors below.

Nature, extent and quality of the services under the management agreement and sub-advisory agreements

The Board received and considered Contract Renewal Information regarding the nature, extent and quality of services provided to the Fund by the Manager and the Sub-Advisers under the Management Agreement and the Sub-Advisory Agreements, respectively, during the past year. The Board also reviewed Contract Renewal Information regarding the Fund’s compliance policies and procedures established pursuant to the 1940 Act.

The Board considered the qualifications, backgrounds and responsibilities of the Fund’s senior personnel and the portfolio management team primarily responsible for the day-to-day portfolio management of the Fund. The Board also considered, based on its knowledge of the Manager and its affiliates, the Contract Renewal Information and the Board’s discussions with the Manager and Western Asset at the Contract Renewal Meeting, the general reputation and investment performance records of the Manager, Western Asset and their affiliates and the financial resources available to the corporate parent of the Manager and the Sub-Advisers, Legg Mason, Inc. (“Legg Mason”), to support their activities in respect of the Fund and the other Legg Mason Closed-end Funds.

The Board considered the responsibilities of the Manager and the Sub-Advisers under the Management Agreement and the Sub-Advisory Agreements, respectively, including the Manager’s coordination and oversight of the services provided to the Fund by the Sub-Advisers and others and Western Asset’s coordination and oversight of the services provided to the Fund by the Non-U.S. Sub-Advisers. The Management Agreement permits the Manager to delegate certain of its responsibilities, including its investment advisory duties thereunder, provided that the Manager, in each case, will supervise the activities of the delegee. Pursuant to this provision of the Management Agreement, the Manager does not provide day-to-day portfolio management services to the Fund. Rather, portfolio management services for the Fund are provided by Western Asset pursuant to the Sub-Advisory Agreement (the “Western Asset Sub-Advisory Agreement”) between the Manager and Western Asset. The Western Asset Sub-Advisory Agreement permits Western Asset to delegate certain of its responsibilities, including its investment sub-advisory duties thereunder, provided that Western Asset, in each case, will supervise the activities of the delegee. Pursuant to this provision of the Western Asset Sub-Advisory Agreement, each Non- U.S. Sub-Adviser helps to provide certain investment sub-advisory services to the Fund pursuant to a separate Sub-Advisory Agreement with Western Asset.

In reaching its determinations regarding continuation of the Management Agreement and the Sub-Advisory Agreements, the Board took into account that Fund shareholders, in pursuing their investment goals and objectives, likely purchased their shares based upon


52		Western Asset High Income Fund II Inc.

the reputation and the particular investment style, philosophy and strategy of the Manager and Western Asset, as well as the resources available to the Manager and the Sub-Advisers.

The Board concluded that, overall, the nature, extent and quality of the management and other services provided to the Fund under the Management Agreement and the Sub-Advisory Agreements have been satisfactory under the circumstances.

Fund performance

The Board received and considered performance information and analyses (the “Lipper Performance Information”) for the Fund, as well as for a group of funds (the “Performance Universe”) selected by Lipper, Inc. (“Lipper”), an independent provider of investment company data. The Board was provided with a description of the methodology Lipper used to determine the similarity of the Fund with the funds included in the Performance Universe. The Performance Universe included the Fund and all leveraged high yield closed-end funds, as classified by Lipper, regardless of asset size. The number of funds in the Performance Universe ranged from twenty-two funds for the 10-year period ended June 30, 2014 to at least twenty-seven funds for the 1-, 3- and 5-year periods ended such date. The Board noted that it had received and discussed with the Manager and Western Asset information throughout the year at periodic intervals comparing the Fund’s performance against its benchmark and its peer funds as selected by Lipper.

The Lipper Performance Information comparing the Fund’s performance to that of the Performance Universe based on net asset value per share showed, among other things, that the Fund’s performance was ranked in the third quintile among the funds in the Performance Universe for the 1-year period ended June 30, 2014; the Fund’s performance was ranked in the second quintile among the funds in the Performance Universe for the 3-year period ended such date; the Fund’s performance was ranked in the first quintile among the funds in the Performance Universe for the 5-year period ended such date; and the Fund’s performance was ranked in the second quintile among the funds in the Performance Universe for the 10-year period ended such date. In these performance rankings, the first quintile represents funds with the best performance among the funds in the Performance Universe and the fifth quintile represents funds with poorest performance among the funds in the Performance Universe. The Fund’s performance for each of the 1-, 3-, 5- and 10-year periods ended June 30, 2014 was better than the Performance Universe median for that period. The Fund’s performance for the 10-year period was achieved, in part, by a predecessor portfolio management team. In addition to the Fund’s performance relative to the Performance Universe, the Board considered the Fund’s performance in absolute terms and relative to its benchmark. On a net asset value basis, the Fund outperformed its benchmark for each of the 1-, 3-, 5- and 10-year periods ended June 30, 2014.

Based on the reviews and discussions of Fund performance and considering other relevant factors, including those noted above, the Board concluded that, under the circumstances,


Western Asset High Income Fund II Inc.		53

Board approval of management and subadvisory agreements (unaudited) (cont’d)

continuation of the Management Agreement and the Sub-Advisory Agreements for an additional one-year period would be consistent with the interests of the Fund and its shareholders.

Management fees and expense ratios

The Board reviewed and considered the management fee (the “Management Fee”) payable by the Fund to the Manager under the Management Agreement and the sub-advisory fees (the “Sub-Advisory Fees”) payable to the Sub-Advisers under the Sub-Advisory Agreements in light of the nature, extent and overall quality of the management, investment advisory and other services provided by the Manager and the Sub-Advisers. The Board noted that the Sub-Advisory Fee payable to Western Asset under the Western Asset Sub-Advisory Agreement is paid by the Manager, not the Fund, and, accordingly, that the retention of Western Asset does not increase the fees or expenses otherwise incurred by the Fund’s shareholders. Similarly, the Board noted that the Sub-Advisory Fee payable to each of the Non-U.S. Sub-Advisers under its Sub-Advisory Agreement with Western Asset is paid by Western Asset, not the Fund, and, accordingly, that the retention of such Non-U.S. Sub-Adviser does not increase the fees or expenses otherwise incurred by the Fund’s shareholders.

Additionally, the Board received and considered information and analyses prepared by Lipper (the “Lipper Expense Information”) comparing the Management Fee and the Fund’s overall expenses with those of funds in an expense group (the “Expense Group”) selected and provided by Lipper. The comparison was based upon the constituent funds’ latest fiscal years. The Expense Group consisted of the Fund and seventeen other leveraged high yield closed-end funds, as classified by Lipper. The eighteen funds in the Expense Group had average net common share assets ranging from $140.0 million to $1.32 billion. One of the Expense Group funds was larger than the Fund and sixteen funds were smaller.

The Lipper Expense Information, comparing the Management Fee as well as the Fund’s actual total expenses to the Fund’s Expense Group, showed, among other things, that the Fund’s Management Fee on a contractual basis was ranked eighth among the funds in the Expense Group (first being lowest and, therefore, best in these expense component rankings) and was better (i.e., lower) than the median contractual fee for the Expense Group. The Lipper Expense Information also showed that the Fund’s actual Management Fee (i.e., giving effect to any voluntary fee waivers implemented by the Manager with respect to the Fund and by the managers of the other Expense Group funds) was ranked ninth among the funds in the Expense Group compared on both a common share assets only basis and on the basis of both common share and leveraged assets. In each such comparison, the Fund’s actual Management Fee was at or better than the Expense Group median for that expense component. The Lipper Expense Information showed that the Fund’s total expenses compared on both a common share assets only basis and on the basis of both common share and leveraged assets ranked sixth among the Expense Group funds and were better than the Expense Group median for that expense component.


54		Western Asset High Income Fund II Inc.

The Board also reviewed Contract Renewal Information regarding fees charged by the Manager to other U.S. clients investing primarily in an asset class similar to that of the Fund, including, where applicable, institutional and separate accounts. The Board was advised that the fees paid by such institutional, separate account and other clients (collectively, “institutional clients”) generally are lower, and may be significantly lower, than the Management Fee. The Contract Renewal Information discussed the significant differences in scope of services provided to the Fund and to institutional clients. Among other things, institutional clients have fewer compliance, administration and other needs than the Fund and the Fund is subject not only to heightened regulatory requirements relative to institutional clients but also to requirements for listing on the New York Stock Exchange. The Contract Renewal Information noted further that the Fund is provided with administrative services, office facilities, Fund officers (including the Fund’s chief executive, chief financial and chief compliance officers), and that the Manager coordinates and oversees the provision of services to the Fund by other fund service providers. The Contract Renewal Information included information regarding management fees paid by open-end mutual funds in the same complex (the “Legg Mason Open-end Funds”) and such information indicated that the management fees paid by the Legg Mason Closed-end Funds generally were higher than those paid by the Legg Mason Open-end Funds. The Manager, in response to an inquiry from the Board as to the reasons for the fee differential, provided information as to differences between the services provided to the Fund and the other Legg Mason Closed-end Funds and the services provided to the Legg Mason Open-end Funds. The Board considered the fee comparisons in light of the different services provided in managing these other types of clients and funds.

Taking all of the above into consideration, the Board determined that the Management Fee and the Sub-Advisory Fees were reasonable in light of the nature, extent and overall quality of the management, investment advisory and other services provided to the Fund under the Management Agreement and the Sub-Advisory Agreements.

Manager profitability

The Board, as part of the Contract Renewal Information, received an analysis of the profitability to the Manager and its affiliates in providing services to the Fund for the Manager’s fiscal years ended March 31, 2014 and March 31, 2013. The Board also received profitability information with respect to the Legg Mason fund complex as a whole. In addition, the Board received Contract Renewal Information with respect to the Manager’s revenue and cost allocation methodologies used in preparing such profitability data. The Board received a report from an outside consultant engaged by the Manager that had reviewed the Manager’s revenue and cost allocation methodologies. The profitability to each of the Sub-Advisers was not considered to be a material factor in the Board’s considerations since Western Asset’s Sub-Advisory Fee is paid by the Manager, not the Fund, and the Sub-Advisory Fee for the Non-U.S. Sub-Advisers in each case is paid by Western Asset, not the Fund. The profitability analysis presented to the Board as part of the Contract Renewal


Western Asset High Income Fund II Inc.		55

Board approval of management and subadvisory agreements (unaudited) (cont’d)

Information indicated that profitability to the Manager had increased by 5 percent during the period covered by the analysis but remained at a level that the Board did not consider such as to support a determination against continuation of the Management Agreement in light of judicial guidance and the nature, extent and overall quality of the investment advisory and other services provided to the Fund but determined that profitability to the Manager in providing services to the Fund merited continued monitoring at its current level.

Economies of scale

The Board received and discussed Contract Renewal Information concerning whether the Manager realizes economies of scale if the Fund’s assets grow. The Board noted that because the Fund is a closed-end fund with no current plans to seek additional assets beyond maintaining its dividend reinvestment plan, any significant growth in its assets generally will occur through appreciation in the value of the Fund’s investment portfolio, rather than sales of additional shares in the Fund. The Board determined that the Management Fee structure, which incorporates no breakpoints reducing the Management Fee at specified increased asset levels, was appropriate under present circumstances.

Other benefits to the manager and the sub-advisers

The Board considered other benefits received by the Manager, the Sub-Advisers and their affiliates as a result of their relationship with the Fund and did not regard such benefits as excessive.

* * * * * *

In light of all of the foregoing and other relevant factors, the Board determined that, under the circumstances, continuation of the Management Agreement and the Sub-Advisory Agreements would be consistent with the interests of the Fund and its shareholders and unanimously voted to continue each Agreement for a period of one additional year. No single factor reviewed by the Board was identified by the Board as the principal factor in determining whether to approve continuation of the Management Agreement and the Sub-Advisory Agreements, and each Board member attributed different weights to the various factors. The Independent Directors were advised by separate independent legal counsel throughout the process. Prior to the Contract Renewal Meeting, the Board received a memorandum prepared by the Manager discussing its responsibilities in connection with the proposed continuation of the Management Agreement and the Sub-Advisory Agreements as part of the Contract Renewal Information and the Independent Directors separately received a memorandum discussing such responsibilities from their independent counsel. Prior to voting, the Independent Directors also discussed the proposed continuation of the Management Agreement and the Sub-Advisory Agreements in private sessions with their independent legal counsel at which no representatives of the Manager or any Sub-Adviser were present.


56		Western Asset High Income Fund II Inc.

Additional information (unaudited)

Information about Directors and Officers

The business and affairs of Western Asset High Income Fund II Inc. (the “Fund”) are conducted by management under the supervision and subject to the direction of its Board of Directors. The business address of each Director is c/o Kenneth D. Fuller, Legg Mason, 100 International Drive, 11th Floor, Baltimore, Maryland 21202. Information pertaining to the Directors and officers of the Fund is set forth below.


Independent Directors^†:

Robert D. Agdern¹
Year of birth		1950
Position(s) held with Fund²		Director and Member of the Nominating and Audit Committees, Class I
Term of office² and length of time served		Since 2015
Principal occupation(s) during past five years		Member of the Advisory Committee of the Dispute Resolution Research Center at the Kellogg Graduate School of Business, Northwestern University since 2002; Deputy General Counsel responsible for western hemisphere matters for BP PLC from 1999 to 2001; Associate General Counsel at Amoco Corporation responsible for corporate, chemical, and refining and marketing matters and special assignments from 1993 to 1998 (Amoco merged with British Petroleum in 1998 forming BP PLC).
Number of portfolios in fund complex overseen by Director (including the Fund)		31
Other board memberships held by Director during past five years		None

Carol L. Colman
Year of birth		1946
Position(s) held with Fund²		Director and Member of the Nominating and Audit Committees, Class III
Term of office² and length of time served		Since 2002
Principal occupation(s) during past five years		President, Colman Consulting Company (consulting)
Number of portfolios in fund complex overseen by Trustee (including the Fund)		31
Other board memberships held by Trustee during past five years		None

Daniel P. Cronin
Year of birth		1946
Position(s) held with Fund²		Director and Member of the Nominating and Audit Committees, Class I
Term of office² and length of time served		Since 2007
Principal occupation(s) during past five years		Retired; formerly, Associate General Counsel, Pfizer Inc. (prior to and including 2004)
Number of portfolios in fund complex overseen by Trustee (including the Fund)		31
Other board memberships held by Trustee during past five years		None


Western Asset High Income Fund II Inc.		57

Additional information (unaudited) (cont’d)

Information about Directors and Officers


Independent Directors cont’d

Paolo M. Cucchi
Year of birth		1941
Position(s) held with Fund²		Director and Member of the Nominating and Audit Committees, Class II
Term of office² and length of time served		Since 2007
Principal occupation(s) during past five years		Emeritus Professor of French and Italian (since 2014) and formerly, Professor of French and Italian (2009 to 2014) at Drew University, formerly, Vice President and Dean of College of Liberal Arts at Drew University (1984 to 2009)
Number of portfolios in fund complex overseen by Trustee (including the Fund)		31
Other board memberships held by Trustee during past five years		None

Leslie H. Gelb
Year of birth		1937
Position(s) held with Fund²		Director and Member of the Nominating and Audit Committees, Class II
Term of office² and length of time served		Since 2001
Principal occupation(s) during past five years		President Emeritus and Senior Board Fellow (since 2003), The Council on Foreign Relations; formerly, President, (prior to 2003), the Council on Foreign Relations; formerly, Columnist, Deputy Editorial Page Editor and Editor, Op-Ed Page, The New York Times
Number of portfolios in fund complex overseen by Trustee (including the Fund)		31
Other board memberships held by Trustee during past five years		Director of two registered investment companies advised by Aberdeen Asset Management Asia Limited (since 1994); Director, Encyclopedia Brittanica; Director, Centre Partners IV and V, LP and Affiliates

William R. Hutchinson
Year of birth		1942
Position(s) held with Fund²		Director and Member of the Nominating and Audit Committees, Class III
Term of office² and length of time served		Since 2003
Principal occupation(s) during past five years		President, W.R. Hutchinson & Associates Inc. (Consulting) (since 2001)
Number of portfolios in fund complex overseen by Trustee (including the Fund)		31
Other board memberships held by Trustee during past five years		Director (Non-Executive Chairman of the Board (since December 1, 2009)), Associated Banc Corp. (banking) (since 1994)


58		Western Asset High Income Fund II Inc.


Independent Directors cont’d

Eileen A. Kamerick
Year of birth		1958
Position(s) held with Fund²		Director and Member of Nominating and Audit Committees, Class I
Term of office² and length of time served		Since 2013
Principal occupation(s) during past five years		Senior Vice President and Chief Financial Officer, ConnectWise, Inc. (software and services company) (since 2015) and Adjunct Professor, Washington University in St.· Louis and University of Iowa law schools (since 2014); formerly, CFO, Press Ganey Associates (health care informatics company) (since 2012); formerly Managing Director and CFO, Houlihan Lokey (international investment bank) (2010 to 2012)
Number of portfolios in fund complex overseen by Trustee (including the Fund)		31
Other board memberships held by Trustee during past five years		Director of Associated Banc-Corp (financial services company) (since 2007); Westell Technologies, Inc. (technology company) (since 2003)

Riordan Roett
Year of birth		1938
Position(s) held with Fund²		Director and Member of the Nominating and Audit Committees, Class II
Term of office² and length of time served		Since 1998
Principal occupation(s) during past five years		The Sarita and Don Johnston Professor of Political Science and Director of Western Hemisphere Studies, Paul H. Nitze School of Advanced International Studies, The Johns Hopkins University (since 1973)
Number of portfolios in fund complex overseen by Trustee (including the Fund)		31
Other board memberships held by Trustee during past five years		None


Western Asset High Income Fund II Inc.		59

Additional information (unaudited) (cont’d)

Information about Directors and Officers


Interested Director and Officer:

Kenneth D. Fuller³
Year of birth		1958
Position(s) held with Fund²		Director, Chairman, President and Chief Executive Officer, Class III
Term of office² and length of time served		Since 2013
Principal occupation(s) during past five years		Managing Director of Legg Mason & Co., LLC (“Legg Mason & Co.”) (since 2013); Officer and/or Trustee/Director of 31 funds associated with Legg Mason Partners Fund Advisor, LLC (“LMPFA”) or its affiliates (since 2013); President and Chief Executive Officer of LM Asset Services, LLC (“LMAS”) and Legg Mason Fund Asset Management, Inc. (“LMFAM”) (formerly registered investment advisers) (since 2013); formerly, Senior Vice President of LMPFA (2012 to 2013), formerly, Director of Legg Mason & Co. (2012 to 2013), formerly, Vice President of Legg Mason & Co. (2009 to 2012), formerly, Vice President — Equity Division of T. Rowe Price Associates (1993 to 2009), as well as Investment Analyst and Portfolio Manager for certain asset allocation accounts (2004 to 2009).
Number of portfolios in fund complex overseen by Trustee (including the Fund)		31
Other board memberships held by Trustee during past five years		None

Additional Officers:

Ted P. Becker Legg Mason 620 Eighth Avenue, 49th Floor, New York, NY 10018
Year of birth		1951
Position(s) held with Fund²		Chief Compliance Officer
Term of office² and length of time served		Since 2006
Principal occupation(s) during past five years		Director of Global Compliance at Legg Mason (since 2006); Chief Compliance Officer of LMPFA (since 2006); Managing Director of Compliance of Legg Mason & Co. (since 2005); Chief Compliance Officer of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2006) and Legg Mason & Co. predecessors (prior to 2006)

Vanessa A. Williams Legg Mason 100 First Stamford Place, 6th Floor, Stamford, CT 06902
Year of birth		1979
Position(s) with Fund²		Identity Theft Prevention Officer
Term of office² and length of time served		Since 2011
Principal occupation(s) during past five years		Vice President of Legg Mason & Co. (since 2012); Identity Theft Prevention Officer of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2011); formerly, Chief Anti-Money Laundering Compliance Officer of certain mutual funds associated with Legg Mason & Co or its affiliates (2011 to 2013); formerly, Senior Compliance Officer of Legg Mason & Co. (2008 to 2011); formerly, Compliance Analyst of Legg Mason & Co. (2006 to 2008) and Legg Mason & Co. predecessors (prior to 2006)


60		Western Asset High Income Fund II Inc.


Additional Officers cont’d

Robert I. Frenkel Legg Mason 100 First Stamford Place, 6th Floor, Stamford, CT 06902
Year of birth		1954
Position(s) held with Fund²		Secretary and Chief Legal Officer
Term of office² and length of time served		Since 2003
Principal occupation(s) during past five years		Vice President and Deputy General Counsel of Legg Mason (since 2006); Managing Director and General Counsel of Global Mutual Funds for Legg Mason & Co. (since 2006) and Legg Mason & Co. predecessors (since 1994); Secretary and Chief Legal Officer of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2006) and Legg Mason & Co. predecessors (prior to 2006)

Thomas C. Mandia Legg Mason 100 First Stamford Place, 6th Floor, Stamford, CT 06902
Year of birth		1962
Position(s) held with Fund²		Assistant Secretary
Term of office² and length of time served		Since 2006
Principal occupation(s) during past five years		Managing Director and Deputy General Counsel of Legg Mason & Co. (since 2005) and Legg Mason & Co. predecessors (prior to 2005); Secretary of LMPFA (since 2006); Assistant Secretary of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2006) and Legg Mason & Co. predecessors (prior to 2006); Secretary of SBFM (since 2002) and LMFAM (since 2013)

Richard F. Sennett Legg Mason 100 International Drive, 7th Floor, Baltimore, MD 21202
Year of birth		1970
Position(s) held with Fund²		Principal Financial Officer
Term of office² and length of time served		Since 2011
Principal occupation(s) during past five years		Principal Financial Officer and Treasurer of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2011 and since 2013); Managing Director of Legg Mason & Co. and Senior Manager of the Treasury Policy group for Legg Mason & Co.’s Global Fiduciary Platform (since 2011); formerly, Chief Accountant within the SEC’s Division of Investment Management (2007 to 2011); formerly, Assistant Chief Accountant within the SEC’s Division of Investment Management (2002 to 2007)


Western Asset High Income Fund II Inc.		61

Additional information (unaudited) (cont’d)

Information about Directors and Officers


Additional Officers cont’d

Steven Frank Legg Mason 620 Eighth Avenue, 49th Floor, New York, NY 10018
Year of birth		1967
Position(s) held with Fund²		Treasurer
Term of office² and length of time served		Since 2010
Principal occupation(s) during past five years		Vice President of Legg Mason & Co. and Legg Mason & Co. predecessors (since 2002); Treasurer of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2010); formerly, Controller of certain mutual funds associated with Legg Mason & Co. or its affiliates (prior to 2010)

Jeanne M. Kelly Legg Mason 620 Eighth Avenue, 49th Floor, New York, NY 10018
Year of birth		1951
Position(s) with Fund²		Senior Vice President
Term of office¹ and length of time served		Since 2007
Principal occupation(s) during past five years		Senior Vice President of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2007); Senior Vice President of LMPFA (since 2006); Managing Director of Legg Mason & Co. (since 2005) and Legg Mason & Co. predecessors (prior to 2005)

†	Directors who are not “interested persons” of the Fund within the meaning of Section 2(a)(19) of the 1940 Act.

¹	Effective January 1, 2015, Mr. Agdern became a Director.

The Fund’s Board of Directors is divided into three classes: Class I, Class II and Class III. The terms of office of the Class I, II and III Directors expire at the Annual Meetings of Stockholders in the year 2017, year 2015 and year 2016, respectively, or thereafter in each case when their respective successors are duly elected and qualified. The Fund’s executive officers are chosen each year at the first meeting of the Fund’s Board of Directors following the Annual Meeting of Stockholders, to hold office until the meeting of the Board following the next Annual Meeting of Stockholders and until their successors are duly elected and qualified.

³	Mr. Fuller is an “interested person” of the Fund as defined in the 1940 Act because Mr. Fuller is an officer of LMPFA and certain of its affiliates.


62		Western Asset High Income Fund II Inc.

Annual chief executive officer and principal financial officer certifications (unaudited)

The Fund’s Chief Executive Officer (“CEO”) has submitted to the NYSE the required annual certification and the Fund also has included the Certifications of the Fund’s CEO and Principal Financial Officer required by Section 302 of the Sarbanes-Oxley Act in the Fund’s Form N-CSR filed with the SEC for the period of this report.


Western Asset High Income Fund II Inc.		63

Other shareholder communications regarding accounting matters (unaudited)

The Fund’s Audit Committee has established guidelines and procedures regarding the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters (collectively, “Accounting Matters”). Persons with complaints or concerns regarding Accounting Matters may submit their complaints to the Chief Compliance Officer (“CCO”). Persons who are uncomfortable submitting complaints to the CCO, including complaints involving the CCO, may submit complaints directly to the Fund’s Audit Committee Chair. Complaints may be submitted on an anonymous basis.

The CCO may be contacted at:

Legg Mason & Co., LLC

Compliance Department

620 Eighth Avenue, 49th Floor

New York, New York 10018

Complaints may also be submitted by telephone at 1-800-742-5274. Complaints submitted through this number will be received by the CCO.


64		Western Asset High Income Fund II Inc.

Dividend reinvestment plan (unaudited)

Pursuant to certain rules of the Securities and Exchange Commission the following additional disclosure is provided.

Each shareholder purchasing shares of common stock (“Shares”) of Western Asset High Income Fund II Inc. (“Fund”) will be deemed to have elected to be a participant in the Dividend Reinvestment Plan (“Plan”), unless the shareholder specifically elects in writing (addressed to the Agent at the address below or to any nominee who holds Shares for the shareholder in its name) to receive all distributions in cash, paid by check, mailed directly to the record holder by or under the direction of American Stock Transfer & Trust Company as the Fund’s dividend-paying agent (“Agent”). A shareholder whose Shares are held in the name of a broker or nominee who does not provide an automatic reinvestment service may be required to take such Shares out of “street name” and register such Shares in the shareholder’s name in order to participate, otherwise dividends and distributions will be paid in cash to such shareholder by the broker or nominee. Each participant in the Plan is referred to herein as a “Participant.” The Agent will act as Agent for each Participant, and will open accounts for each Participant under the Plan in the same name as their Shares are registered.

Unless the Fund declares a distribution payable only in the form of cash, the Agent will apply all distributions in the manner set forth below.

If, on the determination date (as defined below), the market price per Share equals or exceeds the net asset value per Share on that date (such condition, a “market premium”), the Agent will receive the distribution in newly issued Shares of the Fund on behalf of Participants. If, on the determination date, the net asset value per Share exceeds the market price per Share (such condition, a “market discount”), the Agent will purchase Shares in the open market. The determination date will be the fourth New York Stock Exchange trading day (a New York Stock Exchange trading day being referred to herein as a “Trading Day”) preceding the payment date for the distribution. For purposes herein, “market price” will mean the average of the highest and lowest prices at which the Shares sell on the New York Stock Exchange on the particular date, or if there is no sale on that date, the average of the closing bid and asked quotations.

Purchases made by the Agent will be made as soon as practicable commencing on the Trading Day following the determination date and terminating no later than 30 days after the distribution payment date except where temporary curtailment or suspension of purchase is necessary to comply with applicable provisions of federal securities law; provided, however, that such purchases will, in any event, terminate on the Trading Day prior to the “ex-dividend” date next succeeding the distribution payment date.

If (i) the Agent has not invested the full distribution amount in open market purchases by the date specified above as the date on which such purchases must terminate or (ii) a market discount shifts to a market premium during the purchase period, then the Agent will cease making open market purchases and will receive the uninvested portion of the distribution amount in newly issued Shares (x) in the case of (i) above, at the close of business


Western Asset High Income Fund II Inc.		65

Dividend reinvestment plan (unaudited) (cont’d)

on the date the Agent is required to terminate making open market purchases as specified above or (y) in the case of (ii) above, at the close of business on the date such shift occurs; but in no event prior to the payment date for the distribution.

In the event that all or part of a distribution amount is to be paid in newly issued Shares, such Shares will be issued to Participants in accordance with the following formula: (i) if, on the valuation date, the net asset value per share is less than or equal to the market price per Share, then the newly issued Shares will be valued at net asset value per Share on the valuation date provided, however, that if the net asset value is less than 95% of the market price on the valuation date, then such Shares will be issued at 95% of the market price and (ii) if, on the valuation date, the net asset value per share is greater than the market price per Share, then the newly issued Shares will be issued at the market price on the valuation date. The valuation date will be the distribution payment date, except that with respect to Shares issued pursuant to the paragraph above, the valuation date will be the date such Shares are issued. If a date that would otherwise be a valuation date is not a Trading Day, the valuation date will be the next preceding Trading Day.

The open market purchases provided for above may be made on any securities exchange on which the Shares of the Fund are traded, in the over-the-counter market or in negotiated transactions, and may be on such terms as to price, delivery and otherwise as the Agent shall determine. Funds held by the Agent uninvested will not bear interest, and it is understood that, in any event, the Agent shall have no liability in connection with any inability to purchase Shares within the time periods herein provided, or with the timing of any purchases effected. The Agent shall have no responsibility as to the value of the Shares acquired for the Participant’s account. The Agent may commingle amounts of all Participants to be used for open market purchases of Shares and the price per Share allocable to each Participant in connection with such purchases shall be the average price (including brokerage commissions) of all Shares purchased by the Agent.

The Agent will maintain all Participant accounts in the Plan and will furnish written confirmations of all transactions in each account, including information needed by Participants for personal and tax records. The Agent will hold Shares acquired pursuant to the Plan in noncertificated form in the Participant’s name or that of its nominee, and each Participant’s proxy will include those Shares purchased pursuant to the Plan. The Agent will forward to Participants any proxy solicitation material and will vote any Shares so held for Participants only in accordance with the proxy returned by Participants to the Fund. Upon written request, the Agent will deliver to Participants, without charge, a certificate or certificates for the full Shares.

The Agent will confirm to Participants each acquisition made for their respective accounts as soon as practicable but not later than 60 days after the date thereof. Although Participants may from time to time have an undivided fractional interest (computed to three decimal places) in a Share of the Fund, no certificates for fractional shares will be issued. Distributions on fractional shares will be credited to each Participant’s account. In the event of termination of a Participant’s account under the Plan, the Agent will adjust for any such


66		Western Asset High Income Fund II Inc.

undivided fractional interest in cash at the market value of the Fund’s Shares at the time of termination less the pro rata expense of any sale required to make such an adjustment.

Any share dividends or split shares distributed by the Fund on Shares held by the Agent for Participants will be credited to their respective accounts. In the event that the Fund makes available to Participants rights to purchase additional Shares or other securities, the Shares held for Participants under the Plan will be added to other Shares held by the Participants in calculating the number of rights to be issued to Participants.

The Agent’s service fee for handling distributions will be paid by the Fund. Participants will be charged a pro rata share of brokerage commissions on all open market purchases.

Participants may terminate their accounts under the Plan by notifying the Agent in writing. Such termination will be effective immediately if notice is received by the Agent not less than ten days prior to any distribution record date; otherwise such termination will be effective on the first Trading Day after the payment due for such distribution with respect to any subsequent distribution. The Plan may be amended or terminated by the Fund as applied to any distribution paid subsequent to written notice of the change or termination sent to Participants at least 30 days prior to the record date for the distribution. The Plan may be amended or terminated by the Agent, with the Fund’s prior written consent, on at least 30 days’ written notice to Plan Participants. Notwithstanding the preceding two sentences, the Agent or the Fund may amend or supplement the Plan at any time or times when necessary or appropriate to comply with applicable law or rules or policies of the Securities and Exchange Commission or any other regulatory authority. Upon any termination, the Agent will cause a certificate or certificates for the full Shares held by each Participant under the Plan and cash adjustment for any fraction to be delivered to each Participant without charge. If the Participant elects by notice to the Agent in writing in advance of such termination to have the Agent sell part or all of a Participant’s Shares and remit the proceeds to Participant, the Agent is authorized to deduct a $2.50 fee plus brokerage commission for this transaction from the proceeds.

Any amendment or supplement shall be deemed to be accepted by each Participant unless, prior to the effective date thereof, the Agent receives written notice of the termination of the Participant’s account under the Plan. Any such amendment may include an appointment by the Agent in its place and stead of a successor Agent under these terms and conditions, with full power and authority to perform all or any of the acts to be performed by the Agent under these terms and conditions. Upon any such appointment of an Agent for the purpose of receiving distributions, the Fund will be authorized to pay to such successor Agent, for each Participant’s account, all distributions payable on Shares of the Fund held in each Participant’s name or under the Plan for retention or application by such successor Agent as provided in these terms and conditions.

In the case of Participants, such as banks, broker-dealers or other nominees, which hold Shares for others who are beneficial owners (“Nominee Holders”), the Agent will administer the Plan on the basis of the number of Shares certified from time to time by each Nominee


Western Asset High Income Fund II Inc.		67

Dividend reinvestment plan (unaudited) (cont’d)

Holder as representing the total amount registered in the Nominee Holder’s name and held for the account of beneficial owners who are to participate in the Plan.

The Agent shall at all times act in good faith and use its best efforts within reasonable limits to insure the accuracy of all services performed under this Agreement and to comply with applicable law, but assumes no responsibility and shall not be liable for loss or damage due to errors unless such error is caused by its negligence, bad faith, or willful misconduct or that of its employees.

All correspondence concerning the Plan should be directed to the Agent at 6201 15th Avenue, Brooklyn, NY 11219 or by telephone at 1-888-888-0151.


68		Western Asset High Income Fund II Inc.

Important tax information (unaudited)

The following information is provided with respect to the distributions paid during the taxable year ended April 30, 2015:


Record date:	Monthly	Monthly
Payable date:	May 2014 to December 2014	January 2015 to April 2015
Ordinary income:
Qualified dividend income for individuals	1.51%	2.01%
Dividends qualifying for the dividends
received deduction for corporations	1.17%	1.68%

Please retain this information for your records.


Western Asset High Income Fund II Inc.		69

Western Asset

High Income Fund II Inc.

Directors

Robert D. Agdern*

Carol L. Colman

Daniel P. Cronin

Paolo M. Cucchi

Kenneth D. Fuller

Chairman

Leslie H. Gelb

William R. Hutchinson

Eileen A. Kamerick

Riordan Roett

Officers

Kenneth D. Fuller

President and Chief Executive Officer

Richard F. Sennett

Principal Financial Officer

Ted P. Becker

Chief Compliance Officer

Vanessa A. Williams

Identity Theft

Prevention Officer

Robert I. Frenkel

Secretary and Chief Legal Officer

Thomas C. Mandia

Assistant Secretary

Steven Frank

Treasurer

Jeanne M. Kelly

Senior Vice President

*	Effective January 1, 2015, Mr. Agdern became a Director.

Western Asset High Income Fund II Inc.

620 Eighth Avenue

49th Floor

NewYork, NY 10018

Investment manager

Legg Mason Partners Fund Advisor, LLC

Subadvisers

Western Asset Management Company Western Asset Management Company Limited

Western Asset Management Company Pte. Ltd.

Custodian

State Street Bank and Trust Company

1 Lincoln Street

Boston, MA 02111

Transfer agent

American StockTransfer &Trust Company 6201 15th Avenue

Brooklyn, NY 11219

Independent registered public accounting firm

KPMG LLP

345 Park Avenue

New York, NY 10154

Legal counsel

Simpson Thacher &

Bartlett LLP

425 Lexington Avenue

NewYork, NY 10017

NewYork 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 and certain closed-end funds managed or sub-advised by Legg Mason or its affiliates. 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;

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 individual’s 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 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 marketing services solely for the Funds;

The Funds’ representatives such as legal counsel, accountants and auditors; and

Fiduciaries or representatives acting on your behalf, such as an IRA custodian or trustee of a grantor trust.

NOT PART OF THE ANNUAL REPORT

Legg Mason Funds Privacy and Security Notice (cont’d)

Except as otherwise permitted by applicable law, companies acting on the Funds’ behalf 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, or if you have questions about the Funds’ privacy practices, 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 Fund at 1-888-777-0102.

NOT PART OF THE ANNUAL REPORT

Western Asset High Income Fund II Inc.

620 Eighth Avenue

49th Floor

NewYork, 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 Common Stock in the open market.

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 on Form N-Q. The Fund’s Forms N-Q are available on the SEC’s website at www.sec.gov. The Fund’s Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington D.C., and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. To obtain information on Form N-Q from the Fund, shareholders can call 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) on the Fund’s website at www.lmcef.com and (3) on the SEC’s 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 or sale of shares of the Fund or any securities mentioned in this report.

American Stock Transfer & Trust Company

6201 15th Avenue,

Brooklyn, NY 11219

WAS04049 6/15 SR15-2489

ITEM 2.

CODE OF ETHICS.

The registrant has adopted a code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller.

ITEM 3.

AUDIT COMMITTEE FINANCIAL EXPERT.

The Board of Directors of the registrant has determined that Eileen A. Kamerick, a member of the Board’s Audit Committee, possesses the technical attributes identified in Instruction 2(b) of Item 3 to Form N-CSR to qualify as an “audit committee financial expert” and that she is independent for purposes of this item.

ITEM 4.

PRINCIPAL ACCOUNTANT FEES AND SERVICES.

a) Audit Fees. The aggregate fees billed in the last two fiscal years ending April 30, 2014 and April 30, 2015 (the “Reporting Periods”) for professional services rendered by the Registrant’s principal accountant (the “Auditor”) for the audit of the Registrant’s annual financial statements, or services that are normally provided by the Auditor in connection with the statutory and regulatory filings or engagements for the Reporting Periods, were $77,150 in 2014 and $77,950 in 2015.

b) Audit-Related Fees. The aggregate fees billed in the Reporting Period for assurance and related services by the Auditor that are reasonably related to the performance of the Registrant’s financial statements were $0 in 2014 and $0 2015.

(c) Tax Fees. The aggregate fees billed in the Reporting Periods for professional services rendered by the Auditor for tax compliance, tax advice and tax planning (“Tax Services”) were $3,800 in 2014 and $3,840 in 2015. These services consisted of (i) review or preparation of U.S. federal, state, local and excise tax returns; (ii) U.S. federal, state and local tax planning, advice and assistance regarding statutory, regulatory or administrative developments, and (iii) tax advice regarding tax qualification matters and/or treatment of various financial instruments held or proposed to be acquired or held.

There were no fees billed for tax services by the Auditors to service affiliates during the Reporting Periods that required pre-approval by the Audit Committee.

d) All Other Fees. There were no other fees billed in the Reporting Periods for products and services provided by the Auditor, other than the services reported in paragraphs (a) through (c) for the Item 4 for the Western Asset High Income Fund II Inc.

All Other Fees. There were no other non-audit services rendered by the Auditor to Legg Mason Partners Fund Advisors, LLC (“LMPFA”), and any entity controlling, controlled by or under common control with LMPFA that provided ongoing services to Western Asset High Income Fund II Inc. requiring pre-approval by the Audit Committee in the Reporting Period.

(e) Audit Committee’s pre–approval policies and procedures described in paragraph (c) (7) of Rule 2-01 of Regulation S-X.

(1) The Charter for the Audit Committee (the “Committee”) of the Board of each registered investment company (the “Fund”) advised by LMPFA or one of their affiliates (each, an “Adviser”) requires that the Committee shall approve (a) all audit and permissible non-audit services to be provided to the Fund and (b) all permissible non-audit services to be provided by the Fund’s independent auditors to the Adviser and any Covered Service Providers if the engagement relates directly to the operations and financial reporting of the Fund. The Committee may implement policies and procedures by which such services are approved other than by the full Committee.

The Committee shall not approve non-audit services that the Committee believes may impair the independence of the auditors. As of the date of the approval of this Audit Committee Charter, permissible non-audit services include any professional services (including tax services), that are not prohibited services as described below, provided to the Fund by the independent auditors, other than those provided to the Fund in connection with an audit or a review of the financial statements of the Fund. Permissible non-audit services may not include: (i) bookkeeping or other services related to the accounting records or financial statements of the Fund; (ii) financial information systems design and implementation; (iii) appraisal or valuation services, fairness opinions or contribution-in-kind reports; (iv) actuarial services; (v) internal audit outsourcing services; (vi) management functions or human resources; (vii) broker or dealer, investment adviser or investment banking services; (viii) legal services and expert services unrelated to the audit; and (ix) any other service the Public Company Accounting Oversight Board determines, by regulation, is impermissible.

Pre-approval by the Committee of any permissible non-audit services is not required so long as: (i) the aggregate amount of all such permissible non-audit services provided to the Fund, the Adviser and any service providers controlling, controlled by or under common control with the Adviser that provide ongoing services to the Fund (“Covered Service Providers”) constitutes not more than 5% of the total amount of revenues paid to the independent auditors during the fiscal year in which the permissible non-audit services are provided to (a) the Fund, (b) the Adviser and (c) any entity controlling, controlled by or under common control with the Adviser that provides ongoing services to the Fund during the fiscal year in which the services are provided that would have to be approved by the Committee; (ii) the permissible non-audit services were not recognized by the Fund at the time of the engagement to be non-audit services; and (iii) such services are promptly brought to the attention of the Committee and approved by the Committee (or its delegate(s)) prior to the completion of the audit.

(2) For the Western Asset High Income Fund II Inc., the percentage of fees that were approved by the audit committee, with respect to: Audit-Related Fees were 100% and 100% for 2014 and 2015; Tax Fees were 100% and 100% for 2014 and 2015; and Other Fees were 100% and 100% for 2014 and 2015.

(f) N/A

(g) Non-audit fees billed by the Auditor for services rendered to Western Asset High Income Fund II Inc., LMPFA and any entity controlling, controlled by, or under common control with LMPFA that provides ongoing services to Western Asset High Income Fund II Inc. during the reporting period were $0 in 2015.

(h) Yes. Western Asset High Income Fund II Inc.’s Audit Committee has considered whether the provision of non-audit services that were rendered to Service Affiliates, which were not pre-approved (not requiring pre-approval), is compatible with maintaining the Accountant’s independence. All services provided by the Auditor to the Western Asset High Income Fund II Inc. or to Service Affiliates, which were required to be pre-approved, were pre-approved as required.

ITEM 5.

AUDIT COMMITTEE OF LISTED REGISTRANTS.

a) Registrant has a separately-designated standing Audit Committee established in accordance with Section 3(a)58(A) of the Exchange Act. The Audit Committee consists of the following Board members:

Robert D. Agdern (Effective January 1, 2015, Mr. Agdern became a member of the Audit Committee and the Board of Directors.)

William R. Hutchinson

Paolo M. Cucchi

Daniel P. Cronin

Carol L. Colman

Leslie H. Gelb

Eileen A. Kamerick

Dr. Riordan Roett

Jeswald W. Salacuse (Effective June 30, 2014, Mr. Salacuse retired from the Audit Committee and the Board of Directors.)

b) Not applicable

ITEM 6.

SCHEDULE OF INVESTMENTS.

Included herein under Item 1.

ITEM 7.

DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

Proxy Voting Guidelines and Procedures

Legg Mason Partners Fund Advisor, LLC (“LMPFA”) delegates the responsibility for voting proxies for the fund to the subadviser through its contracts with the subadviser. The subadviser will use its own proxy voting policies and procedures to vote proxies. Accordingly, LMPFA does not expect to have proxy-voting responsibility for the fund. Should LMPFA become responsible for voting proxies for any reason, such as the inability of the subadviser to provide investment advisory services, LMPFA shall utilize the proxy voting guidelines established by the most recent subadviser to vote proxies until a new subadviser is retained.

The subadviser’s Proxy Voting Policies and Procedures govern in determining how proxies relating to the fund’s portfolio securities are voted and are provided below. Information regarding how each fund voted proxies (if any) relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge (1) by calling 888-777-0102, (2) on the fund’s website at http://www.lmcef.com and (3) on the SEC’s website at http://www.sec.gov.

Policy

Western Asset Management Company (“WA”), Western Asset Management Company Limited (“WAML”) and Western Asset Management Company Pte. Ltd. (“WAMC”) (together “Western Asset”) have adopted and implemented policies and procedures that we believe are reasonably designed to ensure that proxies are voted in the best interest of clients, in accordance with our fiduciary duties and SEC Rule 206(4)-6 under the Investment Advisers Act of 1940 (“Advisers Act”). Our authority to vote the proxies of our clients is established through investment management agreements or comparable documents, and our proxy voting guidelines have been tailored to reflect these specific contractual obligations. In addition to SEC requirements governing advisers, our proxy voting policies reflect the long-standing fiduciary standards and responsibilities for ERISA accounts. Unless a manager of ERISA assets has been expressly precluded from voting proxies, the Department of Labor has determined that the responsibility for these votes lies with the Investment Manager.

In exercising its voting authority, Western Asset will not consult or enter into agreements with officers, directors or employees of Legg Mason Inc. or any of its affiliates (except that WA, WAML and WAMC may so consult and agree with each other) regarding the voting of any securities owned by its clients.

Western Asset’s proxy voting procedures are designed and implemented in a way that is reasonably expected to ensure that proxy matters are handled in the best interest of our clients. While the guidelines included in the procedures are intended to provide a benchmark for voting standards, each vote is ultimately cast on a case-by-case basis, taking into consideration Western Asset’s contractual obligations to our clients and all other relevant facts and circumstances at the time of the vote (such that these guidelines may be overridden to the extent Western Asset deems appropriate).

Procedures

Responsibility and Oversight

The Western Asset Legal and Compliance Department (“Legal and Compliance Department”) is responsible for administering and overseeing the proxy voting process. The gathering of proxies is coordinated through the Corporate Actions area of Investment Support (“Corporate Actions”). Research analysts and portfolio managers are responsible for determining appropriate voting positions on each proxy utilizing any applicable guidelines contained in these procedures.

Client Authority

The Investment Management Agreement for each client is reviewed at account start-up for proxy voting instructions. If an agreement is silent on proxy voting, but contains an overall delegation of discretionary authority or if the account represents assets of an ERISA plan, Western Asset will assume responsibility for proxy voting. The Legal and Compliance Department maintains a matrix of proxy voting authority.

Proxy Gathering

Registered owners of record, client custodians, client banks and trustees (“Proxy Recipients”) that receive proxy materials on behalf of clients should forward them to Corporate Actions. Proxy Recipients for new clients (or, if Western Asset becomes aware that the applicable Proxy Recipient for an existing client has changed, the Proxy Recipient for the existing client) are notified at start-up of appropriate routing to Corporate Actions of proxy materials received and reminded of their responsibility to forward all proxy materials on a timely basis. If Western Asset personnel other than Corporate Actions receive proxy materials, they should promptly forward the materials to Corporate Actions.

Proxy Voting

Once proxy materials are received by Corporate Actions, they are forwarded to the Legal and Compliance Department for coordination and the following actions:

a. Proxies are reviewed to determine accounts impacted.

b. Impacted accounts are checked to confirm Western Asset voting authority.

c. Legal and Compliance Department staff reviews proxy issues to determine any material conflicts of interest. (See conflicts of interest section of these procedures for further information on determining material conflicts of interest.)

d. If a material conflict of interest exists, (i) to the extent reasonably practicable and permitted by applicable law, the client is promptly notified, the conflict is disclosed and Western Asset obtains the client’s proxy voting instructions, and (ii) to the extent that it is not reasonably practicable or permitted by applicable law to notify the client and obtain such instructions (e.g., the client is a mutual fund or other commingled vehicle or is an ERISA plan client), Western Asset seeks voting instructions from an independent third party.

e. Legal and Compliance Department staff provides proxy material to the appropriate research analyst or portfolio manager to obtain their recommended vote. Research analysts and portfolio managers determine votes on a case-by-case basis taking into account the voting guidelines contained in these procedures. For avoidance of doubt, depending on the best interest of each individual client, Western Asset may vote the same proxy differently for different clients. The analyst’s or portfolio manager’s basis for their decision is documented and maintained by the Legal and Compliance Department.

f. Legal and Compliance Department staff votes the proxy pursuant to the instructions received in (d) or (e) and returns the voted proxy as indicated in the proxy materials.

Timing

Western Asset personnel act in such a manner to ensure that, absent special circumstances, the proxy gathering and proxy voting steps noted above can be completed before the applicable deadline for returning proxy votes.

Recordkeeping

Western Asset maintains records of proxies voted pursuant to Section 204-2 of the Advisers Act and ERISA DOL Bulletin 94-2. These records include:

a. A copy of Western Asset’s policies and procedures.

b. Copies of proxy statements received regarding client securities.

c. A copy of any document created by Western Asset that was material to making a decision how to vote proxies.

d. Each written client request for proxy voting records and Western Asset’s written response to both verbal and written client requests.

e. A proxy log including:

1. Issuer name;

2. Exchange ticker symbol of the issuer’s shares to be voted;

3. Committee on Uniform Securities Identification Procedures (“CUSIP”) number for the shares to be voted;

4. A brief identification of the matter voted on;

5. Whether the matter was proposed by the issuer or by a shareholder of the issuer;

6. Whether a vote was cast on the matter;

7. A record of how the vote was cast; and

8. Whether the vote was cast for or against the recommendation of the issuer’s management team.

Records are maintained in an easily accessible place for five years, the first two in Western Asset’s offices.

Disclosure

Part II of the WA Form ADV, the WAML Form ADV and the WAMC Form ADV, each, contain a description of Western Asset’s proxy policies. Clients will be provided a copy of these policies and procedures upon request. In addition, upon request, clients may receive reports on how their proxies have been voted.

Conflicts of Interest

All proxies are reviewed by the Legal and Compliance Department for material conflicts of interest. Issues to be reviewed include, but are not limited to:

1. Whether Western Asset (or, to the extent required to be considered by applicable law, its affiliates) manages assets for the company or an employee group of the company or otherwise has an interest in the company;

2. Whether Western Asset or an officer or director of Western Asset or the applicable portfolio manager or analyst responsible for recommending the proxy vote (together, “Voting Persons”) is a close relative of or has a personal or business relationship with an executive, director or person who is a candidate for director of the company or is a participant in a proxy contest; and

3. Whether there is any other business or personal relationship where a Voting Person has a personal interest in the outcome of the matter before shareholders.

Voting Guidelines

Western Asset’s substantive voting decisions turn on the particular facts and circumstances of each proxy vote and are evaluated by the designated research analyst or portfolio manager. The examples outlined below are meant as guidelines to aid in the decision making process.

Guidelines are grouped according to the types of proposals generally presented to shareholders. Part I deals with proposals which have been approved and are recommended by a company’s board of directors; Part II deals with proposals submitted by shareholders for inclusion in proxy statements; Part III addresses issues relating to voting shares of investment companies; and Part IV addresses unique considerations pertaining to foreign issuers.

I. Board Approved Proposals

The vast majority of matters presented to shareholders for a vote involve proposals made by a company itself that have been approved and recommended by its board of directors. In view of the enhanced corporate governance practices currently being implemented in public companies, Western Asset generally votes in support of decisions reached by independent boards of directors. More specific guidelines related to certain board-approved proposals are as follows:

1. Matters relating to the Board of Directors

Western Asset votes proxies for the election of the company’s nominees for directors and for board-approved proposals on other matters relating to the board of directors with the following exceptions:

a. Votes are withheld for the entire board of directors if the board does not have a majority of independent directors or the board does not have nominating, audit and compensation committees composed solely of independent directors.

b. Votes are withheld for any nominee for director who is considered an independent director by the company and who has received compensation from the company other than for service as a director.

c. Votes are withheld for any nominee for director who attends less than 75% of board and committee meetings without valid reasons for absences.

d. Votes are cast on a case-by-case basis in contested elections of directors.

2. Matters relating to Executive Compensation

Western Asset generally favors compensation programs that relate executive compensation to a company’s long-term performance. Votes are cast on a case-by-case basis on board-approved proposals relating to executive compensation, except as follows:

a. Except where the firm is otherwise withholding votes for the entire board of directors, Western Asset votes for stock option plans that will result in a minimal annual dilution.

b. Western Asset votes against stock option plans or proposals that permit replacing or repricing of underwater options.

c. Western Asset votes against stock option plans that permit issuance of options with an exercise price below the stock’s current market price.

d. Except where the firm is otherwise withholding votes for the entire board of directors, Western Asset votes for employee stock purchase plans that limit the discount for shares purchased under the plan to no more than 15% of their market value, have an offering period of 27 months or less and result in dilution of 10% or less.

3. Matters relating to Capitalization

The management of a company’s capital structure involves a number of important issues, including cash flows, financing needs and market conditions that are unique to the circumstances of each company. As a result, Western Asset votes on a case-by-case basis on board-approved proposals involving changes to a company’s capitalization except where Western Asset is otherwise withholding votes for the entire board of directors.

a. Western Asset votes for proposals relating to the authorization of additional common stock.

b. Western Asset votes for proposals to effect stock splits (excluding reverse stock splits).

c. Western Asset votes for proposals authorizing share repurchase programs.

4. Matters relating to Acquisitions, Mergers, Reorganizations and Other Transactions

Western Asset votes these issues on a case-by-case basis on board-approved transactions.

5. Matters relating to Anti-Takeover Measures

Western Asset votes against board-approved proposals to adopt anti-takeover measures except as follows:

a. Western Asset votes on a case-by-case basis on proposals to ratify or approve shareholder rights plans.

b. Western Asset votes on a case-by-case basis on proposals to adopt fair price provisions.

6. Other Business Matters

Western Asset votes for board-approved proposals approving such routine business matters such as changing the company’s name, ratifying the appointment of auditors and procedural matters relating to the shareholder meeting.

a. Western Asset votes on a case-by-case basis on proposals to amend a company’s charter or bylaws.

b. Western Asset votes against authorization to transact other unidentified, substantive business at the meeting.

II. Shareholder Proposals

SEC regulations permit shareholders to submit proposals for inclusion in a company’s proxy statement. These proposals generally seek to change some aspect of a company’s corporate governance structure or to change some aspect of its business operations. Western Asset votes in accordance with the recommendation of the company’s board of directors on all shareholder proposals, except as follows:

1. Western Asset votes for shareholder proposals to require shareholder approval of shareholder rights plans.

2. Western Asset votes for shareholder proposals that are consistent with Western Asset’s proxy voting guidelines for board-approved proposals.

3. Western Asset votes on a case-by-case basis on other shareholder proposals where the firm is otherwise withholding votes for the entire board of directors.

III. Voting Shares of Investment Companies

Western Asset may utilize shares of open or closed-end investment companies to implement its investment strategies. Shareholder votes for investment companies that fall within the categories listed in Parts I and II above are voted in accordance with those guidelines.

1. Western Asset votes on a case-by-case basis on proposals relating to changes in the investment objectives of an investment company taking into account the original intent of the fund and the role the fund plays in the clients’ portfolios.

2. Western Asset votes on a case-by-case basis all proposals that would result in increases in expenses (e.g., proposals to adopt 12b-1 plans, alter investment advisory arrangements or approve fund mergers) taking into account comparable expenses for similar funds and the services to be provided.

IV. Voting Shares of Foreign Issuers

In the event Western Asset is required to vote on securities held in non-U.S. issuers – i.e. issuers that are incorporated under the laws of a foreign jurisdiction and that are not listed on a U.S. securities exchange or the NASDAQ stock market, the following guidelines are used, which are premised on the existence of a sound corporate governance and disclosure framework. These guidelines, however, may not be appropriate under some circumstances for foreign issuers and therefore apply only where applicable.

1. Western Asset votes for shareholder proposals calling for a majority of the directors to be independent of management.

2. Western Asset votes for shareholder proposals seeking to increase the independence of board nominating, audit and compensation committees.

3. Western Asset votes for shareholder proposals that implement corporate governance standards similar to those established under U.S. federal law and the listing requirements of U.S. stock exchanges, and that do not otherwise violate the laws of the jurisdiction under which the company is incorporated.

4. Western Asset votes on a case-by-case basis on proposals relating to (1) the issuance of common stock in excess of 20% of a company’s outstanding common stock where shareholders do not have preemptive rights, or (2) the issuance of common stock in excess of 100% of a company’s outstanding common stock where shareholders have preemptive rights.

Retirement Accounts

For accounts subject to ERISA, as well as other Retirement Accounts, Western Asset is presumed to have the responsibility to vote proxies for the client. The Department of Labor (“DOL”) has issued a bulletin that states that investment managers have the responsibility to vote proxies on behalf of Retirement Accounts unless the authority to vote proxies has been specifically reserved to another named fiduciary. Furthermore, unless Western Asset is expressly precluded from voting the proxies, the DOL has determined that the responsibility remains with the investment manager.

In order to comply with the DOL’s position, Western Asset will be presumed to have the obligation to vote proxies for its Retirement Accounts unless Western Asset has obtained a specific written instruction indicating that: (a) the right to vote proxies has been reserved to a named fiduciary of the client, and (b) Western Asset is precluded from voting proxies on behalf of the client. If Western Asset does not receive such an instruction, Western Asset will be responsible for voting proxies in the best interests of the Retirement Account client and in accordance with any proxy voting guidelines provided by the client.

ITEM 8.

INVESTMENT PROFESSIONALS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

(a)(1):


NAME AND ADDRESS	LENGTH OF TIME SERVED	PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
S. Kenneth Leech Western Asset 385 East Colorado Blvd. Pasadena, CA 91101	Since 2014	Responsible for the day-to-day management with other members of the Fund’s portfolio management team; Chief Investment Officer of Western Asset from 1998 to 2008 and since 2014; Senior Advisor/Chief Investment Officer Emeritus of Western Asset from 2008-2013; Co- Chief Investment Officer of Western Asset from 2013-2014.

Michael C. Buchanan Western Asset 385 East Colorado Blvd. Pasadena, CA 91101	Since 2006	Responsible for the day-to-day management with other members of the Fund’s portfolio management team; employed by Western Asset Management as an investment professional for at least the past five years; Managing Director and head of U.S. Credit Products from 2003-2005 at Credit Suisse Asset Management

Christopher F. Kilpatrick Western Asset 385 East Colorado Blvd. Pasadena, CA 91101	Since 2012	Responsible for the day-to-day management with other members of the Fund’s portfolio management team; employed by Western Asset Management as an investment professional for at least the past five years.

(a)(2): DATA TO BE PROVIDED BY FINANCIAL CONTROL

The following tables set forth certain additional information with respect to the fund’s portfolio managers for the fund. Unless noted otherwise, all information is provided as of April 30, 2015.

Other Accounts Managed by Portfolio Managers

The table below identifies the number of accounts (other than the fund) for which the fund’s portfolio managers have day-to-day management responsibilities and the total assets in such accounts, within each of the following categories: registered investment companies, other pooled investment vehicles, and other accounts. For each category, the number of accounts and total assets in the accounts where fees are based on performance is also indicated.

Name of PM

Type of Account

Number of
Accounts
Managed

Total Assets
Managed

Number of
Accounts
Managed for
which
Advisory
Fee is
Performance-
Based

Assets
Managed for
which
Advisory Fee
is
Performance-
Based

S. Kenneth Leech‡

Other Registered Investment Companies

103

189.5 billion

None

Other Pooled Vehicles

270

93.7 billion

$1.8 billion

Other Accounts

641

172.3 billion

$17.4 billion

Michael C. Buchanan ‡

Other Registered Investment Companies

40.5 billion

None

Other Pooled Vehicles

35.7 billion

$1.3 billion

Other Accounts

189

52.5 billion

$7.6 billion

Christopher Kilpatrick ‡

Other Registered Investment Companies

3.0 billion

None

Other Pooled Vehicles

None

Other Accounts

None

‡

The numbers above reflect the overall number of portfolios managed by employees of Western Asset Management Company (“Western Asset”). Mr. Leech is involved in the management of all the Firm’s portfolios, but they are not solely responsible for particular portfolios. Western Asset’s investment discipline emphasizes a team approach that combines the efforts of groups of specialists working in different market sectors. They are responsible for overseeing implementation of Western Asset’s overall investment ideas and coordinating the work of the various sector teams. This structure ensures that client portfolios benefit from a consensus that draws on the expertise of all team members.

(a)(3): Investment Professional Compensation

With respect to the compensation of the investment professionals, Western Asset’s compensation system assigns each employee a total compensation range, which is derived from annual market surveys that benchmark each role with its job function and peer universe. This method is designed to reward employees with total compensation reflective of the external market value of their skills, experience, and ability to produce desired results. Standard compensation includes competitive base salaries, generous employee benefits, and a retirement plan.

In addition, the subadviser’s employees are eligible for bonuses. These are structured to closely align the interests of employees with those of the subadviser, and are determined by the professional’s job function and pre-tax performance as measured by a formal review process. All bonuses are completely discretionary. The principal factor considered is an investment professional’s investment performance versus appropriate peer groups and benchmarks (e.g., a securities index and with respect to a fund, the benchmark set forth in the fund’s Prospectus to which the fund’s average annual total returns are compared or, if none, the benchmark set forth in the fund’s annual report). Performance is reviewed on a 1, 3 and 5 year basis for compensation—with 3 years having the most emphasis. The subadviser may also measure an investment professional’s pre-tax investment performance against other benchmarks, as it determines appropriate. Because investment professionals are generally responsible for multiple accounts (including the funds) with similar investment strategies, they are generally compensated on the performance of the aggregate group of similar accounts, rather than a specific account. Other factors that may be considered when making bonus decisions include client service, business development, length of service to the subadviser, management or supervisory responsibilities, contributions to developing business strategy and overall contributions to the subadviser’s business.

Finally, in order to attract and retain top talent, all professionals are eligible for additional incentives in recognition of outstanding performance. These are determined based upon the factors described above and include Legg Mason stock options and long-term incentives that vest over a set period of time past the award date.

Potential Conflicts of Interest

Conflicts of Interest

The manager, the subadviser and investment professionals have interests which conflict with the interests of the fund. There is no guarantee that the policies and procedures adopted by the manager, the subadviser and the fund will be able to identify or mitigate these conflicts of interest.

Some examples of material conflicts of interest include:

Allocation of Limited Time and Attention. An investment professional who is responsible for managing multiple funds and/or accounts may devote unequal time and attention to the management of those funds and/or accounts. An investment professional may not be able to formulate as complete a strategy or identify equally attractive investment opportunities for each of those funds and accounts as might be the case if he or she were to devote substantially more attention to the management of a single fund. Such an investment professional may make general determinations across multiple funds, rather than tailoring a unique approach for each fund. The effects of this conflict may be more pronounced where funds and/or accounts overseen by a particular investment professional have different investment strategies.

Allocation of Limited Investment Opportunities; Aggregation of Orders. If an investment professional identifies a limited investment opportunity that may be suitable for multiple funds and/or accounts, the opportunity may be allocated among these several funds or accounts, which may limit the fund’s ability to take full advantage of the investment opportunity. Additionally, the subadviser may aggregate transaction orders for multiple accounts for purpose of execution. Such aggregation may cause the price or brokerage costs to be less favorable to a particular client than if similar transactions were not being executed concurrently for other accounts. In addition, the subadviser’s trade allocation policies may result in the fund’s orders not being fully executed or being delayed in execution.

Pursuit of Differing Strategies. At times, an investment professional may determine that an investment opportunity may be appropriate for only some of the funds and/or accounts for which he or she exercises investment responsibility, or may decide that certain of the funds and/or accounts should take differing positions with respect to a particular security. In these cases, the investment professional may place separate transactions for one or more funds or accounts which may affect the market price of the security or the execution of the transaction, or both, to the detriment or benefit of one or more other funds and/or accounts. For example, an investment professional may determine that it would be in the interest of another account to sell a security that the fund holds long, potentially resulting in a decrease in the market value of the security held by the fund.

Cross Trades. Investment professionals may manage funds that engage in cross trades, where one of the manager’s funds or accounts sells a particular security to another fund or account managed by the same manager. Cross trades may pose conflicts of interest because of, for example, the possibility that one account sells a security to another account at a higher price than an independent third party would pay or otherwise enters into a transaction that it would not enter into with an independent party, such as the sale of a difficult-to-obtain security.

Selection of Broker/Dealers. Investment professionals may select or influence the selection of the brokers and dealers that are used to execute securities transactions for the funds and/or accounts that they supervise. In addition to executing trades, some brokers and dealers provide the subadviser with brokerage and research services, These services may be taken into account in the selection of brokers and dealers whether a broker is being selected to effect a trade on an agency basis for a commission or (as is normally the case for the funds) whether a dealer is being selected to effect a trade on a principal basis. This may result in the payment of higher brokerage fees and/or execution at a less favorable price than might have otherwise been available. The services obtained may ultimately be more beneficial to certain of the manager’s funds or accounts than to others (but not necessarily to the funds that pay the increased commission or incur the less favorable execution). A decision as to the selection of brokers and dealers could therefore yield disproportionate costs and benefits among the funds and/or accounts managed.

Variation in Financial and Other Benefits. A conflict of interest arises where the financial or other benefits available to an investment professional differ among the funds and/or accounts that he or she manages. If the amount or structure of the investment manager’s management fee and/or an investment professional’s compensation differs among funds and/or accounts (such as where certain funds or accounts pay higher management fees or performance-based management fees), the investment professional might be motivated to help certain funds and/or accounts over others. Similarly, the desire to maintain assets under management or to enhance the investment professional’s performance record or to derive other rewards, financial or otherwise, could influence the investment professional in affording preferential treatment to those funds and/or accounts that could most significantly benefit the investment professional. An investment professional may, for example, have an incentive to allocate favorable or limited opportunity investments or structure the timing of investments to favor such funds and/or accounts. Also, an investment professional’s or the manager’s or the subadviser’s desire to increase assets under management could influence the investment professional to keep a fund open for new investors without regard to potential benefits of closing the fund to new investors. Additionally, the investment professional might be motivated to favor funds and/or accounts in which he or she has an ownership interest or in which the investment manager and/or its affiliates have ownership interests. Conversely, if an investment professional does not personally hold an investment in the fund, the investment professional’s conflicts of interest with respect to the fund may be more acute.

Related Business Opportunities. The investment manager or its affiliates may provide more services (such as distribution or recordkeeping) for some types of funds or accounts than for others. In such cases, an investment professional may benefit, either directly or indirectly, by devoting disproportionate attention to the management of funds and/or accounts that provide greater overall returns to the investment manager and its affiliates.

Investment Professional Securities Ownership

The table below identifies the dollar range of securities beneficially owned by the named investment professional as of April 30, 2015.


Investment Professional(s)		Dollar Range of Portfolio Securities Beneficially Owned
S. Kenneth Leech		D
Christopher F. Kilpatrick		A
Michael C. Buchanan		A

Dollar Range ownership is as follows:

A: none

B: $1 - $10,000

C: 10,001 - $50,000

D: $50,001 - $100,000

E: $100,001 - $500,000

F: $500,001 - $1 million

G: over $1 million

ITEM 9.

PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.

Not applicable.

ITEM 10.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

Not applicable.

ITEM 11.

CONTROLS AND PROCEDURES.

(a)

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

(b)

There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the second

fiscal quarter of the period covered by this report that have materially affected, or are likely to materially affect the registrant’s internal control over financial reporting.

ITEM 12.

EXHIBITS.

(a)(1) Code of Ethics attached hereto.

Exhibit 99.CODE ETH

(a)(2) Certifications pursuant to section 302 of the Sarbanes-Oxley Act of 2002 attached hereto.

Exhibit 99.CERT

(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 attached hereto.

Exhibit 99.906CERT

SIGNATURES

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


Western Asset High Income Fund II Inc.

By:		/s/ Kenneth D. Fuller
		Kenneth D. Fuller
		Chief Executive Officer

Date:		June 23, 2015

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


By:		/s/ Kenneth D. Fuller
		Kenneth D. Fuller
		Chief Executive Officer

Date:		June 23, 2015

By:		/s/ Richard F. Sennett
		Richard F. Sennett
		Principal Financial Officer

Date:		June 23, 2015