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
Salomon Brothers High Income Fund II Inc
(Exact name of registrant as specified in charter)
125 Broad Street, New York, NY 10004
(Address of principal executive offices) (Zip code)
Christina T. Sydor, Esq.
300 First Stamford Place
Stamford, CT 06902
(Name and address of agent for service)
Registrant's telephone number, including area code:
(800)-725-6666
Date of fiscal year end: April 30
Date of reporting period: April 30, 2003
ITEM 1. REPORT TO STOCKHOLDERS.
The Annual Report to Stockholders is filed herewith.
[GRAPHIC]
SALOMON BROTHERS
HIGH INCOME FUND II INC
ANNUAL REPORT
April 30, 2003
[LOGO] SALOMON BROTHERS
Asset Management
PFPC Global Fund Services
P.O. Box 8030
Boston, MA 02266-8030
HIXANN 4/03
03-4951
SALOMON BROTHERS HIGH INCOME FUND II INC
LETTER FROM THE CHAIRMAN
[PHOTO]
R. Jay Gerken
Chairman
Dear Shareholder:
The philosopher Bertrand Russell famously remarked that, "Change is one thing,
progress is another." You will notice in the following pages that we have begun
to implement some changes to your shareholder report and we will be reflecting
other changes in future reports. Our aim is to make meaningful improvements in
reporting on the management of your Fund and its performance, not just to enact
change for change's sake. Please bear with us during this transition period.
We know that you have questions about Fund managers' decisions and plans, and
we want to be sure that you have easy access to the information you need.
Keeping investors informed is, and always will be, one of my top priorities as
Chairman of your Fund. To that end, we encourage you to contact
Investor Relations at 1-800-SALOMON.
As always, thank you for entrusting your assets with us. We look forward to
helping you continue to meet your financial goals. Please read on to learn more
about your Fund's performance and the Manager's strategy.
Sincerely,
/s/ R. Jay Gerken
R. Jay Gerken
Chairman
May 14, 2003
SALOMON BROTHERS HIGH INCOME FUND II INC
MANAGER OVERVIEW
Performance Review
During the 12 months ended April 30, 2003, the Salomon Brothers High Income
Fund II Inc ("Fund") performed very well, generating a total return of 15.58%
based on its net asset value ("NAV") and 15.00% based on its market price,
significantly outperforming the Citigroup High-Yield Market Index,/i/ which
returned 9.64% for the period. Past performance is not indicative of future
results.
During the period, the Fund made distributions to shareholders totaling
$1.38/ii/ per share. The table below shows the 12-month total returns based on
the Fund's April 30, 2003 NAV per share and its New York Stock Exchange
("NYSE") closing price./iii/
Total Return
for the
Price Per Share 12-Month Period/iv/
--------------- ------------------
$10.42 (NAV) 15.58%
$11.65 (NYSE) 15.00%
U.S. HIGH-YIELD DEBT
A Challenging Start
During the first three months of the Fund's fiscal year, a series of factors
weakened investor confidence, which had already reached a fragile state. The
factors included additional reports of fraudulent accounting practices,
earnings restatements by corporations and a large number of credit downgrades
of corporate bonds by ratings agencies. As a result of the increased market
volatility and investor uncertainty, both high-yield and investment-grade bond
issues dropped in price and their yields correspondingly rose to levels
comparable to those on non-investment-grade ("high-yield") bonds. In June,
WorldCom Inc.'s disclosure that it had improperly accounted for $3.8 billion of
expenses caused investors to avoid sectors characterized by companies with more
complex financials, and this increased the risk premium for high-yield bonds.
The market had declined significantly by the end of July with the arrest of
senior executives at Adelphia Communications and WorldCom's Chapter 11
bankruptcy filing.
The high-yield market regained some ground for a period in August amid
perceptions that the economy was improving. However, the rally proved
short-lived and the market subsequently retreated due to concerns about
mounting tensions in Iraq, warnings about lower corporate earnings, and new
economic data and other signals that raised doubts about the strength of the
economy. As a result of the strong sell-off in the market during the first half
of the Fund's fiscal year, by the end of October high-yield bond yields, which
move opposite to prices, increased to 13.36% (as measured by the yield of the
Citigroup High-Yield Market Index).
SALOMON BROTHERS HIGH INCOME FUND II INC
High Yield Market Rebound
When the economy is weak, the Federal Reserve ("Fed") may consider lowering its
interest rate targets to help stimulate economic activity. The rationale is
that if rates proceed to decline, consumers and corporations can borrow more
cheaply and may be inclined to spend more, pumping money into the economy.
Following an economic report released in October that reflected a weak labor
market, the Fed reduced its target for the federal funds rate/iv/ by half a
percentage point in early November to a four-decade low of 1.25%. The most
significant headway in the high-yield market occurred after this time.
The market advanced amid considerably stronger inflows of cash compared to
earlier periods in the year. Perceptions that the economy was improving,
coupled with favorable yields available in the market, supported interest in
high-yield bonds. The declining default rate of corporate bonds (i.e., the
number of companies failing to make timely interest payments to bondholders)
also proved encouraging to the market. Reports of corporate accounting
improprieties that made front-page headlines during the spring, which created a
dimmer environment for the high-yield market at that time, became less
pronounced. Furthermore, the requirement by the Securities and Exchange
Commission last summer that principal executive officers and company directors
certify the accuracy of their companies' financial statements appeared to have
restored some investor confidence in the integrity of corporate financial
reporting practices.
In 2003, the high-yield market continued to rally as investors seeking to put
money on the sidelines to work bid up prices of bonds. Despite more pronounced
concerns about war with Iraq throughout the first calendar quarter of this
year, the trend of declining default rates continued to generate more investor
confidence in the strength of high-yield bonds. Furthermore, the end of the
conflict sparked additional demand for high-yield bonds as investors shifted
their focus from geopolitical tensions to the fact that first quarter earnings
at many companies were in line with estimates and the stock market was
recovering.
Analysis of Fund's High-Yield Component
In terms of its performance, the Fund benefited from its overweighted exposure
to bonds from issuers in the consumer products, technology, wireless
telecommunications and tower industries and through its underweighted exposure
to the wireline telecommunications, automotive and airline industries relative
to the Citigroup High-Yield Market Index. However, the Fund was adversely
affected by its overweighted exposure to the cable industry and through its
underweighted exposure to the energy industry relative to the index.
Over the past year, the Fund's corporate high-yield position increased its
exposure to the beleaguered investment-grade corporate bond sector,
particularly the issues of large-cap companies. After the crisis of confidence
in Corporate America sparked by reports of various financial improprieties and
the fall-out at Enron Corp. and WorldCom, the issues of even solid, blue-chip
companies came under heavy scrutiny and were oversold. We used this opportunity
to increase holdings in corporate issues of what we considered to be solid
companies that, in our view, were competitively priced. The Fund and high-yield
market benefited as the crisis in confidence subsided and high-grade corporate
issues rebounded.
SALOMON BROTHERS HIGH INCOME FUND II INC
As of the period's close, while the Fund was invested in a diversified array of
sectors, it maintained significant exposure to the media-and-cable sector.
During the past year, we increased the Fund's exposure to cable issues that we
perceived were oversold following the reported problems at Adelphia
Communications, which negatively impacted the sector. The Fund also maintained
heavier exposure to telecommunication issues for similar reasons, as that
sector likewise came under selling pressure following the WorldCom situation.
The Fund also maintained heavier exposure to energy issues versus many other
sectors because we believed they would fluctuate less and for diversification.
Competitive Yields
Recent market valuations appear to have discounted much of the negative news
that transpired during 2002. At the end of April, the high-yield market offered
very competitive levels of income.
EMERGING MARKETS DEBT
Emerging markets debt/vi/ returned 21.27% for the period, as measured by the
J.P. Morgan Emerging Markets Bond Index Plus ("EMBI+")./vii/ During the period,
EMBI+ sovereign spreads tightened by 43 basis points closing at 576 basis
points over U.S. Treasuries. The 12-month return volatility was approximately
10%.
The markets for emerging markets debt remained volatile during the first half
of the reporting period but staged a year-end rally that continued into April
of 2003. Despite the military conflict in Iraq, several high-profile elections
in some emerging market countries and high volatility in global equity markets,
country performance was solid as the markets of all countries reflected in the
EMBI+ posted gains for the period. Developments in Latin America, namely
presidential elections in Brazil and Ecuador, drove overall market performance
as they welcomed ambitious political and economic reform programs that the
newly elected leaders in these countries embarked on.
The market rally for emerging markets debt was also supported by high oil
prices, an important driver of revenues for many emerging market economies.
During the period, oil prices increased to almost $40 per barrel. Moreover, the
market enjoyed positive market technicals (i.e., increased inflows combined
with the re-investment of coupon and amortization payments).
Our active asset allocation process proved to be beneficial for the Fund. At
the beginning of the fiscal period, the Fund was long emerging markets debt,
which accounted for approximately 32% of the Fund. It positively contributed to
the performance of the Fund as emerging markets debt outperformed high yield
bonds (e.g., U.S. high-yield issues). Later during the period, we decided to
reduce the Fund's exposure to emerging markets due to negative developments in
Argentina as well as to expected volatility surrounding elections in Brazil and
Ecuador. Our emerging markets debt allocation accounted for as
little as approximately 8% of the Fund last July, which positively contributed
to the Fund's performance as the emerging markets debt was performing poorly
during that time. With the elections and
SALOMON BROTHERS HIGH INCOME FUND II INC
uncertainties surrounding them behind us, we decided to increase our allocation
to emerging markets debt at the beginning of 2003. That allowed us to
participate in the rally in these markets that, as of the period's close, was
still in progress. As of April 30th, the emerging markets debt component
constituted over 19% of total investments of the Fund.
Developments in some of the key emerging markets over the period are described
below. (The performances of the following debt markets are measured by the
EMBI+.)/viii/
Russia. Posting a gain of 32.49% for the period, Russia ranked as the
best-performing market in the EMBI+. Despite the slowdown of industrial
production, Russia's macroeconomic fundamentals remained strong, mainly due to
a strong rebound in export-oriented and capital goods industries. High oil
prices continued to spur credit quality improvements as foreign currency
reserves exceeded $50 billion. Last December, Moody's Investors Service
upgraded Russia's credit rating to Ba2. While we are happy with Russia's
progress, we have reduced the Fund's exposure to this market, as we are
concerned that Russian bond prices may have overshot real economic improvements
in the country. Within the emerging markets debt component of the Fund, we have
recently been underweight Russian debt./ix/
Brazil. Due to its large weighting in the EMBI+ (approximately 22%), Brazil
influences the overall return of the markets in the index. The market posted a
gain of 25.25% for the period, and while these returns outpaced the market,
Brazil performed poorly before the presidential elections in October. Weak
performance was caused by investors' concerns about future economic policies of
the Lula De Silva administration. Throughout much of 2002, investors were
convinced that Lula would not be elected president. His steady progress in the
polls and ultimate victory in elections, in our view, led many investors to
sell Brazilian debt. Following several of our trips to Brazil, we believed that
Lula would implement market-friendly policies and that the market would
eventually embrace his victory. Accordingly, we took advantage of the sell-off
and began adding to the Fund's exposure to Brazilian debt. As we expected,
Brazilian debt rebounded after elections as markets reacted favorably to
market- friendly comments from Lula and his top advisers. Within the emerging
markets debt component of the Fund, we have maintained an overweight position
in Brazilian debt./ix/
Ecuador. Returning 21.85%, Ecuador ended the fiscal period on a strong positive
note. On March 21st, the International Monetary Fund ("IMF")/x/ approved a
$205-million agreement for Ecuador. This agreement was reached by the
government after just two months in office. The previous administration
negotiated with the IMF over a 14-month period and failed to reach an
agreement. The market appeared to interpret this agreement as being indicative
of the new government's determination to implement prudent fiscal measures.
Following this approval, Fitch Ratings, a nationally recognized credit ratings
service, revised its rating outlook on Ecuador's CCC+ rating from "stable" to
"positive." Ecuador's economy also continued to benefit from high oil prices.
Within the emerging markets debt component of the Fund, we have recently been
overweighted Ecuador./ix/
Mexico. Its strong credit fundamentals combined with higher oil prices
supported the performance of Mexico's debt market, which returned 18.51% for
the period. Mexico's strong fiscal position has enabled the country to avoid
budget cuts in the current economic slowdown. The Fund has recently had a
market-weight in Mexico relative to the EMBI+./ix/
SALOMON BROTHERS HIGH INCOME FUND II INC
Turkey. Despite the significant volatility it experienced during the period,
Turkey managed to post a gain of 9.40% for the period. At the beginning of the
period, the country's geo-strategic importance combined with significant IMF
support attracted investor interest. The domestic economy stabilized with a
return of investor confidence, a decline in interest rates, and a stronger
currency. In addition, the market reacted positively to the outcome of the
November general elections that were won by the Justice and Development Party
("AKP"). Financial markets, however, reacted negatively to Turkey's refusal to
grant the U.S. the right to use its airspace as well as to deploy troops on
Turkish soil during the war with Iraq. This decision by the Turkish parliament
caused the loss of a $30 billion economic aid package from the U.S. On the back
of expectations that the war in Iraq would end earlier than expected, Turkey
recovered some of the losses in April. Investors believed that the impact of
the war on the Turkish economy might be milder than initially feared. Around
the time of Turkey's refusal to grant U.S. troops deployment, we decreased our
allocation to Turkey from overweight to underweight within the emerging markets
debt component of the Fund./ix/
Venezuela. Returning 4.57% for the period, Venezuela was the worst performer in
the EMBI+. Although the two-month general strike organized by opposition
parties has been generally lifted and oil production has started to recover,
many market observers feel it will take a long time to overcome the devastating
impact it had on the domestic economy and especially its oil sector, the
largest generator of tax revenues. Despite the apparent recovery in oil output,
the need for financing remains high due to additional downward pressures on the
economy from high inflation and currency depreciation. Venezuelan debt also
remains vulnerable due to the volatile political environment. The Fund has
continued to have a very limited exposure to Venezuela./ix/
Yields Support Investor Interest
As of the period's close, higher yields available through emerging markets debt
continued to support investor interest in these markets.
Looking for Additional Information?
The Salomon Brothers High Income Fund II Inc is traded on the New York Stock
Exchange under the symbol "HIX" and its closing market price is available in
most newspapers under the New York Stock Exchange listings. Daily net asset
value closing prices are available online under symbol "XHIXX". Barron's and
The Wall Street Journal's Monday editions carry closed-end fund tables that
will provide weekly net asset value per share information. In addition, the
Fund issues a quarterly allocation press release that can be found on most
major financial web sites.
In a continuing effort to provide information concerning the Salomon Brothers
High Income Fund II Inc, shareholders may call 1-888-777-0102 or 1-800-SALOMON
(toll free), Monday through Friday from 8:00 a.m. to 6:00 p.m. Eastern Time
(ET), for the Fund's current net asset value, market price and other
information regarding the Fund's portfolio holdings and allocations.
SALOMON BROTHERS HIGH INCOME FUND II INC
Thank you for your investment in the Salomon Brothers High Income Fund II Inc.
We look forward to continuing to help you meet your investment objectives.
Sincerely,
/s/ Peter J. Wilby /s/ James E. Craige
Peter J. Wilby, CFA James E. Craige, CFA
President Executive Vice President
/s/ Beth A. Semmel
Beth A. Semmel, CFA
Executive Vice President
May 14, 2003
The information provided in this letter by the Manager 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.
Portfolio holdings and breakdowns are as of April 30, 2003 and are subject to
change. Please refer to pages 8 through 21 for a list and percentage breakdown
of the Fund's holdings.
--------
/i/ The Citigroup High-Yield Market Index is a broad-based unmanaged index
of high-yield securities. Please note that an investor cannot invest
directly in an index.
/ii/ Includes return of capital of $0.22 per share.
/iii/ NAV is a price that reflects the market value of the Fund's underlying
portfolio. However, the price at which an investor may buy or sell
shares of the Fund is at the Fund's market price as determined by supply
of and demand for the Fund's common shares.
/iv/ Total returns are based on changes in NAV or the market price,
respectively. Total returns assume the reinvestment of all dividends
and/or capital gains distributions in additional shares.
/v/ The federal funds rate is the interest rate that banks with excess
reserves at a Federal Reserve district bank charge other banks that need
overnight loans. The federal funds rate often points to the direction of
U.S. interest rates.
/vi/ Foreign securities are subject to certain risks of overseas investing
including currency fluctuations and changes in political and economic
conditions, which could result in significant market fluctuations. These
risks are magnified in emerging or developing markets.
/vii/ The EMBI+ is a total return index that tracks the traded market for U.S.
dollar-denominated Brady and other similar sovereign restructured bonds
traded in the emerging markets. Please note that an investor cannot
invest directly in an index.
/viii/ Source: J.P. Morgan Securities Inc.
/ix/ As of the period's close.
/x/ The IMF is an international organization of various member countries,
established to promote international monetary cooperation, exchange
stability, and orderly exchange arrangements.
SALOMON BROTHERS HIGH INCOME FUND II INC
SCHEDULE OF INVESTMENTS
April 30, 2003
Face
Amount Security* Value
--------------------------------------------------------------------------------------------------------------
CORPORATE BONDS -- 76.1%
Basic Industries -- 9.8%
$ 4,275,000 aaiPharma Inc., 11.000% due 4/1/10........................................... $ 4,595,625
3,700,000 Abitibi-Consolidated Inc., Debentures, 8.850% due 8/1/30..................... 4,113,582
8,155,000 Acetex Corp., Sr. Notes, 10.875% due 8/1/09.................................. 9,011,275
2,500,000 Airgas, Inc., 9.125% due 10/1/11............................................. 2,800,000
5,400,000 Applied Extrusion Technologies, Inc., Series B, 10.750% due 7/1/11 (a)....... 4,023,000
2,750,000 Berry Plastics Corp., 10.750% due 7/15/12.................................... 3,011,250
2,800,000 Borden Chemicals & Plastics Limited Partnership, Notes, 9.500% due 5/1/05 (b) 42,000
Buckeye Technologies Inc., Sr. Sub. Notes:
1,000,000 8.500% due 12/15/05........................................................ 990,000
1,750,000 9.250% due 9/15/08 (a)..................................................... 1,723,750
1,000,000 8.000% due 10/15/10........................................................ 925,000
8,500,000 FMC Corp., Debentures, 7.750% due 7/1/11..................................... 8,217,086
6,950,000 ISP Chemco Inc., Series B, 10.250% due 7/1/11................................ 7,610,250
2,000,000 Luscar Coal Ltd., Sr. Notes, 9.750% due 10/15/11............................. 2,270,000
Lyondell Chemical Co.:
2,575,000 10.875% due 5/1/09 (a)..................................................... 2,600,750
550,000 Secured Notes, Series B, 9.875% due 5/1/07................................. 569,250
2,100,000 MDP Acquisitions PLC, Sr. Notes, 9.625% due 10/1/12 (c)...................... 2,289,000
3,400,000 Methanex Corp., Sr. Notes, 8.750% due 8/15/12................................ 3,765,500
3,190,000 Millennium America, Inc., 9.250% due 6/15/08 (a)............................. 3,524,950
2,500,000 Noveon Inc., Series B, 11.000% due 2/28/11................................... 2,837,500
1,325,000 OM Group, Inc., 9.250% due 12/15/11.......................................... 1,139,500
5,750,000 Peabody Energy Corp., Series B, 9.625% due 5/15/08 (a)....................... 6,044,687
Plastipak Holdings Inc.:
6,150,000 10.750% due 9/1/11......................................................... 6,672,750
875,000 Sr. Notes, 10.750% due 9/1/11 (c).......................................... 949,375
2,150,000 Radnor Holdings Corp., Sr. Notes, 11.000% due 3/15/10 (c).................... 2,160,750
941,176 Republic Engineered Products LLC, Secured Notes, 10.000% due 8/16/09......... 235,294
5,000,000 Republic Technologies International, LLC, 13.750% due 7/15/09 (b)............ 50,000
8,000,000 Riverwood International Corp., 10.625% due 8/1/07............................ 8,400,000
3,800,000 Smurfit-Stone Container Corp., 8.250% due 10/1/12............................ 4,151,500
4,950,000 Stone Container Corp., Sr. Notes, 8.375% due 7/1/12.......................... 5,407,875
950,000 Tekni-Plex, Inc., Series B, 12.750% due 6/15/10.............................. 933,375
2,625,000 Terra Industries Inc., Sr. Notes, Series B, 10.500% due 6/15/05 (a).......... 2,598,750
---------------
103,663,624
---------------
See Notes to Financial Statements.
Page 8
SALOMON BROTHERS HIGH INCOME FUND II INC
SCHEDULE OF INVESTMENTS (continued)
April 30, 2003
Face
Amount Security* Value
------------------------------------------------------------------------------------------------------------
Consumer Cyclicals -- 6.7%
$ 1,275,000 Ameristar Casinos, Inc., 10.750% due 2/15/09.............................. $ 1,434,375
Cole National Group, Inc., Sr. Sub. Notes:
2,850,000 8.625% due 8/15/07...................................................... 2,629,125
3,425,000 8.875% due 5/15/12...................................................... 3,142,437
3,300,000 CSK Auto Inc., 12.000% due 6/15/06........................................ 3,634,125
4,125,000 Finlay Enterprises Inc., 9.000% due 5/1/08................................ 4,104,375
4,000,000 Finlay Fine Jewelry Corp., Sr. Notes, 8.375% due 5/1/08................... 4,100,000
The Gap, Inc., Notes:
1,600,000 9.900% due 12/15/05..................................................... 1,812,000
3,775,000 10.550% due 12/15/08 (a)................................................ 4,520,562
5,000,000 Guitar Center Management, Inc., Sr. Notes, 11.000% due 7/1/06............. 5,137,500
HMH Properties, Inc:
500,000 Series A, 7.875% due 8/1/05 (a)......................................... 507,500
3,500,000 Sr. Notes, Series C, 8.450% due 12/1/08................................. 3,605,000
Host Marriott, L.P.:
350,000 Series E, 8.375% due 2/15/06 (a)........................................ 361,375
1,625,000 Series I, 9.500% due 1/15/07............................................ 1,716,406
3,925,000 Icon Health & Fitness Inc., 11.250% due 4/1/12............................ 4,101,625
1,625,000 Interface, Inc., Sr. Sub. Notes, Series B, 9.500% due 11/15/05............ 1,324,375
3,000,000 John Q. Hammons Hotels, Inc., First Mortgage, Series B, 8.875% due 5/15/12 3,120,000
2,000,000 Leslie's Poolmart, Sr. Notes, 10.375% due 7/15/04......................... 2,012,500
Levi Strauss & Co.:
Notes:
2,500,000 6.800% due 11/1/03 (a)................................................. 2,556,250
1,750,000 7.000% due 11/1/06 (a)................................................. 1,391,250
Sr. Notes:
4,365,000 11.625% due 1/15/08 (a)................................................ 3,710,250
2,035,000 12.250% due 12/15/12 (c)............................................... 1,699,225
3,500,000 Mattress Discounters Corp., Series B, 12.625% due 7/15/07 (b)............. 367,500
Saks Inc.:
1,975,000 8.250% due 11/15/08 (a)................................................. 2,142,875
1,720,000 9.875% due 10/1/11 (a).................................................. 1,935,000
4,550,000 Starwood Hotels & Resorts Worldwide, Inc., 7.875% due 5/1/12.............. 4,783,187
5,500,000 Tommy Hilfiger U.S.A., Inc., 6.850% due 6/1/08............................ 5,472,500
---------------
71,321,317
---------------
Consumer Non-Cyclicals -- 16.0%
1,700,000 Ahold Finance USA, Inc., 6.875% due 5/1/29 (a)............................ 1,275,000
8,500,000 AKI Inc., Sr. Notes, 10.500% due 7/1/08................................... 8,542,500
See Notes to Financial Statements.
Page 9
SALOMON BROTHERS HIGH INCOME FUND II INC
SCHEDULE OF INVESTMENTS (continued)
April 30, 2003
Face
Amount Security* Value
--------------------------------------------------------------------------------------------------------------
Consumer Non-Cyclicals -- 16.0% (continued)
$ 5,250,000 American Safety Razor Co., Sr. Notes, Series B, 9.875% due 8/1/05......... $ 4,908,750
2,750,000 Applica Inc., Sr. Sub. Notes, 10.000% due 7/31/08......................... 2,887,500
4,275,000 Argosy Gaming Co., 10.750% due 6/1/09..................................... 4,745,250
2,925,000 Athena Neurosciences Finance LLC, 7.250% due 2/21/08...................... 2,062,125
1,000,000 Aurora Foods Inc., Sr. Sub. Notes, Series D, 9.875% due 2/15/07........... 455,000
2,700,000 Beverly Enterprises, Inc., 9.000% due 2/15/06............................. 2,416,500
7,125,000 Coast Hotels and Casinos, Inc., 9.500% due 4/1/09......................... 7,695,000
4,500,000 CONMED Corp., 9.000% due 3/15/08.......................................... 4,691,250
425,000 Constellation Brands Inc., Series B, 8.125% due 1/15/12 (a)............... 453,156
5,120,000 Extendicare Health Services, Inc., 9.500% due 7/1/10 (a).................. 5,094,400
1,625,000 Fleming Cos., Inc., 10.125% due 4/1/08 (a)(b)............................. 239,687
1,875,000 Harrah's Operating Co., Inc., 8.000% due 2/1/11........................... 2,159,355
2,375,000 Herbst Gaming, Inc., Secured Notes, 10.750% due 9/1/08 (c)................ 2,618,437
3,511,000 Hines Horticulture, Inc., Sr. Sub. Notes, Series B, 12.750% due 10/15/05.. 3,668,995
6,500,000 Home Interiors & Gifts Inc., 10.125% due 6/1/08........................... 6,662,500
7,250,000 Horseshoe Gaming Holding Corp., Series B, 8.625% due 5/15/09.............. 7,739,375
7,500,000 IASIS Healthcare Corp., 13.000% due 10/15/09.............................. 8,400,000
5,525,000 InSight Health Services Corp., Series B, 9.875% due 11/1/11............... 5,221,125
5,743,360 Iowa Select Farms, L.P., Secured Notes, 10.750% due 12/1/06 (c)(d)........ 3,446,016
2,400,000 Kerzner International Ltd., 8.875% due 8/15/11............................ 2,556,000
6,875,000 MGM MIRAGE, 9.750% due 6/1/07............................................. 7,734,375
6,250,000 North Atlantic Trading Co. Inc., Series B, 11.000% due 6/15/04............ 6,273,437
Nutritional Sourcing Corp., Sr. Notes:
1,373,000 9.500% due 8/1/03 (b)................................................... 878,720
828,000 Series C, 9.500% due 8/1/03 (b)......................................... 529,920
Park Place Entertainment Corp., Sr. Sub. Notes:
700,000 9.375% due 2/15/07...................................................... 763,000
4,500,000 8.875% due 9/15/08 (a).................................................. 4,871,250
3,000,000 8.125% due 5/15/11 (a).................................................. 3,187,500
3,250,000 Playtex Products, Inc., 9.375% due 6/1/11................................. 3,542,500
5,025,000 Premier International Foods PLC, Sr. Notes, 12.000% due 9/1/09............ 5,552,625
1,775,000 Remington Products Co., LLC, Sr. Sub. Notes, Series D, 11.000% due 5/15/06 1,819,375
Rite Aid Corp.:
Notes:
1,000,000 6.000% due 12/15/05 (c)................................................ 960,000
325,000 7.125% due 1/15/07 (a)................................................. 315,250
7,000,000 Sr. Notes, 7.625% due 4/15/05........................................... 7,017,500
See Notes to Financial Statements.
Page 10
SALOMON BROTHERS HIGH INCOME FUND II INC
SCHEDULE OF INVESTMENTS (continued)
April 30, 2003
Face
Amount Security* Value
---------------------------------------------------------------------------------------------------------------
Consumer Non-Cyclicals -- 16.0% (continued)
Sealy Mattress Co., Series B:
$ 4,475,000 10.875% due 12/15/07 (a)....................................................... $ 4,698,750
500,000 Sr. Sub. Notes, 9.875% due 12/15/07 (a)........................................ 517,500
3,875,000 Station Casinos, Inc., Sr. Sub. Notes, 9.875% due 7/1/10......................... 4,291,562
2,525,000 Tenet Healthcare Corp., Sr. Notes, 6.875% due 11/15/31........................... 2,310,375
5,000,000 Triad Hospitals, Inc., Series B, 8.750% due 5/1/09............................... 5,462,500
United Industries Corp., Sr. Sub. Notes:
2,525,000 9.875% due 4/1/09 (c).......................................................... 2,689,125
5,650,000 Series B, 9.875% due 4/1/09.................................................... 6,017,250
4,750,000 Vanguard Health Systems, Inc., 9.750% due 8/1/11 (a)............................. 4,821,250
3,525,000 Venetian Casino Resort, LLC, 11.000% due 6/15/10................................. 3,886,312
2,500,000 Vlasic Foods International Inc., Sr. Sub. Notes, Series B, 10.250% due 7/1/09 (b) 612,500
3,500,000 Winsloew Furniture, Inc., Series B, 12.750% due 8/15/07.......................... 2,296,875
---------------
168,987,372
---------------
Energy -- 6.0%
3,000,000 BRL Universal Equipment Corp., Secured Notes, 8.875% due 2/15/08................. 3,270,000
Dynegy Holdings Inc., Debentures:
925,000 7.125% due 5/15/18............................................................. 719,125
725,000 7.625% due 10/15/26............................................................ 565,500
El Paso Corp., Sr. Notes:
4,425,000 7.800% due 8/1/31.............................................................. 3,517,875
5,125,000 7.750% due 1/15/32............................................................. 4,074,375
Grey Wolf Inc.:
1,000,000 Series C, 8.875% due 7/1/07.................................................... 1,032,500
6,000,000 Sr. Notes, 8.875% due 7/1/07 (a)............................................... 6,217,500
3,416,000 Key Energy Services Inc., Series B, 14.000% due 1/15/09.......................... 3,877,160
6,625,000 Magnum Hunter Resources, Inc., 9.600% due 3/15/12 (a)............................ 7,188,125
1,775,000 Pioneer Natural Resources Co., 9.625% due 4/1/10................................. 2,186,459
Pogo Producing Co., Sr. Sub. Notes, Series B:
1,500,000 10.375% due 2/15/09............................................................ 1,642,500
2,000,000 8.250% due 4/15/11............................................................. 2,180,000
2,000,000 Pride International Inc., Sr. Notes, 10.000% due 6/1/09 (a)...................... 2,200,000
5,125,000 Vintage Petroleum, Inc., Sr. Sub. Notes, 9.750% due 6/30/09 (a).................. 5,509,375
5,025,000 Western Gas Resources, Inc., 10.000% due 6/15/09 (a)............................. 5,502,375
4,675,000 Westport Resources Corp., 8.250% due 11/1/11..................................... 5,119,125
The Williams Cos., Inc.:
2,150,000 8.750% due 3/15/32 (c)......................................................... 2,107,000
See Notes to Financial Statements.
Page 11
SALOMON BROTHERS HIGH INCOME FUND II INC
SCHEDULE OF INVESTMENTS (continued)
April 30, 2003
Face
Amount Security* Value
---------------------------------------------------------------------------------------------------------
Energy -- 6.0% (continued)
Notes:
$ 3,700,000 7.625% due 7/15/19................................................... $ 3,367,000
3,650,000 7.875% due 9/1/21.................................................... 3,358,000
---------------
63,633,994
---------------
Financial -- 0.8%
1,975,400 Airplanes Pass-Through Trust, Series D, 10.875% due 3/15/12............. 59,262
4,350,000 FelCor Lodging L.P., 9.500% due 9/15/08................................. 4,350,000
4,325,000 MeriStar Hospitality Corp., 9.125% due 1/15/11.......................... 4,087,125
4,595,000 Nationwide Credit, Inc., Sr. Notes, Series A, 10.250% due 1/15/08 (b)(e) 57,437
---------------
8,553,824
---------------
Housing Related -- 0.6%
Nortek, Inc., Sr. Notes, Series B:
2,200,000 9.125% due 9/1/07..................................................... 2,293,500
4,000,000 8.875% due 8/1/08..................................................... 4,160,000
---------------
6,453,500
---------------
Manufacturing -- 4.9%
3,325,000 Alliant Techsystems Inc., 8.500% due 5/15/11............................ 3,640,875
3,000,000 Anchor Glass Container Corp., Secured Notes, 11.000% due 2/15/13 (c).... 3,195,000
8,800,000 BREED Technologies, Inc., 9.250% due 4/15/08 (b)(e)..................... 0
2,925,000 Case Corp., Notes, 7.250% due 1/15/16................................... 2,500,875
Fedders North America, Inc.:
1,300,000 9.375% due 8/15/07 (a)................................................ 1,092,000
1,500,000 Series B, 9.375% due 8/15/07.......................................... 1,260,000
3,825,000 Flowserve Corp., 12.250% due 8/15/10 (a)................................ 4,341,375
4,375,000 Ford Motor Co., Notes, 7.450% due 7/16/31............................... 3,904,504
6,350,000 Ford Motor Credit Co., Notes, 7.250% due 10/25/11 (a)................... 6,375,844
2,400,000 General Motors Acceptance Corp., Notes, 6.875% due 8/28/12 (a).......... 2,444,820
Holmes Group Corp.:
125,000 Series B, 9.875% due 11/15/07......................................... 114,375
1,000,000 Sr. Sub. Notes, Series D, 9.875% due 11/15/07......................... 915,000
8,000,000 Key Plastics Holdings, Inc., Series B, 10.250% due 3/15/07 (b)(e)....... 800
1,750,000 Kinetek, Inc., Sr. Notes, Series D, 10.750% due 11/15/06................ 1,540,000
2,300,000 LDM Technologies, Inc., Series B, 10.750% due 1/15/07................... 2,162,000
2,750,000 Moll Industries, Inc., Sr. Sub. Notes, 10.500% due 7/1/08 (b)........... 343,750
1,850,000 NMHG Holdings Co., 10.000% due 5/15/09.................................. 1,988,750
450,000 Phillips-Van Heusen Corp., Sr. Notes, 8.125% due 5/1/13 (c)............. 450,000
4,000,000 Sequa Corp., Sr. Notes, 9.000% due 8/1/09............................... 4,200,000
See Notes to Financial Statements.
Page 12
SALOMON BROTHERS HIGH INCOME FUND II INC
SCHEDULE OF INVESTMENTS (continued)
April 30, 2003
Face
Amount Security* Value
-------------------------------------------------------------------------------------------------------------
Manufacturing -- 4.9% (continued)
$ 2,500,000 Sybron Dental Specialties, Inc., 8.125% due 6/15/12...................... $ 2,600,000
1,400,000 Tenneco Automotive Inc., Series B, 11.625% due 10/15/09.................. 1,246,000
4,000,000 Terex Corp., Series B, 10.375% due 4/1/11 (a)............................ 4,460,000
2,700,000 TRW Automotive, Sr. Notes, 9.375% due 2/15/13 (c)........................ 2,963,250
---------------
51,739,218
---------------
Media and Cable -- 11.7%
6,425,000 AOL Time Warner Inc., 7.625% due 4/15/31................................. 7,111,518
7,500,000 Avalon Cable, LLC, Sr. Discount Notes, (zero coupon until 12/1/03,
11.875% thereafter), due 12/1/08........................................ 7,200,000
Charter Communications Holdings, LLC:
Sr. Discount Notes:
5,250,000 Zero coupon until 1/15/05, (11.750% thereafter), due 1/15/10.......... 2,651,250
800,000 Zero coupon until 4/1/04, (9.920% thereafter), due 4/1/11 (a)......... 464,000
13,775,000 Zero coupon until 5/15/06, (11.750% thereafter), due 5/15/11 (a)...... 6,267,625
10,000,000 Zero coupon until 1/15/07, (12.125% thereafter), due 1/15/12.......... 4,050,000
Sr. Notes:
1,350,000 8.625% due 4/1/09 (a)................................................. 894,375
2,475,000 10.750% due 10/1/09................................................... 1,658,250
1,400,000 10.000% due 5/15/11 (a)............................................... 924,000
CSC Holdings, Inc., Sr. Sub. Debentures:
25,000 9.875% due 2/15/13 (a)................................................. 26,312
10,500,000 10.500% due 5/15/16.................................................... 11,891,250
1,500,000 9.875% due 4/1/23...................................................... 1,582,500
4,650,000 DirecTV Holdings, LLC, Sr. Notes, 8.375% due 3/15/13 (c)................. 5,231,250
EchoStar DBS Corp., Sr. Notes:
4,375,000 10.375% due 10/1/07.................................................... 4,921,875
11,050,000 9.125% due 1/15/09..................................................... 12,486,500
5,926,361 Hollinger Participation Trust, Sr. Notes, 12.125% due 11/15/10 (c)(d).... 6,128,953
3,500,000 Insight Midwest, L.P., Sr. Notes, 10.500% due 11/1/10 (a)................ 3,893,750
5,150,000 Mediacom LLC, Sr. Notes, 9.500% due 1/15/13 (a).......................... 5,562,000
6,275,000 Nextmedia Operating, Inc., 10.750% due 7/1/11............................ 6,980,937
11,416,000 NTL Inc., 19.000% due 12/31/10........................................... 10,290,611
900,000 R. H. Donnelley Finance Corp. I, Sr. Sub. Notes, 10.875% due 12/15/12 (c) 1,046,250
3,475,000 Radio One Inc., Series B, 8.875% due 7/1/11.............................. 3,839,875
Telewest Communications PLC:
500,000 Debentures, 9.625% due 10/1/06 (b)..................................... 117,500
Sr. Discount Notes:
3,125,000 Zero coupon until 4/15/04, (9.250% thereafter), due 4/15/09 (b)....... 640,625
7,950,000 Zero coupon until 2/1/05, (11.375% thereafter), due 2/1/10 (b)........ 1,510,500
See Notes to Financial Statements.
Page 13
SALOMON BROTHERS HIGH INCOME FUND II INC
SCHEDULE OF INVESTMENTS (continued)
April 30, 2003
Face
Amount Security* Value
---------------------------------------------------------------------------------------------------------------
Media and Cable -- 11.7% (continued)
$ 2,750,000 Time Warner Inc., 6.625% due 5/15/29............................................. $ 2,725,344
United Pan-Europe Communicatons, N.V., Series B:
Sr. Discount Notes:
8,250,000 Zero coupon until 11/1/04, (13.375% thereafter), due 11/1/09 (b).............. 835,313
14,940,000 Zero coupon until 2/1/05, (13.750% thereafter), due 2/1/10 (b)................ 1,512,675
700,000 Sr. Notes, 10.875% due 8/1/09 (b).............................................. 96,250
2,000,000 Vivendi Universal SA, Sr. Notes, 9.250% due 4/15/10 (c).......................... 2,255,000
Yell Finance B.V.:
10,425,000 Sr. Discount Notes, (zero coupon until 8/1/06, 13.500% thereafter), due 8/1/11. 8,366,063
650,000 Sr. Notes, 10.750% due 8/1/11.................................................. 731,250
---------------
123,893,601
---------------
Publishing and Printing -- 0.3%
Dex Media East LLC:
1,750,000 Sr. Notes, 9.875% due 11/15/09 (c)............................................. 2,012,500
1,250,000 Sr. Sub. Notes, 12.125% due 11/15/12 (c)....................................... 1,493,750
---------------
3,506,250
---------------
Services and Other -- 3.0%
Allied Waste North America, Inc.:
300,000 9.250% due 9/1/12 (c).......................................................... 330,000
Series B:
250,000 8.875% due 4/1/08............................................................. 271,250
2,850,000 7.875% due 1/1/09 (a)......................................................... 2,956,875
6,550,000 10.000% due 8/1/09 (a)........................................................ 7,033,063
3,200,000 Brand Services Inc., 12.000% due 10/15/12 (c).................................... 3,536,000
3,250,000 COMFORCE Operating Inc., Sr. Notes, Series B, 12.000% due 12/1/07................ 1,470,625
4,000,000 The Holt Group, Inc., 9.750% due 1/15/06 (b)..................................... 140,000
Iron Mountain Inc.:
5,050,000 8.125% due 5/15/08............................................................. 5,302,500
1,750,000 8.750% due 9/30/09............................................................. 1,835,313
825,000 8.625% due 4/1/13.............................................................. 903,375
Mail-Well I Corp.:
1,000,000 9.625% due 3/15/12............................................................. 1,020,000
2,850,000 Series B, 8.750% due 12/15/08 (a).............................................. 2,550,750
6,500,000 Safety-Kleen Corp., 9.250% due 5/15/09 (b)....................................... 381,875
4,000,000 Sitel Corp., 9.250% due 3/15/06.................................................. 3,860,000
---------------
31,591,626
---------------
See Notes to Financial Statements.
Page 14
SALOMON BROTHERS HIGH INCOME FUND II INC
SCHEDULE OF INVESTMENTS (continued)
April 30, 2003
Face
Amount Security* Value
---------------------------------------------------------------------------------------------------------------------
Technology -- 3.4%
$ 5,575,000 infoUSA Inc., Sr. Sub. Notes, 9.500% due 6/15/08.................................... $ 5,714,375
5,500,000 L-3 Communications Corp., 7.625% due 6/15/12........................................ 6,091,250
2,925,000 Motorola, Inc., Sr. Notes, 8.000% due 11/1/11 (a)................................... 3,378,375
3,000,000 Seagate Technology HDD Holdings, 8.000% due 5/15/09................................. 3,236,250
5,550,000 Unisys Corp., Sr. Notes, 8.125% due 6/1/06.......................................... 5,966,250
7,640,000 Xerox Capital Europe PLC, 5.875% due 5/15/04........................................ 7,735,500
3,750,000 Xerox Corp., Notes, 5.500% due 11/15/03 (a)......................................... 3,806,250
---------------
35,928,250
---------------
Telecommunications -- 9.7%
4,500,000 Alamosa Holdings, Inc., (zero coupon until 2/15/05, 12.875% thereafter), due 2/15/10 2,002,500
2,700,000 American Cellular Corp., 9.500% due 10/15/09........................................ 715,500
1,800,000 American Tower Corp., Sr. Notes, 9.375% due 2/1/09 (a).............................. 1,134,000
8,625,000 American Tower Escrow Corp., Discount Notes, zero coupon due 8/1/08 (c)............. 8,581,875
6,875,000 AT&T Corp., Sr. Notes, 8.500% due 11/15/31.......................................... 7,680,943
AT&T Wireless Services Inc.:
4,625,000 Notes, 8.125% due 5/1/12.......................................................... 5,448,870
Sr. Notes:
3,850,000 7.875% due 3/1/11................................................................ 4,443,551
2,600,000 8.750% due 3/1/31................................................................ 3,249,220
Crown Castle International Corp.:
1,500,000 Sr. Discount Notes, 10.625% due 11/15/07.......................................... 1,556,250
Sr. Notes:
2,300,000 9.375% due 8/1/11 (a)............................................................ 2,271,250
5,140,000 10.750% due 8/1/11 (a)........................................................... 5,319,900
Global Crossing Holdings Ltd.:
10,700,000 9.125% due 11/15/06 (b)........................................................... 361,125
4,250,000 9.500% due 11/15/09 (a)(b)........................................................ 143,438
Nextel Communications, Inc., Sr. Discount Notes:
5,400,000 10.650% due 9/15/07............................................................... 5,683,500
10,000,000 9.750% due 10/31/07............................................................... 10,400,000
6,300,000 9.950% due 2/15/08................................................................ 6,646,500
75,000 Sr. Notes, 9.375% due 11/15/09 (a)................................................ 81,375
5,750,000 Qwest Communications International Inc., Sr. Notes, Series B, 7.500% due 11/1/08.... 5,232,500
Qwest Corp.:
325,000 Debentures, 8.875% due 6/1/31..................................................... 335,563
7,325,000 Notes, 8.875% due 3/15/12 (c)..................................................... 8,057,500
Qwest Services Corp., Notes:
325,000 13.500% due 12/15/10 (c).......................................................... 362,375
2,071,000 14.000% due 12/15/14 (c).......................................................... 2,371,295
See Notes to Financial Statements.
Page 15
SALOMON BROTHERS HIGH INCOME FUND II INC
SCHEDULE OF INVESTMENTS (continued)
April 30, 2003
Face
Amount Security* Value
-------------------------------------------------------------------------------------------------------------------
Telecommunications -- 9.7% (continued)
SBA Communications Corp.:
$ 3,100,000 Sr. Discount Notes, 12.000% due 3/1/08 (a)......................................... $ 2,805,500
2,275,000 Sr. Notes, 10.250% due 2/1/09...................................................... 1,922,375
Sprint Capital Corp.:
6,525,000 6.875% due 11/15/28................................................................ 6,068,250
5,325,000 8.750% due 3/15/32................................................................. 5,857,500
3,235,000 TeleCorp PCS, Inc., 10.625% due 7/15/10.............................................. 3,865,825
3,750,000 UbiquiTel Operating Co., (zero coupon until 4/15/05, 14.000% thereafter), due 4/15/10 431,250
---------------
103,029,730
---------------
Transportation -- 0.2%
2,000,000 General Maritime Corp., Sr. Notes, 10.000% due 3/15/13 (c)........................... 2,170,000
---------------
Utilities -- 3.0%
Avon Energy Partners Holdings:
5,500,000 Notes, 6.460% due 3/4/08 (c)....................................................... 4,785,000
2,550,000 Sr. Notes, 7.050% due 12/11/07 (c)................................................. 2,231,250
9,475,000 Calpine Canada Energy Finance ULC, 8.500% due 5/1/08 (a)............................. 7,035,188
Calpine Corp., Sr. Notes:
500,000 7.875% due 4/1/08.................................................................. 360,000
2,425,000 7.750% due 4/15/09 (a)............................................................. 1,746,000
1,000,000 8.625% due 8/15/10 (a)............................................................. 720,000
2,225,000 8.500% due 2/15/11 (a)............................................................. 1,635,375
755,000 CMS Energy Corp., Sr. Notes, 9.875% due 10/15/07 (a)................................. 788,975
Edison Mission Energy, Sr. Notes:
4,575,000 7.730% due 6/15/09................................................................. 3,865,875
6,575,000 9.875% due 4/15/11................................................................. 5,851,750
Mirant Americas Generation LLC, Sr. Notes:
1,750,000 7.625% due 5/1/06.................................................................. 1,509,499
1,850,000 9.125% due 5/1/31.................................................................. 1,231,749
---------------
31,760,661
---------------
TOTAL CORPORATE BONDS (Cost -- $798,709,110)......................................... 806,232,967
---------------
CONVERTIBLE BONDS -- 1.4%
Energy -- 0.1%
900,000 Mirant Americas Generation LLC, Sr. Debentures, 2.500% due 6/15/21................... 754,875
---------------
See Notes to Financial Statements.
Page 16
SALOMON BROTHERS HIGH INCOME FUND II INC
SCHEDULE OF INVESTMENTS (continued)
April 30, 2003
Face
Amount Security* Value
-------------------------------------------------------------------------------------------------------------------
Technology -- 1.1%
$ 5,400,000 Avaya Inc., Sr. Notes, zero coupon bond to yield 3.710% due 10/31/21............ $ 2,632,500
8,000,000 Comverse Technology Inc., Debentures, 1.500% due 12/1/05........................ 7,430,000
4,450,000 Sanmina-SCI Corp., Sub. Debentures, zero coupon bond to yield 4.280% due 9/12/20 2,113,750
---------------
12,176,250
---------------
Telecommunications -- 0.2%
2,675,000 American Tower Corp., Notes, 5.000% due 2/15/10................................. 2,273,750
---------------
TOTAL CONVERTIBLE BONDS (Cost -- $12,632,174)................................... 15,204,875
---------------
Face
Amount+
-------------
SOVEREIGN BONDS -- 19.5%
Argentina -- 0.1%
Republic of Argentina:
4 /ARS/ 10.000% due 9/19/08 (b)....................................................... 0
2,243,000 Due 4/10/05 (b)............................................................... 695,330
---------------
695,330
---------------
Brazil -- 6.1%
Federal Republic of Brazil:
1,205,000 11.250% due 7/26/07........................................................... 1,247,175
8,000,000 11.500% due 3/12/08........................................................... 8,200,000
9,963,000 14.500% due 10/15/09.......................................................... 11,357,820
23,250,000 12.000% due 4/15/10........................................................... 23,715,000
7,127,000 12.750% due 1/15/20........................................................... 7,162,635
7,075,000 10.125% due 5/15/27........................................................... 5,836,875
375,000 12.250% due 3/6/30............................................................ 360,938
2,500,000 DCB, Series L, 2.1875% due 4/15/12 (f)........................................ 1,860,156
2,104,830 MYDFA, 2.0625% due 9/15/07 (f)................................................ 1,773,319
3,300,000 NMB, Series L, 2.1875% due 4/15/09 (f)........................................ 2,767,875
---------------
64,281,793
---------------
Bulgaria -- 0.4%
4,050,000 Republic of Bulgaria, 8.250% due 1/15/15........................................ 4,566,375
---------------
Colombia -- 1.1%
Republic of Colombia:
4,425,000 10.000% due 1/23/12........................................................... 4,897,369
1,825,000 10.750% due 1/15/13........................................................... 2,102,856
See Notes to Financial Statements.
Page 17
SALOMON BROTHERS HIGH INCOME FUND II INC
SCHEDULE OF INVESTMENTS (continued)
April 30, 2003
Face
Amount+ Security* Value
------------------------------------------------------------------------------------------
Colombia -- 1.1% (continued)
1,875,000 11.750% due 2/25/20..................................... $ 2,273,438
2,000,000 11.850% due 3/9/28...................................... 2,132,660
---------------
11,406,323
---------------
Costa Rica -- 0.2%
1,550,000 Republic of Costa Rica, 6.914% due 1/31/08 (c)............ 1,608,125
---------------
Ecuador -- 2.1%
26,995,000 Republic of Ecuador, 12.000% due 11/15/12................. 22,777,031
---------------
Mexico -- 3.8%
3,100,000 PEMEX Project Funding Master Trust, 6.125% due 8/15/08 (c) 3,286,000
United Mexican States:
4,625,000 6.625% due 3/3/15....................................... 4,841,219
22,100,000 11.375% due 9/15/16..................................... 31,674,825
500,000 8.300% due 8/15/31...................................... 566,375
---------------
40,368,419
---------------
Panama -- 0.6%
Republic of Panama:
3,325,000 9.625% due 2/8/11....................................... 3,807,125
1,500,000 8.875% due 9/30/27...................................... 1,575,000
1,689,509 PDI, 2.250% due 7/17/16 (f)............................. 1,429,747
---------------
6,811,872
---------------
Peru -- 0.5%
Republic of Peru:
1,725,000 9.125% due 1/15/08...................................... 1,923,375
2,150,000 9.875% due 2/6/15....................................... 2,418,750
1,575,000 FLIRB, 4.500% due 3/7/17 (f)............................ 1,323,000
---------------
5,665,125
---------------
Philippines -- 0.7%
Republic of the Philippines:
1,900,000 9.375% due 1/18/17...................................... 2,018,750
5,000,000 9.875% due 1/15/19...................................... 5,218,750
---------------
7,237,500
---------------
See Notes to Financial Statements.
Page 18
SALOMON BROTHERS HIGH INCOME FUND II INC
SCHEDULE OF INVESTMENTS (continued)
April 30, 2003
Face
Amount+ Security* Value
----------------------------------------------------------------------------------------------
Russia -- 3.2%
Russian Federation:
10,900,000 10.000% due 6/26/07............................................ $ 13,066,375
3,050,000 8.250% due 3/31/10............................................. 3,457,938
18,825,000 5.000% due 3/31/30 (f)......................................... 17,024,859
---------------
33,549,172
---------------
Turkey -- 0.6%
Republic of Turkey:
5,350,000 11.500% due 1/23/12............................................ 5,430,250
625,000 11.000% due 1/14/13............................................ 625,000
---------------
6,055,250
---------------
Venezuela -- 0.1%
1,531,580 Republic of Venezuela, NMB, 2.4375% due 12/18/05 (f)............. 1,204,205
---------------
TOTAL SOVEREIGN BONDS (Cost -- $175,572,751)..................... 206,226,520
---------------
LOAN PARTICIPATIONS -- 0.6%
Morocco -- 0.6%
6,375,000 Kingdom of Morocco, Tranche A, 2.1875% due 1/2/09 (UBS AG) (f)(g)
(Cost -- $5,943,316)............................................ 5,992,500
---------------
Shares
------------
COMMON STOCK (H) -- 0.7%
142,234 NTL Inc.......................................................... 2,417,978
10,225 NTL Inc., Restricted Shares (e).................................. 170,348
2,586 Pillowtex Corp. (a).............................................. 491
141,490 SpectraSite, Inc. (a)............................................ 5,022,895
28,175 UnitedGlobalCom, Inc., Class A Shares (a)........................ 108,474
---------------
TOTAL COMMON STOCK (Cost -- $29,055,670)......................... 7,720,186
---------------
ESCROW SHARES (E)(H) -- 0.0%
5,500,000 Imperial Sugar Co................................................ 6
27,465,000 NTL Inc.......................................................... 0
2,025,000 Pillowtex Corp................................................... 2
---------------
TOTAL ESCROW SHARES (Cost -- $0)................................. 8
---------------
See Notes to Financial Statements.
Page 19
SALOMON BROTHERS HIGH INCOME FUND II INC
SCHEDULE OF INVESTMENTS (continued)
April 30, 2003
Shares Security* Value
--------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCK -- 0.9%
CSC Holdings Inc.:
24,750 Series H, 11.750% due 10/1/07.............................................................. $ 2,598,750
57,667 Series M, 11.125% due 4/1/08............................................................... 6,040,618
236 NTL Europe, Inc. (h)......................................................................... 732
50,469 Rural Cellular Corp., 12.250% due 5/15/11 (i)................................................ 820,133
TCR Holding Corp.:
17,552 Class B (e)(h)............................................................................. 18
9,654 Class C (e)(h)............................................................................. 10
25,451 Class D (e)(h)............................................................................. 25
52,657 Class E (e)(h)............................................................................. 53
---------------
TOTAL PREFERRED STOCK (Cost -- $12,380,660).................................................. 9,460,339
---------------
Warrants/Rights
WARRANTS AND RIGHTS (H) -- 0.1%
1,800 American Tower Escrow Corp. (Exercise price of $0.01 per share expiring on 8/1/08. Each
warrant exercisable for 14.10 shares of common stock) (c)................................... 135,900
5,000 Asia Pulp & Paper (Exercise price of $7.8375 per share expiring on 3/15/05. Each warrant
exercisable for 12.914 shares of common stock) (c).......................................... 50
30,928,049 ContiFinancial Corp. Liquidating Trust, Units of Interest (Represents interests in a trust in
the liquidation of ContiFinancial Corp. and its affiliates) (e)............................. 970,368
2,750 Leap Wireless International Inc. (Exercise price of $96.80 per share expiring on 4/15/10.
Each warrant exercisable for 5.146 shares of common stock) (c)(e)........................... 0
3,500 Mattress Discounters Corp. (Exercise price of $0.01 per share expiring on 7/15/07. Each
warrant exercisable for 4.85 shares of Class A common stock and 0.539 shares of Class L
common stock)............................................................................... 2,625
13,614 Pillowtex Corp. (Exercise price of $28.99 per share expiring on 11/24/09. Each warrant
exercisable for 1 share of common stock).................................................... 408
5,000 Republic Technologies International Inc. (Exercise price of $0.01 per share expiring on
7/15/09. Each warrant exercisable for 1 share of Class D common stock)...................... 50
5,000 UbiquiTel Operating Co. (Exercise price of $22.74 per share expiring on 4/15/10. Each
warrant exercisable for 5.965 shares of common stock)....................................... 1,875
57,120 Venezuela Discount Rights (e)................................................................ 1
3,500 Winsloew Furniture, Inc. (Exercise price of $0.01 per share expiring on 8/15/07. Each
warrant exercisable for 0.2298 shares of common stock)...................................... 1,750
---------------
TOTAL WARRANTS AND RIGHTS (Cost -- $1,609,234)............................................... 1,113,027
---------------
See Notes to Financial Statements.
Page 20
SALOMON BROTHERS HIGH INCOME FUND II INC
SCHEDULE OF INVESTMENTS (continued)
April 30, 2003
Face
Amount Security* Value
-----------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 0.7%
$7,343,000 State Street Bank and Trust Co., 1.200% due 5/1/03; Proceeds at maturity -- $7,343,245;
(Fully collateralized by U.S. Treasury Bonds, 8.000% due 11/15/21; Market value --
$7,496,685) (Cost -- $7,343,000)...................................................... $ 7,343,000
--------------
TOTAL INVESTMENTS -- 100% (Cost -- $1,043,245,915**)................................... $1,059,293,422
==============
--------
* All securities except for those that are on loan are segregated as
collateral pursuant to a revolving credit facility.
+ Face amount denominated in U.S. dollars unless otherwise indicated.
(a)All or a portion of this security is on loan (See Note 4).
(b)Security is currently in default.
(c)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.
(d)Payment-in-kind security for which all or part of the interest earned may
be paid in additional bonds.
(e)Security is valued in accordance with fair valuation procedures.
(f)Rate shown reflects current rate on instrument with variable rate or step
coupon rates.
(g)Participation interest was acquired through the financial institution
indicated parenthetically.
(h)Non-income producing security.
(i)Payment-in-kind security for which all or part of the dividend earned is
paid by the issuance of additional stock.
** Aggregate cost for Federal income tax purposes is $1,044,942,499.
Abbreviations used in this schedule:
ARS -- Argentine Peso
DCB -- Debt Conversion Bond
FLIRB -- Front Loaded Interest Reduction Bond
MYDFA -- Multi Year Depository Facility Agreement
NMB -- New Money Bond
PDI -- Past Due Interest
LOANED SECURITIES COLLATERAL
April 30, 2003
Face
Amount Security Value
----------------------------------------------------------------------------------------------------------------
$121,446,606 State Street Navigator Securities Lending Trust Prime Portfolio (Cost -- $121,446,606) $121,446,606
============
See Notes to Financial Statements.
Page 21
SALOMON BROTHERS HIGH INCOME FUND II INC
STATEMENT OF ASSETS AND LIABILITIES
April 30, 2003
ASSETS:
Investments, at value (Cost -- $1,043,245,915)................................................. $1,059,293,422
Loaned securities collateral, at value (Cost -- $121,446,606) (Note 4)......................... 121,446,606
Foreign currency, at value (Cost -- $30,765)................................................... 10,900
Cash........................................................................................... 341
Interest and dividends receivable.............................................................. 24,885,273
Receivable for securities sold................................................................. 1,850,911
Prepaid expenses............................................................................... 49,704
--------------
Total Assets................................................................................... 1,207,537,157
--------------
LIABILITIES:
Loan payable (Note 9).......................................................................... 300,000,000
Payable for securities on loan (Note 4)........................................................ 121,446,606
Payable for securities purchased............................................................... 12,851,429
Management fee payable......................................................................... 849,320
Loan interest payable (Note 9)................................................................. 441,891
Administration fee payable..................................................................... 84,932
Accrued expenses............................................................................... 296,837
--------------
Total Liabilities.............................................................................. 435,971,015
--------------
Total Net Assets.................................................................................. $ 771,566,142
==============
NET ASSETS:
Common stock ($0.001 par value, 100,000,000 shares authorized; 74,032,625 shares outstanding).. $ 74,033
Capital paid in excess of par value............................................................ 1,034,946,400
Overdistributed net investment income.......................................................... (32,943)
Accumulated net realized loss from investment transactions..................................... (279,448,990)
Net unrealized appreciation of investments and foreign currencies.............................. 16,027,642
--------------
Total Net Assets.................................................................................. $ 771,566,142
==============
Net Asset Value, per share ($771,566,142 / 74,032,625 shares outstanding)......................... $10.42
======
See Notes to Financial Statements.
Page 22
SALOMON BROTHERS HIGH INCOME FUND II INC
STATEMENT OF OPERATIONS
For the Year Ended April 30, 2003
INCOME:
Interest...................................................... $101,467,283
Dividends..................................................... 1,172,621
------------
Total Investment Income....................................... 102,639,904
------------
EXPENSES:
Management fee (Note 2)....................................... 9,356,988
Interest (Note 9)............................................. 5,826,607
Administration fee (Note 2)................................... 935,699
Shareholder communications.................................... 195,980
Audit and legal............................................... 188,500
Custody....................................................... 153,872
Registration fees............................................. 61,342
Directors' fees............................................... 58,433
Other......................................................... 105,936
------------
Total Expenses................................................ 16,883,357
------------
Net Investment Income............................................ 85,756,547
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCIES (NOTE 3):
Realized Loss From:
Investment transactions (excluding short-term investments)... (55,474,057)
Foreign currency transactions................................ (31,638)
------------
Net Realized Loss............................................. (55,505,695)
------------
Change in Net Unrealized Appreciation From:
Investments.................................................. 67,289,543
Foreign currencies........................................... (19,865)
------------
Increase in Net Unrealized Appreciation....................... 67,269,678
------------
Net Gain on Investments and Foreign Currencies................... 11,763,983
------------
Increase in Net Assets From Operations........................... $ 97,520,530
============
See Notes to Financial Statements.
Page 23
SALOMON BROTHERS HIGH INCOME FUND II INC
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended April 30,
2003 2002
-------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income...................................... $ 85,756,547 $ 89,420,565
Net realized loss.......................................... (55,505,695) (89,262,793)
Increase in net unrealized appreciation.................... 67,269,678 55,193,968
------------- ------------
Increase in Net Assets From Operations..................... 97,520,530 55,351,740
------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income...................................... (84,516,112) (82,747,083)
Capital.................................................... (15,830,265) (14,307,626)
------------- ------------
Decrease in Net Assets From Distributions to Shareholders.. (100,346,377) (97,054,709)
------------- ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued on reinvestment of dividends
(2,448,921 and 2,580,503 shares issued, respectively)..... 24,058,046 27,692,639
------------- ------------
Increase in Net Assets From Capital Share Transactions..... 24,058,046 27,692,639
------------- ------------
Increase (Decrease) in Net Assets............................. 21,232,199 (14,010,330)
NET ASSETS:
Beginning of year.......................................... 750,333,943 764,344,273
------------- ------------
End of year*............................................... $ 771,566,142 $750,333,943
============= ============
* Includes overdistributed net investment income of:.......... $(32,943) $(1,241,740)
============= ============
See Notes to Financial Statements.
Page 24
SALOMON BROTHERS HIGH INCOME FUND II INC
STATEMENT OF CASH FLOWS
For the Year Ended April 30, 2003
CASH FLOWS PROVIDED (USED) BY OPERATING AND INVESTING ACTIVITIES:
Interest and dividends received........................................ $ 81,058,011
Operating expenses paid................................................ (10,972,837)
Net sales of short-term investments.................................... 15,160,000
Realized loss on foreign currency transactions......................... (31,650)
Net change in unrealized depreciation on foreign currencies............ (19,865)
Purchases of long-term investments..................................... (828,689,961)
Proceeds from disposition of long-term investments..................... 785,272,482
Interest paid on bank loans............................................ (5,897,244)
-------------
Net Cash Provided By Operating and Investing Activities................ 35,878,936
-------------
CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES:
Cash distributions paid on Common Stock................................ (100,346,377)
Increase in loan....................................................... 40,000,000
Proceeds from reinvestment of dividends................................ 24,058,046
-------------
Net Cash Used By Financing Activities.................................. (36,288,331)
-------------
Net Decrease in Cash...................................................... (409,395)
Cash, Beginning of year................................................... 420,636
-------------
Cash, End of year......................................................... $ 11,241
=============
RECONCILIATION OF INCREASE IN NET ASSETS FROM OPERATIONS TO NET CASH FLOWS
PROVIDED (USED) BY OPERATING AND INVESTING ACTIVITIES:
Increase in Net Assets From Operations................................. $ 97,520,530
-------------
Accretion of discount on investments................................... (15,789,907)
Amortization of premium on investments................................. 859,277
Capitalized income on payment-in-kind securities....................... (1,282,857)
Increase in investments, at value...................................... (51,796,404)
Increase in interest and dividends receivable.......................... (5,368,406)
Increase in receivable for investments sold............................ (545,007)
Increase in prepaid expenses........................................... (3,983)
Increase in payable of investments purchased........................... 12,268,434
Decrease in interest payable on loan................................... (70,637)
Increase in accrued expenses........................................... 87,896
-------------
Total Adjustments...................................................... (61,641,594)
-------------
Net Cash Flows Provided By Operating and Investing Activities............. $ 35,878,936
=============
See Notes to Financial Statements.
Page 25
SALOMON BROTHERS HIGH INCOME FUND II INC
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
Salomon Brothers High Income Fund II Inc ("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 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 defined in
the Fund's prospectus). As a secondary objective, the Fund seeks capital
appreciation to the extent consistent with its objective of seeking to maximize
current income.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America ("GAAP") requires management
to make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual amounts could differ from those
estimates.
(a) SECURITIES VALUATION. In valuing the Fund's assets, all securities for
which market quotations are readily available are valued (i) at the last sale
price prior to the time of determination if there were a sale on the date of
determination, (ii) at the mean between the last current bid and asked prices
if there were no sales on such date and bid and asked quotations are available,
and (iii) at the bid price if there were no sales price on such date and only
bid quotations are available. Publicly traded foreign government debt
securities are typically traded internationally in the over-the-counter market,
and are valued at the mean between the last current bid and asked price as of
the close of business of that market. However, when the spread between bid and
asked price exceeds five percent of the par value of the security, the security
is valued at the bid price. Securities may also be valued by independent
pricing services which use prices provided by market-makers or estimates of
market values obtained from yield data relating to instruments or securities
with similar characteristics. Short-term investments having a maturity of 60
days or less are valued at amortized cost which approximates market value.
Securities for which reliable quotations are not readily available and all
other securities and assets are valued at fair value as determined in good
faith by, or under procedures established by, the Board of Directors.
(b) INVESTMENT TRANSACTIONS. Investment transactions are recorded on the trade
date. Interest income is accrued on a daily basis. Market discount or premium
on securities purchased is accreted or amortized, respectively, on an effective
yield basis over the life of the security. The Fund uses the specific
identification method for determining realized gain or loss on investments.
Dividend income is recorded on ex-dividend date.
Page 26
SALOMON BROTHERS HIGH INCOME FUND II INC
NOTES TO FINANCIAL STATEMENTS (continued)
(c) FEDERAL INCOME TAXES. The Fund has complied and intends to continue to
comply with the requirements of the Internal Revenue Code of 1986, as amended,
applicable to regulated
investment companies, and to distribute all of its income to its shareholders.
Therefore, no federal income tax or excise tax provision is required.
(d) DIVIDENDS AND DISTRIBUTIONS. The Fund declares and pays dividends to
shareholders monthly from net investment income. Net realized gains, if any, in
excess of loss carryovers are expected to be distributed annually. Dividends
and distributions to shareholders are recorded on the ex-dividend date. The
amount of dividends and distributions from net investment income and net
realized gains are determined in accordance with federal income tax
regulations, which may differ from GAAP. To the extent these differences are
permanent in nature, such amounts are reclassified within the components of net
assets.
(e) REPURCHASE AGREEMENTS. When entering into repurchase agreements, it is the
Fund's policy to take possession, through its custodian, of the underlying
collateral and to monitor its value at the time the arrangement is entered into
and during the term of the repurchase agreement to ensure that it equals or
exceeds the repurchase price. In the event of default of the obligation to
repurchase, the Fund has the right to liquidate the collateral and apply the
proceeds in satisfaction of the obligation. Under certain circumstances, in the
event of default or bankruptcy by the other party to the agreement, realization
and/or retention of the collateral may be subject to legal proceedings.
(f) YEAR END TAX RECLASSIFICATIONS. The character of income and gains to be
distributed are determined in accordance with income tax regulations which may
differ from GAAP. At April 30, 2003, reclassifications were made to the capital
accounts of the Fund to reflect permanent book/tax differences and income and
gains available for distributions under income tax regulations. Net investment
income, net realized loss and net assets were not affected by this change.
NOTE 2. MANAGEMENT FEE AND OTHER TRANSACTIONS
Salomon Brothers Asset Management Inc ("Investment Manager"), an indirect
wholly-owned subsidiary of Citigroup Inc. ("Citigroup"), acts as investment
manager to the Fund. The Investment Manager is responsible on a day-to-day
basis for the management of the Fund's portfolio in accordance with the Fund's
investment objectives and policies and for making decisions to buy, sell or
hold particular securities of the Fund. The management fee for these services
is payable monthly at an annual rate of 1.00% of the Fund's average weekly net
assets plus the proceeds of any outstanding borrowings used for leverage.
Smith Barney Fund Management LLC ("Administrator"), another indirect
wholly-owned subsidiary of Citigroup, acts as the Fund's administrator for
which the Fund pays a monthly fee at an annual rate of 0.10% of the value of
the Fund's average weekly net assets plus the
Page 27
SALOMON BROTHERS HIGH INCOME FUND II INC
NOTES TO FINANCIAL STATEMENTS (continued)
proceeds of any outstanding borrowings used for leverage. The administrator
performs certain administrative services necessary for the operation of the
Fund.
During periods in which the Fund is utilizing financial leverage, the fees
which are payable to the Investment Manager and Administrator as a percentage
of the Fund's 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.
At April 30, 2003, Citigroup Global Markets Inc. ("CGM"), formerly known as
Salomon Smith Barney Inc., another indirect wholly-owned subsidiary of
Citigroup, held 10.963 shares of the Fund.
Certain officers and/or directors of the Fund are also officers and/or
directors of the Investment Manager.
NOTE 3. PORTFOLIO ACTIVITY
During the year ended April 30, 2003, the aggregate cost of purchases and
proceeds from sales of investments (including maturities of long-term
securities, but excluding short-term securities) were as follows:
Purchases.................................... $840,958,395
============
Sales........................................ $785,817,487
============
At April 30, 2003, the aggregate gross unrealized appreciation and depreciation
of investments for Federal income tax purposes were as follows:
Gross unrealized appreciation................ $105,049,077
Gross unrealized depreciation................ (90,698,154)
------------
Net unrealized appreciation.................. $ 14,350,923
============
NOTE 4. LENDING OF PORTFOLIO SECURITIES
The Fund has an agreement with its custodian whereby the custodian may lend
securities owned by the Fund to brokers, dealers and other financial
organizations, and receives a lenders fee. Fees earned by the Fund on
securities lending are recorded in interest income. Loans of securities by the
Fund are collateralized by cash, U.S. government securities or high quality
money market instruments that are maintained at all times in an amount at least
equal to the current market value of the securities loaned, plus a margin which
may vary depending on the type of securities loaned. The custodian establishes
and maintains the collateral in a segregated account. The Fund maintains
exposure for the risk of any losses in the investment of amounts received as
collateral.
Page 28
SALOMON BROTHERS HIGH INCOME FUND II INC
NOTES TO FINANCIAL STATEMENTS (continued)
At April 30, 2003, the Fund loaned securities having a market value of
$118,986,361. The Fund received cash collateral amounting to $121,446,606 which
was invested into the State Street Navigator Securities Lending Trust Prime
Portfolio.
Income earned by the Fund from securities lending for the year ended April 30,
2003 was $180,963.
NOTE 5. LOAN PARTICIPATIONS
The Fund invests in fixed and floating rate loans arranged through private
negotiations between a foreign sovereign entity and 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 relating to the loan, nor any rights of set-off against the borrower,
and the Fund may not benefit directly from any collateral supporting the loan
in which it has purchased the participation. As a result, the Fund will assume
the credit risk of both the borrower and the lender that is selling the
participation. 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 set-off between the lender and the borrower.
At April 30, 2003, the Fund held loan participations with a total cost of
$5,943,316.
NOTE 6. CREDIT RISK
The yields of emerging markets debt obligations and high-yield corporate debt
obligations reflect, among other things, perceived credit risk. The Fund's
investment in securities rated below investment grade typically involves risks
not associated with higher rated securities including, among others, overall
greater risk of 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.
NOTE 7. CAPITAL LOSS CARRYFORWARD
At April 30, 2003, the Fund had, for Federal income tax purposes, approximately
$253,973,000 of unused capital loss carryforwards available to offset future
capital gains. To the extent that these carryforward losses are used to offset
capital gains, it is probable that any gains so offset will not be distributed.
Page 29
SALOMON BROTHERS HIGH INCOME FUND II INC
NOTES TO FINANCIAL STATEMENTS (continued)
The amount and year of expiration for each carryforward loss is indicated
below. Expiration occurs on April 30 of the year indicated:
2007 2008 2009 2010 2011
----------- ----------- ----------- ----------- -----------
Carryforward
Amounts... $32,298,000 $40,142,000 $10,636,000 $93,766,000 $77,131,000
In addition, the Fund had $23,779,692 of capital losses realized after October
31, 2002, which were deferred for tax purposes to the first day of the
following fiscal year.
NOTE 8. INCOME TAX INFORMATION AND DISTRIBUTIONS TO SHAREHOLDERS
At April 30, 2003, the tax basis components of distributable earnings were:
Accumulated capital losses ..................................... $(253,972,714)
=============
Unrealized appreciation ........................................ $ 14,331,058
=============
The difference between book basis and tax basis unrealized appreciation and
depreciation is attributable primarily to wash sale loss deferrals.
The tax character of distributions paid during the year ended April 30, 2003
was:
Ordinary income ................................................... $ 84,516,112
Capital............................................................ 15,830,265
------------
Total.............................................................. $100,346,377
============
NOTE 9. LOAN
At April 30, 2003, the Fund had outstanding a $300,000,000 loan pursuant to a
revolving credit and security agreement with CXC Inc., an affiliate of
Citigroup, a commercial paper conduit issuer for which Citicorp North America
Inc., an affiliate of the Investment Manager, acts as administrative agent. The
loans generally bear interest at a variable rate based on the weighted average
interest rates of the underlying commercial paper or LIBOR, plus any applicable
margin. Securities held by the Fund are subject to a lien, granted to the
lenders, to the extent of the borrowing outstanding and any additional
expenses. For the year ended April 30, 2003, the Fund paid interest expense of
$5,897,244.
NOTE 10. DIVIDENDS SUBSEQUENT TO APRIL 30, 2003
On January 23, 2003, the Board of Directors of the Fund declared dividends in
the amount of $0.115 per share, payable on May 30, 2003 to shareholders of
record on May 13, 2003.
On May 2, 2003, the Board of Directors of the Fund declared three dividends,
each in the amount of $0.115 per share, payable on June 27, 2003, July 25, 2003
and August 29, 2003 to shareholders of record on June 17, 2003, July 15, 2003
and August 12, 2003, respectively.
Page 30
SALOMON BROTHERS HIGH INCOME FUND II INC
FINANCIAL HIGHLIGHTS
Data for a share of capital stock outstanding throughout each year ended April
30, unless otherwise noted:
2003 2002 2001 2000 1999/(1)/
----------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Year............. $10.48 $11.08 $11.85 $ 13.54 $ 15.00
------ ------ ------ ------ ------
Income (Loss) From Operations:
Net investment income....................... 1.18 1.27 1.37 1.45 1.23
Net realized and unrealized gain (loss)..... 0.12 (0.50) (0.58) (1.70) (1.45)
-- ----- ----- ----- -----
Total Income (Loss) From Operations............ 1.30 0.77 0.79 (0.25) (0.22)
-- -- -- ----- -----
Offering Costs on Issuance of
Common Stock.................................. -- -- -- -- (0.02)
- - - - -----
Less Distributions From:
Net investment income....................... (1.16) (1.18) (1.40) (1.44) (1.22)
Capital..................................... (0.22) (0.20) (0.16) -- --
----- ----- ----- - -
Total Distributions............................ (1.38) (1.38) (1.56) (1.44) (1.22)
----- ----- ----- ----- -----
Increase in Net Asset Value Due to Shares
Issued on Reinvestment of Dividends........... 0.02 0.01 -- -- --
-- -- - - -
Net Asset Value, End of Year................... $10.42 $10.48 $11.08 $ 11.85 $ 13.54
====== ====== ====== ====== ======
Market Price, End of Year...................... $11.65 $11.65 $10.96 $11.750 $12.625
====== ====== ====== ======= =======
Total Return, Based on Market Price/(2)/....... 15.00% 20.83% 6.85% 5.45% (7.57)%++
Ratios to Average Net Assets:
Total expenses, including interest expense.. 2.49% 2.80% 3.09% 2.09% 1.54%+
Total expenses, excluding interest expense
(operating expenses)....................... 1.63% 1.57% 1.43% 1.29% 1.24%+
Net investment income....................... 12.64% 12.08% 11.87% 11.48% 9.84%+
Net Assets, End of Year (000s)................. $771,566 $750,334 $764,344 $790,743 $903,792
Portfolio Turnover Rate........................ 87% 118% 118% 68% 66%
Loans Outstanding, End of Year (000s).......... $300,000 $260,000 $260,000 $105,000 $105,000
Weighted Average Interest Rate on Loans........ 2.15% 3.44% 6.69% 6.18% 5.72%
--------------------------------------------------------------------------------
(1)For the period from May 28, 1998 (commencement of operations) through April
30, 1999.
(2)For purposes of this calculation, dividends are assumed to be reinvested at
prices obtained under the Fund's dividend reinvestment plan and the broker
commission paid to purchase or sell a share is excluded.
++Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
Page 31
SALOMON BROTHERS HIGH INCOME FUND II INC
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Salomon Brothers High Income Fund II Inc
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations, of
changes in net assets and of cash flows and the financial highlights present
fairly, in all material respects, the financial position of Salomon Brothers
High Income Fund II Inc ("Fund") at April 30, 2003, the results of its
operations and its cash flows for the year then ended, the changes in its net
assets for each of the two years in the period then ended and the financial
highlights for each of the four years in the period then ended and for the
period May 28, 1998 (commencement of operations) through April 30, 1999, in
conformity with accounting principles generally accepted in the United States
of America. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at April 30, 2003 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
New York, NY
June 19, 2003
Page 32
SALOMON BROTHERS HIGH INCOME FUND II INC
ADDITIONAL INFORMATION (unaudited)
Information about Directors and Officers
The business and affairs of Salomon Brothers High Income Fund II Inc ("Fund")
are managed under the direction of the Board of Directors. Information
pertaining to the Directors and Officers of the Fund is set forth below. The
Statement of Additional Information includes additional information about Fund
Directors and is available by contacting the transfer agent at 1-800-446-1013.
Number of
Portfolios in
Fund Complex
Term of Principal Overseen by
Position(s) Office/(1)/ and Occupation(s) Director Other
Held with Length of During Past (including Directorships
Name, Address and Age Fund/(1)/ Time Served 5 Years the Fund) Held by Director
-------------------------------------------------------------------------------------------------------------------------
Non-Interested
Directors:
Carol L. Colman Director and Since President, Colman 31 None
Colman Consulting Co., Inc. Member of 2002 Consulting Co., Inc.
278 Hawley Road Audit
North Salem, NY 10560 Committee,
Age 57 Class III
Daniel P. Cronin Director and Since Associate General Counsel, 28 None
Pfizer Inc. Member of the 1998 Pfizer Inc.
235 East 42nd Street Audit
New York, NY 10017 Committee,
Age 57 Class I
Leslie H. Gelb Director and Since President, the Council on 30 Director of 2
The Council on Foreign Member of the 2001 Foreign Relations; registered investment
Relations Audit formerly, Columnist, companies advised by
58 East 68th Street Committee, Deputy Editorial Page Advantage Advisers,
New York, NY 10021 Class II Editor and Editor, Op-Ed Inc. ("Advantage")
Age 65 Page, The New York Times
Riordan Roett Director and Since Professor and Director, 30 The Latin America
The Johns Hopkins University Member of the 1998 Latin American Studies Equity Fund, Inc.
1740 Massachusetts Ave, NW Audit Program, Paul H. Nitze
Washington, DC 20036 Committee, School of Advanced
Age 64 Class II International Studies, The
Johns Hopkins University
Page 33
SALOMON BROTHERS HIGH INCOME FUND II INC
ADDITIONAL INFORMATION (unaudited) (continued)
Number of
Portfolios in
Fund Complex
Term of Principal Overseen by
Position(s) Office/(1)/ and Occupation(s) Director Other
Held with Length of During Past (including Directorships
Name, Address and Age Fund/(1)/ Time Served 5 Years the Fund) Held by Director
---------------------------------------------------------------------------------------------------------------------
Jeswald W. Salacuse Director and Since Henry J. Braker Professor 30 Director of 2
Tufts University-- Member of the 1998 of Commercial Law and registered investment
The Fletcher School of Audit formerly Dean, The companies advised by
Law & Diplomacy Committee, Flecher School of Law & Advantage
160 Packard Avenue Class I Diplomacy, Tufts
Medford, MA 02155 University; formerly,
Age 65 Fulbright Distinguished
Chair in Comparative Law,
University of Trento, Italy
Interested Director:
R. Jay Gerken/(2)/ Director and Since Managing Director of 225 None
CGM Chairman, 2002 Citigroup Global Markets
399 Park Avenue Class III Inc. ("CGM"); Chairman,
4th Floor President, Chief Executive
New York, NY 10022 Officer and Director of
Age 52 Smith Barney Fund
Management LLC
("SBFM"), Travelers
Investment Adviser, Inc.
("TIA"), and Citi Fund
Management Inc.
Officers:
Peter J. Wilby, CFA President Since Managing Director of N/A N/A
SBAM 2002 CGM and Salomon
399 Park Avenue Brothers Asset
4th Floor Management Inc
New York, NY 10022 ("SBAM") since January
Age 44 1996
Executive 1998-
Vice President 2002
Page 34
SALOMON BROTHERS HIGH INCOME FUND II INC
ADDITIONAL INFORMATION (unaudited) (continued)
Number of
Portfolios in
Fund Complex
Term of Principal Overseen by
Position(s) Office/(1)/ and Occupation(s) Director Other
Held with Length of During Past (including Directorships
Name, Address and Age Fund/(1)/ Time Served 5 Years the Fund) Held by Director
---------------------------------------------------------------------------------------------------------------
Lewis E. Daidone Executive Vice Since Managing Director of N/A N/A
CGM President and 1998 CGM; Director and Senior
125 Broad Street Chief Vice President of SBFM
11th Floor Administrative and TIA; Former Chief
New York, NY 10004 Officer Financial Officer and
Age 45 Treasurer of mutual funds
affiliated with Citigroup
Inc.
Maureen O'Callaghan Executive Vice Since Managing Director of N/A N/A
SBAM President 1998 CGM and SBAM since
399 Park Avenue December 1998; Director
4th Floor of CGM and SBAM from
New York, NY 10022 January 1996 to December
Age 39 1998
James E. Craige, CFA Executive Vice Since Managing Director of N/A N/A
SBAM President 1998 CGM and SBAM since
399 Park Avenue December 1998; Director
4th Floor of CGM and SBAM since
New York, NY 10022 January 1998
Age 36
Thomas K. Flanagan, CFA Executive Vice Since Managing Director of N/A N/A
SBAM President 1998 CGM and SBAM since
399 Park Avenue December 1998; Prior to
4th Floor December 1998, Director
New York, NY 10022 of CGM and SBAM
Age 50
Beth A. Semmel, CFA Executive Vice Since Managing Director of N/A N/A
SBAM President 1998 CGM and SBAM since
399 Park Avenue December 1998; Director
4th Floor of CGM and SBAM from
New York, NY 10022 January 1996 to December
Age 42 1998
Page 35
SALOMON BROTHERS HIGH INCOME FUND II INC
ADDITIONAL INFORMATION (unaudited) (continued)
Number of
Portfolios in
Fund Complex
Term of Principal Overseen by
Position(s) Office/(1)/ and Occupation(s) Director Other
Held with Length of During Past (including Directorships
Name, Address and Age Fund/(1)/ Time Served 5 Years the Fund) Held by Director
-------------------------------------------------------------------------------------------------------------
Frances M. Guggino Controller Since Vice President, Citigroup N/A N/A
CGM 2002 Asset Management
125 Broad Street
10th Floor
New York, NY 10004
Age 45
Christina T. Sydor Secretary Since Managing Director N/A N/A
CGM 1998 of CGM; General Counsel
300 First Stamford Place and Secretary of SBFM
4th Floor and TIA
Stamford, CT 06902
Age 52
--------
/(1)/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 2005,
year 2003, and year 2004, 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.
/(2)/Mr. Gerken is a Director who is an "interested person" of the Fund as
defined in the Investment Company Act of 1940, as amended, because Mr.
Gerken is an officer of SBFM and certain of its affiliates.
Page 36
SALOMON BROTHERS 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 Salomon
Brothers 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 income dividends and distributions of capital gains in
cash, paid by check, mailed directly to the record holder by or under the
direction of PFPC Global Fund Services, formerly known as First Data Investor
Services Group, Inc. 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 dividend or distribution payable only in the form of
cash, the Agent will apply all dividends and 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 dividend or 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 dividend or 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 dividend or 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 dividend or distribution payment date.
If (i) the Agent has not invested the full dividend amount in open market
purchases by the date specified at the bottom of the prior page as the date on
which such purchases must terminate
Page 37
SALOMON BROTHERS HIGH INCOME FUND II INC
DIVIDEND REINVESTMENT PLAN (unaudited) (continued)
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 dividend amount in newly issued Shares (x) in the
case of (i) above, at the close of business on the date the Agent is required
to terminate making open market purchases as specified at the bottom of the
prior page 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
dividend or distribution.
In the event that all or part of a dividend or 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 dividend or 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.
Page 38
SALOMON BROTHERS HIGH INCOME FUND II INC
DIVIDEND REINVESTMENT PLAN (unaudited) (continued)
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. Dividends and
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 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 capital gains distributions or income
dividends 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 or by calling 1-800-331-1710. Such termination will be effective
immediately if notice is received by the Agent not less than ten days prior to
any dividend or distribution record date; otherwise such termination will be
effective on the first Trading Day after the payment due for such dividend or
distribution with respect to any subsequent dividend or distribution. The Plan
may be amended or terminated by the Fund as applied to any dividend or capital
gains 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 dividend or capital gains 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
Page 39
SALOMON BROTHERS HIGH INCOME FUND II INC
DIVIDEND REINVESTMENT PLAN (unaudited) (continued)
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 dividends and
distributions, the Fund will be authorized to pay to such successor Agent, for
each Participant's account, all dividends and 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 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 P.O.
Box 8030, Boston, Massachusetts 02266-8030.
ADDITIONAL SHAREHOLDER INFORMATION (unaudited)
This report is transmitted to the shareholders of Salomon Brothers High Income
Fund II Inc for their information. This is not a prospectus, circular or
representation intended for use in the purchase of shares of the Fund or any
securities mentioned in this report.
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.
Page 40
SALOMON BROTHERS HIGH INCOME FUND II INC
TAX INFORMATION (unaudited)
For Federal tax purposes, the Fund hereby designates for the fiscal year ended
April 30, 2003:
. For corporate shareholders, the percentage of ordinary dividends that
qualify for the dividends received deduction is 1.39%.
Page 41
SALOMON BROTHERS HIGH INCOME FUND II INC
DIRECTORS
CAROL L. COLMAN
DANIEL P. CRONIN
LESLIE H. GELB
R. JAY GERKEN
RIORDAN ROETT
JESWALD W. SALACUSE
OFFICERS
R. JAY GERKEN
Chairman
PETER J. WILBY, CFA
President
LEWIS E. DAIDONE
Executive Vice President and Chief Administrative Officer
MAUREEN O'CALLAGHAN
Executive Vice President
JAMES E. CRAIGE, CFA
Executive Vice President
THOMAS K. FLANAGAN, CFA
Executive Vice President
BETH A. SEMMEL, CFA
Executive Vice President
FRANCES M. GUGGINO
Controller
CHRISTINA T. SYDOR
Secretary
SALOMON BROTHERS HIGH INCOME FUND II INC
125 Broad Street
10th Floor, MF-2
New York, New York 10004
Telephone 1-888-777-0102
INVESTMENT MANAGER
Salomon Brothers Asset Management Inc
399 Park Avenue
New York, New York 10022
CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
DIVIDEND DISBURSING AND TRANSFER AGENT
PFPC Global Fund Services
P.O. Box 8030
Boston, Massachusetts 02266-8030
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
LEGAL COUNSEL
Simpson Thacher & Bartlett LLP
425 Lexington Avenue
New York, New York 10017
NEW YORK STOCK EXCHANGE SYMBOL
HIX
Page 42
ITEM 2. CODE OF ETHICS.
Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. [RESERVED]
ITEM 9. 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-2(c) under the
Investment Company Act of 1940, as amended) are effective based
on their evaluation of the disclosure controls and procedures as
of a date within 90 days of the filing date of this document.
(b) In the last 90 days, there have been no significant changes in
the Registrant's internal controls or in other factors that could
significantly affect these controls.
ITEM 10. EXHIBITS.
(a) Not applicable.
(b) Attached hereto.
Exhibit 99.CERT Certifications pursuant to section 302 of the
Sarbanes-Oxley Act of 2002
Exhibit 99.906CERT Certifications pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
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.
Salomon Brothers High Income Fund II Inc
By: /s/ R. Jay Gerken
-----------------------------------------
R. Jay Gerken
Chief Executive Officer of
Salomon Brothers High Income Fund II Inc
Date: 6/30/03
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ R. Jay Gerken
-----------------------------------------
(R. Jay Gerken)
Chief Executive Officer of
Salomon Brothers High Income Fund II Inc
Date: 6/30/03
By: /s/ Lewis Daidone
-----------------------------------------
Chief Administrative Officer of
Salomon Brothers High Income Fund II Inc
Date: 6/30/03