<PAGE>
SALOMON BROTHERS HIGH INCOME FUND II INC
November 9, 1999
Dear Shareholders:
We are pleased to provide you with this semi-annual report for the Salomon
Brothers High Income Fund II Inc. ("Fund") as of October 31, 1999. We hope you
find this report to be useful and informative. Included are market commentary, a
schedule of the Fund's investments as of October 31, 1999 and financial
statements for the six-months ended October 31, 1999. The Fund distributed
income dividends totalling $0.69 per share during this period. The table below
shows the annualized distribution rate and the total return for the period
covered by this report based on the Fund's October 31, 1999 net asset value
("NAV") per share and its New York Stock Exchange ("NYSE") closing price:
Price Annualized
Per Share Distribution Rate* Total Return
--------------- ------------------ ------------
$12.48 (NAV) 11.06% (2.77)%
$10.8125 (NYSE) 12.76% (9.30)%
U.S. HIGH-YIELD MARKET
The U.S. high-yield market declined 4.14% for the six-month period ended October
31, 1999, as measured by the Salomon Smith Barney High-Yield Market Index. While
benefiting from a strong economy, the high-yield market suffered from the
following:
. a backup in U.S. Treasuries due to concern about rising inflation;
. sustained mutual fund outflows;
. a heavy new-issue calendar;
. a reduction in broker/dealer liquidity;
. a volatile equity market; and
. a rise in default rates, especially among marginal commodity
producers.
The high-yield market experienced healthy momentum in April 1999, driven by
mutual fund inflows, healthy economic data and mergers & acquisitions activity
in telecommunications and cable & media. However, starting in May, stronger-
than-expected economic growth in the U.S. raised inflation fears. These
inflation fears caused the U.S. Federal Reserve Board ("Fed") to raise interest
rates 50 basis points over the course of the last two fiscal quarters and
contributed to increased volatility in the equity market, both of which
adversely affected the high-yield market. Heightened credit concerns also
developed as default rates increased, particularly in commodities issuers
exposed to global pricing volatility and in more speculative telecommunications
issuers whose access to alternative capital markets was limited.
- ----------------
* The distribution rate assumes a current monthly income dividend rate of
$0.115 per share for twelve months and excludes any special dividends.
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND II INC
The aforementioned factors rattled individual investors, resulting in
significant and prolonged mutual fund outflows, which at the end of October 1998
had occurred for nine consecutive weeks. Finally, tightening broker/dealer
liquidity and a heavy new-issue calendar in May, June and early July 1999
further constrained liquidity in the high-yield market. As a result, as the
period progressed, the high-yield market, driven by technical, credit and
liquidity concerns, became increasingly selective in the new-issue and secondary
market: (i) preferring larger, more liquid issues from higher-quality issuers
(ii) punishing underperformers delivering negative news; and (iii) demanding
tighter covenant packages and higher yields from new issues, which effectively
repriced the secondary market to lower levels.
On a more positive note, new-issue volume declined to relatively low levels in
September and October, alleviating some of the pressure on the high-yield
market, while funds have started to return to the market in November as the
first week of positive mutual fund inflows in ten weeks was recorded early in
the month.
For the period, the high-yield market's top performers included basic industries
such as energy, metals/mining, containers and paper & forest products, driven by
a sustained recovery in commodity prices; the less cyclical gaming and utilities
sectors and cable & media and banking. The worst performers included health
care, due to the industry's troubles with the recently imposed Medicare
reimbursement system, textile/apparel, which is suffering from cheaper imports,
consumer products and food/beverage on earnings concerns at selected credits and
restaurants, retail and capital goods.
The Fund's performance was helped by overweightings in containers, metals/mining
and gaming and underweightings in health care, textile/apparel and restaurants.
The Fund's performance was adversely impacted by overweightings in consumer
products, capital goods, food/beverage and retail and underweightings in energy,
paper & forest products and utilities.
On October 31, 1999, the high-yield market was yielding 11.56%, up from 11.11%
at the beginning of the fiscal year. The excess yield over Treasuries was 5.56%,
down from 6.64% at fiscal 1998 year-end.
Going forward, we expect the high-yield market to suffer continued volatility
through the end of the calendar year as the financial markets focus on
inflation, interest rate, credit and Y2K concerns, and broker/dealers and
investors withhold committing cash to the market. Early in the new calendar
year, we expect that at least some of these issues will be settled, which should
result in improved liquidity for the market.
EMERGING MARKET DEBT
Emerging markets debt returned 3.55% for the six months ended October 31, 1999
as measured by the JP Morgan Emerging Markets Bond Index Plus. The market
performed well in an environment that included an aggressive interest rate
policy by the Fed and the first default on a Brady bond by Ecuador. Market
returns over the past six months were dominated by Russia, Bulgaria, Morocco and
Brazil.
The Fed raised interest rates by 50 basis points during the past six months in
response to the ongoing strength of the U.S. economy. The process of
anticipating these two 25-basis-point increases influenced bond market investors
worldwide and impacted emerging markets debt. The Fed emphasized its commitment
to price stability and its governors made a number of public speeches outlining
their concerns. This high-profile approach on the part of the Fed has increased
the bond market's focus on the U.S. economy and the outlook for increases in
rates.
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND II INC
Russia was the best-performing country in the Index over the past six months,
returning 31.37%. The country continues to work with the IMF on an expanded
financing package. Spokesmen for the IMF indicated pleasant surprise at the
status of Russia's macroeconomic reforms. On the political front, Kremlin
intrigue continues as the Duma elections in December and the presidential
election in June 2000 approach. Prime Minister Stepashin was fired by President
Yeltsin and replaced by Vladimir Putin, the fifth Russian prime minister in 17
months. These political issues will likely keep volatility in Russia high over
the next few months. We have remained overweight in Russia during the past six
months.
Bulgaria returned 14.85% during the past six months. The local economy continues
to recover from the impact of the Kosovo crisis as regional trade has rebounded.
In addition, the country enjoys the support of multilateral agencies and Western
governments for its disciplined approach to dealing with its economic problems.
We continue to hold an overweight position in Bulgaria.
Brazil's recovery from the effects of its January currency devaluation continues
to be impressive. Brazil has exceeded the fiscal targets outlined in its IMF
agreement for the first six months of 1999. In addition, unemployment and
inflation levels have exceeded projections and underscore the progress Brazil is
making in reforming its economy. Brazil continues to have an ambitious
structural reform agenda, which includes changes to the taxation and social
security schemes. Despite recent political noise, the working relationship
between the administration and Congress remains intact and we expect further
positive developments on these important initiatives in 2000. Brazil returned
5.61% in the six months ended October 31, 1999. We are market weight on Brazil
on a spread duration basis. (Spread duration defines the sensitivity of a bond's
price to a 1% move in its credit spread.)
King Hassan II of Morocco died after 38 years on the throne. He has been
replaced by his eldest son, King Mohammed VI. We expect the policies that have
made Morocco a steadily improving credit will be continued by the new king. In
another important development in Morocco, a cellular telephone license has been
awarded to Telefonica for a price of $1.1 billion and a commitment to spend an
additional $700 million developing the network. The proceeds from this sale will
be used to fund a variety of government initiatives in Morocco. Morocco has been
a long-term overweight position in the portfolio. It returned 11.17% over the
past six months.
In a development with potentially negative implications for all emerging
markets, Ecuador defaulted on a $96 million coupon payment on its Brady bonds
due on August 31, 1999. In addition, Ecuador also announced plans to restructure
its $6 billion of Brady debt outstanding. Any restructuring is expected to take
considerable time and involve a number of important parties including the
Ecuadorian government and Congress, the IMF and international investors. It is
too early to make a definite determination of value in Ecuador until a firm
restructuring proposal is presented.
OUTLOOK
Our outlook for emerging markets debt is positive based upon the current spread
level of 975 basis points over Treasuries. The economic rebound in Asia and the
apparent bottoming of the recession in many Latin American countries points to
an improving macroeconomic environment for emerging countries. We expect the
market to remain volatile but believe that at current spread levels we are being
well compensated for this price risk.
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND II INC
In a continuing effort to provide timely information concerning High Income Fund
II Inc, shareholders may call 1-888-777-0102 (toll free), Monday through Friday
from 8:00 a.m. to 6:00 p.m. EST for the Fund's current net asset value, market
price and other information regarding the Fund's portfolio holdings and
allocations. For information concerning your HIX stock account, please call PFPC
Global Fund Services at 1-800-331-1710.
Thank you for your investment in the Salomon Brothers High Income Fund II Inc.
We look forward to helping you pursue your investment goals in the years to
come.
Sincerely,
/s/ Heath B. McLendon /s/ Peter J. Wilby
Heath B. McLendon Peter J. Wilby
Chairman and President Executive Vice President
/s/ Beth A. Semmel
Beth A. Semmel
Executive Vice President
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND II INC
Schedule of Investments (unaudited)
October 31, 1999
<TABLE>
<CAPTION>
Face
Amount Security Value
- ----------------------------------------------------------------------------------------------
Corporate Bonds -- 63.6%
Basic Industries -- 7.7%
<C> <S> <C>
$10,000,000 AEI Holding Co. Inc., 10.500% due 12/15/05(a)......................$ 8,800,000
10,000,000 Glencore Nickel Property Ltd., 9.000% due 12/1/14.................. 8,562,500
5,000,000 Huntsman Corp., 9.500% due 7/1/07(a)............................... 4,650,000
7,500,000 Huntsman Packaging Corp., 9.125% due 10/1/07....................... 7,106,250
Lyondell Chemicals Inc.:
2,500,000 9.875% due 5/1/07................................................ 2,475,000
2,500,000 10.875% due 5/1/09............................................... 2,506,250
5,500,000 Millar Western Forest Products, 9.875% due 5/15/08................. 5,390,000
4,250,000 P&L Coal Holding Corp., 9.625% due 5/15/08......................... 4,069,375
6,000,000 PCI Chemicals Canada Inc., 9.250% due 10/15/07..................... 4,462,500
7,250,000 Philipp Brothers Chemicals Inc., 9.875% due 6/1/08................. 6,235,000
6,000,000 Radnor Holdings Corp., 10.000% due 12/1/03......................... 6,105,000
5,000,000 Republic Technologies International, 13.750% due 7/15/09(a)........ 4,925,000
5,000,000 ZSC Specialty Chemicals PLC, 11.000% due 7/1/09(a)................. 5,037,500
--------------
70,324,375
--------------
Consumer Cyclicals -- 4.7%
7,050,000 Archibald Candy Corp., 10.250% due 7/1/04.......................... 6,909,000
4,000,000 Cole National Group, Inc., 8.625% due 8/15/07...................... 3,230,000
5,000,000 Guitar Center Inc., 11.000% due 7/1/06............................. 5,181,250
5,000,000 HMH Properties Inc., 7.875% due 8/1/08............................. 4,350,000
3,500,000 Mattress Discount Co., 12.625% due 7/15/07(a)...................... 3,290,000
5,750,000 Metris Companies Inc., 10.125% due 7/15/06(a)...................... 5,505,625
10,000,000 Musicland Group Inc., 9.875% due 3/15/08........................... 8,450,000
2,025,000 Pillowtex Corp., 9.000% due 12/15/07............................... 708,750
5,000,000 Synthetic Industries Inc., 9.250% due 2/15/07...................... 5,000,000
--------------
42,624,625
--------------
Consumer Non-Cyclicals -- 15.4%
11,000,000 AKI Inc., 10.500% due 7/1/08....................................... 10,601,250
5,000,000 ALARIS Medical Systems, Inc., 9.750% due 12/1/06................... 4,437,500
2,250,000 American Safety Razor Co., 9.875% due 8/1/05....................... 2,261,250
10,000,000 Ameriserve Food Distribution Inc., 10.125% due 7/15/07............. 5,000,000
4,500,000 Anchor Advanced Products Inc., 11.750% due 4/1/04.................. 4,410,000
7,000,000 Aztar Corp., 8.875% due 5/15/07.................................... 6,615,000
7,250,000 The Derby Cycle Corp., 10.000% due 5/15/08......................... 4,422,500
8,500,000 French Fragrances Inc., 10.375% due 5/15/07........................ 7,650,000
10,000,000 Home Interiors & Gifts Inc., 10.125% due 6/1/08.................... 8,400,000
7,750,000 Horseshoe Gaming LLC, 9.375% due 6/15/07........................... 7,711,250
- ----------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
Page 5
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND II INC
Schedule of Investments (unaudited) (continued)
October 31, 1999
<TABLE>
<CAPTION>
Face
Amount Security Value
- ----------------------------------------------------------------------------------------------
Consumer Non-Cyclicals -- 15.4% (continued)
<C> <S> <C>
$ 6,000,000 Imperial Holly Corp., 9.750% due 12/15/07..........................$ 5,625,000
10,000,000 Iowa Select Farms L.P., 10.750% due 12/1/05 (a).................... 8,062,500
5,815,000 Isle of Capri Casinos, 8.750% due 4/15/09.......................... 5,262,575
5,500,000 Majestic Star Casinos Inc., 10.875% due 7/1/06..................... 5,403,750
4,500,000 Moll Industries Inc., 10.500% due 7/1/08........................... 3,015,000
7,500,000 Polaroid Corp., 11.500% due 2/15/06................................ 7,425,000
4,000,000 Premier International Foods, 12.000% due 9/1/09 (a)................ 4,030,000
10,000,000 Pueblo Xtra International, Inc., 9.500% due 8/1/03................. 7,256,250
11,500,000 Revlon Worldwide Corp., zero coupon bond due 3/15/01............... 2,645,000
37,500,000 Sunbeam Corp., zero coupon bond due 3/25/18........................ 5,671,875
Sun International Hotels Ltd.:
3,000,000 9.000% due 3/15/07................................................. 2,790,000
4,500,000 8.625% due 12/15/07................................................ 4,151,250
10,000,000 Triarc Consumers Products Group, 10.250% due 2/15/09 (a)........... 9,425,000
6,000,000 Windmere-Durable Holdings Inc., 10.000% due 7/31/08................ 5,760,000
3,000,000 Winsloew Furniture, Inc., 12.750% due 8/15/07 (a).................. 2,940,000
--------------
140,971,950
--------------
Energy -- 1.7%
5,500,000 Canadian Forest Oil Ltd., 8.750% due 9/15/07....................... 5,252,500
10,000,000 Continental Resources Corp., 10.250% due 8/1/08.................... 8,275,000
2,000,000 Pennzoil Co., 10.250% due 11/1/05.................................. 2,222,500
--------------
15,750,000
--------------
Financial -- 3.0%
2,000,000 Airplanes Pass-Through Trust, Series D, 10.875% due 3/15/19........ 1,784,140
5,000,000 Avis Rent A Car, Inc., 11.000% due 5/1/09 (a)...................... 5,187,500
ContiFinancial Corp.:
6,500,000 7.500% due 3/15/02................................................. 1,560,000
6,000,000 8.375% due 8/15/03................................................. 1,440,000
2,445,000 8.125% due 4/1/08.................................................. 586,800
8,000,000 Morgan Stanley Aircraft Finance, Series 1A, Class D1, 8.700%
due 3/15/23...................................................... 6,960,000
7,500,000 Nationwide Credit Inc., 10.250% due 1/15/08........................ 4,190,625
5,500,000 Williams Scotsman Inc., 9.875% due 6/1/07.......................... 5,252,500
--------------
26,961,565
--------------
Industrial - Manufacturing -- 8.6%
2,500,000 Aqua Chemical Inc., 11.250% due 7/1/08............................. 1,621,875
3,000,000 Blount Inc., 13,000% due 8/1/09 (a)................................ 3,078,750
8,800,000 Breed Technologies Inc., 9.250% due 4/15/08 (b).................... 352,000
- ----------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
Page 6
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND II INC
Schedule of Investments (unaudited)(continued)
October 31, 1999
<TABLE>
<CAPTION>
Face
Amount Security Value
- ----------------------------------------------------------------------------------------------
Industrial - Manufacturing -- 8.6% (continued)
<C> <S> <C>
$ 8,500,000 Communication Instruments, 10.000% due 9/15/04.....................$ 7,097,500
Doman Industries Inc.:
2,000,000 8.750% due 3/15/04................................................. 1,635,000
2,500,000 12.000% due 7/1/04................................................. 2,575,000
3,000,000 Federal Mogal Inc., 7.500%, due 6/15/07............................ 2,673,750
7,000,000 Foamex L.P., 9.875% due 6/15/07.................................... 6,160,000
3,750,000 Hexcel Corp., 9.750% due 1/15/09................................... 3,131,250
2,500,000 International Utility Structures Inc., 10.750% due 2/1/08.......... 2,287,500
14,475,000 Jordan Industries Inc., zero coupon until 4/1/02 (11.750%
thereafter), due 4/1/09.......................................... 9,300,188
10,000,000 Key Plastics Inc., 10.250% due 3/15/07............................. 8,225,000
8,000,000 Motors & Gears Inc., 10.750% due 11/15/06.......................... 7,880,000
6,000,000 Neenah Corp., 11.125% due 5/1/07................................... 5,625,000
4,000,000 Oxford Automotive Inc., 10.125% due 6/15/07........................ 3,670,000
6,500,000 Safety-Kleen Corp., 9.250% due 5/15/09............................. 6,175,000
7,500,000 Transdigm Inc., 10.375% due 12/1/08................................ 6,787,500
--------------
78,275,313
--------------
Media - Telecommunications -- 17.5%
2,136,263 Adelphia Communications Corp., 9.500% due 2/15/04 (c).............. 2,101,549
10,000,000 Advanstar Communications Inc., 9.250% due 5/1/08................... 9,425,000
10,500,000 Avalon Cable Holdings LLC, zero coupon until 12/1/03 (11.875%
thereafter), due 12/1/08......................................... 6,851,250
2,000,000 Call Net Enterprises Inc., zero coupon until 8/15/03 (8.940%
thereafter), due 8/15/08......................................... 1,130,000
2,000,000 Centennial Cellular, 10.750% due 12/15/08.......................... 2,090,000
4,750,000 Century Communications Corp., zero coupon bond due 1/15/08......... 2,060,313
12,500,000 Charter Communications Holdings LLC, zero coupon until 4/1/04
(9.920% thereafter), due 4/1/11.................................. 7,468,750
2,250,000 Citadel Broadcasting Co., 9.250% due 11/15/08...................... 2,216,250
Frontiervision Holdings:
8,500,000 Series B, zero coupon until 9/15/01 (11.875% thereafter), due
9/15/07.......................................................... 7,267,500
4,000,000 Zero coupon until 9/15/01 (11.875% thereafter), due 9/15/07........ 3,420,000
8,000,000 Granite Broadcasting Corp., 8.875% due 5/15/08..................... 7,680,000
10,000,000 GST Telecommunications, Inc., zero coupon until 5/1/03 (10.500%
thereafter), due 5/1/08.......................................... 4,700,000
7,500,000 Hollinger International Publishing, 9.250% due 2/1/06.............. 7,368,750
5,000,000 Intermedia Communications Inc., 8.600% due 6/1/08.................. 4,425,000
14,000,000 Lin Holdings Corp., zero coupon until 3/1/03 (10.000% thereafter),
due 3/1/08....................................................... 9,065,000
Nextel Communications, Inc.:
7,500,000 9.750% due 8/15/04................................................. 7,631,250
3,000,000 Zero coupon until 2/15/03 (9.950% thereafter), due 2/15/08......... 2,130,000
- ----------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
Page 7
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND II INC
Schedule of Investments (unaudited)(continued)
October 31, 1999
<TABLE>
<CAPTION>
Face
Amount Security Value
- ----------------------------------------------------------------------------------------------
Media - Telecommunications -- 17.5% (continued)
<C> <S> <C>
NTL Inc.:
$ 5,000,000 Zero coupon until 2/1/01 (11.500% thereafter), due 2/1/06........$ 4,375,000
10,000,000 Zero coupon until 10/1/03 (12.375% thereafter), due 10/1/08...... 6,750,000
5,000,000 Orange PLC, 9.000% due 6/1/09 (a).................................. 5,175,000
8,250,000 Price Communications Wireless, 9.125% due 12/15/06................. 8,332,500
6,500,000 Rogers Communications, Inc., 8.875% due 7/15/07.................... 6,597,500
10,000,000 R.H. Donnelley Corp., 9.125% due 6/1/08............................ 9,900,000
10,000,000 Sun Media Corp., 9.500% due 2/15/07................................ 10,000,000
Telewest Communications PLC:
2,500,000 9.625% due 10/1/06............................................... 2,550,000
4,500,000 Zero coupon until 10/1/00 (11.000% thereafter), due 10/1/07...... 4,095,000
1,250,000 Zero coupon until 4/15/04 (9.250% thereafter), due 4/15/09 (a)... 771,875
5,000,000 Transwestern Publishing Co., 9.625% due 11/15/07................... 4,837,500
16,500,000 United International Holdings, zero coupon until 2/15/03 (10.750%
thereafter), due 2/15/08......................................... 9,466,875
--------------
159,881,862
--------------
Services - Other -- 2.5%
7,000,000 American Business Information, 9.500% due 6/15/08.................. 5,985,000
9,000,000 Marsulex Inc., 9.625% due 7/1/08................................... 8,752,500
Pierce Leahy Corp.:
2,250,000 11.125% due 7/15/06.............................................. 2,385,000
2,000,000 8.125% due 5/15/08............................................... 1,840,000
5,000,000 Protection One Inc., 8.625% due 1/15/09 (a)........................ 1,500,000
3,000,000 Quantum Corp., 7.000% due 8/1/04................................... 2,430,000
--------------
22,892,500
--------------
Technology - Electronics -- 0.5%
5,000,000 Amphenol Corp., 9.875% due 5/15/07................................. 5,012,500
--------------
Transportation -- 2.0%
5,000,000 Enterprises Shipholding Corp., Sr. Notes, 8.875% due 5/1/08........ 3,000,000
4,000,000 Holt Group Inc., 9.750% due 1/15/06................................ 2,695,000
2,500,000 Northwest Airlines Corp., 7.625% due 3/15/05....................... 2,281,250
7,000,000 Stena Line, 10.625% due 6/1/08..................................... 4,891,250
8,474,207 Viacao Aerea Rio-Grandense SA (Varig), 9.600% due 2/10/05.......... 5,423,492
--------------
18,290,992
--------------
Total Corporate Bonds (Cost -- $670,519,545)....................... 580,985,682
--------------
- ----------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
Page 8
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND II INC
Schedule of Investments (unaudited)(continued)
October 31, 1999
<TABLE>
<CAPTION>
Face
Amount Security Value
- ----------------------------------------------------------------------------------------------
Sovereign Bonds -- 32.8%
Argentina -- 6.8%
Republic of Argentina:
<C> <S> <C>
$ 8,339,204 Bocon Pro 1, 2.857% due 4/1/07 (d)................................$ 5,564,954
2,244,000 FRB, 6.8125% due 3/31/05 (d)...................................... 1,987,343
Global Bond:
3,000,000 8.750% due 7/10/02............................................... 2,601,000
500,000 14.250% due 11/30/02 ............................................ 475,000
6,500,000 11.786% due 4/10/05 (d).......................................... 5,785,000
6,380,000 11.750% due 2/12/07.............................................. 5,542,625
37,970,000 11.750% due 4/7/09............................................... 37,362,480
3,270,000 11.375% due 1/30/17.............................................. 3,139,200
--------------
62,457,602
--------------
Brazil -- 6.2%
Federal Republic of Brazil:
14,787,383 C Bond, 8.000% due 4/15/14 (c).................................... 9,907,548
1,000,000 DCB, Series L, 7.000% due 4/15/12 (d)............................. 654,375
6,300,023 Exit, 6.000% due 9/15/13.......................................... 3,843,014
23,500,000 FLIRB, Series L, 5.000% due 4/15/09 (d)........................... 15,480,625
16,088,000 Global Bond, 14.500% due 10/15/09................................. 16,683,256
8,909,153 MYDFA, 6.8125% due 9/15/07 (d).................................... 6,464,660
5,000,000 NMB, Series L, 7.000% due 4/15/09 (d)............................. 3,689,865
--------------
56,723,343
--------------
Bulgaria -- 2.1%
28,000,000 Republic of Bulgaria, FLIRB, Series A, 2.750% due 7/28/12 (d)...... 18,900,000
--------------
Colombia -- 1.8%
Republic of Colombia:
3,500,000 7.270% due 6/15/03 (a)............................................ 3,115,000
1,920,000 10.875% due 3/9/04................................................ 1,929,600
12,160,000 12.471% due 8/13/05 (d)........................................... 11,430,400
--------------
16,475,000
--------------
Croatia -- 1.5%
Croatia Government:
10,250,000 Series A, 6.456% due 7/31/10 (d).................................. 8,392,188
6,490,806 Series B, 6.456% due 7/31/06 (d).................................. 5,573,980
--------------
13,966,168
--------------
- ----------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
Page 9
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND II INC
Schedule of Investments (unaudited)(continued)
October 31, 1999
<TABLE>
<CAPTION>
Face
Amount Security Value
- ----------------------------------------------------------------------------------------------
Ecuador -- 0.6%
<C> <S> <C>
$16,000,000 Republic of Ecuador, Par Bond, 4.000% due 2/28/25 (b)(d)...........$ 5,260,000
--------------
Ivory Coast -- 0.8%
Republic of Ivory Coast:
7,000,000 FLIRB, 2.000% due 3/29/18 (d).................................... 1,750,000
17,324,999 PDI Bond, 2.000% due 3/29/18 (d)................................. 5,284,125
--------------
7,034,125
--------------
Mexico -- 2.4%
United Mexican States, Global Bond:
18,200,000 11.375% due 9/15/16.............................................. 19,314,750
2,000,000 11.500% due 5/15/26.............................................. 2,240,000
--------------
21,554,750
--------------
Peru -- 1.5%
Republic of Peru:
6,175,000 FLIRB, 3.750% due 3/7/17 (d)..................................... 3,407,828
17,000,000 PDI, 4.500% due 3/7/17 (d)....................................... 10,731,250
--------------
14,139,078
--------------
Russia -- 3.6%
Russia:
30,440,000 Federation, 11.750% due 6/10/03.................................. 18,644,500
1,275,000 Federation, 11.750% due 6/10/03 (a).............................. 780,937
24,000,000 Ministry of Finance, Global Bond, 12.750% due 6/24/28............ 13,290,000
--------------
32,715,437
--------------
Venezuela -- 5.5%
Republic of Venezuela:
5,059,505 DCB, 6.3125% due 12/18/07 (d).................................... 4,063,415
30,892,610 FLIRB, Series A, 6.875% due 3/31/07 (d).......................... 24,646,510
6,071,380 FLIRB, Series B, 6.875% due 3/31/07 (d).......................... 4,843,823
15,025,000 Global Bond, 13.625% due 8/15/18................................. 13,635,188
5,350,000 Global Bond, 9.250% due 9/15/27.................................. 3,612,588
--------------
50,801,524
--------------
Total Sovereign Bonds (Cost -- $303,834,348)....................... 300,027,027
--------------
- ----------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
Page 10
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND II INC
Schedule of Investments (unaudited)(continued)
October 31, 1999
<TABLE>
<CAPTION>
Face
Amount Security Value
- ----------------------------------------------------------------------------------------------
Loan Participations(d)(e) -- 3.1%
<C> <S> <C>
$10,601,095 Kingdom of Morocco, Tranche A, 5.90625% due 1/1/09 (J.P. Morgan
Securities)......................................................$ 9,222,950
18,997,873 The People's Democratic Republic of Algeria, Tranche 1, 6.8125%
due 9/4/06 (Chase Manhattan Bank)................................ 14,010,930
5,000,000 The People's Democratic Republic of Algeria, Tranche 3, 6.8125%
due 3/4/10 (Chase Manhattan Bank)................................ 3,450,000
1,300,000 The People's Democratic Republic of Algeria, Tranche A, 7.500%
due 3/4/00 (Chase Manhattan Bank)................................ 1,283,750
--------------
Total Loan Participations (Cost -- $27,773,017).................... 27,967,630
--------------
Shares Security Value
- ----------------------------------------------------------------------------------------------
Preferred Stock(f) -- 0.0%
TCR Holding:
17,552 Class B.......................................................... 175
9,654 Class C.......................................................... 97
25,451 Class D.......................................................... 255
52,657 Class E.......................................................... 527
--------------
Total Preferred Stock (Cost -- $6,260)............................. 1,054
--------------
Warrants(f) -- 0.4%
28,550 Republic of Argentina, expire on 12/3/99........................... 64,238
52,300 United Mexican States, expire on 2/18/00........................... 3,634,850
--------------
Total Warrants (Cost -- $2,828,031)................................ 3,699,088
--------------
- ----------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
Page 11
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND II INC
Schedule of Investments (unaudited)(continued)
October 31, 1999
<TABLE>
<CAPTION>
Contracts Security Value
- ----------------------------------------------------------------------------------------------
<S> <C>
Purchased Options(f) -- 0.0%
1,103,500 Hong Kong Dollar Put, expire on 1/20/00, exercise at $7.8025 (Cost
-- $1,101,925)...................................................$ 41,822
--------------
Face
Amount Security Value
- ----------------------------------------------------------------------------------------------
Repurchase Agreement -- 0.1%
$ 1,074,000 State Street Bank & Trust, 5.180% due 11/1/99; Proceeds at
maturity -- $1,074,464; (Fully collateralized by U.S.
Treasury Bonds, 12.000% due 8/15/13; Market value -- $1,096,125)
(Cost -- $1,074,000)............................................. 1,074,000
--------------
Total Investments -- 100% (Cost -- $1,007,137,126*)................$ 913,796,303
==============
</TABLE>
- -------------
(a) Security is exempt from registration under Rule 144A of the Securities Act
of 1933. This security may be resold in transactions that are exempt from
registration, normally to qualified institutional buyers.
(b) Security is currently in default.
(c) Payment-in-kind security for which part of the income earned may be paid in
the form of additional principal.
(d) Rate shown reflects the current rate on variable rate or step coupon rate
instruments.
(e) Participation interests were acquired through the financial institutions
indicated parenthetically.
(f) Non-income producing security.
* Aggregate cost for Federal income tax purposes is substantially the same.
Abbreviations used in schedule:
-------------------------------
DCB -- Debt Conversion Bond.
FLIRB -- Front Loaded Interest Reduction Bond
FRB -- Floating Rate Bond
NMB -- New Money Bond
PDI -- Past Due Interest
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
Page 12
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND II INC
Statement of Assets and Liabilities (unaudited)
October 31, 1999
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments, at value (Cost -- $1,007,137,126).............................$ 913,796,303
Cash....................................................................... 898
Interest receivable........................................................ 23,741,316
Receivable for securities sold............................................. 3,342,983
Prepaid expenses........................................................... 29,064
--------------
Total Assets............................................................... 940,910,564
--------------
LIABILITIES:
Bank Loan (Note 8)......................................................... 105,000,000
Payable for securities purchased........................................... 759,383
Management fees payable.................................................... 740,754
Loan interest payable...................................................... 654,379
Dividends payable.......................................................... 528,416
Administration fees payable................................................ 74,075
Accrued organizational expenses............................................ 29,700
Accrued expenses........................................................... 415,334
--------------
Total Liabilities.......................................................... 108,202,041
--------------
Total Net Assets...........................................................$ 832,708,523
==============
NET ASSETS:
Common Stock ($0.001 par value, 100,000,000 shares authorized; 66,741,739
shares outstanding)......................................................$ 66,742
Additional paid-in capital................................................. 997,889,143
Undistributed net investment income........................................ 2,082,031
Accumulated net realized loss on investments............................... (73,988,570)
Net unrealized depreciation on investments................................. (93,340,823)
--------------
Total Net Assets...........................................................$ 832,708,523
==============
Net Asset Value Per Share ($832,708,523 / 66,741,739 shares).................... $12.48
======
- ----------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
Page 13
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND II INC
Statement of Operations (unaudited)
For the Six Months Ended October 31, 1999
<TABLE>
<CAPTION>
INCOME:
<S> <C>
Interest................................................................ $ 56,289,057
--------------
EXPENSES:
Management fees (Note 2)................................................ 4,810,277
Interest expense (Note 8)............................................... 3,049,532
Administration fees..................................................... 481,028
Shareholder reporting................................................... 138,120
Amortization of deferred organization costs............................. 69,305
Legal fees.............................................................. 57,587
Audit fees.............................................................. 27,922
Directors' fees......................................................... 17,951
Other................................................................... 198,515
--------------
Total Expenses.......................................................... 8,850,237
--------------
Net Investment Income........................................................ 47,438,820
--------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS (NOTE 3):
Realized Loss From Security Transactions (excluding short-term securities):
Proceeds from sales................................................... 321,998,407
Cost of securities sold............................................... 347,585,346
--------------
Net Realized Loss on Investments........................................ (25,586,939)
--------------
Change in Net Unrealized Depreciation on Investments:
Beginning of period................................................... (46,456,810)
End of period......................................................... (93,340,823)
--------------
Increase in Net Unrealized Depreciation................................. (46,884,013)
--------------
Net Loss on Investments...................................................... (72,470,952)
--------------
Decrease in Net Assets from Operations....................................... $ (25,032,132)
==============
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
Page 14
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND II INC
Statement of Changes in Net Assets
For the Six Months Ended October 31, 1999 (unaudited)
and the Period Ended April 30, 1999(a)
<TABLE>
<CAPTION>
October 31 April 30
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income................................................... $ 47,438,820 $ 81,546,933
Net realized loss....................................................... (25,586,939) (48,401,631)
Increase in net unrealized depreciation................................. (46,884,013) (46,456,810)
-------------- --------------
Decrease in Net Assets From Operations.................................. (25,032,132) (13,311,508)
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income................................................... (46,051,800) (80,851,922)
-------------- --------------
Decrease in Net Assets From Distributions to Shareholders............... (46,051,800) (80,851,922)
-------------- --------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from initial offering (65,670,000 shares issued, net of
$1,545,000 offering costs)............................................ -- 983,505,000
Proceeds from shares issued on reinvestment of dividends
(1,065,072 shares issued)............................................. -- 14,350,880
-------------- --------------
Increase in Net Assets From Capital Share Transactions.................. -- 997,855,880
-------------- --------------
Increase (Decrease) in Net Assets............................................ (71,083,932) 903,692,450
NET ASSETS:
Beginning of period..................................................... 903,792,455 100,005
-------------- --------------
End of period*.......................................................... $ 832,708,523 $ 903,792,455
============== ==============
*Includes undistributed net investment income of:............................ $ 2,082,031 $ 695,011
============== ==============
</TABLE>
- ---------------
(a) For the period from May 28, 1998 (commencement of operations) to April 30,
1999.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
Page 15
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND II INC
Statement of Cash Flows (unaudited)
For the Six Months Ended October 31, 1999
<TABLE>
<S> <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Purchases of long-term portfolio investments............................. $ (333,186,452)
Proceeds from disposition of long-term portfolio investments and
principle paydowns..................................................... 333,963,153
Net sale of short-term portfolio investments............................. 11,044,000
--------------
11,820,701
Net investment income.................................................... 47,438,820
Capitalized income on payment-in-kind securities......................... (557,530)
Amortization of net premium/discount on investments...................... (11,902,875)
Net change to receivables/payables related to operations................. (746,572)
--------------
Net Cash Flows Provided by Operating Activities.......................... 46,052,544
CASH FLOWS USED BY FINANCING ACTIVITIES:
Cash dividends paid...................................................... (46,051,800)
--------------
Net Increase in Cash.......................................................... 744
Cash, Beginning of Period..................................................... 154
--------------
Cash, End of Period........................................................... $ 898
==============
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
Page 16
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND II INC
Notes to Financial Statements (unaudited)
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 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 Generally Accepted
Accounting Principles ("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 at 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.
(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
Page 17
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND II INC
Notes to Financial Statements (unaudited) (continued)
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) DEFERRED ORGANIZATION COSTS. Organization costs amounting to $85,000 were
incurred in connection with the organization of the Fund. These costs have been
deferred and were being amortized ratably over a five-year period from
commencement of operations in May 1998. However, in accordance with the AICPA
Statement of Position No. 98-5, "Reporting on the Costs of Start-up Activities",
the Fund has expensed the unamortized amount of this asset on the first day of
its second fiscal year. As of October 31, 1999, all deferred organization costs
have been expensed.
(f) 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.
Note 2. Management Fee and Other Transactions
Salomon Brothers Asset Management Inc, a wholly-owned subsidiary of Salomon
Smith Barney Holdings ("SSBH"), acts as investment manager ("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.
SSB Citi Fund Management LLC ("SSBC"), formerly known as SSBC Fund Management
Inc., another subsidiary of SSBH, acts as the Fund's administrator
("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 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 October 31, 1999, the Investment Manager and Salomon Smith Barney Inc. owned
6,667 and 6,519 shares, respectively of the Fund.
Certain officers and/or directors of the Fund are also officers and/or directors
of the investment manager.
Page 18
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND II INC
Notes to Financial Statements (unaudited) (continued)
Note 3. Portfolio Activity
During the six months ended October 31, 1999, the aggregate cost of purchases
and proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
Purchases........................................... $ 321,523,910
=============
Sales............................................... $ 321,998,407
=============
At October 31, 1999, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
Gross unrealized appreciation....................... $ 14,969,753
Gross unrealized depreciation....................... (108,310,576)
-------------
Net unrealized depreciation......................... $ (93,340,823)
=============
Note 4. 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 October 31, 1999, the Fund held loan participations with a total cost of
$27,773,017.
Note 5. 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 involve 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.
Page 19
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND II INC
Notes to Financial Statements (unaudited) (continued)
Note 6. Dividends Subsequent to October 31, 1999
The Board of Directors of the Fund declared a common stock dividend from net
investment income of $0.115 per share for the months of November and December
1999, payable on November 26 and December 23, 1999 to shareholders of record on
November 16 and December 14, 1999, respectively.
Note 7. Capital Loss Carryforward
At April 30, 1999, the Fund had, for Federal income tax purposes, a capital loss
carryforward of approximately $32,298,000, available to offset future capital
gains through April 30, 2007. 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.
Note 8. Bank Loan
The Fund has outstanding a $105,000,000 loan pursuant to a credit agreement with
Chase Manhattan Bank. The current interest rate on the loan is 6.06375% and the
maturity date is December 22, 1999.
Page 20
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND II INC
Financial Highlights
Data for a share of capital stock outstanding throughout the year ended April
30, except where noted:
<TABLE>
<CAPTION>
1999(1) 1999(2)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of Period............................................ $ 13.54 $ 15.00
-------- --------
Income (Loss) From Operations:
Net investment income...................................................... 0.71 1.23
Net realized and unrealized loss........................................... (1.08) (1.45)
-------- --------
Total Loss From Operations...................................................... (0.37) (0.22)
-------- --------
Offering Costs on Issuance of Common Stock...................................... -- (0.02)
-------- --------
Less Distributions From:
Net investment income...................................................... (0.69) (1.22)
-------- --------
Net Asset Value, End of Period.................................................. $ 12.48 $ 13.54
======== ========
Per Share Market Value, End of Period........................................... $10.8125 $ 12.625
======== ========
Total Return, Based on Market Price Per Share(3)++.............................. (9.30)% (7.57)%
Ratios to Average Net Assets+:
Total expenses, including interest expense................................. 2.06% 1.54%
Total expenses, excluding interest expense (operating expenses)............ 1.35% 1.24%
Net investment income...................................................... 11.07% 9.84%
Bank Loans Outstanding, End of Period (000s).................................... $105,000 $105,000
Weighted Average Interest Rate on Bank Loans.................................... 5.75% 5.72%
Net Assets, End of Period (000s)................................................ $832,709 $903,792
Portfolio Turnover Rate......................................................... 34% 66%
- --------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the six months ended October 31, 1999 (unaudited).
(2) For the period May 28, 1998 (commencement of operations) through April 30,
1999.
(3) 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 21
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND II INC
Selected Quarterly Financial Information (unaudited)
Summary of quarterly results of operations:
Net Realized &
Net Investment Unrealized
Income Gain (Loss)
------------------ -------------------
Quarters Ended(1) Total Per Share Total Per Share
- --------------------------------------------------------------------------------
July 31, 1998(2)....................... $11,896 $0.18 $(9,730) $(0.15)
October 31, 1998....................... 22,489 0.34 (138,586) (2.10)
January 31, 1999....................... 23,108 0.35 32,169 0.48
April 30, 1999......................... 24,054 0.36 21,289 0.32
July 31, 1999.......................... 22,833 0.34 (44,121) (0.66)
October 31, 1999....................... 24,606 0.37 (28,350) (0.42)
- -----------
(1) Totals expressed in thousands of dollars except per share amounts.
(2) For the period May 28, 1998 (commencement of investment operations) through
July 31, 1998.
Other Information (unaudited)
Year 2000. The investment management services provided to the Fund by the
Investment Manager depend in large part on the smooth functioning of its
computer systems. Many computer software systems in use today cannot recognize
the year 2000, but revert to 1900 or some other date, due to the manner in which
the dates were encoded or calculated. The capability of these systems to
recognize the year 2000 could have a negative impact on the Investment Manager's
provision of investment management services, including handling of securities
trades, pricing and account services. The Investment Manager has advised the
Fund that it has been reviewing all of their computer systems and actively
working on necessary changes to its systems to prepare for the year 2000 and
expects that given the extensive testing which it is undertaking its systems
will be year 2000 compliant before such date. In addition, the Investment
Manager has been advised by certain of the Fund's service providers that they
are also in the process of modifying their systems with the same goal. There
can, however, be no assurance that the Investment Manager or any other service
provider will be successful in achieving year 2000 compliance, or that
interaction with other non-complying computer systems will not impair services
to the Fund at that time.
Page 22
<PAGE>
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.
Page 23
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND II INC
Dividend Reinvestment Plan (unaudited) (continued)
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 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
Page 24
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND II INC
Dividend Reinvestment Plan (unaudited) (continued)
proxy will include those Shares purchased pursuant to the Plan. The Agent will
forward to Participants any proxy solicitation material and will vote any Shares
so held for Participants only in accordance with the proxy returned by
Participants to the Fund. Upon written request, the Agent will deliver to
Participants, without charge, a certificate or certificates for the full Shares.
The Agent will confirm to Participants each acquisition made for their
respective accounts as soon as practicable but not later than 60 days after the
date thereof. Although Participants may from time to time have an undivided
fractional interest (computed to three decimal places) in a Share of the Fund,
no certificates for fractional shares will be issued. 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
Page 25
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND II INC
Dividend Reinvestment Plan (unaudited) (continued)
to the Agent in writing in advance of such termination to have the Agent sell
part or all of a Participant's Shares and remit the proceeds to Participant, the
Agent is authorized to deduct a $2.50 fee plus brokerage commission for this
transaction from the proceeds.
Any amendment or supplement shall be deemed to be accepted by each Participant
unless, prior to the effective date thereof, the Agent receives written notice
of the termination of the Participant's account under the Plan. Any such
amendment may include an appointment by the Agent in its place and stead of a
successor Agent under these terms and conditions, with full power and authority
to perform all or any of the acts to be performed by the Agent under these terms
and conditions. Upon any such appointment of an Agent for the purpose of
receiving 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)
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 26
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND II INC
Directors
CHARLES F. BARBER
Consultant; formerly Chairman,
ASARCO Inc.
DANIEL P. CRONIN
Vice President -- General Counsel,
Pfizer International Inc
HEATH B. MCLENDON
Managing Director, Salomon Smith Barney Inc.;
President and Director, SSB Citi Fund
Management LLC and Travelers Investment
Advisors, Inc.
RIORDAN ROETT
Professor and Director,
Latin American Studies Program,
Paul H. Nitze School of Advanced
International Studies,
Johns Hopkins University
JESWALD W. SALACUSE
Henry J. Braker Professor of
Commercial Law, and formerly Dean,
The Fletcher School of Law & Diplomacy
Tufts University
Officers
HEATH B. MCLENDON
Chairman and President
LEWIS E. DAIDONE
Executive Vice President and Treasurer
MAUREEN O'CALLAGHAN
Executive Vice President
JAMES E. CRAIGE
Executive Vice President
THOMAS K. FLANAGAN
Executive Vice President
BETH A. SEMMEL
Executive Vice President
PETER J. WILBY
Executive Vice President
ANTHONY PACE
Controller
CHRISTINA T. SYDOR
Secretary
Salomon Brothers High Income Fund II Inc
7 World Trade Center
New York, New York 10048
Telephone 1-888-777-0102
INVESTMENT MANAGER
Salomon Brothers Asset Management Inc
7 World Trade Center
New York, New York 10048
CUSTODIAN
PNC Bank, N.A.
17th and Chestnut Streets
Philadelphia, PA 19103
DIVIDEND DISBURSING AND TRANSFER AGENT
PFPC Global Fund Services
P.O. Box 8030
Boston, MA 02266-8030
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
LEGAL COUNSEL
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
NEW YORK STOCK EXCHANGE SYMBOL
HIX
<PAGE>
Salomon Brothers
High Income Fund II Inc
Semi-Annual Report
October 31, 1999
Salomon Brothers Asset Management
-----------------
PFPC Global Fund Services BULK RATE
P.O. Box 8030 U.S. POSTAGE
Boston, MA 02266-8030 PAID
STATEN ISLAND, NY
PERMIT No. 169
-----------------
HIXSEMI 10/99
