<PAGE>
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ZENIX
Income
Fund Inc.
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[LOGO OF SMITH BARNEY]
Semi-Annual Report
September 30, 1999
<PAGE>
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Zenix Income Fund Inc.
[PHOTO OF HEATH B. MCLENDON] [PHOTO OF JOHN C. BIANCHI]
Chairman Vice President and Investment Officer
Dear Shareholder:
We are pleased to provide you with the semi-annual report for the Zenix Income
Fund Inc. ("Fund") for the period ended September 30, 1999. We hope you find
this report to be useful and informative. Over the past six months the Fund paid
income dividends totaling $0.33 per common shareholders. The table below shows
the annualized distribution rate and six-month total return for the Fund based
on its September 30, 1999 net asset value ("NAV") per share and its New York
Stock Exchange ("NYSE") closing price.
Price Annualized Six-Month
Per Share Distribution Rate/1/ Total Return
--------- -------------------- ------------
$5.41 (NAV) 11.98% (3.78)%
$5.31 (NYSE) 12.20% (4.14)%
The Fund generated a total return of a negative 3.78% for the six-month period
ended September 30, 1999. The Fund's performance was unfavorable compared to the
six-month total return of a negative 1.99% for closed-end high yield bond funds
as reported by Lipper, Inc. (Lipper, Inc. is a major fund-tracking
organization). A full discussion of the past six month's economic and market
conditions as well as the investment strategy pursued by the Fund during this
time follows.
- --------------
1 The annualized distribution rate assumes a current monthly income dividend
rate of $0.054 per share for twelve months.
1
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<PAGE>
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Market and Economic Overview
The fixed income markets ended the third quarter of 1999 in a narrow trading
range with U.S. Treasuries fluctuating in the low 6% area. Bond investor
sentiment remained negative with continued fears over stronger worldwide growth
and potentially higher inflation. So far, the Federal Reserve Board ("Fed") has
raised short-term interest rates twice for a total of 50 basis points. If the
U.S. economy does not begin to slow, we would expect that the Fed may be
inclined to raise rates in November.2 In our opinion, the fixed income markets
have already priced this increase into the markets and it is reflected in
current bond prices.
Despite the strength in the U.S. economy, inflation rates have remained
contained and have not accelerated over the past nine months. Nonetheless, the
Fed appears to be not only concerned with current inflation rates, but the
impact of stronger world economic growth on future rates of inflation. The
improving economic conditions in Europe and Asia, may provide the Fed with
further impetus to fully reverse their 75 basis point easing that occurred
during the emerging market crisis in 1998.
During the third quarter of 1999, the high yield bond market declined, with the
higher quality segments of this market materially outperforming the lowest
quality segments. Lower quality issues generated much weaker results as
increasing default rates continued to have a negative affect on their
performance. We do not attribute the rising default trend in the high yield
market to a weakening economy. We believe that the rising default trend may be a
natural fallout from the increase in new issuance over the past three years
during which lot of merger and acquisition activity occurred. A number of
defaults are occurring among the less viable companies that are simply not
competitive in today's challenging economy.
Portfolio Strategy and Market Outlook
The Fund remains cautiously positioned with a heavy emphasis in better quality,
intermediate maturity "B" and "BB" rated high-yield bonds. The strongest
performing industry sectors in the high yield market continued to be in basic
materials (i.e. forest products, metals, mining, etc.), cable and media, and oil
and natural gas. The worst performing sectors included healthcare, chemicals,
home builders, and textile/apparel.
The Fund's portfolio repositioning over the past several months continued to
benefit its performance in September. Also, our continued emphasis on better
quality issues and our increased focus on basic industry issues contributed to
the Fund's performance. During the first half of 1999, the higher quality issues
had actually underperformed the lower quality issues by a meaningful margin
because of their
- ---------------
2 On Tuesday, November 16, 1999, the Federal Reserve Board raised short-term
rates by 25 basis points after this letter was written.
2
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<PAGE>
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higher sensitivity to rising treasury rates. Given our relatively higher quality
orientation versus our peer group, our total return performance was negatively
impacted. We especially lagged behind our high yield peer group since a number
of our high yield fund competitors had emphasized a combination of lower quality
issues, emerging market debt as well as common and preferred stock.
So far, during the second half of this year we have seen a sharp reversal of the
first quarter trends and that has negatively impacted the more aggressive high
yield funds. We intend to maintain style purity in the Fund with a meaningful
emphasis on better quality issues. Moreover, given the higher volatility in the
financial markets, we will continue to maintain the Fund's relatively sound
credit quality orientation.
We eliminated several underperforming companies during the early part of the
year. We will continue to selectively add attractively priced industrials in an
effort to create more balance in the Fund. In terms of quality, we have been
increasing our exposure to the middle B-rated segment of the market where we
have continued to find attractive yields.
And while no guarantees can be given, we are encouraged by our improved results
in the third quarter of 1999, and remain confident we can pick up additional
ground in the upcoming months. Also, we remain bullish on the total return
prospects of the high yield market at current valuation levels, especially given
the continued health of the economy.
Thank you for investing in the Zenix Income Fund Inc. We look forward to
continuing to help you pursue your investment goals. Should you have any
questions about your investment in the Fund, please call the First Data Investor
Services Group Inc. at (800) 331-1710.
Sincerely,
/s/ Heath B. McLendon /s/ John C. Bianchi
Heath B. McLendon John C. Bianchi, CFA
Chairman Vice President and
Investment Officer
October 15, 1999
3
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<PAGE>
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Take Advantage of the Fund's Dividend Reinvestment Plan!
Did you know that Fund investors who reinvest their dividends are taking
advantage of one of the most effective wealth-building tools available today?
Systematic investments put time to work for you through the strength of
compounding.
As an investor in the Fund, you can participate in its Dividend
Reinvestment Plan ("Plan"), a convenient, simple and efficient way to reinvest
your dividends and capital gains, if any, in additional shares of the Fund.
Below is a summary of how the Plan works.
Plan Summary
If you are a Plan participant who has not elected to receive your dividends
in the form of a cash payment then your dividends and capital gains
distributions will be reinvested automatically in additional shares of the Fund.
The number of common stock shares in the Fund you will receive in lieu of a
cash dividend is determined in the following manner. If the market price of the
common stock is equal to or higher than 98% of the net asset value per share
("NAV") on the determination date, you will be issued shares by the Fund at a
price reflecting 98% of the NAV, or 95% of the market price, whichever is
greater.
If the market price is less than 98% of the NAV at the time of valuation
(the close of business on the determination date), or if the Fund declares a
dividend or capital gains distribution payable only in cash, First Data
Investors Services Group, Inc. ("Plan Agent") will buy common stock for your
account in the open market.
If the Plan Agent begins to purchase additional shares in the open market
and the market price of the shares subsequently rises above 98% of the
previously determined NAV before the purchases are completed, the Plan Agent
will attempt to terminate purchases and have the Fund issue the remaining
dividend or distribution in shares at the greater of 98% of the previously
determined NAV or 95% of the market price. In that case, the number of Fund
shares you receive will be based on the weighted average of prices paid for
shares purchased in the open market and the price at which the Fund issues the
remaining shares.
Restated Plan Adopted
A more complete description of the current Plan appears in the section of
this report beginning on page 35. The descriptions herein are based on a
restated version of the Plan, which was recently adopted to reflect current
practices of the Plan agent and for the purpose of standardizing certain terms
among the various closed-end mutual funds managed by SSB Citi Fund Management
LLC, formerly known as SSBC Fund Management, Inc.
To find out more detailed information about the Plan and about how you can
participate, please call First Data Investors Services Group, Inc. at (800)
331-1710.
4
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<PAGE>
[LOGO OF SMITH BARNEY] Schedule of Investments
September 30, 1999 (unaudited)
================================================================================
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- -------------------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES -- 95.3%
Aerospace -- 0.9%
<S> <C> <C> <C>
565,000 B1* BE Aerospace Inc., Sr. Sub. Notes, 9.500% due 11/1/08 .... $ 566,412
380,000 B- Dunlop Standard Aerospace Holdings, Sr. Notes,
11.875% due 5/15/09+ .................................. 383,800
400,000 B- Fairchild Corp., Sr. Sub. Notes, 10.750% due 4/15/09 ..... 344,000
------------
1,294,212
------------
Air Freight/Delivery Services -- 0.2%
250,000 BBB- Atlas Air, Inc., Sr. Notes, 8.770% due 1/2/11 ............ 242,450
------------
Airlines -- 1.1%
1,745,000 BB Airplanes Pass-Through Trust, Corp., Asset-Backed
Securities, Series 1, Class D, 10.875% due 3/15/19 .... 1,570,500
------------
Aluminum -- 0.6%
Kaiser Aluminum & Chemical Corp., Sr. Sub Notes:
600,000 B3* 12.750% due 2/1/03 .................................... 609,000
160,000 B1* Series B, 10.875% due 10/15/06 ........................ 164,000
140,000 B1* Series D, 10.875% due 10/15/06 ........................ 143,500
------------
916,500
------------
Apparel -- 0.2%
400,000 B- Tropical Sportswear International Inc., Guaranteed
Sr. Sub. Notes, Series A, 11.000% due 6/15/08 ......... 360,000
------------
Auto Parts: Original Equipment Manufacture -- 0.7%
805,000 B Collins & Aikman Products, Sr. Sub. Notes,
11.500% due 4/15/06 ................................... 813,050
250,000 B Dura Operating Corp., Sr. Sub. Notes, 9.000% due 5/1/09 .. 237,500
------------
1,050,550
------------
Automotive Aftermarket -- 0.6%
865,000 B1* Exide Corp., Sr. Notes, 10.000% due 4/15/05 .............. 860,675
------------
Broadcasting -- 0.5%
130,000 B Capstar Broadcasting Corp., Sr. Discount Notes,
step bond to yield 11.002% due 2/1/09 ................. 111,475
Citadel Broadcasting Co., Sr. Sub. Notes:
200,000 B- 10.250% due 7/1/07 .................................... 206,000
400,000 B- 9.250% due 11/15/08 ................................... 395,000
------------
712,475
------------
</TABLE>
See Notes to Financial Statements.
5
<PAGE>
[LOGO OF SMITH BARNEY] Schedule of Investments (continued)
September 30, 1999 (unaudited)
================================================================================
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- ----------------------------------------------------------------------------------------
Building Materials -- 0.3%
<S> <C> <C> <C>
385,000 B Atrium Cos. Inc., Sr. Sub. Notes, 10.500% due 5/1/09 .. $ 369,600
-----------
Building Products -- 1.3%
295,000 B Amatek Industries Pty. Ltd., Sr. Sub. Notes,
12.000% due 2/15/08+ ............................... 278,037
350,000 B NCI Building Systems Inc., Sr. Sub. Notes,
9.250% due 5/1/09 .................................. 332,500
Nortek Inc., Sr. Notes:
125,000 B+ 8.875% due 8/1/08 .................................. 118,750
550,000 B+ Series B, 9.250% due 3/15/07 ....................... 537,625
565,000 B+ Series B, 9.125% due 9/1/07 ........................ 548,050
-----------
1,814,962
-----------
Cable Television -- 12.0%
1,860,000 B+ Adelphia Communications, Sr. Notes, Series B,
9.875% due 3/1/07 .................................. 1,878,600
Century Communications Corp.:
1,490,000 BB- Sr. Discount Notes, Series B, zero coupon to yield
9.528% due 1/15/08 .............................. 636,975
130,000 BB- Sr. Notes, 9.750% due 2/15/02 ...................... 132,275
915,000 B+ Charter Communications Holdings LLC/Charter
Communications Capital Corp., Sr. Discount Notes,
step bond to yield 9.887% due 4/1/11+ .............. 544,425
CSC Holdings Inc., Sr. Sub. Debentures:
1,360,000 BB- 9.875% due 2/15/13 ................................. 1,431,400
1,000,000 BB- 10.500% due 5/15/16 ................................ 1,085,000
495,000GBP B- Diamond Holdings PLC, Guaranteed Notes,
10.000% due 2/1/08@ ................................ 808,053
760,000 B Echostar DBS Corp., Sr. Notes, 9.375% due 2/1/09 ...... 751,450
420,000 B+ Insight Midwest, Sr. Sub. Notes, 9.750% due 10/1/09+ .. 424,200
NTL Inc., Sr. Notes:
1,345,000 B- 11.500% due 10/1/08 ................................ 1,445,875
525,000 B- Step bond to yield 12.329% due 10/1/08+ ............ 350,437
Rogers Cablesystems, Ltd., Guaranteed Sr. Sub.
775,000 BB- Debentures, 11.000% due 12/1/15@ ................... 875,750
1,250,000 B+ Telewest Communications PLC, Sr. Notes,
11.250% due 11/1/08 ................................ 1,340,625
4,670,000 B United International Holdings Inc., Sr. Discount Notes,
Series B, step bond to yield 11.284% due 2/15/08 ... 2,837,025
4,750,000 B2* United Pan-Europe Communications, Sr. Discount Notes,
step bond to yield 12.500% due 8/1/09+ ............. 2,689,687
-----------
17,231,777
-----------
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
[LOGO OF SMITH BARNEY] Schedule of Investments (continued)
September 30, 1999 (unaudited)
================================================================================
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- ----------------------------------------------------------------------------------------
Casinos - Gambling -- 2.2%
<S> <C> <C> <C>
105,000 BB+ Circus Circus Enterprises Inc., Sr. Sub. Debentures,
7.625% due 7/15/13 ................................. $ 89,250
565,000 B Harveys Casino Resorts, Guaranteed Sr. Sub. Notes,
10.625% due 6/1/06 ................................. 573,475
Hollywood Casino:
160,000 B First Mortgage Notes, 13.000% due 8/1/06+ .......... 165,600
160,000 B Guaranteed Sr. Sub. Notes, 11.250% due 5/1/07 ...... 162,000
530,000 B Hollywood Park, Inc., Sr. Sub. Notes,
9.250% due 2/15/07 ................................. 512,775
635,000 B+ Horseshoe Gaming Holding, Sr. Sub. Notes,
8.625% due 5/15/09 ................................. 604,838
465,000 B Isle of Capri Casinos, Sr. Sub. Notes,
8.750% due 4/15/09 ................................. 427,800
Station Casinos, Inc., Sr. Sub. Notes:
195,000 B+ 10.125% due 3/15/06 ................................ 200,363
500,000 B+ 8.875% due 12/1/08 ................................. 487,500
-----------
3,223,601
-----------
Chemicals - Major -- 1.3%
Huntsman Corp.:
4,000,000 B+ Sr. Discount Notes, zero coupon to yield 13.088%
due 12/31/09+ ................................... 1,040,000
205,000 B2* Sr. Sub. Notes, 9.500% due 7/1/07+ ................. 189,625
645,000 B+ Sr. Sub. Notes, 10.125% due 7/1/09+ ................ 630,488
-----------
1,860,113
-----------
Chemicals - Specialty -- 0.7%
Lyondell Chemical Co.:
320,000 BB Sr. Secured Notes, 9.625% due 5/1/07+ .............. 317,600
640,000 BB Sr. Secured Notes, 9.875% due 5/1/07+ .............. 635,200
25,000 B+ Sr. Sub. Notes, 10.875% due 5/1/09 ................. 25,250
-----------
978,050
-----------
Coal Mining -- 0.6%
960,000 B AEI Resources Inc., Guaranteed Notes,
10.500% due 12/15/05+ .............................. 864,000
-----------
Construction/AG Equipment/Trucks -- 0.2%
275,000 B Columbus McKinnon Corp., Guaranteed Sr. Sub. Notes,
8.500% due 4/1/08 .................................. 250,937
-----------
</TABLE>
See Notes to Financial Statements
7
<PAGE>
[LOGO OF SMITH BARNEY] Schedule of Investments (continued)
September 30, 1999 (unaudited)
================================================================================
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- ----------------------------------------------------------------------------------------
Containers - Packaging -- 3.8%
<S> <C> <C> <C>
785,000 B AEP Industries Inc., Sr. Sub. Notes,
9.875% due 11/15/07 ................................ $ 749,675
800,000ECUB1* BSN Financing Co., Guaranteed Sr. Sub. Notes,
10.250% due 8/1/09+ ................................ 871,167
225,000 B BWAY Corp., Guaranteed Sr. Sub. Notes, Series B,
10.250% due 4/15/07 ................................ 226,125
575,000 B Huntsman Packaging Corp., Guaranteed Sr. Sub. Notes,
9.125% due 10/1/07 ................................. 546,250
1,000,000DEMB Impress Metal Packaging Holdings, Sr. Sub. Notes,
9.875% due 5/29/07@ ................................ 577,153
1,075,000 B Stone Container Finance Corp., Guaranteed Sr. Notes,
11.500% due 8/15/06+ ............................... 1,127,406
Tekni-Plex Inc.:
260,000 B- Guaranteed Sr. Sub. Notes, Series B, 9.250%
due 3/1/08 ...................................... 251,550
1,000,000 B- Sr. Sub. Notes, Series B, 11.250% due 4/1/07 ....... 1,055,000
-----------
5,404,326
-----------
Contract Drilling -- 1.2%
655,000 BB Pride International Inc., Sr. Notes, 10.000% due 6/1/09 673,013
515,000 Ba3* R&B Falcon Corp., Sr. Notes, 12.250% due 3/15/06 ...... 542,038
555,000 BB- RBF Finance Corp., Guaranteed Sr. Notes,
11.375% due 3/15/09 ................................ 584,138
-----------
1,799,189
-----------
Discount Stores -- 1.2%
1,210,000 B+ Ames Department Stores, Sr. Notes,
10.000% due 4/15/06 ................................ 1,176,725
490,000 BB+ Kmart Corp., Debentures, 12.500% due 3/1/05 ........... 587,388
-----------
1,764,113
-----------
Diversified Commercial Services -- 1.3%
675,000 B+ Cia. Latino Americana de Infraestructura & Servicos S.A.,
Guaranteed Sr. Notes, 11.625% due 6/1/04+ .......... 411,750
1,000,000 B2* Intertek Finance PLC, Guaranteed Sr. Sub. Notes,
Series B, 10.250% due 11/1/06 ...................... 930,000
500,000 B- Outsourcing Solutions Inc., Sr. Sub. Notes,
11.000% due 11/1/06 ................................ 486,250
-----------
1,828,000
-----------
</TABLE>
See Notes to Financial Statements
8
<PAGE>
[LOGO OF SMITH BARNEY] Schedule of Investments (continued)
September 30, 1999 (unaudited)
================================================================================
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Diversified Financial Services -- 0.3%
Amresco Inc., Sr. Sub. Notes, Series A:
600,000 CCC+ 10.000% due 3/15/04 ................................ $ 390,000
135,000 CCC+ 9.875% due 3/15/05 ................................. 88,425
-----------
478,425
-----------
Diversified Manufacturing -- 0.7%
390,000 B- Blount Inc., Sr. Sub. Notes, 13.000% due 8/1/09+ ...... 405,600
700,000 B+ Park-Ohio Industries, Inc., Sr. Sub. Notes,
9.250% due 12/1/07 ................................. 647,500
-----------
1,053,100
-----------
Drugs - Generic -- 1.5%
2,300,000 BB ICN Pharmaceuticals Inc., Sr. Notes, Series B,
9.250% due 8/15/05 ................................. 2,196,500
-----------
Electronic Components -- 1.0%
725,000 B+ Celestica International Inc., Sr. Sub. Notes,
10.500% due 12/31/06 ............................... 768,500
815,000 B- Viasystems Inc., Sr. Sub. Notes, 9.750% due 6/1/07 .... 700,900
-----------
1,469,400
-----------
Engineering & Construction -- 0.7%
165,000 B- American Plumbing & Mechanic, Sr. Sub. Notes,
11.625% due 10/15/08+ .............................. 148,500
580,000 B Group Maintenance America Corp., Sr. Sub. Notes,
9.750% due 1/15/09 ................................. 556,800
255,000 BB- Integrated Electrical Services, Sr. Sub. Notes,
9.375% due 2/1/09 .................................. 248,625
-----------
953,925
-----------
Environmental Services -- 3.1%
4,000,000 B+ Allied Waste North America, Sr. Sub. Notes,
10.000% due 8/1/09+ ................................ 3,660,000
315,000 B+ IT Group Inc., Sr. Sub. Notes, 11.250% due 4/1/09+ .... 299,250
490,000 NR URS Corp., Sr. Sub. Notes, 12.250% due 5/1/09+ ........ 491,838
-----------
4,451,088
-----------
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
[LOGO OF SMITH BARNEY] Schedule of Investments (continued)
September 30, 1999 (unaudited)
================================================================================
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Food Distributors -- 1.8%
1,000,000 B2* Carrols Corp., Sr. Sub. Notes, 9.500% due 12/1/08 ..... $ 857,500
1,325,000 B Imperial Holly Corp., Guaranteed Sr. Sub. Notes,
9.750% due 12/15/07 ................................ 1,245,500
475,000 B- Premier International Foods PLC, Sr. Notes,
12.000% due 9/1/09+ ................................ 479,750
-----------
2,582,750
-----------
Foods - Specialty/Candy -- 0.9%
850,000 B- B&G Foods Inc., Guaranteed Sr. Sub. Notes,
9.625% due 8/1/07 .................................. 788,375
570,000 B+ Chiquita Brands International Inc., Sr. Notes,
10.000% due 6/15/09 ................................ 518,700
-----------
1,307,075
-----------
Forest Products -- 0.5%
660,000 B Ainsworth Lumber Co. Ltd., Sr. Notes,
12.500% due 7/15/07 ................................ 727,650
-----------
Home Building -- 0.4%
660,000 BB- U.S. Home Corp., Sr. Sub. Notes, 8.875% due 2/15/09 ... 605,550
-----------
Home Furnishings -- 0.3%
405,000 B Falcon Products Inc., Sr. Sub. Notes,
11.375% due 6/15/09 ................................ 395,887
-----------
Hospital - Nursing Management -- 2.3%
1,090,000 Ba3* Fresenius Medical Care Capital Trust I, Trust Preferred
Securities, 9.000% due 12/1/06 ..................... 1,068,200
2,585,000 B- Magellan Health Services, Inc., Sr. Sub. Notes,
9.000% due 2/15/08 ................................. 2,216,638
-----------
3,284,838
-----------
Hotel - Resort -- 4.1%
3,000,000 B- Courtyard By Marriott II LP/Courtyard Finance Co., Sr.
Secured Notes, Series B, 10.750% due 2/1/08 ........ 3,000,000
2,295,000 BB HMH Properties, Inc., Sr. Notes, Series C,
8.450% due 12/1/08 ................................. 2,128,612
855,000 B+ Intrawest Corp., Sr. Notes, 9.750% due 8/15/08 ........ 829,350
-----------
5,957,962
-----------
</TABLE>
See Notes to Financial Statements
10
<PAGE>
[LOGO OF SMITH BARNEY] Schedule of Investments (continued)
September 30, 1999 (unaudited)
================================================================================
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Insurance - Multi-Line -- 0.9%
1,000,000 BB+ SIG Capital Trust I, Guaranteed Trust Preferred Securities,
9.500% due 8/15/27@ ................................ $ 750,000
650,000 B Veritas Capital Trust, Guaranteed Trust Preferred
Securities, 10.000% due 1/1/28 ..................... 494,000
-----------
1,244,000
-----------
Internet Services -- 2.8%
325,000 NR Cybernet Internet Services International, Sr. Notes,
14.000% due 7/1/09+ ................................ 323,375
PSINet Inc., Sr. Notes:
355,000 B- 11.500% due 11/1/08 ................................ 359,438
880,000 B- 11.000% due 8/1/09+ ................................ 862,400
250,000ECUB- 11.000% due 8/1/09+ ................................ 258,262
200,000 B- Series B, 10.000% due 2/15/05 ...................... 192,000
1,075,000 NR Splitrock Services, Inc., Guaranteed Sr. Notes,
11.750% due 7/15/08 ................................ 967,500
Verio Inc., Sr. Notes:
360,000 B- 10.375% due 4/1/05 ................................. 357,750
380,000 B- 11.250% due 12/1/08 ................................ 390,450
460,000 CCC+ WAM!NET Inc., Guaranteed Sr. Discount Notes,
Series B, step bond to yield 13.392% due 3/1/05 .... 271,400
-----------
3,982,575
-----------
Leisure/Movies/Entertainment -- 1.0%
1,500,000 B- SFX Entertainment, Inc., Sr. Sub. Notes, Series B,
9.125% due 2/1/08 .................................. 1,380,000
-----------
Machinery - Industrial/Components -- 0.4%
518,000 B- Alvey Systems Inc., Sr. Sub. Notes, 11.375% due 1/31/03 525,770
-----------
Media Conglomerates -- 1.1%
975,000GBPB Polestar Corp. PLC, Sr. Notes, Series B,
10.500% due 5/30/08@ ............................... 1,557,559
-----------
Medical Specialties -- 0.3%
390,000 B- Hanger Orthopedic Group, Sr. Sub. Notes,
11.250% due 6/15/09+ ............................... 393,900
-----------
Metal/Minerals - Other -- 0.2%
325,000 B- Haynes International, Inc., Sr. Notes,
11.625% due 9/1/04 ................................. 304,688
-----------
</TABLE>
See Notes to Financial Statements
11
<PAGE>
[LOGO OF SMITH BARNEY] Schedule of Investments (continued)
September 30, 1999 (unaudited)
================================================================================
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Miscellaneous -- 0.2%
390,000 B- Key Plastics Inc., Series B, Sr. Sub. Notes,
10.250% due 3/15/07 ................................ $ 327,600
-----------
Multi-Sector Companies -- 0.3%
535,000 B- Triarc Consumer Beverage, Sr. Sub. Notes,
10.250% due 2/15/09+ ............................... 506,913
-----------
Newspapers -- 0.5%
810,000 B+ Garden State Newspapers, Sr. Sub. Notes,
8.625% due 7/1/11 .................................. 735,075
-----------
Oil & Gas Production -- 6.6%
Belco Oil & Gas Corp., Sr. Sub. Notes:
250,000 B1* 10.500% due 4/1/06 ................................. 257,500
600,000 B1* 8.875% due 9/15/07 ................................. 573,000
Canadian Forest Oil Ltd., Guaranteed Sr. Sub. Notes:
350,000 B 10.500% due 1/15/06 ................................ 360,500
500,000 B 8.750% due 9/15/07 ................................. 481,250
145,000 B Chesapeake Energy Corp., Sr. Notes, Series B,
9.625% due 5/1/05 .................................. 139,200
1,300,000 B+ Clark USA Inc., Sr. Notes, Series B, 10.875% due 12/1/05 1,111,500
400,000 B+ Nuevo Energy Co., Sr. Sub. Notes, 9.500% due 6/1/08+ .. 399,000
Ocean Energy Inc.:
900,000 BB- Guaranteed Sr. Sub. Debentures, 9.750% due 10/1/06 . 929,250
2,550,000 BB- Guaranteed Sr. Sub. Notes, 10.375% due 10/15/05 .... 2,671,125
980,000 B+ Parker Drilling Co., Sr. Notes, 9.750% due 11/15/06 ... 948,150
Plains Resources Inc., Sr. Sub. Notes:
135,000 B Series B, 10.250% due 3/15/06 ...................... 136,688
825,000 B Series E, 10.250% due 3/15/06+ ..................... 835,313
700,000 B Stone Energy Corp., Guaranteed Sr. Sub. Notes,
8.750% due 9/15/07 ................................. 689,500
-----------
9,531,976
-----------
Oil & Gas Transmission -- 0.4%
540,000 NR Leviathan Gas Pipeline Finance Corp., Sr. Sub. Notes,
10.375% due 6/1/09+ ................................ 553,500
-----------
Package Goods/Service -- 0.1%
125,000 B- Revlon Consumer Products Corp., Sr. Sub. Notes,
8.625% due 2/1/08 .................................. 103,750
-----------
</TABLE>
See Notes to Financial Statements
12
<PAGE>
[LOGO OF SMITH BARNEY] Schedule of Investments (continued)
September 30, 1999 (unaudited)
================================================================================
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Paper -- 3.0%
505,000 B Doman Industries Ltd., Sr. Notes, 8.750% due 3/15/04 .. $ 358,550
815,000ECU B Kappa Beheer B.V., Guaranteed Sr. Sub. Notes,
10.625% due 7/15/09+ ............................... 878,822
1,050,000 CCC+ Repap New Brunswick, Sr. Secured Notes,
10.625% due 4/15/05 ................................ 913,500
Riverwood International Corp.:
515,000 B- Guaranteed Sr. Notes, 10.625% due 8/1/07 ........... 516,931
1,000,000 CCC+ Guaranteed Sr. Sub. Notes, 10.875% due 4/1/08 ...... 945,000
715,000 BB+ Tembec Industries Inc., Sr. Notes, 9.875% due 9/30/05 . 740,025
-----------
4,352,828
-----------
Pharmaceuticals - Other -- 0.6%
770,000 B King Pharmaceutical Inc, Sr. Sub. Notes,
10.750% due 2/15/09 ................................ 795,025
-----------
Photographic Products -- 0.3%
430,000 BB- Polaroid Corp., Sr. Notes, 11.500% due 2/15/06 ........ 449,350
-----------
Printing/Forms -- 0.0%
45,000 Baa3* World Color Press Inc., Sr. Sub. Notes,
7.750% due 2/15/09 ................................. 42,806
-----------
Real Estate Investment Trusts -- 0.9%
1,280,000 Baa3* Trizec Finance Ltd., Guaranteed Sr. Notes,
10.875% due 10/15/05@ .............................. 1,366,400
-----------
Recreational Products/Toys -- 0.2%
300,000ECU B2* Head Holding Corp., Sr. Notes, 10.750% due 7/15/06+ ... 311,512
-----------
Rental/Leasing Companies -- 1.1%
690,000 BB- Avis Rent A Car Inc., Sr. Sub. Notes,
11.000% due 5/1/09+ ................................ 707,250
270,000 B Nationsrent, Inc., Guaranteed Sr. Sub. Notes,
10.375% due 12/15/08 ............................... 269,325
625,000 BB- United Rentals Inc., Sr. Sub. Notes, 9.250% due 1/15/09 603,125
-----------
1,579,700
-----------
Restaurants -- 0.4%
671,000 B Advantica Restaurant Group, Sr. Notes,
11.250% due 1/15/08 ................................ 585,447
-----------
</TABLE>
See Notes to Financial Statements
13
<PAGE>
[LOGO OF SMITH BARNEY] Schedule of Investments (continued)
September 30, 1999 (unaudited)
================================================================================
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail Food Chains -- 0.5%
350,000 CCC+ Pathmark Stores, Inc., Sub. Notes, 12.625% due 6/15/02. $ 357,875
305,000 B+ Stater Brothers Holdings, Sr. Notes,
10.750% due 8/15/06+ ............................... 312,244
-----------
670,119
-----------
Retail - Other Specialty Stores -- 0.6%
1,000,000 B- Advance Stores Co., Inc., Guaranteed Sr. Sub. Notes,
Series B, 10.250% due 4/15/08 ...................... 935,000
-----------
Savings & Loan Associations -- 2.2%
1,000,000 B2* Ocwen Capital Trust I, Guaranteed Capital Securities,
10.875% due 8/1/27 ................................. 665,000
2,600,000 B+ Ocwen Financial Corp., Sr. Notes,
11.875% due 10/1/03@ ............................... 2,444,000
-----------
3,109,000
-----------
Semiconductors -- 0.8%
1,240,000 B Fairchild Semiconductor Inc., Sr. Sub. Notes,
10.125% due 3/15/07 ................................ 1,215,200
-----------
Steel/Iron Ore -- 1.6%
660,000 B+ Russel Metals Inc., Sr. Notes, 10.000% due 6/1/09 ..... 636,075
1,320,000 B+ WCI Steel Inc., Sr. Notes, 10.000% due 12/1/04 ........ 1,280,400
385,000 B- WHX Corp., Sr. Notes, 10.500% due 4/15/05 ............. 361,900
-----------
2,278,375
-----------
Telecommunications - Other -- 10.3%
1,775,000 NR E.Spire Communications, Inc., Sr. Discount Notes,
step bond to yield 11.384% due 7/1/08 .............. 656,750
Esprit Telecom Group PLC, Sr. Notes:
700,000 B- 11.500% due 12/15/07 ............................... 728,000
600,000DEMB- 11.500% due 12/15/07@ .............................. 341,392
400,000 B- 10.875% due 6/15/08 ................................ 407,000
1,200,000 NR FaciliCom International, Inc., Sr. Notes, Series B,
10.500% due 1/15/08 ................................ 990,000
Hermes Europe Railtel B.V., Sr. Notes:
1,000,000 B 11.500% due 8/15/07 ................................ 1,022,500
300,000 B 10.375% due 1/15/09 ................................ 299,250
ICG Holdings Inc., Sr. Discount Notes:
335,000 B- Step bond to yield 12.935% due 9/15/05 ............. 294,800
555,000 B- Step bond to yield 12.612% due 5/1/06 .............. 435,675
</TABLE>
See Notes to Financial Statements
14
<PAGE>
[LOGO OF SMITH BARNEY] Schedule of Investments (continued)
September 30, 1999 (unaudited)
================================================================================
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Telecommunications - Other -- 10.3% (continued)
Intermedia Communications Co.:
1,075,000 B Sr. Discount Notes, step bond to yield 11.887%
due 5/15/06 ..................................... $ 878,812
445,000 B Sr. Discount Notes, step bond to yield 11.208%
due 7/15/07 ..................................... 298,150
530,000 B Sr. Notes, 9.500% due 3/1/09 ....................... 492,900
380,000 B3* IXC Communications Inc., Sr. Sub. Notes,
9.000% due 4/15/08 ................................. 376,200
830,000 B- KMC Telecom Holdings Inc., Sr. Notes,
13.500% due 5/15/09+ ............................... 817,550
1,825,000 B Level 3 Communications, step bond to yield 11.038%
due 12/1/08 ........................................ 1,033,406
Microcell Telecommunications, Sr. Discount Notes:
305,000 B3* Series B, step bond to yield 11.843% due 6/1/06 .... 255,437
835,000 B- Step bond to yield 11.756% due 6/1/09+ ............. 490,562
NEXTLINK Communications, LLC/NEXTLINK Capital, Inc.:
1,325,000 B Sr. Discount Notes, step bond to yield 12.050%
due 6/1/09 ...................................... 765,187
440,000 B Sr. Notes, 12.500% due 4/15/06 ..................... 466,400
975,000 B Sr. Notes, 10.750% due 6/1/09 ...................... 979,875
810,000 BB- Orange PLC, Sr. Notes, 9.000% due 6/1/09+ ............. 814,050
Tele1 Europe B.V., Sr. Notes:
320,000 B- 13.000% due 5/15/09+ ............................... 313,600
325,000ECUB- 13.000% due 5/15/09+ ............................... 339,201
265,000 NR VersaTel Telecom International N.V., Sr. Notes,
13.250% due 5/15/08 ................................ 262,350
Viatel Inc., Sr. Notes:
675,000 B- 11.250% due 4/15/08 ................................ 642,938
400,000 B- 11.500% due 3/15/09 ................................ 388,000
-----------
14,789,985
-----------
Telephone - Cellular -- 5.3%
540,000 NR Airgate PCS Inc., Sr. Sub. Discount Notes,
step bond to yield 13.500% due 10/1/09 ............. 292,950
700,000 CCC+ Centennial Cellular Corp., Sr. Sub. Notes,
10.750% due 12/15/08 ............................... 731,500
Crown Castle International Corp., Sr. Discount Notes:
1,455,000 B Step bond to yield 11.049% due 5/15/11 ............. 836,625
60,000 B Step bond to yield 11.250% due 8/1/11+ ............. 34,800
340,000 NR Dobson/Sygnet Communications, Sr. Notes,
12.250% due 12/15/08 ............................... 355,300
</TABLE>
See Notes to Financial Statements
15
<PAGE>
[LOGO OF SMITH BARNEY] Schedule of Investments (continued)
September 30, 1999 (unaudited)
================================================================================
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Telephone - Cellular -- 5.3% (continued)
1,600,000 CCC+ Dolphin Telecom PLC, Sr. Discount Notes,
step bond to yield 11.416% due 6/1/08 .............. $ 716,000
1,600,000 B- Millicom International Cellular S.A., Sr. Discount Notes,
step bond to yield 15.966% due 6/1/06 .............. 1,136,000
Nextel Communications, Inc.:
1,005,000 B2* Sr. Redeemable Discount Notes, step bond to yield
10.814% due 9/15/07 ............................. 743,700
1,120,000 B2* Sr. Serial Redeemable Discount Notes, step bond to yield
10.720% due 2/15/08 ............................. 784,000
510,000 B3* Omnipoint Corp., Sr. Notes, 11.500% due 9/15/09+ ...... 525,300
680,000 NR Spectrasite Holdings Inc., Sr. Discount Notes,
step bond to yield 11.250% due 4/15/09 ............. 338,300
520,000 B3* Telecorp PCS Inc., Sr. Discount Notes,
step bond to yield 12.451% due 4/15/09+ ............ 304,850
Telesystems International Wireless Inc., Sr. Discount Notes:
160,000 CCC+ Series B, step bond to yield 11.520% due 6/30/07 ... 79,600
715,000 CCC+ Series C, step bond to yield 11.011% due 11/1/07 ... 300,300
605,000 B3* Triton PCS Inc., Sr. Discount Notes,
step bond to yield 11.766% due 5/1/08 .............. 409,887
-----------
7,589,112
-----------
Textiles -- 0.3%
800,000DEMB3* Texon International PLC, Sr. Notes, 10.000% due 2/1/08@ 376,783
-----------
Transportation - Marine -- 1.0%
320,000 B- Oglebay Norton Co., Sr. Sub. Notes, 10.000% due 2/1/09 311,200
1,030,000 BB- Sea Containers Ltd., Sr. Sub. Debentures, Series A,
12.500% due 12/1/04 ................................ 1,104,675
-----------
1,415,875
-----------
Unregulated Power Generation -- 2.8%
AES Corp., Sr. Sub. Notes:
915,000 Ba3* 10.250% due 7/15/06 ................................ 919,575
1,715,000 Ba1* 9.500% due 6/1/09 .................................. 1,723,575
1,350,000 BB Calpine Corp., Sr. Notes, 10.500% due 5/15/06 ......... 1,404,000
-----------
4,047,150
-----------
</TABLE>
See Notes to Financial Statements
16
<PAGE>
[LOGO OF SMITH BARNEY] Schedule of Investments (continued)
September 30, 1999 (unaudited)
================================================================================
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Wholesale Distributors -- 0.1%
160,000 B- Fisher Scientific International Inc., Sr. Sub. Notes,
9.000% due 2/1/08 .................................. $ 148,800
-----------
TOTAL CORPORATE BONDS AND NOTES
(Cost -- $143,853,559) ................................ 137,065,953
-----------
<CAPTION>
Shares Security Value
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
PREFERRED STOCK -- 0.3%
Savings & Loan Associations -- 0.3%
20,100 California Federal Preferred Capital Corp.,
9.125% Noncumulative Exchangeable, Series A
(Cost -- $502,500) ................................. 472,350
-----------
WARRANTS# -- 0.3%
Broadcasting -- 0.1%
2,450 UIH Australia Pacific, Inc., Expire 5/15/06 ........... 73,500
-----------
Internet Services -- 0.1%
1,625 Splitrock Services, Inc., Expire 7/15/08 .............. 117,000
2,550 WAM!NET Inc., Expire 3/1/05 ........................... 58,013
-----------
175,013
-----------
Telecommunications - Other -- 0.1%
7,130 Pagemart, Inc., Expire 12/31/03 ....................... 21,390
1,300 RSL Communications, Ltd., Expire 11/15/06 ............. 52,000
Tele1 Europe BV:
320 Expire 5/15/09+ .................................... 20,800
325 (EUR) Expire 5/15/09+ .............................. 22,498
265 Versatel Telecommunications, Expire 5/15/08+ .......... 33,125
-----------
149,813
-----------
Telephone - Cellular -- 0.0%
1,000 Iridium World Communications Ltd., Expire 7/15/05+ .... 10
-----------
TOTAL WARRANTS
(Cost -- $164,284) .................................... 398,336
-----------
</TABLE>
See Notes to Financial Statements
17
<PAGE>
[LOGO OF SMITH BARNEY] Schedule of Investments (continued)
September 30, 1999 (unaudited)
================================================================================
<TABLE>
<CAPTION>
Face
Amount Security Value
- ----------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT -- 4.1%
$5,961,000 J.P. Morgan Securities Inc., 5.250% due 10/1/99;
Proceeds at maturity -- $5,961,869; (Fully
collateralized by U.S. Treasury Bonds, 3.375% to
3.875% due 1/15/07 to 1/15/09; Market value --
$6,080,235) (Cost -- $5,961,000) ..................... $ 5,961,000
------------
TOTAL INVESTMENTS -- 100%
(Cost -- $150,481,343** ) ............................ $143,897,639
============
</TABLE>
++ Face amount denominated in U.S. dollars unless otherwise indicated.
(a) All ratings are by Standard & Poor's Ratings Service, except those
identified by an asterisk (*) which are rated by Moody's Investors Service
Inc.
+ Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions that are exempt from
registration, normally to qualified institutional buyers.
@ Security segregated by Custodian for open purchase commitments.
# Non-income producing security.
** Aggregate cost for Federal income tax purposes is substantially the same.
Currency Abbreviations:
-----------------------
DEM -- German Mark
GBP -- British Pound
ECU -- European Currency Unit
See page 19 for definition of ratings.
See Notes to Financial Statements
18
<PAGE>
[LOGO OF SMITH BARNEY] Bond Ratings (unaudited)
================================================================================
The definitions of the applicable rating symbols are set forth below:
Standard & Poor's Ratings Service ("Standard & Poor's") -- Ratings from "BBB" to
"CCC" may be modified by the addition of a plus (+) or minus (-) sign to show
relative standings within the major rating categories.
BBB Bonds rated "BBB" are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for bonds in this
category than in higher rated categories.
BB, B and CCC Bonds rated BB, B and CCC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of
the obligation. BB indicates the lowest degree of speculation and
CCC the highest degree of speculation. While such bonds will
likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to
adverse conditions.
Moody's Investors Service Inc. ("Moody's") -- Numerical modifiers 1, 2 and 3 may
be applied to each generic rating from "Ba" to "Caa," where 1 is the highest and
3 the lowest ranking within its generic category.
Ba -- Bonds rated "Ba" are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection
of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over
the future. Uncertainty of position characterizes bonds in this
class.
B -- Bonds rated "B" generally lack characteristics of desirable
investments. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of
time may be small.
Caa -- Bonds rated "Caa" are of poor standing. Such issues may be in
default, or there may be present elements of danger may exist with
respect to principal or interest.
NR -- Indicates that the bond is not rated by either Standard & Poor's
or Moody's.
19
<PAGE>
[LOGO OF SMITH BARNEY] Statement of Assets and Liabilities
September 30, 1999 (unaudited)
================================================================================
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments, at value (Cost -- $150,481,343) .......... $143,897,639
Cash .................................................. 108
Interest and dividends receivable ..................... 3,267,844
Receivable for securities sold ........................ 846,831
-------------
Total Assets .......................................... 148,012,422
-------------
LIABILITIES:
Bank loan (Note 7) .................................... 30,000,000
Payable for securities purchased ...................... 595,609
Interest payable ...................................... 157,694
Payable for open forward foreign
currency contracts (Note 11) ........................ 118,407
Investment advisory fees payable ...................... 91,022
Administration fees payable ........................... 35,883
Accrued expenses ...................................... 165,493
-------------
Total Liabilities ..................................... 31,164,108
-------------
Total Net Assets ......................................... $116,848,314
=============
NET ASSETS:
Par value of capital shares ........................... $ 159,368
Capital paid in excess of par value ................... 116,950,635
7.00% Cumulative Preferred Stock (Note 6) ............. 30,000,000
Overdistributed net investment income ................. (222,667)
Accumulated net realized loss on security transactions (23,340,564)
Net unrealized depreciation on investments and
foreign currencies .................................. (6,698,458)
-------------
Total Net Assets ......................................... $116,848,314
=============
NET ASSET VALUE, COMPRISED OF: Per Share
---------
7.00% Cumulative Preferred Stock redemption value ........ $1,000.00 $ 30,000,000
Cumulative undeclared dividends on 7.00%
Preferred Stock ....................................... 20.81 624,240
--------- -------------
Total allocated to Cumulative Preferred Stock ............ $1,020.81 30,624,240
========= -------------
Common Stock (15,936,845 shares outstanding) ............. $ 5.41 86,224,074
========= =============
Total Net Assets ......................................... $116,848,314
=============
</TABLE>
See Notes to Financial Statements.
20
<PAGE>
[LOGO OF SMITH BARNEY] Statement of Operations
For the Six Months Ended
September 30, 1999 (unaudited)
================================================================================
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C>
Interest .............................................. $7,515,152
Dividends ............................................. 71,977
Less: Interest expense (Note 7) ....................... (837,783)
-----------
Total Investment Income ............................... 6,749,346
-----------
EXPENSES:
Investment advisory fees (Note 2) ..................... 377,331
Administration fees (Note 2) .......................... 150,932
Shareholder communications ............................ 85,344
Audit and legal ....................................... 42,676
Directors' fees ....................................... 17,506
Pricing ............................................... 14,414
Shareholder and system servicing fees ................. 10,448
Custody ............................................... 6,225
Other ................................................. 18,546
-----------
Total Expenses ........................................ 723,422
-----------
Net Investment Income .................................... 6,025,924
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCIES (NOTES 3 AND 11):
Realized Gain (Loss) From:
Security transactions (excluding short-term securities) (4,485,879)
Foreign currency transactions ....................... 42,443
-----------
Net Realized Loss ..................................... (4,443,436)
-----------
Increase in Net Unrealized Depreciation of
Investments and Foreign Currencies:
Beginning of period ................................. (2,628,669)
End of period ....................................... (6,698,458)
-----------
Increase in Net Unrealized Depreciation ............... (4,069,789)
-----------
Net Loss on Investments .................................. (8,513,225)
-----------
Decrease in Net Assets From Operations ................... $(2,487,301)
===========
</TABLE>
See Notes to Financial Statements.
21
<PAGE>
[LOGO OF SMITH BARNEY] Statements of Changes in Net Assets
For the Six Months Ended
September 30, 1999 (unaudited)
and the Year Ended March 31, 1999
================================================================================
<TABLE>
<CAPTION>
September 30 March 31
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income ................................. $ 6,025,924 $ 12,708,330
Net realized loss ..................................... (4,443,436) (3,046,114)
Increase in net unrealized
depreciation ........................................ (4,069,789) (12,054,283)
------------ ------------
Decrease in Net Assets
From Operations ..................................... (2,487,301) (2,392,067)
------------ ------------
DISTRIBUTIONS PAID TO:
7.00% Cumulative Preferred Stock
Shareholders From Net Investment
Income .............................................. (1,050,000) (2,100,000)
Common Stock Shareholders From Net
Investment Income ................................... (5,178,161) (10,597,803)
Common Stock Shareholders From Capital ................ -- (331,100)
------------ ------------
Decrease In Net Assets From
Distributions To Shareholders ....................... (6,228,161) (13,028,903)
------------ ------------
FUND SHARE TRANSACTIONS (Note 8):
Net asset value of shares issued for
reinvestment of dividends ............................. 1,381,578 3,120,769
------------ ------------
Increase in Net Assets From
Fund Share Transactions ............................. 1,381,578 3,120,769
------------ ------------
Decrease in Net Assets ................................... (7,333,884) (12,300,201)
NET ASSETS:
Beginning of period ................................... 124,182,198 136,482,399
------------ ------------
End of period* ........................................ $116,848,314 $124,182,198
============ ============
* Includes overdistributed
net investment income of: ............................. $(222,667) $(62,873)
============ ============
</TABLE>
See Notes to Financial Statements.
22
<PAGE>
[LOGO OF SMITH BARNEY] Statement of Cash Flows
For the Six Months Ended
September 30, 1999 (unaudited)
================================================================================
<TABLE>
<CAPTION>
NET DECREASE IN CASH:
Cash Flows Provided by Operating
and Investing Activities:
<S> <C> <C>
Interest and dividends received ........................ $ 6,551,146
Operating expenses paid ................................ (764,084)
Interest payments on bank loans ........................ (812,936)
Purchases of short-term securities, net ................ 780,000
Purchases of long-term securities ...................... (70,459,292)
Proceeds from disposition of long-term securities ...... 69,551,469
------------
Net Cash Provided By Operating
and Investing Activities ............................. $ 4,846,303
-----------
Cash Flows From Financing Activities:
Cash dividends paid on 7.00% Cumulative
Preferred Stock ...................................... (1,050,000)
Cash dividends paid on Common Stock* ................... (3,796,583)
------------
Net Cash Used By Financing Activities .................. (4,846,583)
-----------
Net Decrease in Cash ..................................... (280)
Cash--Beginning of period ................................ 388
-----------
Cash--End of period ...................................... $ 108
===========
RECONCILIATION OF DECREASE IN NET ASSETS
FROM OPERATIONS TO NET CASH PROVIDED
BY OPERATING AND INVESTING ACTIVITIES:
Decrease in Net Assets From Operations ................... $(2,487,301)
Amortization of discount on securities ................. (1,158,421)
Decrease in investments ................................ 9,965,989
Increase in receivable for securities sold ............. (224,119)
Decrease in payable for securities purchased ........... (1,416,500)
Decrease in dividends and interest receivable .......... 19,458
Increase in payable for open forward foreign
currency contracts ................................... 163,011
Decrease in accrued expenses ........................... (15,814)
------------
Total Adjustments ...................................... 7,333,604
-----------
Net Cash Provided By Operating and Investing Activities .. $ 4,846,303
===========
</TABLE>
* Exclusive of dividend reinvestment of $1,381,578.
See Notes to Financial Statements.
23
<PAGE>
[LOGO OF SMITH BARNEY] Notes to Financial Statements
(unaudited)
================================================================================
1. Significant Accounting Policies
Zenix Income Fund Inc. ("Fund"), a Maryland corporation, is registered
under the Investment Company Act of 1940, as amended, as a diversified,
closed-end management investment company.
The significant accounting policies followed by the Fund are: (a) security
transactions are accounted for on trade date; (b) securities traded in the
over-the-counter market, including listed securities for which the primary
market is believed to be over-the-counter, are valued at the mean between the
most recently quoted bid and ask prices provided by the principal market makers;
any security for which the primary market is an exchange is valued at the last
sale price on such exchange on the day of valuation or, if there was no sale on
such day, at the last bid price quoted. Securities and assets for which market
quotations are not readily available are valued at fair value as determined in
good faith by or under the direction of the Board of Directors of the Fund
including references to valuations of other securities which are considered
comparable in quality, interest rate and maturity; (c) securities maturing
within 60 days are valued at cost plus accreted discount, or minus amortized
premium, which approximates value; (d) the accounting records of the Fund are
maintained in U.S. dollars. All assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the rate of exchange of
such currencies against U.S. dollars on the date of valuation. Purchases and
sales of securities, and income and expenses are translated at the rate of
exchange quoted on the respective date that such transactions are recorded.
Differences between income or expense amounts recorded and collected or paid are
adjusted when reported by the custodian bank; (e) dividend income is recorded on
the ex-dividend date and interest income is recorded on an accrual basis; (f)
gains or losses on the sale of securities are calculated by using the specific
identification method; (g) dividends and distributions to shareholders are
recorded monthly by the Fund on the ex-dividend date for the shareholders of
Common Stock based on net investment income. The holders of the 7.00% Cumulative
Preferred Stock shall be entitled to receive dividends when, as and if declared
by the Board of Directors of the Fund out of funds legally available to
shareholders at a rate of 7.00% per annum, payable semi-
24
<PAGE>
[LOGO OF SMITH BARNEY] Notes to Financial Statements
(unaudited) (continued)
================================================================================
annually on June 15 and December 15; (h) the net asset value of the Fund's
Common Stock is determined no less frequently than the close of business on the
Fund's last business day of each week (generally Friday). It is determined by
dividing the value of the net assets available to Common Stock by the total
number of shares of Common Stock outstanding. For the purpose of determining the
net asset value per share of the Common Stock, the value of the Fund's net
assets shall be deemed to equal the value of the Fund's assets less (1) the
Fund's liabilities (including the outstanding principal amount on the bank
loan), (2) the aggregate liquidation value (i.e., $1,000 per outstanding share)
of the 7.00% Cumulative Redeemable Preferred Stock and (3) accumulated and
unpaid dividends on the outstanding Cumulative Redeemable Preferred Stock issue;
(i) the Fund intends to comply with the requirements of the Internal Revenue
Code of 1986, as amended, pertaining to regulated investment companies and to
make distributions of taxable income sufficient to relieve it from substantially
all Federal income and excise taxes; (j) the character of income and gains to be
distributed is determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. At March 31, 1999,
reclassifications were made to the Fund's capital accounts to reflect permanent
book/tax differences and income and gains available for distributions under
income tax regulations. Accordingly, a portion of accumulated net realized
losses amounting to $14,406,719 was reclassified to paid-in capital. Net
investment income, net realized gains and net assets were not affected by this
change; and (k) estimates and assumptions are required to be made regarding
assets, liabilities and changes in net assets resulting from operations when
financial statements are prepared. Changes in the economic environment,
financial markets and any other parameters used in determining these estimates
could cause actual results to differ.
2. Advisory Agreement and Transactions with Affiliated Persons
SSB Citi Fund Management LLC ("SSBC"), formerly known as SSBC Fund
Management Inc., a subsidiary of Salomon Smith Barney Holdings Inc. ("SSBH"),
acts as investment adviser to the Fund. The Fund pays SSBC a management fee
calculated at an annual rate of 0.50% of the average daily net
25
<PAGE>
[LOGO OF SMITH BARNEY] Notes to Financial Statements
(unaudited) (continued)
================================================================================
assets (defined as the average daily value of the total assets of the Fund less
total liabilities other than the outstanding principal amount of the Bank loan).
This fee is calculated daily and paid monthly.
SSBC also acts as the Fund's administrator for which the Fund pays a fee
calculated at an annual rate of 0.20% of the average daily net assets (defined
as the average daily value of the total assets of the Fund less total
liabilities other than the outstanding principal amount of the Bank loan). This
fee is calculated daily and paid monthly.
All officers and one Director of the Fund are employees of Salomon Smith
Barney Inc., another subsidiary of SSBH.
3. Investments
During the six months ended September 30, 1999, the aggregate cost of
purchases and proceeds from sales of investments (including maturities, but
excluding short-term securities) were as follows:
- -------------------------------------------------------------------------
Purchases $69,042,792
- -------------------------------------------------------------------------
Sales 69,775,588
- -------------------------------------------------------------------------
At September 30, 1999, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
- -------------------------------------------------------------------------
Gross unrealized appreciation $ 1,387,293
Gross unrealized depreciation (7,970,997)
- -------------------------------------------------------------------------
Net unrealized depreciation $ (6,583,704)
- -------------------------------------------------------------------------
4. Cash Flow Information
The Fund invests in securities and distributes dividends from net
investment income and net realized gains. These activities are reported in the
Statements of Changes in Net Assets. Information on cash payments is presented
in the Statement of Cash Flows. Accounting practices that do not affect
reporting activities on a cash basis include unrealized gains or losses on
investment securities.
26
<PAGE>
[LOGO OF SMITH BARNEY] Notes to Financial Statements
(unaudited) (continued)
================================================================================
5. Repurchase Agreements
The Fund purchases (and its custodian takes possession of) U.S. government
securities from banks and securities dealers subject to agreements to resell the
securities to the sellers at a future date (generally, the next business day) at
an agreed upon higher repurchase price. The Fund requires continual maintenance
of the market value of the collateral in amounts at least equal to the
repurchase price.
6. Cumulative Redeemable Preferred Stock
On March 16, 1993, the Fund issued 30,000 shares of 7.00% Cumulative
Preferred Stock, which will be redeemed in full on April 15, 2000, at a price
equal to $1,000 per share, plus accumulated and unpaid dividends. At September
30, 1999, 220,000 authorized shares of 7.00% Cumulative Preferred Stock with a
par value of $0.01 remained unissued. Cumulative undeclared dividends on the
outstanding Preferred Stock amounted to $624,240 at September 30, 1999.
Moody's Investors Service, Inc. and Standard & Poor's Ratings Service have
reconfirmed their respective Aa3 and AA+ ratings of the Fund's 7% Cumulative
Preferred Stock.
7. Bank Loan
The Fund has a $35,000,000 line of credit with PNC Bank, N.A. Interest on
the loan can be paid based on 30-, 60- or 90-day periods as elected by the Fund.
The interest on the loan is currently calculated at LIBOR plus 40 basis points.
The line of credit expires on July 31, 2000.
For the six months ended September 30, 1999, interest expense related to
the loan totalled $837,783 the average dollar amount of the borrowing was
$30,000,000 and the average interest rate was 5.49%.
27
<PAGE>
[LOGO OF SMITH BARNEY] Notes to Financial Statements
(unaudited) (continued)
================================================================================
8. Common Stock
At September 30, 1999, the Fund had 250,000,000 shares of common stock
authorized with a par value of $0.01 per share.
Common stock transactions were as follows:
Six Months Ended Year Ended
September 30, 1999 March 31, 1999
-------------------- --------------------
Shares Amount Shares Amount
- --------------------------------------------------------------------------------
Shares issued on
reinvestment 246,711 $1,381,578 488,015 $3,120,769
- --------------------------------------------------------------------------------
9. Capital Loss Carryforward
At March 31, 1999, the Fund had, for Federal income tax purposes, capital
loss carryforwards of approximately $17,263,000 available to offset future
realized capital gains, if any. To the extent that these carryforward losses are
used to offset capital gains, it is probable that the gains so offset will not
be distributed.
The amount and expiration of the carryforwards are indicated below.
Expiration occurs on March 31 of the year indicated:
2000 2003 2004 2007
- --------------------------------------------------------------------------------
Carryforward Amounts $8,395,000 $4,873,000 $2,291,000 $1,704,000
- --------------------------------------------------------------------------------
10. Asset Maintenance Requirement
The Fund is required to maintain certain asset coverages with respect to
the Cumulative Preferred Stock (of at least 200%). If the Fund fails to maintain
these requirements as of the last business day of the month and does not cure
such failure by the last business day of the following month, the Fund is
required to redeem certain of the Cumulative Preferred Stock in order to meet
these requirements. Additionally, failure to meet the foregoing asset
requirements would restrict the Fund's ability to pay dividends.
28
<PAGE>
[LOGO OF SMITH BARNEY] Notes to Financial Statements
(unaudited) (continued)
================================================================================
11. Forward Foreign Currency Contracts
At September 30, 1999, the Fund had open forward foreign currency contracts
as described below. The Fund bears the market risk that arises from changes in
foreign currency exchange rates. The unrealized loss on the contracts is
reflected as follows:
Local Market Settlement Unrealized
Foreign Currency Currency Value Date Loss
- --------------------------------------------------------------------------------
To Sell:
British Pound 189,000 311,265 10/04/99 $ (511)
British Pound 1,467,631 2,418,266 12/22/99 (27,516)
European Currency Unit 3,858,922 4,135,534 12/15/99 (90,380)
- --------------------------------------------------------------------------------
Total Unrealized Loss on Open Forward
Foreign Currency Contracts $(118,407)
- --------------------------------------------------------------------------------
29
<PAGE>
[LOGO OF SMITH BARNEY] Financial Highlights
================================================================================
Contained below is per share operating performance data for a share of common
stock outstanding, total return and ratios to average net assets based on Common
Shares outstanding. This information has been derived from information provided
in the financial statements and market price data for the Fund's shares.
For a share of common stock outstanding throughout each year ended March 31,
except where noted:
<TABLE>
<CAPTION>
1999(1) 1999 1998
--------- -------- --------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period .......... $5.96 $6.96 $6.45
------- ------- --------
Income (Loss) From Operations:
Net investment income ...................... 0.38 0.82 0.87
Net realized and unrealized gain (loss) .... (0.54) (0.97) 0.56
------- ------- --------
Total Income (Loss) From Operations ........ (0.16) (0.15) 1.43
------- ------- --------
Distributions Paid To:
7.00% Cumulative Preferred Stock
Shareholders From Net Investment Income .. (0.06) (0.14) (0.14)
Common Stock Shareholders From Net
Investment Income ........................ (0.33) (0.69) (0.78)
Common Stock Shareholders From Capital ..... -- (0.02) --
Change in accumulated undeclared dividends
on Preferred Stock ....................... -- -- --
------- ------- --------
Total Distributions ........................ (0.39) (0.85) (0.92)
------- ------- --------
Net Asset Value, End of Period ................ $5.41 $5.96 $6.96
======= ======= ========
Market Value, End of Period ................... $5.31 $5.88 $7.50
======= ======= ========
Total Return, Based on Market Value* .......... (4.14)%++ (12.53)% 14.81%
======= ======= ========
Total Return, Based on Net Asset Value* ....... (3.78)%++ (4.38)% 19.75%
======= ======= ========
Net Assets**, End of Period (000's) ........... $86,224 $93,561 $105,861
======= ======= ========
Ratios to Average Net Assets Based on
Common Shares Outstanding:
Net Investment Income ...................... 13.30%+ 12.99% 12.60%
Interest Expense ........................... 1.85+ 1.81 1.81
Other Expenses ............................. 1.60+ 1.53 1.51
Portfolio Turnover Rate ....................... 49% 91% 79%
</TABLE>
- -----------
(1) For the six months ended September 30, 1999 (unaudited).
* The total return calculation assumes that dividends are reinvested in
accordance with the Fund's dividend reinvestment plan.
** Exclusive of preferred shares outstanding.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
30
<PAGE>
[LOGO OF SMITH BARNEY] Financial Highlights (continued)
================================================================================
For a share of common stock outstanding throughout each year ended March 31:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Net Asset Value, Beginning of Year ............ $6.31 $5.88 $6.76
------- ------- --------
Income (Loss) From Operations:
Net investment income ...................... 0.92 0.86 0.93
Net realized and unrealized gain (loss) .... 0.08 0.45 (0.78)
------- ------- --------
Total Income From Operations ............... 1.00 1.31 0.15
------- ------- --------
Distributions:
Dividends declared to 7.00% Cumulative
Preferred Stockholders ................... (0.14) (0.15) (0.16)
Dividends paid from net investment income .. (0.72) (0.73) (0.87)
------- ------- --------
Total Distributions ........................ (0.86) (0.88) (1.03)
------- ------- --------
Net Asset Value, End of Year .................. $6.45 $6.31 $5.88
======= ======= ========
Market Value, End of Year ..................... $7.25 $7.00 $6.63
======= ======= ========
Total Return, Based on Market Value* .......... 15.55% 18.35% 6.41%
======= ======= ========
Total Return, Based on Net Asset Value* ....... 14.04% 20.01% (0.53)%
======= ======= ========
Net Assets**, End of Year (000's) ............. $95,034 $90,318 $80,309
======= ======= ========
Ratios to Average Net Assets Based on
Common Shares Outstanding***:
Net Investment Income ...................... 14.35% 14.21% 15.35%
Interest Expense ........................... 1.92 1.98 1.58
Other Expenses ............................. 1.59 1.65 1.65
Portfolio Turnover Rate ....................... 101% 87% 79%
</TABLE>
- -----------
* The total return calculation assumes that dividends are reinvested in
accordance with the Fund's dividend reinvestment plan.
** Exclusive of preferred shares outstanding.
*** Calculated on basis of average net assets of common shareholders. Ratios do
not reflect the effect of dividend payments to preferred shareholders. The
amounts for 1997 and 1996 have been recalculated to reflect this
methodology.
31
<PAGE>
[LOGO OF SMITH BARNEY] Other Financial Information (unaudited)
================================================================================
The table below sets out information with respect to Cumulative Preferred
Stock, Senior Money Market Notes and Bank Credit Facility:
<TABLE>
<CAPTION>
1999(1) 1999 1998 1997 1996 1995
--------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
7.00% Cumulative
Preferred Stock(2)
Total amount
outstanding (000s) $ 30,000 $ 30,000 $ 30,000 $ 30,000 $ 30,000 $ 30,000
Asset Coverage Per Share 2,440 2,560 2,760 2,580 2,490 2,439
Involuntary Liquidating
Preference Per Share(2) 1,000 1,000 1,000 1,000 1,000 1,000
Average Market Value
Per Share(2)(3) 1,000 1,000 1,000 1,000 1,000 1,000
Senior Money
Market Notes
Total amount
outstanding (000s) -- -- -- -- -- 25,800
Asset Coverage (000s) -- -- -- -- -- 135,966
PNC Bank Credit Facility
Total amount
outstanding (000s) 30,000 30,000 30,000 30,000 30,000 --
Asset Coverage (000s) 146,200 153,600 165,900 154,800 149,400 --
</TABLE>
- ---------------
(1) For the six months ended September 30, 1999.
(2) Redeemable April 15, 2000.
(3) Excludes accrued interest or accumulated undeclared dividends.
(4) See Note 6 of the Notes to Financial Statements.
32
<PAGE>
[LOGO OF SMITH BARNEY] Quarterly Results of Operations (unaudited)
================================================================================
<TABLE>
<CAPTION>
Net Increase
Net Realized (Decrease)
and Unrealized in Net Assets
Investment Net Investment Gain (Loss) From
Income Income on Investments Operations
------------------- ------------------- ------------------- --------------------
Per Per Per Per
Quarter Ended Total Share* Total Share* Total Share* Total Share*
- ------------------- ---------- ------ ---------- ------ ---------- ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
June 30, 1997 $3,810,798 $0.26 $3,442,440 $0.23 $4,087,876 $0.29 $7,530,316 $0.52
September 30, 1997 3,652,220 0.24 3,266,777 0.22 4,374,410 0.29 7,641,187 0.51
December 31, 1997 3,786,388 0.25 3,387,528 0.23 (1,501,241) (0.10) 1,886,287 0.13
March 31, 1998 3,209,147 0.22 2,817,759 0.19 1,311,486 0.08 4,129,245 0.27
June 30, 1998 3,578,838 0.23 3,185,558 0.21 (1,919,184) (0.13) 1,266,374 0.08
September 30, 1998 3,511,518 0.23 3,123,106 0.20 (11,774,047) (0.76) (8,650,941) (0.56)
December 31, 1998 3,604,184 0.23 3,264,567 0.21 (233,303) (0.01) 3,031,264 0.20
March 31, 1999 3,514,767 0.22 3,135,099 0.20 (1,173,863) (0.07) 1,961,236 0.13
June 30, 1999 3,352,171 0.21 2,987,079 0.19 (4,365,869) (0.28) (1,378,790) (0.09)
September 30, 1999 3,397,175 0.21 3,038,845 0.19 (4,147,356) (0.26) (1,108,511) (0.07)
</TABLE>
- -------------------
* Per share of Common Stock.
33
<PAGE>
[LOGO OF SMITH BARNEY] Financial Data (unaudited)
================================================================================
For a share of common stock outstanding throughout each period:
<TABLE>
<CAPTION>
Dividend
Record Payable NYSE Net Asset Dividend Reinvestment
Date Date Closing Price Value* Paid Price
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
4/22/97 4/25/97 $7.125 $6.38 $0.061 $6.769
5/27/97 5/30/97 7.500 6.59 0.061 7.125
6/24/97 6/27/97 7.625 6.77 0.061 7.244
7/22/97 7/25/97 7.750 6.81 0.061 7.363
8/26/97 8/29/97 7.938 6.88 0.061 7.541
9/23/97 9/26/97 7.938 7.01 0.063 7.541
10/28/97 10/31/97 8.000 6.93 0.063 7.600
11/24/97 11/28/97 8.190 6.91 0.063 7.778
12/22/97 12/26/97 8.250 6.93 0.063 7.838
12/31/97 1/2/98 8.250 6.91 0.040 7.838
1/27/98 1/30/98 8.063 6.90 0.063 7.659
2/24/98 2/27/98 8.500 6.95 0.063 8.075
3/24/98 3/27/98 7.688 6.95 0.061 7.303
4/21/98 4/24/98 7.500 6.95 0.061 7.125
5/26/98 5/29/98 7.500 6.89 0.061 7.125
6/23/98 6/26/98 7.625 6.82 0.061 7.244
7/28/98 7/31/98 7.438 6.85 0.061 7.066
8/25/98 8/28/98 6.563 6.54 0.061 6.409
9/22/98 9/25/98 6.375 6.02 0.058 6.056
10/27/98 10/30/98 6.625 5.61 0.058 6.294
11/23/98 11/27/98 6.625 6.07 0.058 6.294
12/21/98 12/24/98 6.125 5.98 0.058 5.860
1/26/99 1/29/99 6.063 6.06 0.058 5.938
2/23/99 2/26/99 6.063 5.98 0.058 5.859
3/23/99 3/26/99 5.875 5.97 0.056 5.850
4/27/99 4/30/99 5.750 6.07 0.056 5.910
5/25/99 5/28/99 5.932 5.87 0.056 5.750
6/22/99 6/25/99 5.875 5.69 0.054 5.580
7/27/99 7/30/99 5.938 5.68 0.054 5.641
8/24/99 8/27/99 5.750 5.51 0.054 5.463
9/21/99 9/24/99 5.375 5.42 0.054 5.312
- --------------------------------------------------------------------------------
</TABLE>
* As of record date
34
<PAGE>
[LOGO OF SMITH BARNEY] Dividend Reinvestment Plan
(unaudited)
================================================================================
Under the Fund's Dividend Reinvestment Plan (Plan), a shareholder whose
shares of Common Stock are registered in his own name will have all
distributions from the Fund reinvested automatically by First Data as purchasing
agent under the Plan, unless the shareholder elects to receive cash.
Distributions with respect to shares registered in the name of a broker-dealer
or other nominee (that is, in street name) will be reinvested by the broker or
nominee in additional shares under the Plan, unless the service is not provided
by the broker or nominee or the shareholder elects to receive distributions in
cash. Investors who own common stock registered in street name should consult
their broker-dealers for details regarding reinvestment. All distributions to
shareholders who do not participate in the Plan will be paid by check mailed
directly to the record holder by or under the direction of First Data as
dividend paying agent.
The number of shares of Common Stock distributed to participants in the
Plan in lieu of a cash dividend is determined in the following manner. When the
market price of the common stock is equal to or exceeds 98% of the net asset
value per share of the Common Stock on the determination date (generally, the
record date for the distribution), Plan participants will be issued shares of
Common Stock by the Fund at a price equal to the greater of 98% of net asset
value or 95% of the market price of the Common Stock.
If the market price of the Common Stock is less than 98% of the net asset
value of the Common Stock at the time of valuation (which is the close of
business on the determination date), or if the Fund declares a dividend or
capital gains distribution payable only in cash, First Data will buy common
stock in the open market, on the NYSE or elsewhere, for the participants'
accounts. If following the commencement of the purchases and before First Data
has completed its purchases, the market price exceeds the net asset value of the
Common Stock as of the valuation time, First Data will attempt to terminate
purchases in the open market and cause the Fund to issue the remaining portion
of the dividend or distribution in shares at a price equal to the greater of (a)
98% of net asset value as of the valuation time or (b) 95% of the then current
market price. In this case, the number of shares received by
35
<PAGE>
[LOGO OF SMITH BARNEY] Dividend Reinvestment Plan
(unaudited)
================================================================================
a Plan participant will be based on the weighted average of prices paid for
shares purchased in the open market and the price at which the fund issues the
remaining shares. To the extent First Data is unable to stop open market
purchases and cause the fund to issue the remaining shares, the average per
share purchase price paid by First Data may exceed the net asset value of the
Common Stock as of the valuation time, resulting in the acquisition of fewer
shares than if the dividend or capital gains distribution had been paid in
Common Stock issued by the Fund at such net asset value. First Data will begin
to purchase Common Stock on the open market as soon as practicable after the
determination date for the dividend or capital gains distribution, but in no
event shall such purchases continue later than 30 days after the payment date
for such dividend or distribution, or the record date for a succeeding dividend
or distribution, except when necessary to comply with applicable provisions of
the federal securities laws.
First Data maintains all shareholder accounts in the Plan and furnishes
written confirmations of all transactions in each account, including information
needed by a shareholder for personal and tax records. The automatic reinvestment
of dividends and capital gains distributions will not relieve Plan participants
of any income tax that may be payable on the dividends or capital gains
distributions. Common stock in the account of each Plan participant will be held
by First Data in uncertificated form in the name of the Plan participant.
Plan participants are subject to no charge for reinvesting dividends and
capital gains distributions under the Plan. First Data's fees for handling the
reinvestment of dividends and capital gains distributions will be paid by the
Fund. No brokerage charges apply with respect to shares of Common Stock issued
directly by the Fund under the Plan. Each Plan participant will, however, bear a
proportionate share of any brokerage commissions actually incurred with respect
to any open market purchases made under the Plan.
Experience under the Plan may indicate that changes to it are desirable.
The Fund reserves the right to amend or terminate the Plan as applied to any
dividend or capital gains distribution paid subsequent to written notice of the
change sent to participants at least 30 days before the record date for the
dividend or capital gains distribution. The Plan also may be amended or
36
<PAGE>
[LOGO OF SMITH BARNEY] Dividend Reinvestment Plan
(unaudited)
================================================================================
terminated by First Data, with the Fund's prior written consent, on at least 30
days' written notice to Plan participants. All correspondence concerning the
Plan should be directed by mail to First Data Investor Services Group, P.O. Box
8030, Boston, Massachusetts 02266-8030 or by telephone at 1-800-331-1710.
-------------------------------------------------------
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
shares of its common stock in the open market.
37
<PAGE>
DIRECTORS
Allan J. Bloostein
Martin Brody
Dwight B. Crane
Robert A. Frankel
William R. Hutchinson
Heath B. McLendon
Charles F. Barber, Emeritus
OFFICERS
Heath B. McLendon
Chairman of the Board
Lewis E. Daidone
Senior Vice President
and Treasurer
John C. Bianchi
Vice President and
Investment Officer
Paul A. Brook
Controller
Christina T. Sydor
Secretary
This report is intended only for the shareholders of the
ZENIX Income Fund Inc.
It is not a Prospectus, circular or representation
intended for use in the purchase or sale of shares of
the Fund or of any securities mentioned in the report.
FD01206 11/99
