<PAGE>
-----
Z E N I X
Income
Fund Inc.
-----
[LOGO OF ZENIX]
Quarterly Report
December 31, 1999
<PAGE>
[LOGO OF ZENIX]
Zenix Income Fund Inc.
Dear Shareholder:
We are pleased to provide you with the third quarter report for the Zenix Income
Fund Inc. ("Fund") for the nine months ended December 31, 1999. Any discussion
of the Fund's holdings is as of December 31, 1999. Please refer to pages six
through nineteen for a list of the Fund's holdings. Over the past nine months
the Fund paid income dividends totaling $0.49 per share. The table below shows
the annualized distribution rate and nine-month total return for the Fund based
on its December 31,1999 net asset value ("NAV") per share and its New York Stock
Exchange ("NYSE") closing price.1
[PHOTO] [PHOTO]
HEATH B. JOHN C.
MCLENDON BIANCHI
Chairman Vice President and
Investment Officer
Price Annualized Nine-Month
Per Share Distribution Rate2 Total Return
- --------- ------------------ ------------
$5.42 (NAV) 11.96% (0.38)%
$4.69 (NYSE) 13.82% (12.60)%
- ----------
1 The NAV is calculated by subtracting total liabilities and the principal
amount of the bank loan from the closing value of all securities held by
the Fund, plus all other assets. This result (net assets of common
shareholders) is divided by the total number of common shares outstanding.
The NAV fluctuates with changes in the market price of securities in which
the Fund has invested. However, the price at which an investor buys or
sells shares of the Fund is its market price as determined by supply and
demand.
2 Total returns are based on changes in net asset value ("NAV") or the market
value and assume the reinvestment of all dividends and/or capital gains
distributions in additional shares. Annualized distribution rate is the
Fund's current monthly income dividend rate, annualized, and then divided
by the NAV or the market value noted in the report. This annualized
distribution rate assumes a current monthly income dividend rate of $0.054
for twelve months. This rate is as of January 31, 2000 and is subject to
change. The important difference between a total return and an annualized
distribution rate is that the total return takes into consideration a
number of factors including the fluctuation of the NAV or the market value
during the period reported. The NAV fluctuation includes the effects of
unrealized appreciation or depreciation in the Fund. Accordingly, since an
annualized distribution rate only reflects the current monthly income
dividend rate annualized, it should not be used as the sole indicator to
judge the return you receive from your fund investment. Past performance is
not indicative of future results.
1
<PAGE>
Recent Results
The Fund generated a total return, based on NAV, of a negative 0.38% for the
past nine months. The nine-month results were above the nine-month total return
for the Fund's Lipper Inc. peer group average of negative 0.78%. (Lipper Inc. is
an independent mutual fund performance tracking organization.)
We were encouraged by the Fund's portfolio returns over the past nine months
because, our relatively more conservative credit strategy enabled us to perform
well relative to our Lipper peer group average despite difficult market
conditions. We believe our general cautiousness was warranted because of
increasing volatility in the financial markets during the period. And while no
guarantees can be made, we believe that the high yield bond market may be
attractively valued at current levels and that we are in a solid position to
take advantage of any economic or market dislocations that may occur in the
coming months.
However, even as the Fund continued to provide investors with a consistent
monthly income, the market price declined. This resulted, in our opinion, from a
combination of factors, some of which are covered in more depth later in this
letter. During this period, to review briefly, the prices of bonds moved lower
as interest rates rose amid concern over potential Federal Reserve Board ("Fed")
action to slow the nation's surprisingly robust economic growth. In addition,
the excitement surrounding the returns being generated in some sectors of the
stock market drew investor interest and money away from fixed income securities.
Finally, heavy tax-loss selling that began in the second half of the year and
accelerated in the final months of 1999 led to a decline in the market price of
the Fund.
Market and Economic Overview
Fourth Quarter 1999
During the fourth quarter of 1999, the U.S. bond markets continued to suffer as
a result of investor concerns over strong economic growth, potentially higher
inflation and a more restrictive Fed monetary policy. In fact, in 1999 the Fed
raised short-term interest rates three times for a total of 75 basis points
(0.75%) in an effort to control economic growth and contain inflation.
The high yield bond market posted total returns in the 1.50% to 2.25% range.
Also, the high yield bond market reacted positively to buoyant economic
conditions and strong stock market performance. Given the strength in the U.S.
and global economies, we would not be surprised if the Fed increased short-term
interest rates a little more in early 2000/3/. However, we believe that the
worst of the bond market
- ----------
/3/ On Wednesday, February 2, 2000, after this letter was written, the Fed
raised interest rates by 0.25% to 5.75%.
2
<PAGE>
decline may be behind us and we would expect better bond market performance some
time in 2000. (Of course, no assurances can be made.)
A Brief Recap of the Year
1999 turned out to be one of the worst years in bond market history in terms of
performance. Not surprisingly, the high yield bond market generated the best
performance returns versus other types of bonds given the strength of the
domestic economy. However, with the dramatic increase in overall interest
rates, the high yield bond market was only able to generate modestly positive
total returns as the high current yields offered were offset by price declines.
Portfolio Strategy
During 1999, we continued to add to our basic industry positions on the
assumption that stronger economic growth would benefit a number of the
industrial segments of the economy. We also maintained healthy weightings in the
fast-growing telecommunications, cable and media sectors. The strongest
performing industry sectors in the high yield market during 1999 were in basic
materials such as forest products, metals, mining, etc., chemicals as well as
cable and media, and telecommunications. The worst-performing sectors included
restaurants, health care and textile/apparel. Some of the Fund's better-
performing investments included:
. Riverwood, a major producer of folding cartons
. Tembec, a paper and forest products company
. Nextel, a fast-growing wireless communications company
. Nextlink, a fast-growing, nationwide telecommunications company
. PSINET, a major Internet telecommunications company.
Our portfolio repositioning over the first half of the year benefited our
performance in the second half of 1999. In addition, our continued emphasis on
better-quality issues and our increased focus on basic industry issues
contributed to our relative outperformance versus our peer group.
As we have mentioned in prior reports, during the first half of 1999, the
higher-quality issues actually did not perform as well as the lower-quality
issues by a meaningful margin because of their higher sensitivity to rising U.S.
Treasury rates. Given our relatively higher-quality orientation versus our peer
group, our return performance was negatively impacted in the first half of 1999.
We especially lagged our high yield peer group since a number of our high yield
fund competitors emphasized a combination of lower-quality issues, emerging
market debt as well as common and preferred stock. During the second
3
<PAGE>
half of 1999, we witnessed a sharp reversal of these trends. Lower-quality
issues dramatically underperformed in the second half of 1999 due to rising
default rates.
We do not attribute rising defaults in the high yield bond market to a
deteriorating economy. We believe instead that rising defaults may be a natural
fallout from the massive amount of new issuance in the past nine years when a
great deal of merger and acquisition activity took place. A number of defaults
are occurring among the less viable companies that are simply not competitive in
today's more challenging economic environment. Given our quality orientation, we
did not have any defaults in the Fund in 1999. We have and will continue to
maintain style purity in our funds with a meaningful emphasis on better-quality
issues. In our opinion, this is no time to get reckless with respect to credit
risk.
We have also pruned underperforming companies and selectively raised our
exposure to improving credits during the period. We plan on selectively adding
attractively priced credits in an effort to add more balance. 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. We believe that in
a period of rising rates, a yield-oriented strategy may be a wise course of
action.
Conclusion
We expect a continuation of solid economic growth with only a modest upward bias
to inflation. We think both the stock market as well as the high yield bond
market should do better than U.S. Treasuries. In addition, we will continue to
focus closely on some of the stronger companies in select commodity sectors such
as paper,energy and steel where conditions appear to be improving.
Longer term, we remain positive on the high yield market and, while no promises
can be given, would expect relatively strong total return performance over the
next six to 12 months. Should you have any questions about your investment in
the Fund, please call PFPC Global Fund Services 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
January 15, 2000
4
<PAGE>
- --------------------------------------------------------------------------------
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, PFPC Global Fund
Services ("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 36. To find out more detailed information about
the Plan and about how you can participate, please call PFPC Global Fund
Services at (800) 331-1710.
- --------------------------------------------------------------------------------
5
<PAGE>
[LOGO OF ZENIX]
Schedule of Investments
December 31, 1999 (unaudited)
================================================================================
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS AND NOTES -- 92.9%
Aerospace -- 0.3%
380,000 B- Dunlop Standard Aerospace Holdings,
Sr. Notes, 11.875% due 5/15/09...................................... $ 391,400
----------
Airlines -- 1.0%
1,745,000 BB Airplanes Pass-Through Trust, Corp.,
Asset-Backed Securities, Series 1, Class D,
10.875% due 3/15/19................................................. 1,510,489
----------
Aluminum -- 1.0%
Kaiser Aluminum & Chemical Corp., Sr. Sub Notes:
1,170,000 B3* 12.750% due 2/1/03.................................................. 1,172,925
160,000 B1* Series B, 10.875% due 10/15/06...................................... 161,600
140,000 B1* Series D, 10.875% due 10/15/06...................................... 141,925
----------
1,476,450
----------
Apparel -- 0.3%
525,000 B- Tropical Sportswear International Inc., Guaranteed Sr.
Sub. Notes, Series A, 11.000% due 6/15/08........................... 505,313
----------
Auto Parts: Original Equipment Manufacture -- 1.6%
805,000 B Collins & Aikman Products, Sr. Sub. Notes,
11.500% due 4/15/06................................................. 796,950
250,000 B Dura Operating Corp., Sr. Sub. Notes,
9.000% due 5/1/09................................................... 235,625
Hayes Lemmerz International Inc., Sr. Sub. Notes:
220,000 B 11.000% due 7/15/06................................................. 231,550
225,000 B Series B, 8.250% due 12/15/08....................................... 207,000
390,000 B3* Key Plastics Inc., Series B, Sr. Sub. Notes,
10.250% due 3/15/07................................................. 183,300
615,000 B+ Tenneco Automotive Inc., 11.625% due 10/15/09+........................ 629,606
----------
2,284,031
----------
Automotive Aftermarket -- 0.6%
865,000 B+ Exide Corp., Sr. Notes, 10.000% due 4/15/05........................... 834,725
----------
Broadcasting -- 0.1%
130,000 B Capstar Broadcasting Corp., Sr. Discount Notes,
step bond to yield 11.002% due 2/1/09............................... 115,050
----------
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
[LOGO OF ZENIX]
Schedule of Investments (continued)
December 31, 1999 (unaudited)
================================================================================
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Building Products -- 1.2%
295,000 B Amatek Industries Pty. Ltd., Sr. Sub. Notes,
12.000% due 2/15/08................................................ $ 283,200
385,000 B Atrium Cos. Inc., Sr. Sub. Notes,
10.500% due 5/1/09................................................. 377,300
350,000 B NCI Building Systems Inc., Sr. Sub. Notes,
9.250% due 5/1/09.................................................. 332,500
Nortek Inc., Sr. Notes:
480,000 B+ Series B, 9.250% due 3/15/07....................................... 470,400
355,000 B+ Series B, 9.125% due 9/1/07........................................ 344,350
----------
1,807,750
----------
Cable Television -- 11.8%
Adelphia Communications, Sr. Notes:
340,000 BB- 8.375% due 11/15/17................................................ 306,000
1,010,000 B+ Series B, 9.875% due 3/1/07........................................ 1,025,150
Century Communications Corp.:
2,435,000 BB- Sr. Discount Notes, Series B, zero coupon to yield
10.101% due 1/15/08............................................ 1,083,575
130,000 BB- Sr. Notes, 9.750% due 2/15/02...................................... 131,300
915,000 B+ Charter Communications Holdings LLC/Charter
Communications Capital Corp., Sr. Discount Notes,
step bond to yield 9.887% due 4/1/11............................... 539,850
CSC Holdings Inc., Sr. Sub. Debentures:
1,180,000 BB- 9.875% due 2/15/13................................................. 1,239,000
1,000,000 BB- 10.500% due 5/15/16................................................ 1,115,000
495,000GBP B- Diamond Holdings PLC, Guaranteed Notes,
10.000% due 2/1/08................................................. 792,061
760,000 B Echostar DBS Corp., Sr. Notes, 9.375% due 2/1/09..................... 763,800
190,000 B+ Insight Midwest, Sr. Sub. Notes, 9.750% due 10/1/09+................. 197,600
NLT Communications Corp.:
750,000EUR B- Sr. Discount Notes, step bond to yield
11.397% due 11/15/09+.......................................... 442,039
1,345,000 B- Sr. Notes, 11.500% due 10/1/08..................................... 1,462,688
775,000 BB- Rogers Cablesystems, Ltd., Guaranteed Sr. Sub.
Debentures, 11.000% due 12/1/15.................................... 875,750
1,250,000 B+ Telewest Communications PLC, Sr. Notes,
11.250% due 11/1/08................................................ 1,368,750
4,670,000 B- United International Holdings Inc., Sr. Discount
Notes, Series B, step bond to yield
11.284% due 2/15/08................................................ 2,988,800
</TABLE>
See Notes to Financial Statements.
7
<PAGE>
[LOGO OF ZENIX]
Schedule of Investments
December 31, 1999 (unaudited)
================================================================================
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cable Television-- 11.8% (continued)
4,750,000 B United Pan-Europe Communications, Sr. Discount
Notes, step bond to yield 12.500%
due 8/1/09+....................................................... $ 2,731,250
------------
17,062,613
------------
Casinos - Gambling -- 2.1%
105,000 BB+ Circus Circus Enterprises Inc., Sr. Sub. Debentures,
7.625% due 7/15/13................................................ 90,562
565,000 B Harveys Casino Resorts, Guaranteed Sr. Sub. Notes,
10.625% due 6/1/06................................................ 579,831
Hollywood Casino:
160,000 B First Mortgage Notes, 13.000% due 8/1/06+......................... 172,000
495,000 B Guaranteed Sr. Sub. Notes, 11.250% due 5/1/07..................... 517,275
380,000 NR Jazz Casino Co. LLC, Sr. Sub. Notes,
5.987% due 11/15/09............................................... 216,600
Sun International Hotels, Sr. Sub. Notes:
370,000 Ba3* 9.000% due 3/15/07................................................ 357,050
560,000 Ba3* 8.625% due 12/15/07............................................... 526,400
Venetian Casino:
465,000 B- Secured Notes, 12.250% due 11/15/04............................... 406,875
260,000 CCC+ Sr. Sub. Notes, 14.250% due 11/15/05.............................. 169,000
------------
3,035,593
------------
Chemicals - Major -- 1.3%
Huntsman Corp.:
4,000,000 B+ Sr. Discount Notes, zero coupon to yield
13.067% due 12/31/09+............................................. 1,205,000
645,000 B+ Sr. Sub. Notes, 10.125% due 7/1/09+................................. 667,575
------------
1,872,575
------------
Chemicals - Specialty -- 1.0%
165,000 BB- Georgia Gulf Corp., Sr. Sub. Notes,
10.375% due 11/1/07+.............................................. 172,837
Lyondell Chemical Co., Sr. Secured Notes:
320,000 BB Series A, 9.625% due 5/1/07....................................... 329,600
615,000 BB Series B, 9.875% due 5/1/07....................................... 638,063
365,000 B ZSC Specialty Chemical PLC, Sr. Notes,
11.000% due 7/1/09+............................................... 379,600
------------
1,520,100
------------
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
[LOGO OF ZENIX]
Schedule of Investments
December 31, 1999 (unaudited)
================================================================================
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Coal Mining-- 0.5%
960,000 Caa2* AEI Resources Inc., Guaranteed Notes,
10.500% due 12/15/05+.............................................. $ 681,600
-----------
Construction/AG Equipment/Trucks -- 0.2%
275,000 B Columbus McKinnon Corp., Guaranteed Sr. Sub. Notes,
8.500% due 4/1/08.................................................. 237,875
-----------
Containers - Packaging -- 3.4%
620,000 B AEP Industries Inc., Sr. Sub. Notes,
9.875% due 11/15/07................................................ 601,400
800,000EUR B1* BSN Financing Co., Guaranteed Sr. Sub. Notes,
10.250% due 8/1/09+................................................ 834,206
225,000 B BWAY Corp., Guaranteed Sr. Sub. Notes,
Series B, 10.250% due 4/15/07...................................... 225,844
575,000 B Huntsman Packaging Corp., Guaranteed Sr. Sub. Notes,
9.125% due 10/1/07................................................. 557,750
1,075,000 B Stone Container Finance Corp., Guaranteed Sr. Notes,
11.500% due 8/15/06+............................................... 1,146,219
280,000 B- Sweetheart Cup Co. Inc., Sr. Sub. Notes,
10.500% due 9/1/03................................................. 268,100
Tekni-Plex Inc.:
260,000 B- Guaranteed Sr. Sub. Notes, Series B,
9.250% due 3/1/08.............................................. 263,900
1,000,000 B- Sr. Sub. Notes, Series B, 11.250% due 4/1/07....................... 1,082,500
-----------
4,979,919
-----------
Contract Drilling -- 2.0%
Parker Drilling Co.:
110,000 B- 5.500% due 8/1/04 (Convertible into 7,147 shares
common stock).................................................. 77,000
980,000 B+ Sr. Notes, 9.750% due 11/15/06..................................... 967,750
655,000 BB Pride International Inc., Sr. Notes,
10.000% due 6/1/09................................................. 669,738
515,000 Ba3* R&B Falcon Corp., Sr. Notes, 12.250% due 3/15/06..................... 570,363
555,000 BB- RBF Finance Corp., Guaranteed Sr. Notes,
11.375% due 3/15/09................................................ 600,788
-----------
2,885,639
-----------
Discount Stores -- 1.2%
1,210,000 B+ Ames Department Stores, Sr. Notes,
10.000% due 4/15/06................................................ 1,197,900
490,000 BB+ Kmart Corp., Debentures, 12.500% due 3/1/05.......................... 554,313
-----------
1,752,213
-----------
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
[LOGO OF ZENIX]
Schedule of Investments
December 31, 1999 (unaudited)
================================================================================
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Diversified Commercial Services -- 1.0%
1,000,000 B2* Intertek Finance PLC., Guaranteed Sr. Sub. Notes,
Series B, 10.250% due 11/1/06........................................ $ 935,000
500,000 B- Outsourcing Solutions Inc., Sr. Sub. Notes,
11.000% due 11/1/06.................................................. 480,000
----------
1,415,000
----------
Diversified Financial Services -- 0.3%
Amresco Inc., Sr. Sub. Notes, Series A:
600,000 CCC- 10.000% due 3/15/04.................................................. 360,000
135,000 CCC- 9.875% due 3/15/05................................................... 81,000
----------
441,000
----------
Diversified Manufacturing -- 0.8%
390,000 B- Blount Inc., Sr. Sub. Notes, 13.000% due 8/1/09+....................... 411,450
700,000 B+ Park-Ohio Industries, Inc., Sr. Sub. Notes,
9.250% due 12/1/07................................................... 679,000
----------
1,090,450
----------
Drugs - Generic -- 1.6%
2,300,000 BB ICN Pharmaceuticals Inc., Sr. Notes, Series B,
9.250% due 8/15/05................................................... 2,271,250
----------
Electronic Components -- 0.5%
725,000 B+ Celestica International Inc., Sr. Sub. Notes,
10.500% due 12/31/06................................................. 767,594
----------
Engineering & Construction -- 0.7%
165,000 NR American Plumbing & Mechanic, Sr. Sub. Notes,
11.625% due 10/15/08+................................................ 156,750
580,000 B Group Maintenance America Corp., Sr. Sub. Notes,
9.750% due 1/15/09................................................... 577,100
255,000 BB- Integrated Electrical Services, Sr. Sub. Notes,
9.375% due 2/1/09.................................................... 253,088
----------
986,938
----------
Environmental Services -- 2.9%
3,500,000 B+ Allied Waste North America, Sr. Sub. Notes,
10.000% due 8/1/09+.................................................. 3,132,500
315,000 B+ IT Group Inc., Sr. Sub. Notes, 11.250% due 4/1/09...................... 304,369
740,000 B+ URS Corp., Sr. Sub. Notes, 12.250% due 5/1/09.......................... 778,850
----------
4,215,719
----------
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
<TABLE>
<CAPTION>
[LOGO OF ZENIX] Schedule of Investments (continued)
December 31, 1999 (unaudited)
======================================================================================================================
Face
Amount++ Rating(a) Security Value
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Food Distributors -- 1.3%
385,000 B- Agrilink Foods Inc., Sr. Notes, 11.875% due 11/1/08............ $ 381,150
1,000,000 B2* Carrols Corp., Sr. Sub. Notes, 9.500% due 12/1/08.............. 920,000
575,000 B- Premier International Foods PLC, Sr. Notes,
12.000% due 9/1/09+.......................................... 575,000
-----------
1,876,150
-----------
Foods - Specialty/Candy -- 1.2%
850,000 B- B&G Foods Inc., Guaranteed Sr. Sub. Notes,
9.625% due 8/1/07............................................ 758,625
1,325,000 B Imperial Holly Corp., Guaranteed Sr. Sub. Notes,
9.750% due 12/15/07.......................................... 960,625
-----------
1,719,250
-----------
Forest Products -- 0.9%
660,000 B Ainsworth Lumber Co. Ltd., Sr. Notes,
12.500% due 7/15/07.......................................... 727,650
565,000 B+ Millar Western Forest, Sr. Notes, 9.875% due 5/15/08........... 565,000
-----------
1,292,650
-----------
Home Building -- 0.4%
660,000 BB- U.S. Home Corp., Sr. Sub. Notes, 8.875% due 2/15/09............ 594,000
Home Furnishings -- 0.3%
405,000 B Falcon Products Inc., Sr. Sub. Notes,
11.375% due 6/15/09.......................................... 388,800
-----------
Hospital - Nursing Management -- 2.4%
1,090,000 Ba3* Fresenius Medical Care Capital Trust I, Trust Preferred
Securities, 9.000% due 12/1/06............................... 1,049,125
345,000 Ba3* Fresenius Medical Care Capital Trust II, Trust Preferred
Securities, 7.875% due 2/1/08................................ 314,813
2,585,000 B- Magellan Health Services, Inc., Sr. Sub. Notes,
9.000% due 2/15/08........................................... 2,093,850
-----------
3,457,788
-----------
Hotel - Resort -- 3.2%
2,375,000 B- Courtyard By Marriott II LP/Courtyard Finance Co.,
Sr. Secured Notes, Series B, 10.750% due 2/1/08.............. 2,327,500
1,570,000 BB HMH Properties, Inc., Sr. Notes, Series C,
8.450% due 12/1/08........................................... 1,460,100
855,000 B+ Intrawest Corp., Sr. Notes, 9.750% due 8/15/08................. 842,175
-----------
4,629,775
-----------
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
<TABLE>
<CAPTION>
[LOGO OF ZENIX] Schedule of Investments (continued)
December 31, 1999 (unaudited)
=======================================================================================================================
Face
Amount++ Rating(a) Security Value
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Insurance - Multi-Line -- 0.3%
650,000 B Veritas Capital Trust, Guaranteed Trust Preferred Securities,
10.000% due 1/1/28.............................................. $ 489,125
-----------
Insurance - Specialty -- 0.3%
1,000,000 CCC- SIG Capital Trust I, Guaranteed Trust Preferred Securities,
9.500% due 8/15/27.............................................. 402,500
-----------
Internet Services -- 3.8%
325,000 Caa2* Cybernet Internet Services International, Sr. Notes,
14.000% due 7/1/09.............................................. 284,375
Exodus Communications, Sr. Notes:
655,000 B- 10.750% due 12/15/09+........................................... 666,462
300,000EUR B- 10.750% due 12/15/09+........................................... 309,049
PSINet Inc., Sr. Notes:
355,000 B- 11.500% due 11/1/08............................................. 372,750
880,000 B- 11.000% due 8/1/09.............................................. 910,800
250,000EUR B- 11.000% due 8/1/09+............................................. 258,800
1,075,000 NR Splitrock Services, Inc., Guaranteed Sr. Notes,
11.750% due 7/15/08............................................. 999,750
Verio Inc., Sr. Notes:
360,000 B- 10.375% due 4/1/05.............................................. 365,850
380,000 B- 11.250% due 12/1/08............................................. 400,900
675,000 B- 10.625% due 11/15/09+........................................... 693,563
460,000 CCC+ WAM!NET Inc., Guaranteed Sr. Discount Notes, Series B,
step bond to yield 13.392% due 3/1/05........................... 267,950
-----------
5,530,249
-----------
Leisure/Movies/Entertainment -- 1.5%
385,000 B- AMC Entertainment Inc., Sr. Sub. Notes,
9.500% due 2/1/11............................................... 339,762
520,000 B- Premier Parks Inc., Sr. Discount Notes, step bond to
yield 10.776% due 4/1/08........................................ 353,600
1,500,000 B- SFX Entertainment, Inc., Sr. Sub. Notes, Series B,
9.125% due 2/1/08............................................... 1,421,250
-----------
2,114,612
-----------
Machinery - Industrial/Components -- 0.4%
518,000 B- Alvey Systems Inc., Sr, Sub. Notes,
11.375% due 1/31/03............................................. 536,130
-----------
Medical Specialties -- 0.3%
390,000 B- Hanger Orthopedic Group, Sr. Sub. Notes,
11.250% due 6/15/09............................................. 403,650
-----------
</TABLE>
See Notes to Financial Statements.
12
<PAGE>
<TABLE>
<CAPTION>
[LOGO OF ZENIX] Schedule of Investments (continued)
December 31, 1999 (unaudited)
======================================================================================================================
Face
Amount++ Rating(a) Security Value
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Metal/Minerals - Other -- 0.2%
325,000 B- Haynes International, Inc., Sr. Notes,
11.625% due 9/1/04............................................... $ 268,937
-----------
Multi-Sector Companies -- 0.4%
535,000 B- Triarc Consumer Beverage, Sr. Sub. Notes,
10.250% due 2/15/09+............................................. 512,263
-----------
Newspapers -- 0.5%
810,000 B+ Garden State Newspapers, Sr. Sub. Notes,
8.625% due 7/1/11................................................ 738,112
-----------
Oil & Gas Production -- 2.7%
Belco Oil & Gas Corp., Sr. Sub. Notes:
250,000 B1* 10.500% due 4/1/06............................................... 255,625
600,000 B1* 8.875% due 9/15/07............................................... 576,000
Canadian Forest Oil Ltd., Guaranteed Sr. Sub. Notes:
350,000 B 10.500% due 1/15/06.............................................. 355,250
500,000 B 8.750% due 9/15/07............................................... 478,750
145,000 B Chesapeake Energy Corp., Sr. Notes, Series B,
9.625% due 5/1/05................................................ 137,750
1,300,000 B+ Clark USA Inc., Sr. Notes, Series B, 10.875% due 12/1/05........... 585,000
855,000 B+ Nuevo Energy Co., Sr. Sub. Notes,
9.500% due 6/1/08................................................ 856,069
700,000 B Stone Energy Corp., Guaranteed Sr. Sub. Notes,
8.750% due 9/15/07............................................... 684,250
-----------
3,928,694
-----------
Oil & Gas Transmission -- 0.4%
540,000 BB- Leviathan Gas Pipeline Finance Corp., Sr. Sub. Notes,
10.375% due 6/1/09............................................... 560,925
-----------
Paper -- 2.8%
505,000 B Doman Industries Ltd., Sr. Notes, 8.750% due 3/15/04............... 434,300
815,000EUR B Kappa Beheer B.V., Guaranteed Sr. Sub. Notes,
10.625% due 7/15/09+............................................. 866,270
500,000 CCC+ Repap New Brunswick, Sr. Secured Notes,
10.625% due 4/15/05.............................................. 462,500
Riverwood International Corp.:
515,000 B- Guaranteed Sr. Notes, 10.625% due 8/1/07......................... 534,313
1,000,000 CCC+ Guaranteed Sr. Sub. Notes, 10.875% due 4/1/08.................... 990,000
715,000 BB+ Tembec Industries Inc., Sr. Notes,
9.875% due 9/30/05............................................... 743,600
-----------
4,030,983
-----------
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
<TABLE>
<CAPTION>
[LOGO OF ZENIX] Schedule of Investments (continued)
December 31, 1999 (unaudited)
======================================================================================================================
Face
Amount++ Rating(a) Security Value
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pharmaceuticals - Other -- 0.7%
895,000 B King Pharmaceutical Inc., Sr. Sub. Notes,
10.750% due 2/15/09.............................................. $ 955,413
-----------
Photographic Products -- 0.3%
430,000 BB- Polaroid Corp., Sr. Notes, 11.500% due 2/15/06..................... 419,250
-----------
Printing/Forms -- 1.3%
335,000 B Merrill Corp., Sr. Sub. Notes, 12.000% due 5/1/09+................. 326,206
975,000GBP B Polestar Corp. PLC, Sr. Notes, Series B,
10.500% due 5/30/08.............................................. 1,526,733
-----------
1,852,939
-----------
Real Estate Investment Trusts -- 0.9%
1,280,000 Baa3* Trizec Finance Ltd., Guaranteed Sr. Notes,
10.875% due 10/15/05............................................. 1,337,600
-----------
Recreational Products/Toys -- 0.2%
300,000EUR B2* Head Holding Corp., Sr. Notes, 10.750% due 7/15/06+................ 317,361
-----------
Rental/Leasing Companies -- 0.5%
690,000 BB- Avis Rent A Car Inc., Sr. Sub. Notes,
11.000% due 5/1/09............................................... 729,675
-----------
Retail Food Chains -- 0.3%
450,000 B+ Stater Brothers Holdings, Sr. Notes, 10.750% due 8/15/06........... 452,250
-----------
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.................................... 870,000
-----------
Savings & Loan Associations -- 2.1%
1,000,000 B2* Ocwen Capital Trust I, Guaranteed Capital Securities,
10.875% due 8/1/27............................................... 635,000
2,600,000 B+ Ocwen Financial Corp., Sr. Notes,
11.875% due 10/1/03.............................................. 2,405,000
-----------
3,040,000
-----------
Semiconductors -- 0.9%
1,240,000 B Fairchild Semiconductor Inc., Sr. Sub. Notes,
10.125% due 3/15/07.............................................. 1,264,800
-----------
Steel/Iron Ore -- 1.6%
660,000 B+ Russel Metals Inc., Sr. Notes, 10.000% due 6/1/09.................. 645,150
1,320,000 B+ WCI Steel Inc., Sr. Notes, 10.000% due 12/1/04..................... 1,346,400
385,000 B- WHX Corp., Sr. Notes, 10.500% due 4/15/05.......................... 377,300
-----------
2,368,850
-----------
</TABLE>
See Notes to Financial Statements.
14
<PAGE>
<TABLE>
<CAPTION>
[LOGO OF ZENIX] Schedule of Investments (continued)
December 31, 1999 (unaudited)
======================================================================================================================
Face
Amount++ Rating(a) Security Value
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Telecommunications - Other -- 10.4%
Call-Net Enterprises Inc.:
165,000 B+ Sr. Discount Notes, step bond to yield
12.787% due 8/15/08........................................... $ 79,200
300,000 B+ Sr. Notes, 9.375% due 5/15/09..................................... 249,000
325,000EUR B+ Esat Telecom Group PLC, Sr. Notes,
11.875% due 11/1/09............................................... 383,100
Esprit Telecom Group PLC, Sr. Notes:
700,000 B- 11.500% due 12/15/07.............................................. 705,250
600,000DEM B- 11.500% due 12/15/07.............................................. 313,723
400,000 B- 10.875% due 6/15/08............................................... 398,000
650,000EUR B Global Telesystems Europe, Sr. Notes,
11.000% due 12/1/09+.............................................. 661,421
Hermes Europe Railtel B.V., Sr. Notes:
1,000,000 B 11.500% due 8/15/07............................................... 1,032,500
135,000 B 10.375% due 1/15/09............................................... 134,325
ICG Holdings Inc., Sr. Discount Notes:
335,000 B- Step bond to yield 12.935% due 9/15/05............................ 291,450
680,000 B- Step bond to yield 12.860% due 5/1/06............................. 516,800
500,000EUR CCC+ Jazztel PLC, Sr. Notes, 13.250% due 12/15/09+....................... 506,267
KMC Telecom Holdings Inc.:
575,000 B- Sr. Discount Notes, step coupon to yield
15.873% due 2/15/08........................................... 311,937
745,000 NR Sr. Notes, 13.500% due 5/15/09+................................... 735,688
2,140,000 B Level 3 Communications, step bond to
yield 11.234% due 12/1/08......................................... 1,294,700
505,000 B+ Metromedia Fiber Network, Sr. Notes,
10.000% due 12/15/09.............................................. 520,150
NEXTLINK Communications, LLC/NEXTLINK Capital, Inc.:
1,325,000 B Sr. Discount Notes, step bond to yield
12.050% due 6/1/09............................................ 828,125
920,000 B Sr. Discount Notes, step bond to yield
12.125% due 12/1/09+.......................................... 549,700
440,000 B Sr. Notes, 12.500% due 4/15/06.................................... 471,900
975,000 B Sr. Notes, 10.750% due 6/1/09..................................... 1,009,125
615,000 B- Tele1 Europe B.V., Sr. Notes, 13.000% due 5/15/09................... 633,450
265,000 B- VersaTel Telecom International N.V., Sr. Notes,
13.250% due 5/15/08............................................... 283,550
Viatel Inc., Sr. Notes:
675,000 B- 11.250% due 4/15/08............................................... 675,000
400,000 B- 11.500% due 3/15/09............................................... 401,000
</TABLE>
See Notes to Financial Statements.
15
<PAGE>
<TABLE>
<CAPTION>
[LOGO OF ZENIX] Schedule of Investments (continued)
December 31, 1999 (unaudited)
======================================================================================================================
Face
Amount++ Rating(a) Security Value
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Telecommunications - Other-- 10.4% (continued)
830,000 BB- Williams Communications Group Inc., Sr. Notes,
10.875% due 10/1/09............................................. $ 871,500
1,200,000 NR World Access Inc., Sr. Notes, Series B,
13.250% due 1/15/08............................................. 1,086,000
-----------
14,942,861
-----------
Telephone - Cellular -- 8.4%
Airgate PCS Inc., Sr. Sub. Discount Notes:
210,000 Caa1* Step bond to yield 13.548% due 10/1/09.......................... 116,550
665,000 NR Step bond to yield 13.224% due 10/1/09.......................... 432,250
700,000 B- Centennial Cellular Corp., Sr. Sub. Notes,
10.750% due 12/15/08............................................ 754,250
750,000CAD B Clearnet Communications, Sr. Discount Notes,
step bond to yield 10.400% due 5/15/08.......................... 326,064
1,515,000 B Crown Castle International Corp., Sr. Discount Notes,
step bond to yield 11.059% due 5/15/11.......................... 950,662
405,000 NR Dobson/Sygnet Communications, Sr. Notes,
12.250% due 12/15/08............................................ 449,550
1,265,000 CCC+ Dolphin Telecom PLC, Sr. Discount Notes,
step bond to yield 11.441% due 6/1/08........................... 626,175
Microcell Telecommunications, Sr. Discount Notes:
305,000 B3* Series B, step bond to yield 11.843% due 6/1/06................. 270,688
835,000 B- Step bond to yield 11.756% due 6/1/09........................... 540,662
2,030,000 B- Millicom International Cellular S.A., Sr. Discount
Notes, step bond to yield 15.944% due 6/1/06.................... 1,669,675
Nextel Communications, Inc.:
1,005,000 B1* Sr. Redeemable Discount Notes, step bond to yield
10.814% due 9/15/07.......................................... 756,262
1,720,000 B1* Sr. Serial Redeemable Discount Notes, step bond
to yield 10.689% due 2/15/08................................. 1,216,900
Omnipoint Corp., Sr. Notes:
180,000 B2* 11.500% due 9/15/09+............................................ 196,650
330,000 B2* Series A, 11.625% due 8/15/06..................................... 352,275
680,000 NR Spectrasite Holdings Inc., Sr. Discount Notes,
step bond to yield 11.250% due 4/15/09.......................... 362,100
Telesystems International Wireless Inc.,
Sr. Discount Notes:
325,000 CCC+ Series B, step bond to yield 14.417% due 6/30/07............. 198,250
880,000 CCC+ Series C, step bond to yield 12.172% due 11/1/07............. 484,000
1,000,000 B3* Triton PCS Inc., Sr. Discount Notes,
step bond to yield 11.394% due 5/1/08........................... 710,000
</TABLE>
See Notes to Financial Statements.
16
<PAGE>
<TABLE>
<CAPTION>
[LOGO OF ZENIX] Schedule of Investments (continued)
December 31, 1999 (unaudited)
======================================================================================================================
Face
Amount++ Rating(a) Security Value
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Telephone - Cellular -- 8.4% (continued)
575,000 CCC+ US Unwired Inc., Sr. Discount Notes,
step bond to yield 13.375% due 11/1/09+........................... $ 342,125
Voicestream Wireless Co./Voicestream Wireless Holding:
480,000 B2* Sr. Discount Notes, step bond to yield
11.875% due 11/15/09+......................................... 290,400
1,035,000 B2* Sr. Notes, 10.375% due 11/15/09+.................................. 1,066,050
-----------
12,111,538
-----------
Textiles -- 0.3%
800,000DEM B3* Texon International PLC, Sr. Notes, 10.000%
due 2/1/08........................................................ 362,662
-----------
Transportation - Marine -- 1.0%
320,000 B- Oglebay Norton Co., Sr. Sub. Notes,
10.000% due 2/1/09................................................ 312,000
1,030,000 BB- Sea Containers Ltd., Sr. Sub. Debentures, Series A,
12.500% due 12/1/04............................................... 1,066,050
-----------
1,378,050
-----------
Unregulated Power Generation -- 2.4%
AES Corp., Sr. Sub. Notes:
915,000 BB 10.250% due 7/15/06............................................... 926,437
1,040,000 Ba1* 9.500% due 6/1/09................................................. 1,050,400
1,350,000 BB+ Calpine Corp., Sr. Notes, 10.500% due 5/15/06....................... 1,420,875
-----------
3,397,712
-----------
Wholesale Distributors -- 0.3%
335,000 B Buhrmann US Inc., Sr. Sub. Notes,
12.250% due 11/1/09+.............................................. 348,400
160,000 B- Fisher Scientific International Inc., Sr. Sub. Notes,
9.000% due 2/1/08................................................. 154,000
-----------
502,400
-----------
TOTAL CORPORATE BONDS AND NOTES
(Cost -- $138,942,362).............................................. 133,919,240
-----------
<CAPTION>
Shares Security Value
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK -- 0.0%
Telecommunications Equipment-- 0.0%
3,771 World Access Inc.
(Cost -- $66,939)................................................... 72,582
-----------
</TABLE>
See Notes to Financial Statements.
17
<PAGE>
<TABLE>
<CAPTION>
[LOGO OF ZENIX] Schedule of Investments (continued)
December 31, 1999 (unaudited)
======================================================================================================================
Shares Security Value
- ----------------------------------------------------------------------------------------------------------------------
<S> <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)............................................. $ 453,506
-----------
WARRANTS# -- 0.4%
Broadcasting -- 0.0%
2,450 UIH Australia Pacific, Inc., Expire 5/15/06...................... 73,500
-----------
Internet Services -- 0.2%
325 Cybernet Internet Services International, Expire 7/1/09+......... 26,162
1,625 Splitrock Services, Inc., Expire 7/15/08......................... 152,750
2,550 WAM!NET Inc., Expire 3/1/05...................................... 58,013
-----------
236,925
-----------
Telecommunications - Other -- 0.2%
7,130 Pagemart, Inc., Expire 12/31/03................................. 19,608
1,300 RSL Communications, Ltd., Expire 11/15/06....................... 52,000
Tele1 Europe B.V.:
320 Expire 5/15/09+............................................... 56,000
325 Expire 5/15/09 (EUR)+......................................... 57,301
265 Versatel Telecommunications, Expire 5/15/08+.................... 108,650
-----------
293,559
-----------
Telephone - Cellular -- 0.0%
1,000 Iridium World Communications Ltd., Expire 7/15/05+.............. 10
-----------
TOTAL WARRANTS
(Cost -- $204,080).............................................. 603,994
-----------
</TABLE>
See Notes to Financial Statements.
18
<PAGE>
<TABLE>
<CAPTION>
[LOGO OF ZENIX] Schedule of Investments (continued)
December 31, 1999 (unaudited)
======================================================================================================================
Face
Amount Security Value
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT -- 6.4%
$9,205,000 Morgan Stanley Dean Witter & Co., 2.500% due 1/3/00;
Proceeds at maturity -- $9,206,918;
(Fully collateralized by U.S. Treasury Bonds,
6.000% to 7.250% due 8/15/22 to 2/15/26;
Market value -- $9,477,383)
(Cost -- $9,205,000)...................................................... $ 9,205,000
-------------
TOTAL INVESTMENTS -- 100%
(Cost -- $148,920,881**).................................................. $ 144,254,322
=============
</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.
# Non-income producing security.
** Aggregate cost for Federal income tax purposes is substantially the same.
Currency Abbreviations:
CAD -- Canadian Dollars
DEM -- German Mark
GBP -- British Pound
EUR -- Euro
See page 20 for definition of ratings.
See Notes to Financial Statements.
19
<PAGE>
[LOGO OF ZENIX] 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.
20
<PAGE>
[LOGO OF ZENIX]
Statement of Assets and Liabilities
December 31, 1999 (unaudited)
================================================================================
ASSETS:
Investments, at value (Cost -- $148,920,881)........ $144,254,322
Cash................................................ 490
Interest and dividends receivable................... 2,983,671
Receivable for open forward foreign
currency contracts (Note 11)...................... 18,729
------------
Total Assets........................................ 147,257,212
------------
LIABILITIES:
Bank loan (Note 7).................................. 30,000,000
Dividends payable................................... 220,734
Interest payable.................................... 179,317
Investment advisory fees payable.................... 93,008
Administration fees payable......................... 36,678
Payable for open forward foreign
currency contracts (Note 11)....................... 6,186
Accrued expenses.................................... 69,134
------------
Total Liabilities................................... 30,605,057
------------
Total Net Assets..................................... $116,652,155
============
NET ASSETS:
Par value of capital shares......................... $ 159,713
Capital paid in excess of par value................. 117,130,508
7.00% Cumulative Preferred Stock (Note 6)........... 30,000,000
Overdistributed net investment income............... (499,113)
Accumulated net realized loss on security
transactions....................................... (25,480,240)
Net unrealized depreciation on investments and
foreign currencies................................ (4,658,713)
------------
Total Net Assets..................................... $ 116,652,155
============
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..................................... 3.45 103,554
--------- ------------
Total allocated to Cumulative Preferred Stock........ $1,003.45 30,103,554
========= ------------
Common Stock (15,971,284 shares outstanding)......... $ 5.42 86,548,601
========= ------------
Total Net Assets..................................... $116,652,155
============
See Notes to Financial Statements.
21
<PAGE>
[LOGO OF ZENIX]
Statement of Operations
For the Nine Months Ended
December 31, 1999 (unaudited)
================================================================================
INVESTMENT INCOME:
Interest...................................................... $11,530,146
Dividends..................................................... 107,965
Less: Interest expense (Note 7)............................... (1,302,767)
-----------
Total Investment Income....................................... 10,335,344
-----------
EXPENSES:
Investment advisory fees (Note 2)............................. 561,742
Administration fees (Note 2).................................. 224,695
Shareholder communications.................................... 128,076
Audit and legal............................................... 63,716
Directors' fees............................................... 26,304
Pricing....................................................... 21,578
Shareholder and system servicing fees......................... 15,274
Custody....................................................... 9,543
Other......................................................... 27,707
-----------
Total Expenses................................................ 1,078,635
-----------
Net Investment Income........................................... 9,256,709
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCIES (NOTES 3 AND 11):
Realized Gain (Loss) From:
Security transactions (excluding short-term securities)..... (6,625,555)
Foreign currency transactions............................... 170,723
-----------
Net Realized Loss............................................. (6,454,832)
-----------
Change in Net Unrealized Depreciation of
Investments and Foreign Currencies:
Beginning of period......................................... (2,628,669)
End of period............................................... (4,658,713)
-----------
Increase in Net Unrealized Depreciation....................... (2,030,044)
-----------
Net Loss on Investments......................................... (8,484,876)
-----------
Increase in Net Assets From Operations.......................... $ 771,833
===========
See Notes to Financial Statements.
22
<PAGE>
[LOGO OF ZENIX]
Statements of Changes in Net Assets
For the Nine Months Ended
December 31, 1999 (unaudited)
and the Year Ended March 31, 1999
================================================================================
December 31 March 31
------------- -------------
OPERATIONS:
Net investment income........................ $ 9,256,709 $ 12,708,330
Net realized loss............................ (6,454,832) (3,046,114)
Increase in net unrealized depreciation...... (2,030,044) (12,054,283)
------------ ------------
Increase (Decrease) in Net Assets
From Operations............................ 771,833 (2,392,067)
------------ ------------
DISTRIBUTIONS PAID TO:
7.00% Cumulative Preferred Stock
Shareholders From Net Investment
Income..................................... (2,100,000) (2,100,000)
Common Stock Shareholders From Net
Investment Income.......................... (7,763,672) (10,597,803)
Common Stock Shareholders From Capital....... -- (331,100)
------------ ------------
Decrease In Net Assets From
Distributions To Shareholders............. (9,863,672) (13,028,903)
------------ ------------
FUND SHARE TRANSACTIONS (NOTE 8):
Net asset value of shares issued for
reinvestment of dividends.................. 1,561,796 3,120,769
------------ ------------
Increase in Net Assets From
Fund Share Transactions.................... 1,561,796 3,120,769
------------ ------------
Decrease in Net Assets......................... (7,530,043) (12,300,201)
NET ASSETS:
Beginning of period.......................... 124,182,198 136,482,399
------------ ------------
End of period*............................... $116,652,155 $124,182,198
============ ============
*Includes overdistributed
net investment income of:.................... $ (499,113) $ (62,873)
============ ============
See Notes to Financial Statements.
23
<PAGE>
[LOGO OF ZENIX]
Statement of Cash Flows
For the Nine Months Ended
December 31, 1999 (unaudited)
================================================================================
NET INCREASE IN CASH:
Cash Flows Provided by Operating
and Investing Activities:
Interest and dividends received.................... $ 10,339,122
Operating expenses paid............................ (992,140)
Interest payments on bank loans.................... (1,256,297)
Purchases of short-term securities, net............ (2,464,000)
Purchases of long-term securities.................. (93,448,151)
Proceeds from disposition of long-term securities.. 96,123,444
------------
Net Cash Provided By Operating
and Investing Activities......................... $ 8,301,978
-----------
Cash Flows From Financing Activities:
Cash dividends paid on 7.00% Cumulative
Preferred Stock.................................. (2,100,000)
Cash dividends paid on Common Stock*............... (6,201,876)
------------
Net Cash Used By Financing Activities................ (8,301,876)
-----------
Net Increase in Cash................................. 102
Cash--Beginning of period............................ 388
-----------
Cash--End of period.................................. $ 490
===========
RECONCILIATION OF DECREASE IN NET ASSETS
FROM OPERATIONS TO NET CASH PROVIDED
BY OPERATING AND INVESTING ACTIVITIES:
Increase in Net Assets From Operations............... $ 771,833
Amortization of discount on securities............. (1,846,780)
Decrease in investments............................ 10,297,665
Decrease in receivable for securities sold......... 622,712
Decrease in payable for securities purchased....... (2,012,109)
Decrease in dividends and interest receivable...... 303,631
Decrease in receivable for open forward foreign
currency contracts............................... 32,061
Increase in accrued expenses....................... 132,965
------------
Total Adjustments.................................. 7,530,145
-----------
Net Cash Provided By Operating and Investing Activities $ 8,301,978
===========
* Exclusive of dividend reinvestment of $1,561,796.
See Notes to Financial Statements.
24
<PAGE>
[LOGO OF ZENIX]
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-
25
<PAGE>
[LOGO OF ZENIX]
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
26
<PAGE>
[LOGO OF ZENIX]
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 nine months ended December 31, 1999, the aggregate cost of
purchases and proceeds from sales of investments (including maturities, but
excluding short-term securities) were as follows:
- --------------------------------------------------------------------------------
Purchases $91,436,042
- --------------------------------------------------------------------------------
Sales 95,500,732
- --------------------------------------------------------------------------------
At December 31, 1999, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
- --------------------------------------------------------------------------------
Gross unrealized appreciation $ 2,733,921
Gross unrealized depreciation (7,400,480)
- --------------------------------------------------------------------------------
Net unrealized depreciation $ (4,666,559)
- --------------------------------------------------------------------------------
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.
27
<PAGE>
[LOGO OF ZENIX]
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 December
31, 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 $103,554 at December 31, 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 nine months ended December 31, 1999, interest expense related to
the loan totalled $1,302,767, the average dollar amount of the borrowing was
$30,000,000 and the average interest rate was 5.68%.
28
<PAGE>
[LOGO OF ZENIX]
Notes to Financial Statements
(unaudited) (continued)
================================================================================
8. Common Stock
At December 31, 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:
Nine Months Ended Year Ended
December 31, 1999 March 31, 1999
------------------- -------------------
Shares Amount Shares Amount
- --------------------------------------------------------------------------------
Shares issued on
reinvestment 281,150 $1,561,796 488,015 $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.
29
<PAGE>
[LOGO OF ZENIX]
Notes to Financial Statements
(unaudited) (continued)
================================================================================
11. Forward Foreign Currency Contracts
At December 31, 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 Gain
- --------------------------------------------------------------------------------
To Sell:
British Pound 1,435,800 2,315,657 6/22/00 $ 30
Canadian Dollar 472,500 327,943 6/8/00 (6,186)
European Currency Unit 5,204,536 5,316,447 6/15/00 18,699
- --------------------------------------------------------------------------------
Total Unrealized Gain on Open Forward
Foreign Currency Contracts $12,543
- --------------------------------------------------------------------------------
30
<PAGE>
[LOGO OF ZENIX] 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:
1999(1) 1999 1998
------- ------- --------
Net Asset Value, Beginning of Period........ $5.96 $6.96 $6.45
------- ------- --------
Income (Loss) From Operations:
Net investment income....................... 0.59 0.82 0.87
Net realized and unrealized gain (loss)..... (0.54) (0.97) 0.56
------- ------- --------
Total Income (Loss) From Operations......... 0.05 (0.15) 1.43
------- ------- --------
Distributions Paid To:
7.00% Cumulative Preferred Stock
Shareholders From Net Investment Income... (0.13) (0.14) (0.14)
Common Stock Shareholders From Net
Investment Income......................... (0.49) (0.69) (0.78)
Common Stock Shareholders From Capital..... -- (0.02) --
------- ------- --------
Total Distributions......................... (0.62) (0.85) (0.92)
------- ------- --------
Change in accumulated undeclared dividends
on Preferred Stock........................ 0.03 -- --
------- ------- --------
Net Asset Value, End of Period.............. $5.42 $5.96 $6.96
======= ======= ========
Market Value, End of Period................. $4.69 $5.88 $7.50
======= ======= ========
Total Return, Based on Market Value*........ (12.60)%++ (12.53)% 14.81%
======= ======= ========
Total Return, Based on Net Asset Value*..... (0.38)%++ (4.38)% 19.75%
======= ======= ========
Net Assets**, End of Period (000's)......... $86,549 $93,561 $105,861
======= ======= ========
Ratios to Average Net Assets Based on
Common Shares Outstanding:
Net Investment Income....................... 13.80%+ 12.99% 12.60%
Interest Expense............................ 1.94+ 1.81 1.81
Other Expenses.............................. 1.61+ 1.53 1.51
Portfolio Turnover Rate..................... 65% 91% 79%
- ----------
(1) For the nine months ended December 31, 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.
31
<PAGE>
[LOGO OF ZENIX] Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of common stock outstanding throughout each year ended March 31:
1997 1996 1995
------- ------- --------
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%
- ----------
* 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.
32
<PAGE>
[LOGO OF ZENIX] 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(3) 1,000 1,000 1,000 1,000 1,000 1,000
Average Market Value
Per Share(3)(4) 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) 146,500 153,600 165,900 154,800 149,400 --
</TABLE>
- ----------
(1) For the nine months ended December 31, 1999.
(2) Redeemable April 15, 2000.
(3) Excludes accrued interest or accumulated undeclared dividends.
(4) See Note 6 of the Notes to Financial Statements.
33
<PAGE>
[LOGO OF ZENIX] 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)
December 31, 1999 3,585,998 0.23 3,230,785 0.21 28,349 0.00 3,259,134 0.21
</TABLE>
* Per share of Common Stock.
34
<PAGE>
[LOGO OF ZENIX] 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
10/26/99 10/29/99 4.938 5.34 0.054 5.200
11/22/99 11/26/99 5.000 5.42 0.054 4.880
12/27/99 12/30/99 4.500 5.43 0.054 4.630
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
* As of record date
35
<PAGE>
[LOGO OF ZENIX] 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 PFPC Global Fund
Services ("PFPC") 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 PFPC 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, PFPC 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 PFPC has completed its
purchases, the market price exceeds the net asset value of the Common Stock as
of the valuation time, PFPC 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 a Plan
36
<PAGE>
[LOGO OF ZENIX] Dividend Reinvestment Plan
(unaudited)
- --------------------------------------------------------------------------------
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 PFPC is unable to stop open market purchases and
cause the fund to issue the remaining shares, the average per share purchase
price paid by PFPC 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. PFPC 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.
PFPC 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 PFPC 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. PFPC'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
37
<PAGE>
[LOGO OF ZENIX] Dividend Reinvestment Plan
(unaudited)
- --------------------------------------------------------------------------------
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
terminated by PFPC, 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 PFPC Global Fund Services, 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.
38
<PAGE>
[This page intentionally left blank]
<PAGE>
[This page intentionally left blank]
<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.
FD01066 2/00
