<PAGE>
ZENIX
Income
Fund Inc.
[LOGO OF ZENIX]
Annual Report
March 31, 2000
<PAGE>
Zenix Income Fund Inc.
[LOGO OF ZENIX]
[PHOTO] [PHOTO]
HEATH B. MCLENDON JOHN C. BIANCHI
Chairman Vice President and
Investment Officer
Dear Shareholder:
We are pleased to provide you with the annual report for the Zenix Income Fund
Inc. ("Fund") for the year ended March 31, 2000. Any discussion of the Fund's
holdings is as of March 31, 2000. Please refer to pages eight through twenty for
a list of the Fund's holdings.
During the past 12 months the Fund paid income dividends totaling $0.65 per
share. The table below shows the annualized distribution rate and 12-month total
return for the Fund based on its March 31, 2000 net asset value ("NAV") per
share and its New York Stock Exchange ("NYSE") closing price.1
Price Annualized Twelve-Month
Per Share Distribution Rate2 Total Return2
--------- ------------------ -------------
$5.02 (NAV) 12.91% (4.43)%
$4.44 (NYSE) 14.60% (14.28)%
- --------------
1 The NAV is calculated by subtracting other 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 the investor buys or
sells shares of the Fund is its market (NYSE) price as determined by supply
and demand.
2 Total returns are based on changes in NAV and the market value,
respectively. Total returns assume the reinvestment of all dividends and/or
capital gains distributions in additional shares. The 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 April 30,
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>
Special Shareholder Notices
Preferred Shares
On April 14, 2000, the Fund issued 2,400 Auction Rate Cumulative Preferred
Shares ("Preferred Shares"). The net proceeds of the sale of the Preferred
Shares, before expenses, was $59,400,000, reflecting the public offering price
of $25,000 per share, less the Fund's payment of a 1.00% underwriting fee.
The dividend rate on the Preferred Shares for the period from and including the
date of issue to but excluding April 26, 2000 was 6.00% per year. For each
subsequent period, the dividend rate will be determined at an auction that will
usually be held weekly. The Fund will pay annual expenses in an amount of 0.26%
of the purchase price of the Preferred Shares in connection with the auction
process.
On April 14, 2000, the Fund used the proceeds of this offering to redeem and
retire all of the Fund's formerly outstanding 7.00% Cumulative Preferred Shares
(at a cost of approximately $30,000,000); and to terminate its credit facility
with PNC Bank, N.A., by rendering payment of the $30,000,000 which the Fund had
borrowed pursuant to the credit facility. For the 90-day period prior to March
31, 2000, the average interest rate on the loan from PNC Bank was 5.98%.
(Interest on amounts borrowed under the line of credit was typically calculated
at the LIBOR rate plus 40 basis points.) (A basis point is 0.01% or one one-
hundredth of a percent.)
Because of the adjustable nature of the dividend rate payable by the Fund on the
Preferred Shares,the cost of this leverage should correspond to movements in the
cost of capital generally. Lower costs of leverage may increase total return. Of
course, no guarantees can be given that the Fund's total return will increase
due to this offering.
Investments in Corporate Loans
Pursuant to approval by the Fund's Board of Directors, the Fund may invest up to
15% of its total assets in corporate loans. Corporate loans are negotiated and
underwritten by a bank or syndicate of banks and other institutional investors.
The Fund may acquire an interest in corporate loans through the primary market
by acting as one of a group of lenders in a corporate loan. The primary risk in
an investment in corporate loans is that the borrower may be unable to meet
their interest and/or principal payment obligations. The occurrence of such
default with regard to a corporate loan in which the Fund had invested would
have an adverse affect on the Fund's net asset value. Corporate loans in that
the Fund may invest may be collateralized or uncollateralized and senior or
subordinate. Investments in uncollateralized and/or subordinate loans entail a
greater risk of nonpayment than do investments in corporate loans which hold a
more senior position in the borrower's capital structure or that are secured
with collateral.
2
<PAGE>
The Fund may also acquire an interest in corpoate loans by purchasing both
participations ("Participations") in and assignments ("Assignments") of portions
of corporate loans from third parties. By purchasing a Participation, the Fund
acquires some or all of the interest of a bank or other lending institution in a
loan to a corporate borrower. The Participations typically will result in the
Fund having a contractual relationship only with the lender and not the
borrower. The Fund will have the right to receive payments or principal,
interest and any fees to which it is entitled only from the lender selling the
Participation and only upon receipt by the lender of the payments from the
borrower. In connection with purchasing Participations, the Fund generally will
have no right to enforce compliance by the borrower with the terms of the loan
agreement relating to the loan, nor any rights of set-off against the borrower,
and the Fund may not directly benefit from any collateral supporting the loan in
which it has purchased the Participation. As a result, the Fund will assume the
credit risk of both the borrower and the lender that is selling the
Participation. The Fund will acquire Participations only if the lender
interpositioned between the Fund and the borrower is determined by management to
be creditworthy. When the Fund purchases Assignments from lenders,the Fund will
acquire direct rights against the borrower on the loan. However, since
Assignments are arranged through private negotiations between potential
assignees and assignors, the rights and obligations acquired by the Fund as the
purchaser of an Assignment may differ from, and be more limited than, those held
by the assigned lender.
In addition, the Fund may have difficulty disposing of its investments in
corporate loans. The liquidity of such securities is limited and the Fund
anticipates that such securities could be sold only to a limited number of
institutional investors. The lack of liquid secondary market could have an
adverse impact on the value of such securities and on the Fund's ability to
dispose of particular Assignments or Participations when necessary to meet the
Fund's liquidity needs or in response to a specific economic event, such as a
deterioration in the creditworthiness of the borrower. The lack of liquid
secondary market for corporate loans also may make it more difficult for the
Fund to assign a value to those securities for purposes of valuing the Fund's
investments and calculating its net asset value. The Fund's policy limiting its
illiquid securities will be applicable to investments in corporate loans.
Performance Update
Based on NAV, the Fund generated a return of a negative 4.43% for the past 12
months. The 12-month results were below the 12-month average total return for
the Fund's Lipper Inc. peer group average of negative 2.29%. (Lipper Inc. is an
independent mutual fund performance tracking organization.) However, past
performance is not indicative of future results.
3
<PAGE>
Market and Economic Overview
During the year ended March 31, 2000, the Federal Reserve Board ("Fed") raised
short-term interest rates five times for a total of 125 basis points in an
effort to control economic growth and contain inflation. In our view, the Fed
may raise rates again at their next meeting scheduled on May 16, 2000. And while
no assurances can be made, we believe that the Fed's actions may slow down the
historic rate of economic growth as well as help to reduce the amount of
investor speculation in the stock market.
Primarily due to rising interest rates and a potential slowdown in economic
growth later on in 2000, we have begun to see higher volatility in the stock
market in recent weeks. This volatility, in our opinion, may ultimately dampen
investors'exuberance for stocks. As investors reassess the total return
prospects of stocks and look to reallocate their portfolios, the bond market,
including high-yield bonds, may eventually benefit from any renewed interest.
However, this potential shift in investor psychology may not become pronounced
until the second half of the year.
During the past six months, the high-yield sector of the U.S. bond market
continued to go down due to investor fears over continued economic growth,
potentially higher inflation and a more restrictive Fed monetary policy. In
addition,the high-yield bond market underperformed the overall bond market with
modestly negative total returns in the 1.00% to 1.25% range, compared to 10-Year
Treasuries that returned 1.25% during the period. The high-yield bond market was
negatively affected by continued outflows from open-end high-yield bond mutual
funds, rate increases by the Fed, higher default rates in the overall high-yield
market and growing fears about slower economic growth given the increase in
short-term interest rates.
More recently, it appears that bond investors are beginning to believe that the
Fed should be able to engineer a "soft landing" for the U.S. economy, which, in
our view, would be a positive development for high-yield bonds. On the other
hand, depending upon the severity of any eventual economic slowdown, high-yield
bonds may also be negatively affected.
We were disappointed by the Fund's portfolio returns over the past 12 months but
realize that our leveraged position clearly disadvantaged us in a challenging
market for high-yield bonds. We are confident that as high-yield market
conditions eventually improve later this year, our leveraged position will
enable us to make up lost ground. And while no guarantees can be made, we
believe that the high-yield bond market is 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.
4
<PAGE>
Portfolio Strategy
During the reporting period,we sought to maintain a reasonable balance in the
Fund's portfolio between the higher growth sectors such as
telecommunications,technology, and cable/media and some of what we believed were
issues from better-positioned basic industries such as forest products, paper,
energy and specialty chemicals. During the period, we had added to our basic
industry positions on the assumption that stronger domestic and global economic
growth would benefit a number of the U.S. economy's industrial segments. Some of
the Fund's better-performing investments during the period included:
. Huntsman ICI Chemical, a large specialty chemical company
. R & B Falcon, a major oil and gas services company
. Tembec, a paper and forest products company
. Nextel, a fast-growing wireless communications company
. NEXTLINK, a fast-growing local telecommunications company
. Verio, a fast-growing Internet service provider (ISP)
We have continued to reposition the portfolio with a continued emphasis on
middle-quality B- rated issues that offer what we think are the best yield
potential. We believe our yield-oriented strategy should work more effectively
if rates continue to rise. Moreover, we have continued to eliminate what we feel
are underperforming companies that appear to be increasingly vulnerable to
default. We are pleased to report that the Fund had no defaulting issues in the
past six months and, while no guarantees can be made, we intend to work
diligently to minimize any potential problems in the portfolio.
Our yield-oriented strategy did penalize us somewhat from a performance
standpoint in the first quarter of 2000 as the high-yield bond market reacted
negatively to higher short-term interest rates, new issue supply pressure in the
middle-quality segment of the market and higher stock market volatility.
Conclusion
We see many compelling values in the high-yield bond market with many issues
trading at what we view as attractive discounts. Our strategy going forward will
be to focus on what we believe are the better-quality names in each sector and
look to pick up additional yield potential when deemed prudent. As previously
noted, we have a positive outlook on the total return prospects for the high-
yield bond market at current valuation levels, especially given the continued
health of the U.S. economy.
5
<PAGE>
And while the future is always uncertain, we remain confident that our patience
may be rewarded later on this year since we expect that the Fed will be
ultimately successful in limiting the amount of what we believe is excess
speculation in the financial markets.
Should you have any questions about your investment in the Fund, please call
PFPC Global Services at (800) 331-1710. Thank you for your continued confidence
in our investment management approach.
Sincerely,
/s/ Heath B. McLendon /s/ John C. Bianchi, CFA
Heath B. McLendon John C. Bianchi, CFA
Chairman Vice President and
Investment Officer
April 20, 2000
6
<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, PFPCGlobal 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
Amore complete description of the current Plan appears in the section of
this report beginning on page 38. To find out more detailed information about
the Plan and about how you can participate, please call PFPCGlobal Fund
Services at (800) 331-1710.
7
<PAGE>
[LOGO OF ZENIX]
Schedule of Investments
March 31, 2000
<TABLE>
<CAPTION>
================================================================================================
Face
Amount++ Rating(a) Security Value
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS AND NOTES -- 85.7%
Aerospace -- 0.9%
BE Aerospace, Sr. Sub. Notes:
150,000 B 9.500% due 11/1/08.................................... $ 129,750
875,000 B Series B, 8.000% due 3/1/08........................... 702,187
380,000 B- Dunlop Standard Aerospace Holdings,
Sr. Notes, 11.875% due 5/15/09........................ 387,600
--------------
1,219,537
--------------
Airlines -- 1.1%
1,725,805 BB Airplanes Pass-Through Trust, Corp.,
Asset-Backed Securities, Series 1, Class D,
10.875% due 3/15/19.................................. 1,480,689
--------------
Aluminum -- 1.0%
Kaiser Aluminum & Chemical Corp., Sr. Sub. Notes:
1,170,000 B3* 12.750% due 2/1/03................................... 1,117,350
160,000 B1* Series B, 10.875% due 10/15/06....................... 155,200
140,000 B1* Series D, 10.875% due 10/15/06....................... 135,800
--------------
1,408,350
--------------
Apparel -- 0.3%
525,000 B- Tropical Sportswear International Inc., Guaranteed Sr.
Sub. Notes, Series A, 11.000% due 6/15/08............ 488,250
--------------
Auto Parts: Original Equipment Manufacture -- 1.9%
1,030,000 B Collins & Aikman Products, Sr. Sub. Notes,
11.500% due 4/15/06................................... 1,010,687
250,000 B Dura Operating Corp., Sr. Sub. Notes,
9.000% due 5/1/09..................................... 223,750
Hayes Lemmerz International Inc., Sr. Sub. Notes:
220,000 B 11.000% due 7/15/06................................... 223,850
225,000 B Series B, 8.250% due 12/15/08......................... 195,750
1,030,000 B+ Tenneco Automotive Inc., 11.625% due 10/15/09......... 1,006,825
--------------
2,660,862
--------------
Broadcasting -- 0.1%
130,000 B Capstar Broadcasting Corp., Sr. Discount Notes,
step bond to yield 11.002% due 2/1/09................. 116,837
--------------
Building Products -- 0.9%
295,000 B Amatek Industries Pty. Ltd., Sr. Sub. Notes,
12.000% due 2/15/08................................... 279,144
385,000 B Atrium Cos. Inc., Sr. Sub. Notes, 10.500% due 5/1/09...... 364,787
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
[LOGO OF ZENIX]
Schedule of Investments (continued)
March 31, 2000
<TABLE>
<CAPTION>
==================================================================================================
Face
Amount++ Rating(a) Security Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Building Products -- 0.9% (continued)
Nortek Inc., Sr. Notes, Series B:
480,000 B+ 9.250% due 3/15/07..................................... $ 446,400
135,000 B+ 9.125% due 9/1/07...................................... 124,200
--------------
1,214,531
--------------
Cable Television -- 9.9%
Adelphia Communications, Sr. Notes:
340,000 BB- 8.375% due 11/15/17.................................... 272,000
1,010,000 B+ Series B, 9.875% due 3/1/07............................ 979,700
180,000 CCC+ Cable Satisfaction International, Sr. Notes,
12.750% due 3/1/10..................................... 177,300
Century Communications Corp.:
255,000 BB- Sr. Discount Notes, Series B, zero coupon to yield
10.646% due 1/15/08............................... 105,825
130,000 BB- Sr. Notes, 9.750% due 2/15/02.......................... 130,650
Charter Communications Holdings LLC/Charter
Communications Capital Corp.:
1,460,000 B+ Sr. Discount Notes, step bond to yield 11.720%
due 1/15/10+................................. 799,350
235,000 B+ Sr. Notes, 10.000% due 4/1/09+......................... 227,362
1,000,000 BB- CSC Holdings Inc., Sr. Sub. Debentures,
10.500% due 5/15/16.................................... 1,103,750
495,000GBP B- Diamond Holdings PLC, Guaranteed Notes,
10.000% due 2/1/08@.................................... 770,297
40,000 B Echostar DBS Corp., Sr. Notes, 9.375% due 2/1/09........... 38,700
1,345,000 B- NTLCommunications Corp., Sr. Notes,
11.500% due 10/1/08.................................... 1,388,713
775,000 BB- Rogers Cablesystems, Ltd., Guaranteed Sr. Sub.
Debentures, 11.000% due 12/1/15........................ 868,000
1,250,000 B+ Telewest Communications PLC, Sr. Notes,
11.250% due 11/1/08.................................... 1,293,750
4,520,000 B- United International Holdings Inc., Sr. Discount Notes,
Series B, step bond to yield 11.305% due 2/15/08....... 3,118,800
4,615,000 B United Pan-Europe Communications, Sr. Discount Notes,
step bond to yield 12.500% due 8/1/09.................. 2,457,487
--------------
13,731,684
--------------
Casinos - Gambling -- 1.7%
105,000 BB+ Circus Circus Enterprises Inc., Sr. Sub. Debentures,
7.625% due 7/15/13..................................... 81,900
180,000 B Harveys Casino Resorts, Guaranteed Sr. Sub. Notes,
10.625% due 6/1/06..................................... 184,500
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
[LOGO OF ZENIX]
Schedule of Investments (continued)
March 31, 2000
<TABLE>
<CAPTION>
==================================================================================================
Face
Amount++ Rating(a) Security Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Casinos - Gambling -- 1.7% (continued)
Hollywood Casino:
160,000 B First Mortgage Notes, 13.000% due 8/1/06+............. $ 171,200
495,000 B Guaranteed Sr. Sub. Notes, 11.250% due 5/1/07......... 498,713
380,000 NR Jazz Casino Co. LLC, Sr. Sub. Notes,
5.867% due 11/15/09................................... 119,700
Sun International Hotels, Sr. Sub. Notes:
370,000 Ba3* 9.000% due 3/15/07.................................... 333,000
560,000 Ba3* 8.625% due 12/15/07................................... 511,000
465,000 B- Venetian Casino, Secured Notes, 12.250% due 11/15/04 ..... 439,425
--------------
2,339,438
--------------
Chemicals - Major -- 1.5%
Huntsman Corp.:
3,700,000 B+ Sr. Discount Notes, zero coupon to yield
13.067% due 12/31/09............................. 1,091,500
645,000 B+ Sr. Sub. Notes, 10.125% due 7/1/09.................... 622,425
445,000 B+ Terra Industries, Sr. Notes, Series B,
10.500% due 6/15/05................................... 338,200
--------------
2,052,125
--------------
Chemicals - Specialty -- 0.5%
685,000 B Avecia Group PLC, Sr. Notes, 11.000% due 7/1/09.......... 688,425
--------------
Coal Mining -- 0.2%
960,000 Caa2* AEI Resources Inc., Guaranteed Notes,
10.500% due 12/15/05+................................. 211,200
--------------
Construction/AG Equipment/Trucks -- 0.2%
275,000 B Columbus McKinnon Corp., Guaranteed Sr. Sub. Notes,
8.500% due 4/1/08..................................... 241,656
--------------
Containers - Packaging -- 3.0%
800,000EUR B1* BSN Financing Co., Guaranteed Sr. Sub. Notes,
10.250% due 8/1/09+................................... 799,969
225,000 B BWAY Corp., Guaranteed Sr. Sub. Notes,
Series B, 10.250% due 4/15/07......................... 202,781
575,000 B Huntsman Packaging Corp., Guaranteed Sr. Sub. Notes,
9.125% due 10/1/07.................................... 543,375
1,075,000 B Stone Container Finance Corp., Guaranteed Sr. Notes,
11.500% due 8/15/06+.................................. 1,138,156
435,000 B- Sweetheart Cup Co. Inc., Sr. Sub. Notes,
10.500% due 9/1/03.................................... 412,163
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
[LOGO OF SMITH BARNEY ZENITH INCOME FUND] Schedule of Investments (continued)
March 31, 2000
================================================================================
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- -----------------------------------------------------------------------------------------------
<C> <C> <S> <C>
Containers - Packaging -- 3.0% (continued)
Tekni-Plex Inc.:
75,000 B- Guaranteed Sr. Sub. Notes, Series B,
9.250% due 3/1/08................................ $ 71,625
1,000,000 B- Sr. Sub. Notes, Series B, 11.250% due 4/1/07.......... 1,027,500
--------------
4,195,569
--------------
Contract Drilling -- 2.0%
Parker Drilling Co.:
110,000 B- 5.500% due 8/1/04 (b)................................. 83,188
980,000 B+ Sr. Notes, 9.750% due 11/15/06........................ 948,150
655,000 BB Pride International Inc., Sr. Notes, 10.000% due 6/1/09... 645,175
515,000 Ba3* R&B Falcon Corp., Sr. Notes, 12.250% due 3/15/06.......... 552,981
555,000 BB- RBF Finance Corp., Guaranteed Sr. Notes,
11.375% due 3/15/09................................... 600,094
--------------
2,829,588
--------------
Discount Stores -- 0.8%
610,000 B+ Ames Department Stores, Sr. Notes,
10.000% due 4/15/06................................... 565,775
490,000 BB+ Kmart Corp., Debentures, 12.500% due 3/1/05............... 553,700
--------------
1,119,475
--------------
Diversified Commercial Services -- 0.9%
1,000,000 B2* Intertek Finance PLC., Guaranteed Sr. Sub. Notes,
Series B, 10.250% due 11/1/06......................... 850,000
500,000 B- Outsourcing Solutions Inc., Sr. Sub. Notes,
11.000% due 11/1/06................................... 451,875
--------------
1,301,875
--------------
Diversified Financial Services -- 0.4%
Amresco Inc., Sr. Sub. Notes, Series A:
600,000 CCC- 10.000% due 3/15/04................................... 435,000
135,000 CCC- 9.875% due 3/15/05.................................... 97,875
--------------
532,875
--------------
Diversified Manufacturing -- 0.7%
390,000 B- Blount Inc., Sr. Sub. Notes, 13.000% due 8/1/09........... 401,700
700,000 B+ Park-Ohio Industries, Inc., Sr. Sub. Notes,
9.250% due 12/1/07.................................... 616,000
--------------
1,017,700
--------------
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
[LOGO OF SMITH BARNEY ZENITH INCOME FUND] Schedule of Investments (continued)
March 31, 2000
================================================================================
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- -----------------------------------------------------------------------------------------------
<C> <C> <S> <C>
Drugs - Generic -- 1.4%
2,070,000 BB ICN Pharmaceuticals Inc., Sr. Notes, Series B,
9.250% due 8/15/05.................................... $ 2,013,075
--------------
Electronic Components -- 0.4%
515,000 B+ Celestica International Inc., Sr. Sub. Notes,
10.500% due 12/31/06.................................. 540,750
--------------
Engineering & Construction -- 0.6%
165,000 NR American Plumbing & Mechanic, Sr. Sub. Notes,
11.625% due 10/15/08.................................. 150,150
255,000 BB- Integrated Electrical Services, Sr. Sub. Notes,
9.375% due 2/1/09..................................... 217,388
430,000 B- Orius Capital Corp., Sr. Sub. Notes, 12.750% due 2/1/10+.. 432,150
--------------
799,688
--------------
Environmental Services -- 3.1%
Allied Waste North America:
230,000 BB- Guaranteed Sr. Notes, Series B, 7.875% due 1/1/09..... 184,000
3,000,000 B+ Sr. Sub. Notes, 10.000% due 8/1/09@................... 2,227,500
315,000 B+ IT Group Inc., Sr. Sub. Notes, 11.250% due 4/1/09......... 300,431
1,020,000 CCC+ Metal Management Inc., Guaranteed Sr. Sub. Notes,
10.000% due 5/15/08................................... 773,925
740,000 B+ URS Corp., Sr. Sub. Notes, 12.250% due 5/1/09............. 747,400
--------------
4,233,256
--------------
Food Distributors -- 1.7%
385,000 B- Agrilink Foods Inc., Sr. Notes, 11.875% due 11/1/08....... 363,825
1,000,000 B2* Carrols Corp., Sr. Sub. Notes, 9.500% due 12/1/08......... 857,500
245,000 B2* International Home Foods, Guaranteed Sr. Sub. Notes,
10.375% due 11/1/06................................... 242,550
575,000 B- Premier International Foods PLC, Sr. Notes,
12.000% due 9/1/09+................................... 540,500
440,000 B SC International Services Inc., Guaranteed Sr. Sub. Notes,
Series B, 9.250% due 9/1/07........................... 422,400
--------------
2,426,775
--------------
Foods - Specialty/Candy -- 0.7%
850,000 B- B&G Foods Inc., Guaranteed Sr. Sub. Notes,
9.625% due 8/1/07..................................... 684,250
980,000 B Imperial Holly Corp., Guaranteed Sr. Sub. Notes,
9.750% due 12/15/07................................... 254,800
--------------
939,050
--------------
</TABLE>
See Notes to Financial Statements.
12
<PAGE>
[LOGO OF SMITH BARNEY ZENITH INCOME FUND] Schedule of Investments (continued)
March 31, 2000
================================================================================
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- -----------------------------------------------------------------------------------------------
<C> <C> <S> <C>
Forest Products -- 0.9%
660,000 B Ainsworth Lumber Co. Ltd., Sr. Notes,
12.500% due 7/15/07................................... $ 716,925
565,000 B+ Millar Western Forest, Sr. Notes, 9.875% due 5/15/08...... 532,513
--------------
1,249,438
--------------
Home Furnishings -- 0.3%
405,000 B Falcon Products Inc., Sr. Sub. Notes,
11.375% due 6/15/09................................... 378,169
--------------
Hospital - Nursing Management -- 1.9%
1,090,000 Ba3* Fresenius Medical Care Capital Trust I, Trust Preferred
Securities, 9.000% due 12/1/06........................ 1,035,500
2,085,000 B- Magellan Health Services, Inc., Sr. Sub. Notes,
9.000% due 2/15/08.................................... 1,542,900
--------------
2,578,400
--------------
Hotel - Resort -- 3.3%
2,375,000 B- Courtyard By Marriott II LP/Courtyard Finance Co.,
Sr. Secured Notes, Series B, 10.750% due 2/1/08@...... 2,300,781
1,275,000 BB HMH Properties, Inc., Sr. Notes, Series C,
8.450% due 12/1/08.................................... 1,112,438
Intrawest Corp., Sr. Notes:
510,000 B+ 9.750% due 8/15/08.................................... 484,500
685,000 B+ 10.500% due 2/1/10+................................... 671,300
--------------
4,569,019
--------------
Insurance - Multi-Line -- 0.3%
650,000 B Veritas Capital Trust, Guaranteed Trust Preferred Securities,
10.000% due 1/1/28.................................... 396,500
--------------
Internet Services -- 5.0%
185,000 NR Colo.com, Sr. Notes, 13.875% due 3/15/10+................. 186,850
325,000 Caa2* Cybernet Internet Services International, Sr. Notes,
14.000% due 7/1/09.................................... 260,000
800,000 B- Exodus Communications, Sr. Notes,
10.750% due 12/15/09.................................. 784,000
620,000 NR Globix Corp., Sr. Notes, 12.500% due 2/1/10+.............. 567,300
PSINet Inc., Sr. Notes:
505,000 B- 10.500% due 12/1/06+.................................. 486,063
355,000 B- 11.500% due 11/1/08................................... 351,450
880,000 B- 11.000% due 8/1/09.................................... 853,600
250,000EURB- 11.000% due 8/1/09+................................... 234,441
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
[LOGO OF SMITH BARNEY ZENITH INCOME FUND] Schedule of Investments (continued)
March 31, 2000
================================================================================
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- -----------------------------------------------------------------------------------------------
<C> <C> <S> <C>
Internet Services -- 5.0% (continued)
450,000 B3* Rhythms Netconnections, Sr. Notes,
14.000% due 2/15/10+................................... $ 391,500
1,075,000 NR Splitrock Services, Inc., Guaranteed Sr. Notes,
11.750% due 7/15/08.................................... 1,139,500
Verio Inc., Sr. Notes:
360,000 B- 10.375% due 4/1/05..................................... 349,200
380,000 B- 11.250% due 12/1/08.................................... 377,150
675,000 B- 10.625% due 11/15/09+.................................. 658,125
460,000 CCC+ WAM!NET Inc., Guaranteed Sr. Discount Notes, Series B,
step bond to yield 13.392% due 3/1/05.................. 262,200
--------------
6,901,379
--------------
Leisure/Movies/Entertainment -- 0.9%
710,000 B- Premier Parks Inc., Sr. Discount Notes, step bond to
yield 10.876% due 4/1/08............................... 454,400
780,000 B- SFX Entertainment, Inc., Sr. Sub. Notes, Series B,
9.125% due 2/1/08...................................... 774,150
--------------
1,228,550
--------------
Medical Specialties -- 0.5%
855,000 B- Hanger Orthopedic Group, Sr. Sub. Notes,
11.250% due 6/15/09.................................... 684,000
--------------
Multi-Sector Companies -- 0.4%
535,000 B- Triarc Consumer Beverage, Sr. Sub. Notes,
10.250% due 2/15/09.................................... 505,575
--------------
Newspapers -- 0.1%
145,000 B+ Garden State Newspapers, Sr. Sub. Notes,
8.625% due 7/1/11...................................... 128,144
--------------
Oil & Gas Production -- 3.2%
Belco Oil & Gas Corp., Sr. Sub. Notes:
250,000 B1* 10.500% due 4/1/06..................................... 254,062
600,000 B1* 8.875% due 9/15/07..................................... 559,500
Canadian Forest Oil Ltd., Guaranteed Sr. Sub. Notes:
715,000 B 10.500% due 1/15/06.................................... 725,725
500,000 B 8.750% due 9/15/07..................................... 461,250
370,000 B Chesapeake Energy Corp., Sr. Notes, Series B,
9.625% due 5/1/05...................................... 346,875
1,195,000 B+ Clark USA Inc., Sr. Notes, Series B, 10.875% due 12/1/05... 645,300
855,000 B+ Nuevo Energy Co., Sr. Sub. Notes,
9.500% due 6/1/08...................................... 829,350
</TABLE>
See Notes to Financial Statements.
14
<PAGE>
[LOGO OF SMITH BARNEY ZENITH INCOME FUND] Schedule of Investments (continued)
March 31, 2000
================================================================================
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- -----------------------------------------------------------------------------------------------
<C> <C> <S> <C>
Oil & Gas Production -- 3.2% (continued)
700,000 B Stone Energy Corp., Guaranteed Sr. Sub. Notes,
8.750% due 9/15/07.................................... $ 651,000
--------------
4,473,062
--------------
Oil & Gas Transmission -- 0.3%
365,000 BB- Leviathan Gas Pipeline Finance Corp., Sr. Sub. Notes,
10.375% due 6/1/09.................................... 374,125
--------------
Paper -- 2.6%
Doman Industries Ltd., Sr. Notes:
1,315,000 B 8.750% due 3/15/04.................................... 1,084,875
205,000 B Series B, 9.250% due 11/15/07......................... 157,850
315,000 CCC+ Repap New Brunswick, Sr. Secured Notes,
10.625% due 4/15/05................................... 282,713
Riverwood International Corp.:
345,000 B- Guaranteed Sr. Notes, 10.625% due 8/1/07.............. 339,825
1,460,000 CCC+ Guaranteed Sr. Sub. Notes, 10.875% due 4/1/08......... 1,365,100
350,000 BB+ Tembec Industries Inc., Sr. Notes,
9.875% due 9/30/05.................................... 350,000
--------------
3,580,363
--------------
Pharmaceuticals - Other -- 0.7%
1,045,000 B King Pharmaceutical Inc., Sr. Sub. Notes,
10.750% due 2/15/09................................. . 1,039,775
--------------
Photographic Products -- 0.3%
430,000 BB- Polaroid Corp., Sr. Notes, 11.500% due 2/15/06........... 435,375
--------------
Printing/Forms -- 1.3%
335,000 B Merrill Corp., Sr. Sub. Notes, 12.000% due 5/1/09+....... 326,625
975,000GBPB Polestar Corp. PLC, Sr. Notes, Series B,
10.500% due 5/30/08@.................................. 1,477,650
--------------
1,804,275
--------------
Rental/Leasing Companies -- 0.6%
535,000 BB- Avis Rent A Car Inc., Sr. Sub. Notes,
11.000% due 5/1/09.................................... 533,662
United Rentals Inc., Guaranteed Sr. Sub. Notes, Series B:
180,000 BB- 9.250% due 1/15/09.................................... 162,900
175,000 BB- 9.000% due 4/1/09..................................... 155,750
--------------
852,312
--------------
</TABLE>
See Notes to Financial Statements.
15
<PAGE>
[LOGO OF SMITH BARNEY ZENITH INCOME FUND] Schedule of Investments (continued)
March 31, 2000
================================================================================
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- -----------------------------------------------------------------------------------------------
<C> <C> <S> <C>
Retail Food Chains -- 0.3%
450,000 B+ Stater Brothers Holdings, Sr. Notes,
10.750% due 8/15/06................................... $ 446,625
--------------
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......................... 800,000
--------------
Savings & Loan Associations -- 2.1%
1,000,000 B2* Ocwen Capital Trust I, Guaranteed Capital Securities,
10.875% due 8/1/27.................................... 590,000
2,600,000 B+ Ocwen Financial Corp., Sr. Notes,
11.875% due 10/1/03@.................................. 2,366,000
--------------
2,956,000
--------------
Semiconductors -- 0.9%
1,240,000 B Fairchild Semiconductor Inc., Sr. Sub. Notes,
10.125% due 3/15/07................................... 1,209,000
--------------
Steel/Iron Ore -- 1.2%
430,000 B+ Russel Metals Inc., Sr. Notes, 10.000% due 6/1/09......... 424,625
1,320,000 B+ WCI Steel Inc., Sr. Notes, 10.000% due 12/1/04............ 1,293,600
--------------
1,718,225
--------------
Telecommunications -- 10.4%
300,000 B+ Call-Net Enterprises Inc., Sr. Notes, 9.375% due 5/15/09 231,000
325,000EURB+ Esat Telecom Group PLC, Sr. Notes,
11.875% due 11/1/09................................... 394,961
Esprit Telecom Group PLC, Sr. Notes:
700,000 B- 11.500% due 12/15/07.................................. 644,000
600,000DEMB- 11.500% due 12/15/07@................................. 278,865
400,000 B- 10.875% due 6/15/08................................... 361,000
Focal Communications Corp.:
340,000 B Sr. Discount Notes, Series B, step bond to yield
12.978% due 2/15/08.............................. 224,400
275,000 B Sr. Notes, 11.875% due 1/15/10+....................... 277,750
650,000EURB Global Telesystems Europe, Sr. Notes,
11.000% due 12/1/09+.................................. 597,106
495,000 CCC+ GT Group Telecom, Sr. Discount Notes, step bond
to yield 13.250% due 2/1/10+.......................... 277,200
Hermes Europe Railtel B.V., Sr. Notes:
1,000,000 B 11.500% due 8/15/07................................... 945,000
135,000 B 10.375% due 1/15/09................................... 121,500
</TABLE>
See Notes to Financial Statements.
16
<PAGE>
[LOGO OF SMITH BARNEY ZENITH INCOME FUND] Schedule of Investments (continued)
March 31, 2000
================================================================================
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- -----------------------------------------------------------------------------------------------
<C> <C> <S> <C>
Telecommunications -- 10.4% (continued)
ICG Holdings Inc., Sr. Discount Notes:
335,000 B- Step bond to yield 12.935% due 9/15/05................ $ 317,412
510,000 B- Step bond to yield 12.967% due 5/1/06................. 422,025
500,000EURCCC+ Jazztel PLC, Sr. Notes, 13.250% due 12/15/09+............. 489,216
KMC Telecom Holdings Inc.:
805,000 B- Sr. Discount Notes, step bond to yield
15.899% due 2/15/08.............................. 432,687
590,000 NR Sr. Notes, 13.500% due 5/15/09........................ 578,200
Level 3 Communications Inc.:
170,000 B Sr. Discount Notes, step bond to yield
12.875% due 3/15/10+............................. 85,000
1,800,000EURB Sr. Notes, 11.250% due 3/15/10+....................... 1,705,198
NEXTLINK Communications, LLC/NEXTLINK Capital, Inc.:
1,240,000 B Sr. Discount Notes, step bond to yield
12.064% due 6/1/09............................... 700,600
865,000 B Sr. Discount Notes, step bond to yield
12.125% due 12/1/09+............................. 458,450
440,000 B Sr. Notes, 12.500% due 4/15/06........................ 468,600
975,000 B Sr. Notes, 10.750% due 6/1/09......................... 943,313
615,000 B- Tele1 Europe B.V., Sr. Notes, 13.000% due 5/15/09......... 645,750
265,000 B- VersaTel Telecom International N.V., Sr. Notes,
13.250% due 5/15/08................................... 270,963
Viatel Inc., Sr. Notes:
675,000 B- 11.250% due 4/15/08................................... 614,250
400,000 B- 11.500% due 3/15/09................................... 368,000
525,000 BB- Williams Communications Group Inc., Sr. Notes,
10.875% due 10/1/09................................... 518,438
1,200,000 NR World Access Inc., Sr. Notes, Series B,
13.250% due 1/15/08................................... 1,026,000
--------------
14,396,884
--------------
Telephone - Cellular -- 8.2%
875,000 Caa1* Airgate PCS Inc., Sr. Sub. Discount Notes,
step bond to yield 13.302% due 10/1/09................ 476,875
995,000 CCC+ Alamosa PCS Holdings Inc., Guaranteed Sr. Discount
Notes, step bond to yield 12.723% due 2/15/10......... 482,575
700,000 B- Centennial Cellular Corp., Sr. Sub. Notes,
10.750% due 12/15/08.................................. 693,000
750,000CADB Clearnet Communications, Sr. Discount Notes,
step bond to yield 10.400% due 5/15/08................ 320,292
1,515,000 B Crown Castle International Corp., Sr. Discount Notes,
step bond to yield 11.059% due 5/15/11................ 863,550
</TABLE>
See Notes to Financial Statements.
17
<PAGE>
[LOGO OF SMITH BARNEY ZENITH INCOME FUND] Schedule of Investments (continued)
March 31, 2000
================================================================================
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- -----------------------------------------------------------------------------------------------
<C> <C> <S> <C>
Telephone - Cellular -- 8.2% (continued)
405,000 NR Dobson/Sygnet Communications, Sr. Notes,
12.250% due 12/15/08.................................. $ 425,250
675,000 CCC+ Dolphin Telecom PLC, Sr. Discount Notes,
step bond to yield 11.509% due 6/1/08................. 293,625
815,000 BB Global Crossing Holding Ltd., Sr. Notes,
9.500% due 11/15/09+.................................. 790,550
Microcell Telecommunications, Sr. Discount Notes:
305,000 B3* Series B, step bond to yield 11.843% due 6/1/06....... 271,450
835,000 B- Step bond to yield 11.756% due 6/1/09................. 532,312
1,155,000 B- Millicom International Cellular S.A., Sr. Discount
Notes, step bond to yield 16.070% due 6/1/06.......... 1,014,956
Nextel Communications, Inc.:
175,000 B1* Sr. Notes, 9.375% due 11/15/09........................ 161,438
930,000 B1* Sr. Redeemable Discount Notes, step bond to yield
10.837% due 9/15/07.............................. 678,900
2,210,000 B1* Sr. Serial Redeemable Discount Notes, step bond
to yield 10.796% due 2/15/08..................... 1,524,900
Omnipoint Corp., Sr. Notes:
180,000 B2* 11.500% due 9/15/09+.................................. 195,750
330,000 B2* Series A, 11.625% due 8/15/06......................... 352,688
680,000 NR Spectrasite Holdings Inc., Sr. Discount Notes,
step bond to yield 11.250% due 4/15/09................ 353,600
415,000 CCC+ Telesystems International Wireless Inc.,
Sr. Discount Notes, Series C, step bond
to yield 13.473% due 11/1/07..................... 229,287
1,000,000 B3* Triton PCS Inc., Sr. Discount Notes,
step bond to yield 11.394% due 5/1/08................. 682,500
Voicestream Wireless Co./Voicestream Wireless Holding:
415,000 B2* Sr. Discount Notes, step bond to yield
11.875% due 11/15/09+............................ 249,000
545,000 B2* Sr. Notes, 10.375% due 11/15/09+...................... 542,275
Winstar Communications Inc.:
190,000 B- Sr. Discount Notes, step bond to yield
14.811% due 4/15/10+............................. 89,300
175,000 B- Sr. Notes, 12.750% due 4/15/10+....................... 168,438
--------------
11,392,511
--------------
Textiles -- 0.3%
800,000DEM B3* Texon International PLC, Sr. Notes,
10.000% due 2/1/08@................................... 365,949
--------------
</TABLE>
See Notes to Financial Statements.
18
<PAGE>
[LOGO OF SMITH BARNEY ZENITH INCOME FUND] Schedule of Investments (continued)
March 31, 2000
================================================================================
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- -----------------------------------------------------------------------------------------------
<C> <C> <S> <C>
Transportation - Marine -- 0.9%
320,000 B- Oglebay Norton Co., Sr. Sub. Notes,
10.000% due 2/1/09.................................... $ 298,400
1,030,000 BB- Sea Containers Ltd., Sr. Sub. Debentures, Series A,
12.500% due 12/1/04................................... 957,900
--------------
1,256,300
--------------
Unregulated Power Generation -- 2.1%
AES Corp., Sr. Sub. Notes:
915,000 BB 10.250% due 7/15/06................................... 901,275
690,000 Ba1* 9.500% due 6/1/09..................................... 662,400
1,350,000 BB+ Calpine Corp., Sr. Notes, 10.500% due 5/15/06............. 1,419,187
--------------
2,982,862
--------------
Wholesale Distributors -- 0.2%
335,000 B Buhrmann US Inc., Sr. Sub. Notes, 12.250% due 11/1/09+.... 340,862
--------------
TOTAL CORPORATE BONDS AND NOTES
(Cost -- $128,371,347).................................... 118,846,939
--------------
<CAPTION>
Shares Security Value
- -----------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCK -- 0.1%
Telecommunications -- 0.1%
5,636 Tele1 Europe Holding AB................................... 107,789
3,771 World Access Inc.......................................... 72,111
--------------
179,900
--------------
TOTAL COMMON STOCK
(Cost -- $88,486)......................................... 179,900
--------------
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).................................... 439,688
--------------
WARRANTS# -- 0.8%
Broadcasting -- 0.1%
2,450 UIH Australia Pacific, Inc., Expire 5/15/06............... 73,500
--------------
Internet Services -- 0.3%
325 Cybernet Internet Services International, Expire 7/1/09+.. 34,125
1,625 Splitrock Services, Inc., Expire 7/15/08.................. 390,000
2,550 WAM!NET Inc., Expire 3/1/05............................... 29,644
--------------
453,769
--------------
</TABLE>
See Notes to Financial Statements.
19
<PAGE>
[LOGO OF SMITH BARNEY ZENITH INCOME FUND] Schedule of Investments (continued)
March 31, 2000
================================================================================
<TABLE>
<CAPTION>
Shares Security Value
- -----------------------------------------------------------------------------------------------
<C> <S> <C>
Telecommunications -- 0.3%
7,130 Pagemart, Inc., Expire 12/31/03........................... $ 110,515
1,300 RSL Communications, Ltd., Expire 11/15/06................. 52,000
325 Tele1 Europe B.V., Expire 5/15/09 (EUR)+.................. 111,758
265 Versatel Telecommunications, Expire 5/15/08+.............. 160,325
--------------
434,598
--------------
Telephone - Cellular -- 0.1%
665 Airgate PCS Inc., Expire 10/1/09.......................... 119,700
1,000 Iridium World Communications Ltd., Expire 7/15/05+........ 10
--------------
119,710
--------------
TOTAL WARRANTS
(Cost -- $273,180)....................................... 1,081,577
--------------
SUB-TOTAL INVESTMENTS
(Cost -- $129,235,513)................................... 120,548,104
--------------
</TABLE>
<TABLE>
<CAPTION>
Face
Amount Security Value
- -----------------------------------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT -- 13.1%
$18,148,000 Goldman, Sachs & Co., 6.090% due 4/3/00;
Proceeds at maturity -- $18,157,210;
(Fully Collateralized by U.S. Treasury Bills, Bonds,
and Notes 0.000% to 6.875% due 4/6/00 to 5/15/30;
Market value -- $18,511,009) (Cost -- $18,148,000).... 18,148,000
--------------
TOTAL INVESTMENTS -- 100%
(Cost -- $147,383,513** )................................. $138,696,104
==============
</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.
(b) Convertible bond in exchange for 7,147 shares of common stock.
# Non-income producing security.
** Aggregate cost for Federal income tax purposes is substantially the same.
Currency Abbreviations:
CAD -- Canadian Dollar GBP -- British Pound
DEM -- German Mark EUR -- Euro
See page 21 for definition of ratings.
See Notes to Financial Statements.
20
<PAGE>
[LOGO OF SMITH BARNEY ZENITH INCOME FUND] Bond Ratings (unaudited)
================================================================================
The definitions of the applicable 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.
21
<PAGE>
[LOGO OF SMITH BARNEY ZENITH INCOME FUND] Statement of Assets and Liabilities
March 31, 2000
================================================================================
ASSETS:
Investments, at value (Cost -- $129,235,513) ............... $120,548,104
Repurchase Agreement (Cost -- $18,148,000) ................. 18,148,000
Cash ....................................................... 512
Interest and dividends receivable .......................... 3,129,209
Receivable for open forward foreign
currency contracts (Note 11) ............................ 418,925
Receivable for securities sold ............................. 375,056
------------
Total Assets ............................................... 142,619,806
------------
LIABILITIES:
Bank loan (Note 7) ......................................... 30,000,000
Payable for securities purchased ........................... 1,018,812
Dividends payable .......................................... 233,849
Interest payable ........................................... 181,789
Investment advisory fees payable ........................... 91,358
Payable for open forward foreign
currency contracts (Note 11) ............................ 43,065
Administration fees payable ................................ 36,018
Accrued expenses ........................................... 153,737
------------
Total Liabilities .......................................... 31,758,628
------------
Total Net Assets .............................................. $110,861,178
============
NET ASSETS:
Par value of capital shares ................................ $ 159,713
Capital paid in excess of par value ........................ 108,735,503
7.00% Cumulative Preferred Stock (Note 6) .................. 30,000,000
Overdistributed net investment income ...................... (138,061)
Accumulated net realized loss on security transactions ..... (19,580,773)
Net unrealized depreciation on investments and
foreign currencies ...................................... (8,315,204)
------------
Total Net Assets .............................................. $110,861,178
============
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.................................... 20.90 627,116
--------- ------------
Total allocated to Cumulative Preferred Stock......... $1,020.90 30,627,116
========= ------------
Common Stock (15,971,284 shares outstanding).......... $ 5.02 80,234,062
========= ------------
Total Net Assets...................................... $110,861,178
============
See Notes to Financial Statements.
22
<PAGE>
[LOGO OF SMITH BARNEY ZENITH INCOME FUND] Statement of Operations
For the Year Ended March 31, 2000
================================================================================
INVESTMENT INCOME:
Interest .................................................... $ 15,386,362
Dividends ................................................... 143,953
Less: Interest Expense (Note 7) ............................. (1,794,600)
------------
Total Investment Income ..................................... 13,735,715
------------
EXPENSES:
Investment advisory fees (Note 2) ........................... 741,396
Administration fees (Note 2) ................................ 296,557
Shareholder communications .................................. 176,339
Audit and legal ............................................. 93,809
Shareholder and system servicing fees ....................... 67,625
Directors' fees ............................................. 34,526
Pricing ..................................................... 25,839
Listing fees ................................................ 24,091
Custody ..................................................... 14,997
Other ....................................................... 16,749
------------
Total Expenses .............................................. 1,491,928
------------
Net Investment Income .......................................... 12,243,787
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCIES (NOTES 3 AND 11):
Realized Gain (Loss) From:
Security transactions (excluding short-term securities) .. (9,223,673)
Foreign currency transactions ............................ 234,630
------------
Net Realized Loss ........................................... (8,989,043)
------------
Change in Net Unrealized Depreciation of
Investments and Foreign Currencies:
Beginning of year ........................................ (2,628,669)
End of year .............................................. (8,315,204)
------------
Increase in Net Unrealized Depreciation ..................... (5,686,535)
------------
Net Loss on Investments ........................................ (14,675,578)
------------
Decrease in Net Assets From Operations ......................... $ (2,431,791)
============
See Notes to Financial Statements.
23
<PAGE>
[LOGO OF SMITH BARNEY ZENITH INCOME FUND] Statements of Changes in Net Assets
For the Years Ended March 31,
================================================================================
2000 1999
------------ ------------
OPERATIONS:
Net investment income ........................ $ 12,243,787 $ 12,708,330
Net realized loss ............................ (8,989,043) (3,046,114)
Increase in net unrealized depreciation ...... (5,686,535) (12,054,283)
------------ ------------
Decrease in Net Assets From Operations ....... (2,431,791) (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 ......................... (10,351,025) (10,597,803)
Common Stock Shareholders From Capital ....... -- (331,100)
------------ ------------
Decrease In Net Assets From
Distributions To Shareholders ............. (12,451,025) (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 .......................... (13,321,020) (12,300,201)
NET ASSETS:
Beginning of year ............................ 124,182,198 136,482,399
------------ ------------
End of year* ................................. $110,861,178 $124,182,198
============ ============
* Includes overdistributed
net investment income of: .................... $(138,061) $(62,873)
============ ============
See Notes to Financial Statements.
24
<PAGE>
[LOGO OF SMITH BARNEY ZENITH INCOME FUND] Statement of Cash Flows
For the Year Ended March 31, 2000
================================================================================
<TABLE>
<CAPTION>
NET INCREASE IN CASH:
Cash Flows Provided by Operating
and Investing Activities:
<S> <C> <C>
Interest and dividends received ........................... $ 13,351,181
Operating expenses paid ................................... (1,310,025)
Interest payments on bank loans ........................... (1,745,658)
Purchases of short-term securities, net ................... (11,407,000)
Purchases of long-term securities ......................... (110,024,129)
Proceeds from disposition of long-term securities ......... 122,024,984
-------------
Net Cash Provided By Operating
and Investing Activities ............................... $ 10,889,353
------------
Cash Flows From Financing Activities:
Cash dividends paid on 7.00% Cumulative
Preferred Stock ........................................ (2,100,000)
Cash dividends paid on Common Stock* ...................... (8,789,229)
-------------
Net Cash Used By Financing Activities ..................... (10,889,229)
------------
Net Increase in Cash ......................................... 124
Cash--Beginning of year ...................................... 388
------------
Cash--End of year ............................................ $ 512
============
RECONCILIATION OF DECREASE IN NET ASSETS
FROM OPERATIONS TO NET CASH PROVIDED
BY OPERATING AND INVESTING ACTIVITIES:
Decrease in Net Assets From Operations ....................... $ (2,431,791)
Amortization of discount on securities .................... (2,572,405)
Decrease in investments ................................... 16,581,508
Decrease in receivable for securities sold ................ 247,656
Decrease in payable for securities purchased .............. (993,297)
Decrease in dividends and interest receivable ............. 158,093
Increase in receivable for open forward foreign
currency contracts ..................................... (331,256)
Increase in accrued expenses .............................. 230,845
-------------
Total Adjustments ......................................... 13,321,144
------------
Net Cash Provided By Operating and Investing Activities ...... $ 10,889,353
============
* Exclusive of dividend reinvestment of $1,561,796
</TABLE>
See Notes to Financial Statements.
25
<PAGE>
[LOGO OF SMITH BARNEY ZENITH INCOME FUND] Notes to Financial Statements
================================================================================
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-annually on June 15 and
December 15; (h) the net asset value of
26
<PAGE>
[LOGO OF SMITH BARNEY ZENITH INCOME FUND] Notes to Financial Statements
(continued)
================================================================================
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, 2000, 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 $8,395,005 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"),
which, in turn, is a subsidiary of Citigroup Inc., 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 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.
27
<PAGE>
[LOGO OF SMITH BARNEY ZENITH INCOME FUND] Notes to Financial Statements
(continued)
================================================================================
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 year ended March 31, 2000, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding short-
term securities) were as follows:
- --------------------------------------------------------------------------------
Purchases $109,030,832
- --------------------------------------------------------------------------------
Sales 121,756,277
- --------------------------------------------------------------------------------
At March 31, 2000, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
- --------------------------------------------------------------------------------
Gross unrealized appreciation $ 2,022,512
Gross unrealized depreciation (10,709,921)
- --------------------------------------------------------------------------------
Net unrealized depreciation $ (8,687,409)
- --------------------------------------------------------------------------------
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.
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
28
<PAGE>
[LOGO OF SMITH BARNEY ZENITH INCOME FUND] Notes to Financial Statements
(continued)
================================================================================
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. Preferred Stock
On March 16, 1993, the Fund issued 30,000 shares of 7.00% Cumulative
Preferred Stock, which were redeemed in full on April 14, 2000, at a price equal
to $1,000 per share, plus accumulated and unpaid dividends and an amount equal
to the dividend which would have accumulated on April 15, 2000. Cumulative
undeclared dividends amounted to $627,116 at March 31, 2000.
7. Bank Loan
As of March 31, 2000, the Fund had a $35,000,000 line of credit with PNC
Bank. Interest on the loan is calculated at LIBOR plus 40 basis points.
For the year ended March 31, 2000, interest expense related to the loan
totalled $1,794,600, the average dollar amount of the borrowing was $30,000,000
and the average interest rate was 5.98%.
8. Common Stock
At March 31, 2000, 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:
Year Ended Year Ended
March 31, 2000 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, 2000, the Fund had, for Federal income tax purposes, capital
loss carryforwards of approximately $15,655,000 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.
29
<PAGE>
[LOGO OF SMITH BARNEY ZENITH INCOME FUND] Notes to Financial Statements
(continued)
================================================================================
The amount and expiration of the carryforwards are indicated below.
Expiration occurs on March 31 of the year indicated:
2003 2004 2007 2008
- --------------------------------------------------------------------------------
Carryforward Amounts $4,873,000 $2,291,000 $1,704,000 $6,787,000
- --------------------------------------------------------------------------------
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.
11. Forward Foreign Currency Contracts
At March 31, 2000, 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:
<TABLE>
<CAPTION>
Local Market Settlement Unrealized
Foreign Currency Currency Value Date Gain (Loss)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
To Buy:
Euro 1,902,785 1,830,399 6/15/00 $(38,801)
- ------------------------------------------------------------------------------------------
To Sell:
British Pound 1,435,800 2,291,355 6/22/00 24,332
Canadian Dollar 472,500 326,021 6/8/00 (4,264)
Euro 7,004,536 6,738,069 6/15/00 394,593
- ------------------------------------------------------------------------------------------
414,661
- ------------------------------------------------------------------------------------------
Total Unrealized Gain on Open Forward
Foreign Currency Contracts $375,860
- ------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE>
[LOGO OF SMITH BARNEY ZENITH INCOME FUND] Notes to Financial Statements
(continued)
================================================================================
12. Subsequent Event
On April 14, 2000 the Fund issued 2,400 Auction Rate Cumulative Preferred
Shares ("Shares"). The net proceeds of the sale of the Shares, before expenses,
was $59,400,000, reflecting the public offering price of $25,000 per share, less
the payment of a 1.00% underwriting fee by the Fund.
The dividend rate on the Preferred Shares for the period from and including
the date of the issue to but excluding April 26, 2000 was 6.00% per year. For
each subsequent period, the dividend rate will be determined at an auction that
will usually be held weekly. The Fund will pay annual expenses in an amount of
0.26% of the purchase price of the Shares in connection with the auction
process.
In addition, the Fund used the proceeds of this offering to redeem and
retire all of the Fund's formerly outstanding 7.00% Cumulative Preferred Shares
and to terminate the credit facility with PNC Bank by paying all amounts owed to
PNC Bank pursuant to the credit facility.
31
<PAGE>
[LOGO OF SMITH BARNEY ZENITH INCOME FUND] 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:
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Net Asset Value, Beginning of Year ............................ $5.96 $6.96
-------- --------
Income (Loss) From Operations:
Net investment income ...................................... 0.78 0.82
Net realized and unrealized loss ........................... (0.94) (0.97)
-------- --------
Total Loss From Operations ................................. (0.16) (0.15)
-------- --------
Distributions Paid To:
7.00% Cumulative Preferred Stock Shareholders From
Net Investment Income ................................... (0.13) (0.14)
Common Stock Shareholders From Net Investment Income ....... (0.65) (0.69)
Common Stock Shareholders From Capital ..................... -- (0.02)
-------- --------
Total Distributions ........................................ (0.78) (0.85)
-------- --------
Net Asset Value, End of Year .................................. $5.02 $5.96
======== ========
Market Value, End of Year ..................................... $4.44 $5.88
======== ========
Total Return, Based on Market Value* .......................... (14.28)% (12.53)%
======== ========
Total Return, Based on Net Asset Value* ....................... (4.43)% (4.38)%
======== ========
Net Assets**, End of Year (000's) ............................. $80,234 $93,561
======== ========
Ratios to Average Net Assets Based on
Common Shares Outstanding***:
Net Investment Income ...................................... 13.90% 12.99%
Interest Expense ........................................... 2.04 1.81
Other Expenses ............................................. 1.69 1.53
Portfolio Turnover Rate ....................................... 79% 91%
</TABLE>
- ------------
* The total return calculation assumes that dividends are reinvested in
accordance with the Fund's dividend reinvestment plan.
** Exclusive of preferred shares outstanding and undeclared preferred
dividends.
*** Calculated on basis of average net assets of common shareholders. Ratios do
not reflect the effect of dividend payments to preferred shareholders.
32
<PAGE>
[LOGO OF SMITH BARNEY ZENITH INCOME FUND] Financial Highlights
(continued)
================================================================================
For a share of common stock outstanding throughout each year ended March 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net Asset Value, Beginning of Year .................... $6.45 $6.31 $5.88
-------- -------- --------
Income From Operations:
Net investment income .............................. 0.87 0.92 0.86
Net realized and unrealized gain ................... 0.56 0.08 0.45
-------- -------- --------
Total Income From Operations ....................... 1.43 1.00 1.31
-------- -------- --------
Distributions Paid To:
7.00% Cumulative Preferred Stock Shareholders
From Net Investment Income ...................... (0.14) (0.14) (0.15)
Common Stock Shareholders From
Net Investment Income ........................... (0.78) (0.72) (0.73)
-------- -------- --------
Total Distributions ................................ (0.92) (0.86) (0.88)
-------- -------- --------
Net Asset Value, End of Year .......................... $6.96 $6.45 $6.31
======== ======== ========
Market Value, End of Year ............................. $7.50 $7.25 $7.00
======== ======== ========
Total Return, Based on Market Value* .................. 14.81% 15.55% 18.35%
======== ======== ========
Total Return, Based on Net Asset Value* ............... 19.75% 14.04% 20.01%
======== ======== ========
Net Assets**, End of Year (000's) ..................... $105,861 $95,034 $90,318
======== ======== ========
Ratios to Average Net Assets Based on
Common Shares Outstanding***:
Net Investment Income .............................. 12.60% 14.35% 14.21%
Interest Expense ................................... 1.81 1.92 1.98
Other Expenses ..................................... 1.51 1.59 1.65
Portfolio Turnover Rate ............................... 79% 101% 87%
</TABLE>
- -------------
* The total return calculation assumes that dividends are reinvested in
accordance with the Fund's dividend reinvestment plan.
** Exclusive of preferred shares outstanding and undeclared preferred
dividends.
*** 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.
33
<PAGE>
[LOGO OF SMITH BARNEY ZENITH INCOME FUND] Independent Auditors' Report
================================================================================
The Shareholders and Board of Directors of
Zenix Income Fund Inc.:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of the Zenix Income Fund Inc. as of March
31, 2000, the related statement of operations for the year then ended, the
statements of changes in net assets for each of the years in the two-year period
then ended, the statement of cash flows for the year then ended and the
financial highlights for each of the years in the five-year period then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of March 31, 2000, by correspondence with the custodian. As
to securities purchased or sold but not yet received or delivered, we performed
other appropriate auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Zenix Income Fund Inc. as of March 31, 2000, the results of its operations for
the year then ended, the changes in its net assets for each of the years in the
two-year period then ended, its cash flows for the year then ended and its
financial highlights for each of the years in the five-year period then ended,
in conformity with accounting principles generally accepted in the United States
of America.
/s/ KPMG LLP
New York, New York
May 11, 2000
34
<PAGE>
[LOGO OF SMITH BARNEY ZENITH INCOME FUND] Other Financial Information
(unaudited)
================================================================================
The table below sets out information with respect to Cumulative Preferred
Stock, Senior Money Market Notes and Bank Credit Facility:
2000 1999 1998 1997 1996
------ ------ ------ ------ ------
7.00% Cumulative
Preferred Stock(1)
Total amount
outstanding (000s) $ 30,000 $ 30,000 $ 30,000 $ 30,000 $ 30,000
Asset Coverage Per Share 2,340 2,560 2,760 2,580 2,490
Involuntary Liquidating
Preference Per Share(3) 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
Senior Money
Market Notes
Total amount
outstanding (000s) -- -- -- -- --
Asset Coverage (000s) -- -- -- -- --
PNC Bank Credit Facility
Total amount
outstanding (000s) 30,000 30,000 30,000 30,000 30,000
Asset Coverage (000s) 140,200 153,600 165,900 154,800 149,400
- -------------
(1) Redeemable April 15, 2000.
(2) Excludes accrued interest or accumulated undeclared dividends.
(3) See Note 6 of the Notes to Financial Statements.
35
<PAGE>
[LOGO OF SMITH BARNEY ZENITH INCOME FUND] 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
March 31, 2000 3,400,371 0.21 2,987,078 0.19 (6,190,702) (0.40) (3,203,624) (0.21)
</TABLE>
- -----------
* Per share of Common Stock.
36
<PAGE>
[LOGO OF SMITH BARNEY ZENITH INCOME FUND] Financial Data
(unaudited)
================================================================================
For a share of common stock outstanding throughout each period:
Dividend
Record Payable NYSE Net Asset Dividend Reinvestment
Date Date Closing Price Value* Paid Price
================================================================================
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 5.938 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
1/25/00 1/28/00 4.625 5.30 0.054 4.690
2/22/00 2/25/00 4.500 5.27 0.054 4.480
3/28/00 3/31/00 4.438 5.11 0.054 4.556
================================================================================
* As of record date
37
<PAGE>
[LOGO OF SMITH BARNEY ZENITH INCOME FUND] 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
38
<PAGE>
[LOGO OF SMITH BARNEY ZENITH INCOME FUND] Dividend Reinvestment Plan
(unaudited) (continued)
================================================================================
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
39
<PAGE>
[LOGO OF SMITH BARNEY ZENITH INCOME FUND] Dividend Reinvestment Plan
(unaudited) (continued)
================================================================================
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.
40
<PAGE>
[LOGO OF SMITH BARNEY ZENITH INCOME FUND] Tax Information
(unaudited)
================================================================================
For Federal tax purposes the Fund hereby designates for the fiscal year
ended March 31, 2000:
. A corporate dividends received deduction of 1.13%.
41
<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.
FD02395 5/00
