<PAGE>
----------
ZENIX
Income
Fund Inc.
----------
[GRAPHIC]
Semi-Annual Report
September 30, 2000
<PAGE>
Zenix Income Fund Inc.
Dear Shareholder:
We are pleased to provide the semi-annual report for the Zenix Income Fund Inc.
("Fund") for the period ended September 30, 2000. Any discussion of the Fund's
holdings is as of September 30, 2000. Please refer to pages 6 through 19 for a
list of the Fund's holdings.
During the past six months, the Fund distributed income dividends to common
shareholders totaling $0.32 per share. The table below details the annualized
distribution rate and the six-month total return for the Fund based on its
September 30, 2000 net asset value ("NAV") per share and the New York Stock
Exchange ("NYSE") closing price./1/
[PHOTO] [PHOTO]
HEATH B. JOHN C.
MCLENDON BIANCHI, CFA
Chairman Vice President and
Investment Officer
Price Annualized Six-Month
Per Share Distribution Rate/2/ Total Return/2/
--------- -------------------- ---------------
$4.44 (NAV) 14.59% (5.36)%
$5.00 (NYSE) 12.96% 20.55%
--------------
/1/ The NAV is calculated by subtracting total liabilities from the closing
value of all securities held by the Fund (plus all other assets) and
dividing the result (total net assets) by the total number of shares
outstanding. The NAV fluctuates with the changes in the value of the
securities in which the Fund has invested. However, the price at which an
investor may buy or sell shares of the Fund is at their market (NYSE) price
as determined by supply and demand.
/2/ Total returns are based on changes in NAV or the market value,
respectively. Total returns assume the reinvestment of all dividends and/or
capital gains distributions in additional shares. Annualized distribution
rate is the Fund's current monthly income dividend rate, annualized, and
then divided by the NAV or the market value noted in this report. The
annualized distribution rate assumes a current monthly income dividend rate
of $0.054 for 12 months. This rate is as of October 31, 2000 and is subject
to change. The important difference between a total return and an
annualized distribution rate is that the total return takes into
consideration a number of factors including the fluctuation of the NAV or
the market value during the period reported. The NAV fluctuation includes
the effects of unrealized appreciation or depreciation in the Fund.
Accordingly, since an annualized distribution rate only reflects the
current monthly income dividend rate annualized, it should not be used as
the sole indicator to judge the return you receive from your Fund's
investment. Past performance is not indicative of future results.
1
<PAGE>
--------------------------------------------------------------------------------
Performance Update
The Fund generated a total return based on NAV of a negative 5.36% for the
six-months ended September 30, 2000. In comparison, the Lipper Inc.
("Lipper")/3/ peer group of high current yield funds (leveraged) returned a
negative 1.99% based on NAV for the same period.
Market and Economic Overview/4/
The high-yield bond market encountered continued difficulties in September 2000
in the face of improved performance in other areas of the U.S. bond market. In
our opinion, it appears that many bond investors are becoming more convinced
that the Federal Reserve Board ("Fed") may be able to engineer a "soft landing"
for the U.S. economy, which in turn should benefit most bonds. However,
depending upon the severity of the economic slowdown, high-yield bonds may be
negatively affected.
We believe the high-yield bond market is close to discounting most of this risk.
At current median yield levels, the high-yield bond market is trading at a 750
basis point/5/ spread over 10-year U.S. Treasuries, which is above the levels
reached during the 1998 emerging market crisis. In fact, we are now approaching
the spread levels reached in the 1990 recession. On a year-to-date basis the
high-yield market generated a negative total return of roughly 1.50%, as
measured by the Bear Stearns High Yield Market Index,/6/ compared to a positive
total return range of 4.50% to 12.00% in the U.S. Treasury market and 4.00% to
6.50% in the investment-grade/7/ corporate bond market.
In our view, there are several factors driving high-yield bond valuations down
to such undervalued levels including:
o The Fed's tightening bias over the last 18 months has withdrawn
liquidity from the bond markets;
o Various Wall Street dealers have reduced their exposure to high-yield
bonds and investment-grade corporate bonds to protect their own
balance sheets; and
----------------
/3/ Lipper is an independent mutual fund-tracking organization.
/4/ Please note that the statistical performance information that appears in
this section of this report is compiled from SSB Citi Fund Management LLC
internal research. It is not intended to be used as a forecast of future
events, a guarantee of future results nor investment advice.
/5/ A basis point is 0.01% or one one-hundredth of a percent.
/6/ The Bear Stearns High Yield Market Index is an unmanaged broad-based index
of high-yield bonds. Please note that an investor cannot invest directly in
an index.
/7/ Investment-grade bonds are those rated Aaa, Aa, A and Baa by Moody's
Investors Service, Inc. or AAA, AA, A and BBB by Standard & Poor's Ratings
Service, or that have an equivalent rating by any nationally recognized
statistical rating organization, or are determined by the portfolio manager
to be of equivalent quality.
2
<PAGE>
--------------------------------------------------------------------------------
o Redemptions out of open-end bond mutual funds, especially high-yield
bond mutual funds, have exerted even more downward pressure on
high-yield bond prices as mutual funds are forced to liquidate their
bond positions to meet those redemptions.
The lower- to middle-quality segments (Caa/CCC and B/B rated issues) of the
high-yield bond market performed poorly in the first three quarters of calendar
2000 due to a combination of increased defaults among the lesser quality credits
as well as new issue supply pressures in B/B rated issues earlier in the year.
During the period, most industry sectors performed poorly, especially the more
economically sensitive areas of the high-yield bond market such as basic
materials, capital goods manufacturing, transportation and consumer cyclical
sectors.
The recent economic slowdown is causing downward earnings revisions among many
of the more economically sensitive companies. In addition, the once robust
telecommunications sector has significantly underperformed versus the overall
market, given the heavy capital needs of this industry and the current
difficulty experienced by many companies when attempting to obtain additional
capital in the bond market to fund their business plans. We believe this is a
short-term problem that should eventually be resolved when and if the market
stabilizes.
The industry sectors in the high-yield bond market that posted positive returns
during the period were energy, technology, media and operating utilities. These
are the sectors that have continued to experience considerable positive momentum
and, as a result, may be less vulnerable to an economic slowdown. Our overweight
position in B/B rated telecommunications issues held back the Fund's performance
during the period. Yet, we continue to believe these issues should eventually
perform better once the high-yield bond market stabilizes.
Conclusion
Over the near term, we plan to emphasize the less economically sensitive growth
sectors of the bond market. We will attempt to maintain a reasonable balance in
overall credit quality when seeking out investment opportunities in this
volatile market. Moreover, we remain positive on the high-yield market and
believe the worst of the recent correction may be behind us.
However, we do not expect any meaningful improvement in high-yield bond prices
until the Fed begins to reverse its interest rate increases instituted in recent
months. In our opinion, as the stock market faces further challenges and
economic momentum slows even further, the Fed may be in a good position to start
to inject more liquidity into the financial markets and reduce interest rates.
3
<PAGE>
--------------------------------------------------------------------------------
In our opinion, the high-yield bond market should dramatically benefit from any
potential shift in Fed policy. We witnessed the same trend change seen during
the 1990 recession. Despite the fact that high-yield default rates in 1990
approached 10%, the high-yield bond market generated total returns during that
time of more than 30%, as liquidity flowed back into the market and investors
took advantage of undervalued bonds. And while no guarantees can be made that
this trend will duplicate itself in the coming months, we are optimistic about
the long-term return potential of high-yield bonds.
Should you have any questions about the Fund, please call PFPC Global Fund
Services at (800) 331-1710. Thank you for your continued confidence in our
investment approach.
Sincerely,
/s/ Heath B. McLendon /s/ John C. Bianchi
Heath B. McLendon John C. Bianchi, CFA
Chairman Vice President and
Investment Officer
October 26, 2000
4
<PAGE>
--------------------------------------------------------------------------------
Take Advantage of the Fund's Dividend Reinvestment Plan!
Did you know that Fund investors who reinvest their dividends are taking
advantage of one of the most effective wealth-building tools available today?
Systematic investments put time to work for you through the strength of
compounding.
As an investor in the Fund, you can participate in its Dividend
Reinvestment Plan ("Plan"), a convenient, simple and efficient way to reinvest
your dividends and capital gains, if any, in additional shares of the Fund.
Below is a summary of how the Plan works.
Plan Summary
If you are a Plan participant who has not elected to receive your dividends
in the form of a cash payment then your dividends and capital gains
distributions will be reinvested automatically in additional shares of the Fund.
The number of common stock shares in the Fund you will receive in lieu of a
cash dividend is determined in the following manner. If the market price of the
common stock is equal to or higher than 98% of the net asset value per share
("NAV") on the determination date, you will be issued shares by the Fund at a
price reflecting 98% of the NAV, or 95% of the market price, whichever is
greater.
If the market price is less than 98% of the NAV at the time of valuation
(the close of business on the determination date), or if the Fund declares a
dividend or capital gains distribution payable only in cash, PFPC Global Fund
Services ("Plan Agent") will buy common stock for your account in the open
market.
If the Plan Agent begins to purchase additional shares in the open market
and the market price of the shares subsequently rises above 98% of the
previously determined NAV before the purchases are completed, the Plan Agent
will attempt to terminate purchases and have the Fund issue the remaining
dividend or distribution in shares at the greater of 98% of the previously
determined NAV or 95% of the market price. In that case, the number of Fund
shares you receive will be based on the weighted average of prices paid for
shares purchased in the open market and the price at which the Fund issues the
remaining shares.
A more complete description of the current Plan appears in the section of
this report beginning on page 36. To find out more detailed information about
the Plan and about how you can participate, please call PFPC Global Fund
Services at (800) 331-1710.
5
<PAGE>
Schedule of Investments
September 30, 2000 (unaudited)
================================================================================
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
-----------------------------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES -- 95.2%
Aerospace -- 1.5%
<S> <C> <C> <C>
BE Aerospace, Inc., Sr. Sub. Notes:
270,000 B 9.500% due 11/1/08 .................................. $ 267,300
Series B:
150,000 B 9.875% due 2/1/06 ................................. 148,125
1,330,000 B 8.000% due 3/1/08 ................................. 1,203,650
380,000 B- Dunlop Standard Aerospace Holdings,
Sr. Notes, 11.875% due 5/15/09 ...................... 384,275
---------
2,003,350
---------
Airlines -- 1.1%
1,723,537 BB Airplanes Pass-Thru Trust, Asset-Backed Securities,
Series 1, Class D, 10.875% due 3/15/19 .............. 1,401,873
---------
Aluminum -- 1.2%
Kaiser Aluminum & Chemical Corp., Sr. Sub. Notes:
1,420,000 B3* 12.750% due 2/1/03 .................................. 1,313,500
160,000 B1* Series B, 10.875% due 10/15/06 ...................... 158,000
140,000 B1* Series D, 10.875% due 10/15/06 ...................... 138,250
---------
1,609,750
---------
Apparel -- 1.1%
570,000 BB- Levi Strauss & Co., 7.000% due 11/1/06 ................. 447,450
Tommy Hilfiger USA Inc.:
200,000 BBB- 6.500% due 6/1/03 ................................... 161,250
490,000 BBB- 6.850% due 6/1/08 ................................... 328,300
525,000 B- Tropical Sportswear International Corp.,
Guaranteed Sr. Sub. Notes, Series A,
11.000% due 6/15/08 ................................. 496,125
---------
1,433,125
---------
Auto Parts: Original Equipment Manufacturer -- 0.9%
570,000 B Collins & Aikman Products Co., Sr. Sub. Notes,
11.500% due 4/15/06 ................................. 550,050
Hayes Lemmerz International Inc., Sr. Sub. Notes,
Series B:
180,000 B 9.125% due 7/15/07 ................................ 155,250
620,000 B 8.250% due 12/15/08 ............................... 505,300
---------
1,210,600
---------
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
Schedule of Investments
[LOGO] September 30, 2000 (unaudited) (continued)
================================================================================
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Broadcasting -- 1.9%
130,000 BB+ Clear Channel Communications, Sr. Discount Notes,
step bond to yield 11.002% due 2/1/09 ................ $ 124,638
Young Broadcasting Inc.:
475,000 B Guaranteed Sr. Sub. Notes, 11.750% due 11/15/04 ...... 490,438
1,785,000 B Sr. Sub. Notes, 10.125% due 2/15/05 .................. 1,798,388
---------
2,413,464
---------
Building Materials -- 0.4%
Nortek Inc.:
135,000 B+ Sr. Notes, Series B, 9.125% due 9/1/07 ............... 128,250
395,000 B- Sr. Sub. Notes, 9.875% due 3/1/04 .................... 383,150
---------
511,400
---------
Building Products -- 0.6%
495,000 B Amatek Industries Property Ltd., Sr. Sub. Notes,
12.000% due 2/15/08 .................................. 383,625
385,000 B- Atrium Cos., Inc., Sr. Sub. Notes, 10.500% due 5/1/09 348,425
---------
732,050
---------
Cable Television -- 9.3%
Adelphia Communications Corp., Sr. Notes:
730,000 B+ 8.750% due 10/1/07 ................................... 657,000
430,000 B+ 10.875% due 10/1/10 .................................. 423,550
665,000 B+ Series B, 8.375% due 2/1/08 .......................... 578,550
180,000 CCC+ Cable Satisfaction International, Inc., Sr. Notes,
12.750% due 3/1/10 ................................... 155,700
Century Communications Corp.:
255,000 B+ Sr. Discount Notes, Series B, zero coupon bond
to yield 10.646% due 1/15/08 ....................... 104,550
130,000 B+ 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 .............................. 854,100
445,000 B+ Sr. Notes, 8.625% due 4/1/09 ....................... 401,613
1,000,000 BB- CSC Holdings, Inc., Sr. Sub. Debentures,
10.500% due 5/15/16 .................................. 1,077,500
495,000/GBP/ B Diamond Holdings PLC, Guaranteed Notes,
10.000% due 2/1/08 ................................... 643,997
Echostar DBS Corp., Sr. Notes:
1,070,000 B 10.375% due 10/1/07+ ................................. 1,070,000
295,000 B+ 9.375% due 2/1/09+ ................................... 290,575
</TABLE>
See Notes to Financial Statements.
7
<PAGE>
Schedule of Investments
September 30, 2000 (unaudited) (continued)
================================================================================
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
-----------------------------------------------------------------------------------------------------
Cable Television -- 9.3% (continued)
NTL Communications Corp., Sr. Notes:
<S> <C> <C> <C>
1,035,000 B 11.500% due 10/1/08 ..................................... $ 1,003,950
325,000 B 11.875% due 10/1/10+ .................................... 319,313
775,000 BB- Rogers Cablesystems, Ltd., Guaranteed Sr. Sub.
Debentures, 11.000% due 12/1/15 ......................... 871,875
1,980,000 B- United International Holdings, Inc., Sr. Discount Notes,
Series B, step bond to yield 11.554% due 2/15/08 ........ 1,366,200
4,390,000 B United Pan-Europe Communications N.V., Sr. Discount
Notes, step bond to yield 12.500% due 8/1/09 ............ 2,096,225
-----------
12,045,348
-----------
Casinos - Gambling -- 3.7%
105,000 BB- Circus Circus Enterprises Inc., Sr. Sub. Debentures,
7.625% due 7/15/13 ...................................... 87,675
860,000 B Hollywood Casino Corp., Guaranteed Sr. Sub. Notes,
11.250% due 5/1/07 ...................................... 896,550
385,000 B+ Horseshoe Gaming Holding, Series B,
8.625% due 5/15/09 ...................................... 379,225
11,375 NR Jazz Casino Co. LLC, Sr. Sub. Notes,
5.867% due 11/15/09 ..................................... 2,104
260,000 BB- Mandalay Resort Group, Sr. Sub. Notes,
10.250% due 8/1/07+ ..................................... 269,425
385,000 BB+ Park Place Entertainment, Sr. Sub. Notes,
8.875% due 9/15/08 ...................................... 383,075
470,000 B+ Station Casinos, Inc., Sr. Sub. Notes,
9.875% due 7/1/10+ ...................................... 473,525
Sun International Hotels Ltd., Sr. Sub. Notes:
795,000 B+ 9.000% due 3/15/07 ...................................... 751,275
770,000 B+ 8.625% due 12/15/07 ..................................... 710,325
865,000 B- Venetian Casino Resort, LLC, Secured Notes,
12.250% due 11/15/04 .................................... 890,950
-----------
4,844,129
-----------
Chemicals - Major -- 0.9%
Huntsman Corp.:
3,700,000 B+ Sr. Discount Notes, zero coupon bond to yield
13.067% due 12/31/09 .................................. 1,202,500
10,000 B+ Sr. Sub. Notes, 10.125% due 7/1/09 ...................... 9,863
-----------
1,212,363
-----------
Chemicals - Specialty -- 0.2%
220,000 B Avecia Group PLC, Sr. Notes, 11.000% due 7/1/09 ........... 217,800
-----------
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
Schedule of Investments
September 30, 2000 (unaudited) (continued)
================================================================================
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
-----------------------------------------------------------------------------------------------------
Coal Mining -- 0.1%
<S> <C> <C> <C>
960,000 Ca* AEI Resources, Inc., Guaranteed Notes,
10.500% due 12/15/05+ .................................. $ 148,800
----------
Construction/AG Equipment/Trucks -- 0.5%
775,000 B Columbus McKinnon Corp., Guaranteed Sr. Sub. Notes,
8.500% due 4/1/08 ...................................... 684,906
----------
Consumer Specialties -- 0.5%
570,000 B Jostens, Inc., Sr. Sub. Notes, 12.750% due 5/1/10+ 589,950
----------
Containers - Packaging -- 3.2%
225,000 B BWAY Corp., Guaranteed Sr. Sub. Notes,
Series B, 10.250% due 4/15/07 .......................... 223,313
420,000 B- SF Holdings Group Inc., Sr. Discount Notes,
Series B, step bond to yield 12.375% due 3/15/08 ....... 220,500
1,425,000 B Stone Container Finance Corp., Guaranteed Sr. Notes,
11.500% due 8/15/06+ ................................... 1,474,875
875,000 B+ Stone Container Term Loan, 9.010% due 12/31/06 ........... 875,000
860,000 B- Sweetheart Cup Co. Inc., Sr. Sub. Notes,
10.500% due 9/1/03 ..................................... 812,700
510,000 B- Tekni-Plex, Inc., Sr. Sub. Notes, 12.750% due 6/15/10+ 504,900
----------
4,111,288
----------
Contract Drilling-- 2.4%
Parker Drilling Co.:
110,000 B- 5.500% due 8/1/04 (b) .................................. 93,775
1,165,000 B+ Sr. Notes, 9.750% due 11/15/06 ......................... 1,167,913
655,000 BB Pride International, Inc., Sr. Notes, 10.000% due 6/1/09.. 691,025
515,000 Ba3* R&B Falcon Corp., Sr. Notes, 12.250% due 3/15/06 ......... 595,469
555,000 BB- RBF Finance Corp., Guaranteed Sr. Notes,
11.375% due 3/15/09 .................................... 641,719
----------
3,189,901
----------
Discount Stores -- 0.4%
490,000 Baa3* Kmart Corp., Debentures, 12.500% due 3/1/05 .............. 510,825
----------
Diversified Commercial Services -- 0.6%
1,000,000 B2* Intertek Finance PLC, Guaranteed Sr. Sub. Notes,
Series B, 10.250% due 11/1/06 .......................... 355,000
500,000 B- Outsourcing Solutions Inc., Sr. Sub. Notes,
11.000% due 11/1/06 .................................... 427,500
----------
782,500
----------
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
Schedule of Investments
September 30, 2000 (unaudited) (continued)
================================================================================
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
-----------------------------------------------------------------------------------------------------
Diversified Financial Services -- 0.3%
AMRESCO Inc., Sr. Sub. Notes, Series A:
<S> <C> <C> <C>
600,000 CCC- 10.000% due 3/15/04 .................................. $ 267,000
135,000 CCC- 9.875% due 3/15/05 ................................... 60,075
---------
327,075
---------
Diversified Manufacturing -- 0.8%
850,000 B+ Park-Ohio Industries, Inc., Sr. Sub. Notes,
9.250% due 12/1/07 ................................... 760,750
365,000 B Polymer Group Inc., Sr. Sub. Notes, Series B,
9.000% due 7/1/07 .................................... 282,875
---------
1,043,625
---------
Drugs - Generic -- 1.5%
1,965,000 BB ICN Pharmaceuticals, Inc., Sr. Notes, Series B,
9.250% due 8/15/05 ................................... 1,945,350
---------
Electronic Components -- 1.1%
515,000 BB- Celestica International Inc., Sr. Sub. Notes,
10.500% due 12/31/06 ................................. 538,819
845,000 Ba3* Flextronics International Ltd., Sr. Sub. Notes,
9.875% due 7/1/10+ ................................... 872,463
---------
1,411,282
---------
Engineering & Construction -- 0.5%
255,000 BB- Integrated Electrical Services, Inc., Sr. Sub. Notes,
9.375% due 2/1/09 .................................... 231,413
430,000 B- Orius Capital Corp., Sr. Sub. Notes,
12.750% due 2/1/10+ .................................. 453,650
---------
685,063
---------
Environmental Services -- 3.5%
Allied Waste Industries Inc., Term Loan:
200,000 Ba3* Tranche B, 9.438% due 7/21/06 ........................ 194,125
Tranche C:
208,000 Ba3* 9.688% due 7/21/07 ................................. 201,890
32,000 Ba3* 9.750% due 7/21/07 ................................. 31,060
Allied Waste North America, Inc.:
510,000 BB- Guaranteed Sr. Notes, Series B, 7.875% due 1/1/09 .... 447,525
3,410,000 B+ Sr. Sub. Notes, 10.000% due 8/1/09@ .................. 2,992,275
695,000 B+ URS Corp., Sr. Sub. Notes, 12.250% due 5/1/09 .......... 715,850
---------
4,582,725
---------
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
[LOGO] Schedule of Investments
September 30, 2000 (unaudited) (continued)
================================================================================
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
-----------------------------------------------------------------------------------------------------
Finance Companies -- 0.2%
<S> <C> <C> <C>
355,000 CCC+ Madison River Capital, Sr. Notes, 13.250% due 3/1/10 ... $ 285,775
---------
Food Distributors -- 1.9%
385,000 B- Agrilink Foods Inc., Sr. Notes, 11.875% due 11/1/08 .... 286,825
Aurora Foods Inc., Sr. Sub. Notes, Series B:
170,000 CCC+ 9.875% due 2/15/07 ................................... 135,150
340,000 CCC+ 8.750% due 7/1/08 .................................... 261,800
915,000 B2* Carrols Corp., Sr. Sub. Notes, 9.500% due 12/1/08 ...... 791,475
480,000 B2* International Home Foods, Inc., Guaranteed Sr. Sub.
Notes, 10.375% due 11/1/06 ........................... 516,000
440,000 B SC International Services, Inc., Guaranteed Sr. Sub.
Notes, Series B, 9.250% due 9/1/07 ................... 431,200
---------
2,422,450
---------
Foods - Specialty/Candy -- 0.4%
500,000 B- B&G Foods, Inc., Guaranteed Sr. Sub. Notes,
9.625% due 8/1/07 .................................... 362,500
980,000 CCC+ Imperial Holly Corp., Guaranteed Sr. Sub. Notes,
9.750% due 12/15/07 .................................. 181,300
---------
543,800
---------
Forest Products -- 0.6%
305,000 B Ainsworth Lumber Co. Ltd., Sr. Notes,
12.500% due 7/15/07 .................................. 285,175
565,000 B+ Millar Western Forest, Sr. Notes, 9.875% due 5/15/08 ... 522,625
---------
807,800
---------
Health Industry Services -- 1.3%
465,000 B- Alaris Medical Systems, Guaranteed Sr. Sub. Notes,
9.750% due 12/1/06 ................................... 341,775
885,000 BBB- HEALTHSOUTH Corp., Sr. Notes, 6.875% due 6/15/05 ....... 789,863
725,000 B- Total Renal Care, Holdings Inc., 7.000% due 5/15/09 (c). 518,375
---------
1,650,013
---------
Home Building -- 1.0%
430,000 Ba1* D.R. Horton, Inc., Sr. Notes, 8.000% due 2/1/09 ........ 396,675
930,000 BB+ Lennar Corp., Sr. Notes, 9.950% due 5/1/10+ ............ 960,225
---------
1,356,900
---------
Home Furnishings -- 0.4%
505,000 B Falcon Products, Inc., Sr. Sub. Notes,
11.375% due 6/15/09 .................................. 481,644
---------
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
Schedule of Investments
September 30, 2000 (unaudited) (continued)
================================================================================
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Hospital - Nursing Management -- 1.2%
1,520,000 Ba3* Fresenius Medical Care Capital Trust I, Trust Preferred
Securities, 9.000% due 12/1/06 ...................... $ 1,516,200
-----------
Hotel - Resort -- 3.4%
2,375,000 B- Courtyard by Marriott II LP/Courtyard Finance Co.,
Sr. Secured Notes, Series B, 10.750% due 2/1/08@ .... 2,389,844
525,000 BB HMH Properties, Inc., Sr. Notes, Series C,
8.450% due 12/1/08 .................................. 501,375
Intrawest Corp., Sr. Notes:
685,000 B+ 9.750% due 8/15/08 .................................. 688,425
860,000 B+ 10.500% due 2/1/10 .................................. 885,800
-----------
4,465,444
-----------
Internet Services -- 3.0%
185,000 NR Colo.com, Sr. Notes, 13.875% due 3/15/10+ .............. 189,625
325,000 Caa3* Cybernet Internet Services International, Inc.,
Sr. Notes, 14.000% due 7/1/09 ....................... 151,125
Exodus Communications, Inc., Sr. Notes:
75,000 B 10.750% due 12/15/09 ................................ 73,125
1,965,000 B 11.625% due 7/15/10+ ................................ 1,979,738
1,610,000 B- PSINet Inc., Sr. Notes, 11.000% due 8/1/09 ............. 1,054,550
Rhythms NetConnections Inc., Sr. Notes:
130,000 B3* 13.500% due 5/15/08 ................................. 50,050
250,000 B3* Series B, 14.000% due 2/15/10 .......................... 166,250
460,000 CCC+ WAM!NET Inc., Guaranteed Sr. Discount Notes,
Series B, step bond to yield 13.392% due 3/1/05...... 209,300
-----------
3,873,763
-----------
Leisure/Movies/Entertainment -- 1.0%
1,280,000 B- Premier Parks Inc., Sr. Discount Notes, step bond to
yield 11.416% due 4/1/08 ............................ 860,800
440,000 BB+ SFX Entertainment, Inc., Sr. Sub. Notes, Series B,
9.125% due 2/1/08 ................................... 464,200
-----------
1,325,000
-----------
Machinery -- 0.3%
430,000 B Flowserve Corp., Unsecured Sr. Sub. Notes,
12.250% due 8/15/10+ ................................ 441,825
-----------
Medical Specialties -- 0.5%
720,000 B- Hanger Orthopedic Group, Inc., Sr. Sub. Notes,
11.250% due 6/15/09 ................................. 640,800
-----------
</TABLE>
See Notes to Financial Statements.
12
<PAGE>
Schedule of Investments
September 30, 2000 (unaudited) (continued)
================================================================================
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Multi-Sector Companies -- 0.5%
235,000 BB- Standard Commercial Tobacco Corp.,
8.875% due 8/1/05 ................................. $ 201,219
350,000 B- Triarc Consumer Beverage, Sr. Sub. Notes,
10.250% due 2/15/09 ............................... 391,125
-----------
592,344
-----------
Newspapers -- 0.1%
145,000 B+ Garden State Newspapers, Inc., Sr. Sub. Notes,
8.625% due 7/1/11 ................................. 135,938
-----------
Oil & Gas Production -- 4.4%
Belco Oil & Gas Corp., Sr. Sub. Notes:
250,000 B1* 10.500% due 4/1/06 ................................ 253,750
600,000 B1* 8.875% due 9/15/07 ................................ 582,000
235,000 CCC- Belden & Blake Corp., Guaranteed Sr. Sub. Notes,
Series B, 9.875% due 6/15/07 ...................... 202,688
975,000 B Canadian Forest Oil Ltd., Guaranteed Sr. Sub. Notes,
10.500% due 1/15/06 ............................... 1,009,125
370,000 B Chesapeake Energy Corp., Sr. Notes, Series B,
9.625% due 5/1/05 ................................. 369,075
250,000 B Houston Exploration Co., Sr. Sub. Notes, Series B,
8.625% due 1/1/08 ................................. 244,375
170,000 B Magnum Hunter Resources, Unsecured Sr. Sub. Notes,
10.000% due 6/1/07 ................................ 168,300
250,000 B Nationsrent Inc., Unsecured Sr. Sub. Notes,
10.375% due 12/15/08 .............................. 186,250
1,140,000 B+ Nuevo Energy Co., Sr. Sub. Notes,
9.500% due 6/1/08 ................................. 1,145,700
Plains Resources Inc., Sr. Sub. Notes:
345,000 B2* Series B, 10.250% due 3/15/06 ..................... 351,900
290,000 B2* Series E, 10.250% due 3/15/06+ .................... 295,800
500,000 B Stone Energy Corp., Guaranteed Sr. Sub. Notes,
8.750% due 9/15/07 ................................ 490,000
350,000 BB- Vintage Petroleum Inc., Sr. Sub. Notes,
9.750% due 6/30/09 ................................ 365,750
-----------
5,664,713
-----------
Oil & Gas Transmission -- 0.3%
365,000 BB- Leviathan Gas Pipeline Finance Corp., Sr. Sub. Notes,
10.375% due 6/1/09 ................................ 386,900
-----------
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
Schedule of Investments
[LOGO] September 30, 2000 (unaudited) (continued)
================================================================================
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Oil Refining/Marketing -- 0.9%
Clark Oil Refining & Marketing Inc., Sr. Notes:
500,000 BB- 9.500% due 9/15/04 .................................. $ 452,500
85,000 BB- 8.375% due 11/15/07 ................................. 68,850
1,080,000 B Clark USA Inc., Sr. Notes, Series B, 10.875% due 12/1/05... 675,000
-----------
1,196,350
-----------
Paper -- 2.0%
805,000 CCC+ Repap New Brunswick, Inc., Sr. Secured Notes,
10.625% due 4/15/05 ................................. 833,175
Riverwood International Corp.:
345,000 B- Guaranteed Sr. Notes, 10.625% due 8/1/07 ............ 347,156
1,075,000 CCC+ Guaranteed Sr. Sub. Notes, 10.875% due 4/1/08........ 989,000
380,000 NR SD Warren Co., Debentures, 14.000% due 12/15/06............ 418,950
-----------
2,588,281
-----------
Pharmaceuticals- Other -- 0.8%
1,045,000 B King Pharmaceuticals, Inc., Sr. Sub. Notes,
10.750% due 2/15/09 ................................. 1,107,700
-----------
Photographic Products -- 0.2%
295,000 BB- Polaroid Corp., Sr. Notes, 11.500% due 2/15/06 ............ 287,625
-----------
Printing/Forms -- 0.2%
205,000/GBP/ B Polestar Corp. PLC, Sr. Notes, Series B,
10.500% due 5/30/08 ................................. 228,835
-----------
Rental/Leasing Companies -- 0.3%
360,000 BB- Avis Rent A Car, Inc., Sr. Sub. Notes,
11.000% due 5/1/09 .................................. 392,400
-----------
Retail - Other Specialty Stores -- 0.9%
1,000,000 B- Advance Stores Co., Inc., Guaranteed Sr. Sub. Notes,
Series B, 10.250% due 4/15/08 ....................... 785,000
365,000 CCC+ J. Crew Operating Corp., Sr. Sub. Notes,
10.375% due 10/15/07 ................................ 330,325
-----------
1,115,325
-----------
Savings & Loan Associations -- 3.1%
500,000 NR Ocwen Asset Investment, Sr. Notes,
11.500% due 7/1/05 .................................. 395,000
1,000,000 B2* Ocwen Capital Trust I, Guaranteed Capital Securities,
10.875% due 8/1/27 .................................. 575,000
900,000 B+ Ocwen Federal Bank FSB, Sub. Debentures,
12.000% due 6/15/05 ................................. 828,000
</TABLE>
See Notes to Financial Statements.
14
<PAGE>
Schedule of Investments
[LOGO] September 30, 2000 (unaudited) (continued)
================================================================================
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Savings & Loan Associations -- 3.1% (continued)
2,600,000 B+ Ocwen Financial Corp., Sr. Notes,
11.875% due 10/1/03@................................ $ 2,301,000
-----------
4,099,000
-----------
Semiconductors -- 1.6%
325,000 B1* Amkor Technology, Inc., Sr. Sub. Notes,
10.500% due 5/1/09 ................................. 331,094
1,240,000 B Fairchild Semiconductor Corp., Sr. Sub. Notes,
10.125% due 3/15/07 ................................ 1,246,200
440,000 B SCG Holding & Semiconductor Co., Sr. Notes,
12.000% due 8/1/09 ................................. 464,200
-----------
2,041,494
-----------
Steel/Iron Ore -- 0.8%
1,025,000 B+ WCI Steel, Inc., Sr. Notes, 10.000% due 12/1/04 . 912,250
350,000 B- WHX Corp., Sr. Notes, 10.500% due 4/15/05 ............... 194,250
-----------
1,106,500
-----------
Telecommunications - Other -- 11.4%
610,000 B+ Call-Net Enterprises, Inc., Sr. Notes, 9.375% due 5/15/09. 289,750
325,000/EUR/ A Esat Telecom Group PLC, Sr. Notes,
11.875% due 11/1/09 ................................ 354,229
Esprit Telecom Group PLC, Sr. Notes:
700,000 B- 11.500% due 12/15/07 ............................... 248,500
600,000/DEM/ B- 11.500% due 12/15/07@ .............................. 101,516
400,000 B- 10.875% due 6/15/08 .............................. 142,000
460,000/EUR/ B Flag Telecom Holdings Ltd., Sr. Notes,
11.625% due 3/30/10+ ............................... 349,118
340,000 B Focal Communications Corp., Sr. Discount Notes,
Series B, step bond to yield 12.978% due 2/15/08. 161,500
815,000 BB Global Crossing Holding Ltd., Sr. Notes,
9.500% due 11/15/09 ................................ 815,000
650,000/EUR/ B Global TeleSystems Europe, Sr. Notes,
11.000% due 12/1/09+ ............................... 269,605
265,000 CCC+ GT Group Telecom Inc., Sr. Discount Notes,
step bond to yield 13.250% due 2/1/10+ ............. 136,475
Hermes Europe Railtel B.V., Sr. Notes:
25,000 B 11.500% due 8/15/07 ................................ 12,625
2,045,000 B 10.375% due 1/15/09 ................................ 1,032,725
Jazztel PLC, Sr. Notes:
500,000/EUR/ CCC+ 13.250% due 12/15/09+ .............................. 359,620
250,000/EUR/ CCC+ 14.000% due 7/15/10+ ............................... 208,491
</TABLE>
See Notes to Financial Statements.
15
<PAGE>
[LOGO] Schedule of Investments
September 30, 2000 (unaudited) (continued)
================================================================================
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
------------------------------------------------------------------------------------------------------
Telecommunications - Other -- 11.4% (continued)
<S> <C> <C> <C>
KMC Telecom Holdings, Inc.:
805,000 CCC+ Sr. Discount Notes, step bond to yield
15.899% due 2/15/08 ............................ $ 326,025
590,000 CCC+ Sr. Notes, 13.500% due 5/15/09 ................... 410,050
Level 3 Communications, Inc.:
170,000 B Sr. Discount Notes, step bond to yield
12.875% due 3/15/10 ............................ 91,800
2,800,000/EUR/ B Sr. Notes, 11.250% due 3/15/10+ .................. 2,174,489
815,000 B+ McLeodUSA Inc., Sr. Notes, 8.125% due 2/15/09 ...... 707,013
870,000 B- MPOWER Communications, Sr. Notes,
13.000% due 4/1/10 ............................... 587,250
NEXTLINK Communications Inc., LLC/
NEXTLINK Capital, Inc.:
Sr. Discount Notes, step bond to yield:
1,240,000 B 12.064% due 6/1/09 ........................... 700,600
135,000 B 12.125% due 12/1/09 .......................... 70,875
Sr. Notes:
440,000 B 12.500% due 4/15/06 .......................... 432,300
310,000 B 10.750% due 6/1/09 ........................... 288,300
1,000,000 B- Primus Telecommunications Group, Sr. Notes,
11.375% due 8/1/04 ............................... 565,000
615,000 B- Tele1 Europe B.V., Sr. Notes, 13.000% due 5/15/09. 599,625
625,000 B+ Telewest Communication, Sr. Notes, step bond to yield
9.875% due 4/15/04 ............................... 473,306
320,000 B- USA Mobile Communication, Sr. Notes,
9.500% due 2/1/04 ................................ 238,400
VersaTel Telecom International N.V., Sr. Notes:
265,000 B- 13.250% due 5/15/08 .............................. 238,500
280,000/EUR/ B- 11.250% due 3/30/10+ ............................. 213,742
1,790,000 B- Viatel, Inc., Sr. Notes, 11.500% due 3/15/09 ....... 859,200
645,000 B+ Williams Communication Group, Inc., Sr. Notes,
11.875% due 8/1/10+ .............................. 615,975
1,200,000 B- World Access, Inc., Sr. Notes, Series B,
13.250% due 1/15/08 .............................. 870,000
----------
14,943,604
----------
Telephone - Cellular -- 9.4%
635,000 Caa1* AirGate PCS, Inc., Sr. Sub. Discount Notes,
step bond to yield 13.280% due 10/1/09 ........... 385,763
995,000 CCC+ Alamosa PCS Holdings, Inc., Guaranteed Sr. Discount
Notes, step bond to yield 12.723% due 2/15/10 .... 542,275
</TABLE>
See Notes to Financial Statements.
16
<PAGE>
[LOGO] Schedule of Investments
September 30, 2000 (unaudited) (continued)
================================================================================
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
------------------------------------------------------------------------------------------------------
Telephone - Cellular -- 9.4% (continued)
<S> <C> <C> <C>
700,000 B- Centennial Cellular Corp., Sr. Sub. Notes,
10.750% due 12/15/08 ............................. $ 687,750
750,000CAD Ba1* Clearnet Communications Inc., Sr. Discount Notes,
step bond to yield 10.400% due 5/15/08 ........... 393,792
Crown Castle International Corp.:
1,515,000 B Sr. Discount Notes, step bond to yield
11.059% due 5/15/11 ............................ 988,538
230,000 B Sr. Notes, 10.750% due 8/1/11. ................... 237,475
810,000 B3* Dobson/Sygnet Communications Inc., Sr. Notes,
12.250% due 12/15/08 ............................. 812,025
1,225,000CAD B- Microcell Telecommunications Inc., Sr. Discount Notes,
step bond to yield 11.756% due 6/1/09 ............ 624,875
1,200,000 B- Millicom International Cellular S.A., Sr. Discount
Notes, step bond to yield 15.414% due 6/1/06 ..... 1,038,000
Nextel Communications, Inc.:
445,000 B1* Sr. Notes, 9.375% due 11/15/09 .................. 436,100
930,000 B1* Sr. Redeemable Discount Notes, step bond to yield
10.837% due 9/15/07 ............................ 764,925
2,755,000 B1* Sr. Serial Redeemable Discount Notes,
step bond to yield 10.980% due 2/15/08 ......... 2,114,463
680,000 B- Spectrasite Holdings, Inc., Sr. Discount Notes,
step bond to yield 11.250% due 4/15/09 ......... 374,000
595,000 B3* Telecorp PCS Inc., Sr. Sub. Notes,
10.625% due 7/15/10+ ............................. 603,925
140,000 CCC+ TeleSystems International Wireless Inc., Sr. Discount
Notes, Series C, step bond to yield
17.204% due 11/1/07 .............................. 76,300
410,000 B3* Triton PCS, Inc., Sr. Discount Notes,
step bond to yield 11.666% due 5/1/08 ............ 309,550
VoiceStream Wireless Corp.:
354,615 B2* 10.375% due 11/15/09 ............................. 384,757
415,000 B2* Sr. Discount Notes, step bond to yield
11.875% due 11/15/09 .......................... 300,875
180,000 B2* Sr. Notes, 11.500% due 9/15/09 .................. 202,050
880,000 B+ Term Loan, 9.660% due 2/25/09 .................... 877,800
375,000 B- Winstar Communications, Inc., Sr. Discount Notes,
step bond to yield 15.033% due 4/15/10+ .......... 121,875
---------
12,277,113
---------
Textiles -- 0.4%
525,000 BB WestPoint Stevens Inc., Sr. Notes, 7.875%
due 6/15/05 ...................................... 456,750
---------
</TABLE>
See Notes to Financial Statements.
17
<PAGE>
<TABLE>
<CAPTION>
[LOGO] Schedule of Investments
September 30, 2000 (unaudited) (continued)
============================================================================================
Face
Amount++ Rating(a) Security Value
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Transportation - Marine -- 0.2%
320,000 B- Oglebay Norton Co., Sr. Sub. Notes,
10.000% due 2/1/09 ...........................$ 297,600
-----------
Unregulated Power Generation-- 4.0%
AES Corp., Sr. Sub. Notes:
1,130,000 Ba3* 10.250% due 7/15/06 .......................... 1,161,075
1,050,000 Ba1* 9.500% due 6/1/09 ............................ 1,073,625
890,000 Ba1* 9.375% due 9/15/10 ........................... 907,800
680,000 Ba2* AES Drax Energy Ltd., Secured Bonds,
11.500% due 8/30/10+ ......................... 722,500
1,350,000 BB+ Calpine Corp., Sr. Notes, 10.500% due 5/15/06.... 1,395,482
------------
5,260,482
Wholesale Distributors-- 0.3%
335,000 B2* Buhrmann US Inc., Sr. Sub. Notes,
12.250% due 11/1/09 .................................... 348,400
------------
TOTAL CORPORATE BONDS AND NOTES
(Cost-- $134,870,633) ..................................123,987,310
------------
Shares Security Value
-------------------------------------------------------------------------------------------
COMMON STOCK# -- 0.0%
Containers - Packaging -- 0.0%
84 SF Holdings Group+...................................... 3
------------
Telecommunications - Other -- 0.0%
3,771 World Access, Inc ...................................... 20,387
------------
TOTAL COMMON STOCK
(Cost-- $66,940) ....................................... 20,390
------------
WARRANTS# -- 0.3%
Broadcasting -- 0.0%
2,450 UIH Australia Pacific, Inc., Expire 5/15/06 ............ 36,750
------------
Cable Television -- 0.0%
180 Cable Satisfaction International, Expire 3/1/10 ........ 3,690
------------
Internet Services -- 0.3%
325 Cybernet Internet Services International, Inc.,
Expire 7/1/09+ ......................................... 2,438
1,625 Splitrock Services, Inc., Expire 7/15/08 ............... 220,391
2,550 WAM!NET Inc., Expire 3/1/05 ............................ 29,644
------------
252,473
------------
</TABLE>
See Notes to Financial Statements.
18
<PAGE>
<TABLE>
<CAPTION>
[LOGO] Schedule of Investments
September 30, 2000 (unaudited) (continued)
=====================================================================================================
Shares Security Value
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Printing/Forms -- 0.0%
335 Merrill Corp., Expire 5/1/09 ............................... $ 34
--------------
Telecommunications - Other -- 0.0%
7,130 Pagemart, Inc., Expire 12/31/03 ............................ 35,650
1,300 RSL Communications, Ltd., Expire 11/15/06 .................. 10,563
--------------
46,213
--------------
Telephone - Cellular -- 0.0%
665 AirGate PCS, Inc., Expire 10/1/09 .......................... 56,525
1,000 Iridium World Communications Ltd., Expire 7/15/05+ ......... 10
--------------
56,535
--------------
TOTAL WARRANTS
(Cost-- $271,343) .......................................... 395,695
--------------
Face
Amount Security Value
-----------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 4.5%
$ 5,805,000 Goldman, Sachs & Co., 6.480% due 10/2/00;
Proceeds at maturity-- $5,808,135; (Fully
collateralized by U.S. Treasury Notes and Bonds,
6.125% to 11.750% due 8/15/01 to 8/15/27;
Market value-- $5,921,108) (Cost-- $5,805,000).............. 5,805,000
--------------
TOTAL INVESTMENTS -- 100%
(Cost-- $141,013,916**) ......................................... $ 130,208,395
==============
--------------------
++ Face amount denominated in U.S. dollars unless otherwise indicated.
(a) All ratings are by Standard & Poor's Ratings Service, except for those
which are identified by an asterisk (*), are rated by Moody's Investors
Service, Inc.
+ Security is exempt from registration under Rule 144A of the Securities
Act of 1933. This security may be resold in transactions that are exempt
from registration, normally to qualified institutional buyers.
(b) Convertible bond exchangeable for 7,147 shares of common stock.
@ Security is segregated by Custodian for open purchase commitments.
(c) Convertible bond exchangeable for 22,097 shares of common stock.
# Non-income producing security.
** Aggregate cost for Federal income tax purposes is substantially the same.
Currency abbreviations used in this schedule:
---------------------------------------------
CAD -- Canadian Dollar GBP -- British Pound
DEM -- German Mark EUR -- Euro
</TABLE>
See page 20 for definitions of ratings.
See Notes to Financial Statements.
19
<PAGE>
[LOGO] Bond Ratings (unaudited)
================================================================================
The definitions of the applicable rating symbols are set forth below:
Standard & Poor's Ratings Service ("Standard & Poor's") -- Ratings from "A" to
"CCC" may be modified by the addition of a plus (+) or minus (-) sign to show
relative standings within the major rating categories.
A -- Bonds rated "A" have a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
bonds in higher rated 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 -- Bonds rated BB, B and CCC are regarded, on balance, as
CCC 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 "Aa" to "Caa," where 1 is the highest
and 3 the lowest ranking within its generic category.
Aa -- Bonds rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are
generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large
in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which
make the long-term risks appear somewhat larger than in Aaa
securities.
Baa -- Bonds rated "Baa" are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact
have speculative characteristics as well.
Ba -- Bonds rated "Ba" are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection
of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over
the future. Uncertainty of position characterizes bonds in this
class.
B -- Bonds rated "B" generally lack characteristics of desirable
investments. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period
of time may be small.
Caa -- Bonds rated "Caa" are of poor standing. Such issues may be in
default, or there may be present elements of danger may exist
with respect to principal or interest.
NR -- Indicates that the bond is not rated by either Standard & Poor's
or Moody's.
20
<PAGE>
[LOGO] Statement of Assets and Liabilities
September 30, 2000 (unaudited)
================================================================================
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments, at value (Cost-- $141,013,916) .............................. $130,208,395
Cash ...................................................................... 16,651
Dividends and interest receivable ......................................... 3,104,793
Receivable for securities sold ............................................ 885,750
Receivable for open forward foreign currency contracts (Note 12) .......... 250,011
-------------
Total Assets .............................................................. 134,465,600
-------------
LIABILITIES:
Payable for securities purchased .......................................... 1,472,027
Dividends payable ......................................................... 873,129
Investment advisory fees payable .......................................... 84,054
Administration fees payable ............................................... 33,621
Payable for open forward foreign currency contracts (Note 12) ............. 13,660
Accrued expenses .......................................................... 131,827
-------------
Total Liabilities ......................................................... 2,608,318
-------------
Total Net Assets ............................................................ $131,857,282
=============
NET ASSETS:
Par value of capital shares ............................................... $ 161,691
Capital paid in excess of par value ....................................... 108,798,450
Auction Rate Cumulative Preferred Shares (Note 7) ........................ 60,000,000
Overdistributed net investment income ..................................... (550,036)
Accumulated net realized loss from security transactions .................. (25,978,544)
Net unrealized depreciation of investments and
foreign currencies ...................................................... (10,574,279)
-------------
Total Net Assets ............................................................ $131,857,282
=============
<CAPTION>
NET ASSET VALUE, COMPRISED OF: Per Share
<S> <C> <C>
Auction Rate Cumulative Preferred Shares
redemption value ....................................... $25,000.00$ $ 60,000,000
Undeclared dividends on Auction Rate Cumulative
Preferred Shares ....................................... 14.07 33,758
----------- ------------
Total allocated to Auction Rate Cumulative
Preferred Shares ....................................... $25,014.07 60,033,758
=========== ------------
Common Stock (16,169,064 shares outstanding) ............. $4.44 71,823,524
=========== ------------
Total Net Assets ......................................... $131,857,282
============
</TABLE>
See Notes to Financial Statements.
21
<PAGE>
[LOGO] Statement of Operations
For the Six Months Ended
September 30, 2000 (unaudited)
================================================================================
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C>
Interest .................................................................. $ 7,683,819
Dividends ................................................................. 58,725
Less: Interest expense (Note 8) .......................................... (74,617)
------------
Total Investment Income ................................................... 7,667,927
------------
EXPENSES:
Investment advisory fees (Note 2) ........................................ 340,691
Administration fees (Note 2) .............................................. 136,276
Shareholder communications ................................................ 86,248
Audit and legal ........................................................... 44,274
Shareholder and system servicing fees ..................................... 23,141
Directors' fees ........................................................... 16,448
Listing fees .............................................................. 14,138
Pricing service fees ...................................................... 13,394
Custody ................................................................... 7,185
Other ..................................................................... 18,391
------------
Total Expenses ............................................................ 700,186
------------
Net Investment Income ....................................................... 6,967,741
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCIES (NOTES 3 AND 12):
Realized Gain (Loss) From:
Security transactions (excluding short-term securities) ................. (6,397,771)
Foreign currency transactions ........................................... 363,197
------------
Net Realized Loss ......................................................... (6,034,574)
------------
Change in Net Unrealized Depreciation of
Investments and Foreign Currencies:
Beginning of period ..................................................... (8,315,204)
End of period ........................................................... (10,574,279)
------------
Increase in Net Unrealized Depreciation ................................... (2,259,075)
------------
Net Loss on Investments ..................................................... (8,293,649)
------------
Decrease in Net Assets From Operations ...................................... $ (1,325,908)
============
</TABLE>
See Notes to Financial Statements.
22
<PAGE>
[LOGO] Statements of Changes in Net Assets
For the Six Months Ended
September 30, 2000 (unaudited)
and the Year Ended March 31, 2000
================================================================================
<TABLE>
<CAPTION>
September 30 March 31
------------- -------------
OPERATIONS:
<S> <C> <C>
Net investment income ................................ $ 6,967,741 $ 12,243,787
Net realized loss .................................... (6,034,574) (8,989,043)
Increase in net unrealized depreciation .............. (2,259,075) (5,686,535)
------------- -------------
Decrease in Net Assets From Operations ............... (1,325,908) (2,431,791)
------------- -------------
DISTRIBUTIONS PAID TO:
7.00% Cumulative Preferred Stock
Shareholders From Net Investment Income ............ (713,417) (2,100,000)
Auction Rate Cumulative Preferred Shares
Shareholders From Net Investment Income ............ (1,827,888) --
Common Stock Shareholders From Net
Investment Income .................................. (5,201,608) (10,351,025)
------------- -------------
Decrease in Net Assets From
Distributions to Shareholders ...................... (7,742,913) (12,451,025)
------------- -------------
FUND SHARE TRANSACTIONS (NOTE 9):
Issuance of Auction Rate Cumulative
Preferred Shares (net of underwriting
commissions and expenses of $865,000) .............. 59,135,000 --
Redemption of 7.00% Cumulative
Preferred Stock .................................... (30,000,000) --
Net asset value of shares issued for
reinvestment of dividends .......................... 929,925 1,561,796
------------- -------------
Increase in Net Assets From
Fund Share Transactions ............................ 30,064,925 1,561,796
------------- -------------
Increase (Decrease) in Net Assets ...................... 20,996,104 (13,321,020)
NET ASSETS:
Beginning of period .................................. 110,861,178 124,182,198
------------- -------------
End of period* ...................................... $ 131,857,282 $ 110,861,178
============= =============
* Includes overdistributed
net investment income of: .......................... $ (550,036) $ (138,061)
============= =============
</TABLE>
See Notes to Financial Statements.
23
<PAGE>
[LOGO] Statement of Cash Flows
For the Six Months Ended
September 30, 2000 (unaudited)
================================================================================
<TABLE>
<CAPTION>
Cash Flows Provided by Operating
and Investing Activities:
<S> <C>
Interest and dividends received ........................... $ 6,885,963
Operating expenses paid ................................... (731,797)
Purchases of short-term securities, net ................... 12,343,000
Purchases of long-term securities ......................... (56,868,939)
Proceeds from disposition of long-term securities ......... 45,683,026
------------
Net Cash Flows Provided By Operating
and Investing Activities ................................ $ 7,311,253
------------
Cash Flows Used By Financing Activities:
Redemption of Bank Loan ................................... (30,000,000)
Redemption of 7.00% Cumulative Preferred Stock ............ (30,000,000)
Issuance of Auction Rate Cumulative Preferred Shares ...... 60,000,000
Cash dividends paid on 7.00% Cumulative
Preferred Stock ......................................... (713,417)
Cash dividends paid on Auction Rate Cumulative
Preferred Shares ........................................ (1,827,888)
Underwriting and issuance expenses related to
Auction Rate Cumulative Preferred Shares ................ (865,000)
Interest payments on bank loans ........................... (256,406)
Cash dividends paid on Common Stock* ..................... (3,632,403)
------------
Net Cash Flows Used By Financing Activities ............... (7,295,114)
------------
Net Increase in Cash ......................................... 16,139
Cash, Beginning of Period .................................... 512
------------
Cash, End of Period .......................................... $ 16,651
============
RECONCILIATION OF DECREASE IN NET ASSETS
FROM OPERATIONS TO NET CASH FLOWS PROVIDED
BY OPERATING AND INVESTING ACTIVITIES:
Decrease in Net Assets From Operations ....................... $ (1,325,908)
Amortization of discount on securities .................... (1,391,367)
Decrease in investments ................................... 9,879,076
Increase in receivable for securities sold ................ (510,694)
Increase in payable for securities purchased .............. 453,215
Decrease in dividends and interest receivable ............. 24,416
Decrease in receivable for open forward foreign
currency contracts ...................................... 139,509
Interest expense .......................................... 74,617
Decrease in accrued expenses .............................. (31,611)
------------
Total Adjustments ......................................... 8,637,161
------------
Net Cash Flows Provided By Operating
and Investing Activities .................................. $ 7,311,253
============
</TABLE>
* Exclusive of dividend reinvestment of $929,925.
See Notes to Financial Statements.
24
<PAGE>
Notes to Financial Statements
(unaudited)
================================================================================
1. Significant Accounting Policies
Zenix Income Fund Inc. ("Fund"), a Maryland corporation, is registered
under the Investment Company Act of 1940, as amended, as a diversified,
closed-end management investment company.
The significant accounting policies followed by the Fund are: (a) security
transactions are accounted for on trade date; (b) securities traded in the
over-the-counter market, including listed securities for which the primary
market is believed to be over-the-counter, are valued at the mean between the
most recently quoted bid and ask prices provided by the principal market makers;
any security for which the primary market is an exchange is valued at the last
sale price on such exchange on the day of valuation or, if there was no sale on
such day, at the last bid price quoted. Securities and assets for which market
quotations are not readily available are valued at fair value as determined in
good faith by or under the direction of the Board of Directors of the Fund
including references to valuations of other securities which are considered
comparable in quality, interest rate and maturity; (c) securities maturing
within 60 days are valued at cost plus accreted discount, or minus amortized
premium, which approximates value; (d) the accounting records of the Fund are
maintained in U.S. dollars. All assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the rate of exchange of
such currencies against U.S. dollars on the date of valuation. Purchases and
sales of securities, and income and expenses are translated at the rate of
exchange quoted on the respective date that such transactions are recorded.
Differences between income or expense amounts recorded and collected or paid are
adjusted when reported by the custodian bank; (e) dividend income is recorded on
the ex-dividend date and interest income is recorded on an accrual basis; (f)
gains or losses on the sale of securities are calculated by using the specific
identification method; (g) dividends and distributions to shareholders are
recorded monthly by the Fund on the ex-dividend date for the shareholders of
Common Stock based on net investment income. The holders of the Auction Rate
Cumulative Preferred Shares shall be entitled to receive dividends in accordance
with an auction that will normally be held weekly
25
<PAGE>
Notes to Financial Statements
(unaudited) (continued)
================================================================================
and out of funds legally available to shareholders; (h) the net asset value of
the Fund's Common Stock is determined no less frequently than the close of
business on the Fund's last business day of each week (generally Friday). It is
determined by dividing the value of the net assets available to Common Stock by
the total number of shares of Common Stock outstanding. For the purpose of
determining the net asset value per share of the Common Stock, the value of the
Fund's net assets shall be deemed to equal the value of the Fund's assets less
(1) the Fund's liabilities, (2) the aggregate liquidation value (i.e., $25,000
per outstanding share) of the Auction Rate Cumulative Preferred Shares and (3)
accumulated and unpaid dividends on the outstanding Auction Rate Cumulative
Preferred Shares 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"), a subsidiary of Salomon Smith Barney
Holdings Inc. ("SSBH"), which, in turn, is a subsidiary of
26
<PAGE>
Notes to Financial Statements
(unaudited) (continued)
================================================================================
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. This fee is calculated daily and paid monthly.
SSBC also acts as the Fund's administrator for which the Fund pays a fee
calculated at an annual rate of 0.20% of the average daily net assets. This fee
is calculated daily and paid monthly.
All officers and one Director of the Fund are employees of Salomon Smith
Barney Inc. ("SSB"), another subsidiary of SSBH.
3. Investments
During the six months ended September 30, 2000, the aggregate cost of
purchases and proceeds from sales of investments (including maturities, but
excluding short-term securities) were as follows:
================================================================================
Purchases $ 57,321,229
--------------------------------------------------------------------------------
Sales 46,191,233
================================================================================
At September 30, 2000, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
================================================================================
Gross unrealized appreciation $ 3,926,963
Gross unrealized depreciation (14,732,484)
--------------------------------------------------------------------------------
Net unrealized depreciation $ (10,805,521)
================================================================================
4. Cash Flow Information
The Fund invests in securities and distributes dividends from net
investment income and net realized gains. These activities are reported in the
Statements of Changes in Net Assets. Information on cash payments is presented
in the Statement of Cash Flows. Accounting practices that do not affect
reporting activities on a cash basis include unrealized gains or losses on
investment securities.
27
<PAGE>
Notes to Financial Statements
(unaudited) (continued)
================================================================================
5. Repurchase Agreements
The Fund purchases (and its custodian takes possession of) U.S. government
securities from banks and securities dealers subject to agreements to resell the
securities to the sellers at a future date (generally, the next business day) at
an agreed upon higher repurchase price. The Fund requires continual maintenance
of the market value of the collateral in amounts at least equal to the
repurchase price.
6. 7.00% Cumulative 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 dividends of $713,417.
7. Auction Rate Cumulative Preferred Shares
On April 14, 2000, the Fund issued 2,400 shares of Auction Rate Cumulative
Preferred Shares ("ARCPS"). The underwriting discount of $600,000 and offering
expenses of $265,000 associated with the ARCPS offering were recorded as a
reduction of the capital paid in excess of par value of common stock. The
ARCPS's dividends are cumulative at a rate determined at an auction, and the
dividend period will typically be seven days. Dividend rates ranged from 6.00%
to 6.55% for the period ended September 30, 2000.
The ARCPS are redeemable, under certain conditions by the Fund, or subject
to mandatory redemption (if the Fund is in default of certain coverage
requirements) at a redemption price equal to $25,000 per share plus accumulated
and unpaid dividends. The ARCPS have a liquidation preference of $25,000 per
share plus accumulated and unpaid dividends. The Fund is required to maintain
certain asset coverages with respect to the ARCPS under the Investment Company
Act of 1940.
SSB also currently acts as a broker/dealer in connection with the auction
of ARCPS. After each auction, the auction agent will pay to each broker/dealer,
from monies the Fund provides, a participation fee at the annual rate of 0.25%
of the purchase price of ARCPS that the broker/dealer places at auction. For the
six months ended September 30, 2000, SSB earned approximately $68,000 as the
broker/dealer.
28
<PAGE>
Notes to Financial Statements
(unaudited) (continued)
8. Bank Loan
For the six months ended September 30, 2000, interest expense related to a
bank loan from PNC Bank totaled $74,617, the average dollar amount of the
borrowing was $30,000,000 and the average interest rate was 6.40%. Interest on
the loan was calculated at LIBOR plus 40 basis points.
On April 14, 2000, the Fund's $35,000,000 line of credit with PNC Bank was
extinguished.
9. Common Stock
At September 30, 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:
Six Months Ended Year Ended
September 30, 2000 March 31, 2000
------------------ ------------------
Shares Amount Shares Amount
================================================================================
Shares issued on reinvestment 197,780 $929,925 281,150 $1,561,796
================================================================================
10. 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.
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
================================================================================
29
<PAGE>
Notes to Financial Statements
(unaudited) (continued)
================================================================================
11. Asset Maintenance Requirement
The Fund is required to maintain certain asset coverages with respect to
the ARCPS 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 ARCPS in order to meet these requirements. Additionally, failure to meet the
foregoing asset requirements would restrict the Fund's ability to pay dividends.
12. Forward Foreign Currency Contracts
At September 30, 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 gain (loss) on the contracts is
reflected as follows:
Local Market Settlement Unrealized
Foreign Currency Currency Value Date Gain (Loss)
================================================================================
To Buy:
British Pound 43,650 $ 64,640 12/22/00 $ 937
Euro 405,932 359,616 12/15/00 (13,660)
--------------------------------------------------------------------------------
(12,723)
--------------------------------------------------------------------------------
To Sell:
British Pound 1,034,313 1,531,687 12/22/00 23,356
Canadian Dollar 1,332,656 887,235 12/8/00 17,161
Euro 3,000,604 2,658,244 12/15/00 208,557
--------------------------------------------------------------------------------
249,074
--------------------------------------------------------------------------------
Net Unrealized Gain on Open Forward
Foreign Currency Contracts $ 236,351
================================================================================
30
<PAGE>
[LOGO] Financial Highlights
================================================================================
Contained below is per share operating performance data for a share of common
stock outstanding, total return and ratios to average net assets based on Common
Shares outstanding. This information has been derived from information provided
in the financial statements and market price data for the Fund's shares.
For a share of common stock outstanding throughout each year ended March 31,
except where noted:
<TABLE>
<CAPTION>
2000(1) 2000 1999
---------- ---------- ----------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period ........................ $ 5.02 $ 5.96 $ 6.96
-------- ------- -------
Income (Loss) From Operations:
Net investment income ............................... 0.46 0.78 0.82
Net realized and unrealized loss .................... (0.55) (0.94) (0.97)
-------- ------- -------
Total Loss From Operations .......................... (0.09) (0.16) (0.15)
-------- ------- -------
Underwriting commission and expenses of issuance
of Auction Rate Cumulative Preferred Shares ......... (0.05) -- --
-------- ------- -------
Distributions Paid To:
7.00% Cumulative Preferred Stock Shareholders From
Net Investment Income ............................ (0.04) (0.13) (0.14)
Auction Rate Cumulative Preferred Shares Shareholders
From Net Investment Income ....................... (0.12) -- --
Change in undeclared dividends on Auction Rate
Cumulative Preferred Shares ...................... 0.04 -- --
Common Stock Shareholders From
Net Investment Income ............................ (0.32) (0.65) (0.69)
Common Stock Shareholders From Capital .............. -- -- (0.02)
-------- ------- -------
Total Distributions ................................. (0.44) (0.78) (0.85)
-------- ------- -------
Net Asset Value, End of Period .............................. $ 4.44 $ 5.02 $ 5.96
======== ======= =======
Market Value, End of Period ................................. $ 5.00 $ 4.44 $ 5.88
======== ======= =======
Total Return, Based on Market Value* ........................ 20.55%++ (14.28)% (12.53)%
======== ======= =======
Total Return, Based on Net Asset Value* ..................... (5.36)%++ (4.43)% (4.38)%
======== ======= =======
Net Assets**, End of Period (000's) ......................... $ 71,824 $80,234 $93,561
======== ======= =======
Ratios to Average Net Assets Based on
Common Shares Outstanding***:
Net Investment Income ............................... 18.62%+ 13.90% 12.99%
Interest Expense .................................... 0.20+ 2.04 1.81
Other Expenses ...................................... 1.87+ 1.69 1.53
Portfolio Turnover Rate ..................................... 37% 79% 91%
</TABLE>
-----------------
(1) For the six months ended September 30, 2000 (unaudited).
* 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.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
31
<PAGE>
[LOGO] 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.
<PAGE>
Other Financial Information
[LOGO] (unaudited)
================================================================================
The table below sets out information with respect to Auction Rate
Cumulative Preferred Shares, 7.00% Cumulative Preferred Stock and Bank Credit
Facility:
<TABLE>
<CAPTION>
2000(1) 2000 1999 1998 1997 1996
--------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Auction Rate Cumulative
Preferred Shares(2)
Total Amount
Outstanding (000s) $ 60,000 -- -- -- -- --
Asset Coverage Per Share 54,926 -- -- -- -- --
Involuntary Liquidating
Preference Per Share 25,000 -- -- -- -- --
Average Market Value
Per Share(3) 25,000 -- -- -- -- --
7.00% Cumulative
Preferred Stock(4)
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 -- 1,000 1,000 1,000 1,000 1,000
Average Market Value
Per Share(3) -- 1,000 1,000 1,000 1,000 1,000
PNC Bank Credit Facility(5)
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
</TABLE>
--------------
(1) As of September 30, 2000.
(2) On April 14, 2000, the Fund issued 2,400 shares of Auction Rate Cumulative
Preferred Shares at $25,000 a share.
(3) Excludes accrued interest or accumulated undeclared dividends.
(4) On April 14, 2000, the Fund redeemed in full its shares of 7.00% Cumulative
Preferred Stock.
(5) On April 14, 2000, the Fund's $35,000,000 line of credit with PNC Bank was
extinguished.
33
<PAGE>
Quarterly Results of Operations
[LOGO] (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, 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)
June 30, 2000 3,791,006 0.26 3,430,599 0.24 (2,584,762) (0.20) 845,837 0.04
September 30, 2000 3,876,921 0.24 3,537,142 0.22 (5,708,887) (0.35) (2,171,745) (0.13)
</TABLE>
* Per share of Common Stock.
34
<PAGE>
[LOGO] Financial Data (unaudited)
================================================================================
For a share of common stock outstanding throughout each period:
<TABLE>
<CAPTION>
Dividend
Record Payable NYSE Net Asset Dividend Reinvestment
Date Date Closing Price Value* Paid Price
============================================================================================
<S> <C> <C> <C> <C> <C>
4/21/98 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
4/25/00 4/28/00 4.563 4.88 0.054 4.661
5/23/00 5/26/00 4.563 4.68 0.054 4.586
6/27/00 6/30/00 4.750 4.80 0.054 4.714
7/21/00 7/28/00 5.000 4.80 0.054 4.704
8/18/00 8/25/00 5.063 4.65 0.054 4.809
9/22/00 9/29/00 5.063 4.52 0.054 4.750
============================================================================================
</TABLE>
* As of record date
35
<PAGE>
Dividend Reinvestment Plan
(unaudited)
================================================================================
Under the Fund's Dividend Reinvestment Plan (Plan), a shareholder whose
shares of Common Stock are registered in his own name will have all
distributions from the Fund reinvested automatically by PFPC Global Fund
Services ("PFPC") as purchasing agent under the Plan, unless the shareholder
elects to receive cash. Distributions with respect to shares registered in the
name of a broker-dealer or other nominee (that is, in street name) will be
reinvested by the broker or nominee in additional shares under the Plan, unless
the service is not provided by the broker or nominee or the shareholder elects
to receive distributions in cash. Investors who own common stock registered in
street name should consult their broker-dealers for details regarding
reinvestment. All distributions to shareholders who do not participate in the
Plan will be paid by check mailed directly to the record holder by or under the
direction of PFPC as dividend paying agent.
The number of shares of Common Stock distributed to participants in the
Plan in lieu of a cash dividend is determined in the following manner. When the
market price of the common stock is equal to or exceeds 98% of the net asset
value per share of the Common Stock on the determination date (generally, the
record date for the distribution), Plan participants will be issued shares of
Common Stock by the Fund at a price equal to the greater of 98% of net asset
value or 95% of the market price of the Common Stock.
If the market price of the Common Stock is less than 98% of the net asset
value of the Common Stock at the time of valuation (which is the close of
business on the determination date), or if the Fund declares a dividend or
capital gains distribution payable only in cash, PFPC will buy common stock in
the open market, on the NYSE or elsewhere, for the participants' accounts. If
following the commencement of the purchases and before PFPC has completed its
purchases, the market price exceeds the net asset value of the Common Stock as
of the valuation time, PFPC will attempt to terminate purchases in the open
market and cause the Fund to issue the remaining portion of the dividend or
distribution in shares at a price equal to the greater of (a) 98% of net asset
value as of the valuation time or (b) 95% of the then current market price. In
this case, the number of shares received by a Plan
36
<PAGE>
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
37
<PAGE>
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 (800) 331-1710.
----------------------
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940, as amended, that from time to time the Fund may purchase
shares of its common stock in the open market.
38
<PAGE>
DIRECTORS
Allan J. Bloostein
Martin Brody
Dwight B. Crane
Robert A. Frankel
William R. Hutchinson
Heath B. McLendon
Charles F. Barber, Emeritus
OFFICERS
Heath B. McLendon
Chairman of the Board
Lewis E. Daidone
Senior Vice President
and Treasurer
John C. Bianchi
Vice President and
Investment Officer
Paul A. Brook
Controller
Christina T. Sydor
Secretary
This report is intended only for the shareholders of the
ZENIX Income Fund Inc.
It is not a Prospectus, circular or representation
intended for use in the purchase or sale of shares of
the Fund or of any securities mentioned in the report.
FD01206 11/00
