<PAGE>
----------
Z E N I X
INCOME
FUND INC.
---
The fund name is printed in the upper left-head corner. A picture of the New
York Stock Exchange building is shown on half the cover diagonally. A circle
showing the "Z" and "F" from the fund name is run together and is centered.
ANNUAL REPORT
MARCH 31, 1994
<PAGE>
- -------------------------
- ------------------------
ZENIX INCOME FUND INC.
[LOGO]
March 31, 1994
<TABLE>
<S> <C>
DEAR
SHAREHOLDER: We are pleased to provide the Annual Report for Zenix
Income Fund Inc. for the fiscal year ended March 31,
1994. Over the past 12 months the Fund paid dividends
totaling $0.82 per share, equivalent to an annualized
distribution rate of 12.13% based on the March 31,
1994 net asset value of $6.76 per share. The Fund
generated a total return of 10.02% for the past 12
months. This surpassed the Lehman Brothers Treasury
Index of 2.67% for all treasury maturities and 1.46%
for the Standard & Poor's Daily Price Index of 500
Common Stocks (S&P 500). The S&P 500 is composed of
500 widely-held common stocks listed on the New York
Stock Exchange and American Stock Exchange.
Our primary objective is to deliver a consistently
high level of current income with total return our
secondary objective. To achieve these goals, we use
the consistent and disciplined strategy of investing
primarily in better quality, high yielding corporate
bonds that are likely to receive an upgrade in credit
rating over the next one to three years. We have also
selectively added attractively valued convertible
bond, preferred stock and common stock to the
portfolio to further enhance total return. By
emphasizing the improving credits in the high yield
market we hope to generate not only attractive
current dividend yields for the shareholder, but
capital appreciation as well. The Fund does not
attempt to maximize yield regardless of credit risk
but rather to provide a competitive dividend yield.
Shown in the following table are relevant statistics
on the Fund's net asset value, market share price and
dividend history over the past fiscal year.
</TABLE>
<PAGE>
--------------------------------------------------------------------
FINANCIAL DATA PER SHARE OF COMMON STOCK
<TABLE>
<CAPTION>
INTEREST RATE
ON SENIOR
NYSE NET DIVIDEND MONEY MARKET
CLOSING ASSET DIVIDEND REINVESTMENT NOTES DUE
PRICE VALUE PAID PRICE 1995
<S> <C> <C> <C> <C> <C>
------- ----- -------- ------------ ------------
April 30, 1993 $7.500 $6.83 $.0680 $7.13 3.130%
May 31, 1993 7.375 6.92 .0680 7.13 3.129
June 30, 1993 7.500 7.11 .0680 7.13 3.250
July 31, 1993 7.875 7.12 .0680 7.24 3.179
August 31, 1993 7.625 7.12 .0680 7.36 3.109
September 30, 1993 7.500 7.04 .0680 7.13 3.109
October 31, 1993 7.500 7.17 .0680 7.24 3.090
November 30, 1993 7.625 7.17 .0680 7.24 3.060
December 31, 1993 7.750 7.21 .0680 7.24 3.050
January 31, 1994 7.750 7.36 .0680 7.36 3.098
February 28, 1994 7.750 7.26 .0680 7.36 3.349
March 31, 1994 7.125 6.76 .0680 7.36 3.600
</TABLE>
The reinvestment price is the greater of 98% of the net asset value ("NAV")
per
share or 95% of the current market price on valuation date if shares are
issued.
If the market price is lower than NAV, shares are purchased in the market.
2
--------------------------------------------------------------------
<PAGE>
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MARKET AND ECONOMIC OVERVIEW
<TABLE>
<S> <C>
The high yield market generated relatively strong
performance over the past 12 months despite the
general rise in interest rates in the fourth quarter
of 1993 and so far in early 1994. The first quarter
of 1994 was clearly the most challenging for
fixed-income investors with interest rates rising and
bond prices deteriorating for the first time in
several quarters. While the strengthening economic
recovery continued to benefit the corporate sector of
the economy, especially the more leveraged high yield
companies, the financial markets -- including the
high yield sector -- were reacting to the shift in
Federal Reserve Board policy which resulted in higher
short-term and long-term interest rates. We believe
that after a strong fourth quarter, the economy will
settle into a moderate growth pattern with only a
modest bias for higher inflation. Nevertheless, we
believe the pervasive decline in interest rates has
ended as the Federal Reserve continues to shift to a
more restrictive monetary policy. The Federal Reserve
will most likely continue to raise short-term rates
during 1994 to forestall any potential threat of
higher inflation from the strengthening economy. This
shift towards higher interest rates will make
fixed-income investing more challenging.
As we mentioned earlier, the Fund generated
reasonably strong results in the past 12 months with
a total return of 10.02%. The first quarter results
were noticeably weaker. While the Fund's leveraged
structure clearly benefited it as rates declined in
1993, it will tend to accentuate downside price
deterioration during market corrections. Consequent-
ly, we are trying to manage the portfolio more
conservatively by emphasizing the stronger companies
and shorter maturity bonds that are less sensitive to
rising interest rates. We intentionally did not chase
the riskier lower tier (CCC-rated) issues which
outperformed in 1993's overheated environment. As we
have mentioned in previous commentaries, we tend to
avoid these lower tier issues because of their
</TABLE>
3
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<PAGE>
--------------------------------------------------------------------
<TABLE>
<S> <C>
higher default risk and greater price fluctuations.
Instead, we focus on better quality issues which
carry ratings of B or higher. We try to emphasize
improving credits in the portfolio that are showing
increased potential for credit rating upgrades.
Consequently, our net asset value deterioration in
the first quarter of 1994 was not the result of
credit problems but instead reflected market
volatility. There were no defaults in the portfolio
in the past 12 months.
We continue to emphasize the more economically-sensi-
tive companies that are benefiting from the improving
economy. This would include such industries as
automobile manufacturing and related suppliers,
general manufacturing, residential home builders,
paper and forest products, containers,
transportation, and metals and mining, especially
steel producers. These industries continue to
experience improving sales and profitability in
reaction to the strengthening economic recovery. We
will also continue to maintain an intermediate
average maturity on the portfolio, ranging between
five to seven years. We believe this maturity segment
of the bond market offers the best risk/reward
relationship.
SUMMARY THOUGHTS
We continue to believe that returns in the financial
markets will be lower than in previous years as
interest rates gravitate higher. Our goal is to limit
downside price action while generating the most
attractive current yield attainable without incurring
undue credit risk. In this harsher environment, we
believe this more defensive strategy will generate
superior results.
The stock price of the Fund is reported in most daily
newspapers in the listings for securities traded on
the New York Stock Exchange under the abbreviation
"ZenixFd." Its stock symbol is "ZIF." The weekly
closing price as well as the net asset value per
share are reported in BARRON'S and
</TABLE>
4
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<PAGE>
--------------------------------------------------------------------
<TABLE>
<S> <C>
the Monday edition of THE WALL STREET JOURNAL.
If you have any questions or comments about your
investment in the Fund, please contact The
Shareholder Services Group, Inc. at (800)
331-1710. We appreciate your past support and
look forward to satisfying your financial needs
in what should prove to be a more challenging
environment.
SINCERELY,
</TABLE>
<TABLE>
<S> <C>
Heath B. McLendon John C. Bianchi
Chairman of the Board Vice President and
Investment Officer
</TABLE>
May 11, 1994
5
--------------------------------------------------------------------
<PAGE>
Portfolio of
Investments
[LOGO] March 31,
1994
- ------------------------------------------------------------------------------
- --
<TABLE>
<CAPTION>
FACE
VALUE
VALUE (NOTE
1)
- ------------------------------------------------------------------------------
- --
<C> <S> <C>
CORPORATE BONDS AND NOTES--108.3%
- --------------------------------------------
BUILDING AND CONSTRUCTION--12.2%
American Standard Inc.:
$ 3,850,000 Sr. Deb.,
11.375% due 05/15/2004............................. $
4,081,000
1,300,000 Sr. Sub. Discount, Step up Bond due 06/01/1998,
10.500% due 06/01/2005.............................
793,000
1,550,000 Greystone Homes Inc., Guaranteeed Sr. Sub. Note,
10.750% due 03/01/2004**...........................
1,546,125
Hovnainan K. Enterprises Inc.:
1,100,000 Sr. Sub. Notes,
9.750% due 06/01/2005..............................
1,089,000
1,300,000 Guaranteed Note,
11.250% due 04/15/2002.............................
1,420,250
875,000 Kaufman & Broad Home Corporation, Sr. Sub. Note,
9.375% due 05/01/2003..............................
860,781
900,000 Miles Homes Services Unit, Sr. Note, 12.000% due
04/01/2001.........................................
900,000
1,475,000 UDC Homes, Sr. Notes, 11.750% due 04/30/2003.......
1,511,875
2,050,000 US Home Corporation, Sr. Note, 9.750% due
06/15/2003.........................................
2,044,875
<CAPTION>
FACE
VALUE
VALUE (NOTE
1)
- ------------------------------------------------------------------------------
- --
<C> <S> <C>
BUILDING AND CONSTRUCTION--(CONTINUED)
$ 200,000 Webb Del E, Sr. Sub. Note, 9.000% due 02/15/2006... $
193,500
-------
- -----
14,440,406
-------
- -----
HOTEL, CASINO AND GAMING--11.4%
1,300,000 Bally's Park Place Funding Inc., 1st Mortgage,
11.875% due 08/15/1999.............................
1,384,500
1,250,000 Empress River Casino, Sr. Note,
10.750% due 04/01/2002.............................
1,250,000
1,475,000 GNF Corporation,
Guaranteed 1st Mortgage Note,
10.625% due 04/01/2003.............................
1,357,000
1,850,000 Lady Luck Gaming Corporation, GTD
Financial Guaranteed 1st Mortgage Note,
10.500% due 03/01/2001**...........................
1,859,250
890,000 Santa Fe Hotel Inc., Unit Guaranteed,
11.000% due 12/15/2000.............................
912,250
775,000 Showboat Inc., Guaranteed 1st Mortgage,
9.250% due 05/01/2008..............................
728,500
1,275,000 Station Casinos Inc., Sr. Sub. Note,
9.625% due 06/01/2003..............................
1,275,000
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
Portfolio of Investments
(Continued)
[LOGO] March 31,
1994
- ------------------------------------------------------------------------------
- --
<TABLE>
<CAPTION>
FACE
VALUE
VALUE (NOTE
1)
- ------------------------------------------------------------------------------
- --
<C> <S> <C>
CORPORATE BONDS AND NOTES--(CONTINUED)
- -------------------------------------------------
HOTEL, CASINO AND GAMING--(CONTINUED)
$ 1,825,000 Trump Plaza Funding Inc., 1st. Mortgage Note,
10.875% due 06/15/2001............................. $
1,697,250
3,006,000 Trump Taj Mahal Fund, Unit Building 1 Management,
(Payment-In-Kind),
11.350% due 11/15/1999.............................
2,990,970
-------
- -----
13,454,720
-------
- -----
PACKAGING AND CONTAINERS--8.7%
2,805,000 Container Corporation of America, Sr. Sub. Note,
13.500% due 12/01/1999.............................
3,099,525
1,275,000 Gaylord Container Corporation,
11.50% due 05/15/2001..............................
1,292,531
725,000 Silgan Holdings Inc., Sr. Disc. Deb., Step up Bond
due 06/15/1996,
13.250% due 12/15/2002.............................
570,031
1,450,000 Stone Container Corporation, Sr. Note, 9.875% due
02/01/2001.........................................
1,341,250
725,000 Sweetheart Cup Inc., Sr. Sub. Note,
10.500% due 09/01/2003.............................
732,250
2,825,000 United States Can Company, Sr. Sub. Note, 13.500%
due 01/15/2002.....................................
3,248,750
-------
- -----
10,284,337
-------
- -----
<CAPTION>
FACE
VALUE
VALUE (NOTE
1)
- ------------------------------------------------------------------------------
- --
<C> <S> <C>
PAPER AND FOREST--7.4%
Domtar Inc.,
Sr. Notes:
$ 975,000 12.000% due 04/15/2001............................. $
1,053,000
Deb.,
1,000,000 11.250% due 09/15/2017.............................
1,010,000
875,000 Fort Howard Corporation, Sr. Sub. Deb. 9.000% due
02/01/2006.........................................
799,531
650,000 Repap Wisconsin Inc., 2nd Priority,
Sr. Note,
9.875% due 05/01/2006..............................
624,000
Riverwood International Corporation, Sr. Sub. Note,
809,000 11.250% due 06/15/2002.............................
865,630
1,440,000 11.250% due 06/15/2002.............................
1,549,800
2,950,000 Stone Consolidated Corporation, Sr. Secured Note,
10.250% due 12/15/2000.............................
2,802,500
-------
- -----
8,704,461
-------
- -----
GROCERY AND CONVENIENCE--7.1%
1,100,000 Big V Supermarket Inc., Sr. Sub. Note,
11.000% due 02/15/2004**...........................
1,094,500
1,990,000 Grand Union Corporation, Sr. Note, 11.250% due
07/15/2000.........................................
1,980,050
</TABLE>
See Notes to Financial Statements.
7
<PAGE>
Portfolio of Investments
(Continued)
[LOGO] March 31,
1994
- ------------------------------------------------------------------------------
- --
<TABLE>
<CAPTION>
FACE
VALUE
VALUE (NOTE
1)
- ------------------------------------------------------------------------------
- --
<C> <S> <C>
CORPORATE BONDS AND NOTES--(CONTINUED)
- -------------------------------------------------
GROCERY AND CONVENIENCE--(CONTINUED)
$ 1,000,000 P & C Food Markets, Inc., Sr. Note, 11.500% due
10/15/2001......................................... $
1,121,250
Pathmark Stores, Inc.:
1,275,000 Sub. Note,
11.625% due 06/15/2002.............................
1,389,750
1,250,000 Sr. Sub. Note,
9.625% due 05/01/2003..............................
1,184,375
1,615,000 Penn Traffic Company, Sr. Sub. Note, 9.625% due
04/15/2005.........................................
1,606,925
-------
- -----
8,376,850
-------
- -----
OIL AND NATURAL GAS--6.8%
875,000 Dual Drilling Company, Sr. Sub. Note, 9.875% due
01/15/2004.........................................
825,781
650,000 Giant Industries Inc., Guaranteed Sr. Sub. Note,
9.750% due 11/15/2003..............................
627,250
1,600,000 Gulf Canada Resources Ltd., Sr. Sub. Note, 9.250%
due 01/15/2004.....................................
1,484,000
1,650,000 Mesa Capital Corporation, Secured Discount Note,
Step up Bond due 06/30/1995
12.750% due 06/30/1998.............................
1,468,500
2,440,000 Transco Energy Company, Sr. Note,
11.250% due 07/01/1999.............................
2,647,400
<CAPTION>
FACE
VALUE
VALUE (NOTE
1)
- ------------------------------------------------------------------------------
- --
<C> <S> <C>
OIL AND NATURAL GAS--(CONTINUED)
$ 975,000 Trident NGL Inc., Sub. Note,
10.250% due 04/15/2003............................. $
1,011,563
-------
- -----
8,064,494
-------
- -----
PUBLISHING--6.5%
3,460,000 Anacomp Inc., Sr. Sub. Note, 15.000% due
11/01/2000.........................................
3,875,200
2,450,000 Bell & Howell Holdings Company, Deb., Series A,
Step up Bond due 03/01/2000,
11.500% due 03/01/2005.............................
1,335,250
1,300,000 Marvel III Holdings, Sr. Note,
9.125% due 02/15/1998**............................
1,283,750
AUD 1,950,000 News America Holdings, Inc.
8.625% due 02/07/2014..............................
1,227,100
-------
- -----
7,721,300
-------
- -----
HEALTH CARE--6.0%
$ 526,000 ALCO Health Distribution Corporation, Sr. Note,
(Payment-in-kind),
11.250% due 07/15/2005.............................
549,670
1,830,000 American Medical International Inc., Sr. Sub. Note,
13.500% due 08/15/2001.............................
2,095,350
1,675,000 Healthtrust Inc., The Hospital Company, Sub. Note,
10.750% due 05/01/2002.............................
1,775,500
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
Portfolio of Investments
(Continued)
[LOGO] March 31,
1994
- ------------------------------------------------------------------------------
- --
<TABLE>
<CAPTION>
FACE
VALUE
VALUE (NOTE
1)
- ------------------------------------------------------------------------------
- --
<C> <S> <C>
CORPORATE BONDS AND NOTES--(CONTINUED)
- -------------------------------------------------
HEALTH CARE--(CONTINUED)
$ 700,000 Hillhaven Corporation, Sr. Sub Note, 10.125% due
09/01/2001......................................... $
717,500
1,800,000 Ornda Healthcorp, Sr. Sub. Note,
12.250% due 05/15/2002.............................
1,962,000
-------
- -----
7,100,020
-------
- -----
INSURANCE--5.8%
1,200,000 Bankers Life Holding Corporation, Sr. Sub. Note,
Series B,
13.000% due 11/01/2002.............................
1,435,500
2,100,000 Life Partners Group, Inc., Sr. Sub. Note, 12.750%
due 07/15/2002.....................................
2,446,500
Reliance Group Holdings, Inc.,
Sr. Note:
1,150,000 9.000% due 11/15/2000..............................
1,072,375
2,000,000 9.750% due 11/15/2003..............................
1,870,000
-------
- -----
6,824,375
-------
- -----
METALS AND MINING--4.4%
675,000 AK Steel Corporation, Sr. Note, 10.750% due
04/01/2004.........................................
671,625
1,000,000 Essex Group Inc., Sr. Note, 10.000% due
05/01/2003.........................................
1,000,000
700,000 Jorgensen, (Earle M.) Company, Sr. Note,
10.750% due 03/01/2000.............................
707,000
<CAPTION>
FACE
VALUE
VALUE (NOTE
1)
- ------------------------------------------------------------------------------
- --
<C> <S> <C>
METALS AND MINING--(CONTINUED)
$ 1,850,000 Republic Engineered Steels Mortgage,
9.875% due 12/15/2001.............................. $
1,813,000
1,075,000 Wheeling Pittsburgh Corporation, Sr. Note, 9.375%
due 11/15/2003.....................................
1,010,500
-------
- -----
5,202,125
-------
- -----
AUTOMOBILE MANUFACTURERS--3.9%
Chrysler Financial Corporation:
Note,
950,000 13.250% due 10/15/1999.............................
1,231,438
Sr. Notes,
2,150,000 12.750% due 11/01/1999.............................
2,709,000
650,000 Fairfield Manufacturing Inc., Sr. Sub. Note,
11.375% due 07/01/2001.............................
676,000
-------
- -----
4,616,438
-------
- -----
TELECOMMUNICATIONS--3.4%
3,500,000 Paging Network, Inc., Sr. Sub. Note, 11.750% due
05/15/2002.........................................
3,981,250
-------
- -----
CHEMICALS--3.3%
650,000 Buckeye Celluose Corporation, Sr. Note, 10.250% due
05/15/2001.........................................
656,500
1,100,000 Harris Chemical North American, Inc., 10.750% due
10/15/2003.........................................
1,126,125
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
Portfolio of Investments
(Continued)
[LOGO] March 31,
1994
- ------------------------------------------------------------------------------
- --
<TABLE>
<CAPTION>
FACE
VALUE
VALUE (NOTE
1)
- ------------------------------------------------------------------------------
- --
<C> <S> <C>
CORPORATE BONDS AND NOTES--(CONTINUED)
- -------------------------------------------------
CHEMICALS--(CONTINUED)
UCC Investors Holding Inc.:
$ 550,000 Sr. Notes,
10.500% due 05/01/2002............................. $
572,000
1,500,000 Sr. Sub. Note,
11.000% due 05/01/2003.............................
1,560,000
-------
- -----
3,914,625
-------
- -----
CONSUMER DURABLES GOODS--3.3%
1,500,000 Colman Holdings, Inc.,
Zero coupon due 05/27/1998.........................
950,625
5,825,000 International Semi-Tech, Sr. Note, Step up Bond due
08/15/2000
11.500% due 08/15/2003.............................
2,912,500
-------
- -----
3,863,125
-------
- -----
RETAIL--3.1%
1,450,000 Barnes & Noble Inc., Sr. Sub. Note,
11.875% due 01/15/2003.............................
1,653,000
1,500,000 Bradlees Inc., Sr. Sub. Note,
11.000% due 08/01/2002.............................
1,552,500
525,000 Wickes Lumber Company, Sr. Sub. Note, 11.625% due
12/15/2003.........................................
543,375
-------
- -----
3,748,875
-------
- -----
<CAPTION>
FACE
VALUE
VALUE (NOTE
1)
- ------------------------------------------------------------------------------
- --
<C> <S> <C>
T.V., CABLE AND RADIO BROADCASTING--2.8%
$ 250,000 Continental Broadcasting Ltd.,
10.625% due 07/01/2003............................. $
256,250
350,000 Continental Cablevision Inc., Sr. Sub. Note,
11.000% due 06/01/2007.............................
386,750
Rogers Cablesystems Ltd., Sr. Secured 2nd Priority
Deb.:
575,000 9.625% due 08/01/2002..............................
599,438
525,000 10.125% due 09/01/2012.............................
553,875
CAD 1,275,000 9.650% due 01/15/2014..............................
838,543
$ 625,000 Rogers Communications Inc., Sr. Deb.,
10.875% due 04/15/2004.............................
657,813
-------
- -----
3,292,669
-------
- -----
PERSONAL CARE/COSMETICS--2.8%
1,380,000 Revlon Consumer Products Corporation, Sr. Sub.
Note, 10.500% due 02/15/2003.......................
1,242,000
4,450,000 Revlon Worldwide Corporation, Sr. Secured Note,
Zero coupon due 03/15/1998.........................
2,024,750
-------
- -----
3,266,750
-------
- -----
TEXTILES AND APPAREL--2.7%
1,350,000 CMI Industries, Sr. Sub. Note,
9.500% due 10/01/2003..............................
1,282,500
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
Portfolio of Investments
(Continued)
[LOGO] March 31,
1994
- ------------------------------------------------------------------------------
- --
<TABLE>
<CAPTION>
FACE
VALUE
VALUE (NOTE
1)
- ------------------------------------------------------------------------------
- --
<C> <S> <C>
CORPORATE BONDS AND NOTES--(CONTINUED)
- -------------------------------------------------
TEXTILES AND APPAREL--(CONTINUED)
$ 900,000 Dan River Inc., Sr. Sub. Note,
10.125% due 12/15/2003............................. $
864,000
1,100,000 Hartmarx Corporation, Sr. Sub. Note, 10.875% due
01/15/2002.........................................
1,083,500
-------
- -----
3,230,000
-------
- -----
LEISURE--1.9%
1,575,000 Gillett Holdings Inc., Sr. Sub. Note,
12.250% due 06/30/2002.............................
1,712,813
600,000 Remington Arms, Inc., New Sr. Note,
9.500% due 12/01/2003**............................
570,000
-------
- -----
2,282,813
-------
- -----
FINANCIAL SERVICES--1.6%
750,000 Coldwell Banker Corporation,
10.250% due 06/30/2003**...........................
757,500
1,100,000 Lomas Mortgage USA, Inc., Sr. Note,
10.250% due 10/01/2002.............................
1,133,000
-------
- -----
1,890,500
-------
- -----
UTILITIES--1.2%
1,340,531 Midland Funding Corporation I, Sr. Secured Note,
Series C,
10.330% due 07/23/2002**...........................
1,399,178
-------
- -----
<CAPTION>
FACE
VALUE
VALUE (NOTE
1)
- ------------------------------------------------------------------------------
- --
<C> <S> <C>
CONGLOMERATE--0.9%
$ 1,150,000 Federal Industries Ltd., CDA, Sr. Note,
10.250% due 06/15/2000............................. $
1,127,000
-------
- -----
FOOD--0.6%
700,000 PMI Acquisition Corporation, Sr. Sub Note, 10.250%
due 09/01/2003.....................................
710,500
-------
- -----
AEROSPACE--0.5%
650,000 Tracor, Inc., Sr. Sub. Notes, 10.875% due
08/15/2001.........................................
671,125
-------
- -----
TOTAL CORPORATE BONDS AND NOTES (Cost
$127,797,792)......................................
128,167,936
-------
- -----
SHARES
- ------------------------------------------------------------------------------
- -----
CONVERTIBLE PREFERRED STOCKS--6.3%
- ------------------------------------------------------------------------------
- -----
12,367 K-III Communications Corporation, Series A,
Convertible Preferred, (Payment-in-kind),
Exchangable, 11.625%**.............................
1,236,743
25,400 Navistar International Corporation, Series G,
Convertible Preferred $6.00........................
1,314,450
115,550 Unisys Corporation, Series A, Convertible
Preferred, $3.75...................................
4,881,987
-------
- -----
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
Portfolio of Investments
(Continued)
[LOGO] March 31,
1994
- ------------------------------------------------------------------------------
- --
<TABLE>
<CAPTION>
FACE
VALUE
VALUE (NOTE
1)
- ------------------------------------------------------------------------------
- --
<C> <S> <C>
CONVERTIBLE PREFERRED STOCKS--(CONTINUED)
- -------------------------------------------------
TOTAL CONVERTIBLE PREFERRED STOCKS
(Cost $7,838,804 )................................. $
7,433,180
- ------------------------------------------------------------------------------
- -----
COMMERCIAL PAPER--4.6%
(Cost $5,428,000)
$ 5,428,000 General Electric Capital Corporation,
3.000% due 04/04/1994..............................
5,428,000
-------
- -----
TOTAL INVESTMENTS
(Cost $141,064,596*)..................................... 119.2 %
141,029,116
-------
- -----
<CAPTION>
FACE
VALUE
VALUE (NOTE
1)
- ------------------------------------------------------------------------------
- --
<S> <C> <C>
SENIOR MONEY
MARKET NOTES DUE
1995 (including accrued
interest)................. (21.8)
$(25,820,640)
OTHER ASSETS AND
LIABILITIES (Net)......... 2.6%
3,129,638
----- -------
- -----
NET ASSETS................ 100.0%
$118,338,114
----- -------
- -----
----- -------
- -----
<FN>
- -------------
* Aggregate cost for Federal tax purposes.
** Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration
to qualified institutional buyers.
</TABLE>
See Notes to Financial Statements.
12
<PAGE>
Statement of Assets and
Liabilities
[LOGO] March 31,
1994
- ------------------------------------------------------------------------------
- --
<TABLE>
<S> <C> <C>
ASSETS:
Investments, at value (Cost $141,064,596) (Note 1)
See accompanying schedule........................ $
141,029,116
Receivable for investment securities sold.........
4,777,873
Interest receivable...............................
3,470,442
Dividends receivable..............................
471,413
----
- ---------
Total Assets....................................
149,748,844
LIABILITIES:
Senior Money Market Notes(TM) due 1995 (Note 4)... $ 25,800,000
Payable for investment securities purchased....... 5,263,604
Investment advisory fee payable (Note 2).......... 62,737
Due to custodian.................................. 26,074
Administration fee payable (Note 2)............... 25,095
Transfer agent fees payable (Note 2).............. 12,000
Custodian fees payable (Note 2)................... 9,000
Accrued expenses and other payables............... 212,220
------------
Total Liabilities...............................
31,410,730
----
- ---------
NET ASSETS........................................ $
118,338,114
----
- ---------
----
- ---------
NET ASSETS AND REDEEMABLE PREFERRED STOCK
CONSIST OF:
7.00% Cumulative Preferred Stock (Note 5)......... $
30,000,000
Undistributed net investment income...............
1,672,341
Accumulated net realized loss on investments
sold.............................................
(25,803,177)
Unrealized depreciation of investments............
(36,132)
Par value of Common Stock.........................
129,789
Paid-in capital in excess of par value............
112,375,293
----
- ---------
Total Net Assets................................ $
118,338,114
----
- ---------
----
- ---------
<CAPTION>
PER SHARE
------------
<S> <C> <C>
NET ASSET VALUE, AVAILABLE TO:
7.00% Cumulative Preferred Stock redemption
value............................................ $ 1,000.00 $
30,000,000
------------ ----
- ---------
Cumulative undeclared dividends on 7.00% Preferred
Stock............................................ 20.42
612,500
------------ ----
- ---------
Common shares (12,978,935 shares of Common Stock
outstanding)..................................... $ 1,020.42
30,612,500
------------ ----
- ---------
$ 6.76
87,725,614
------------ ----
- ---------
TOTAL NET ASSETS.................................. $
118,338,114
----
- ---------
----
- ---------
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
Statement of
Operations
[LOGO] March 31,
1994
- ------------------------------------------------------------------------------
- --
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest....................................... $14,049,077
Dividends...................................... 1,189,709
----------
Total Investment Income...................... 15,238,786
EXPENSES:
Interest expense............................... $ 825,663
Investment advisory fee (Note 2)............... 723,502
Sub-investment advisory and/or administration
fee (Note 2).................................. 299,011
Legal and audit fees........................... 86,875
Custodian fees (Note 2)........................ 46,490
Transfer agent fees (Note 2)................... 32,798
Directors' fees and expenses (Note 2).......... 27,457
Amortization of organization costs (Note 7).... 18,894
Other.......................................... 209,665
---------
Total Expenses............................... 2,270,355
----------
NET INVESTMENT INCOME.......................... 12,968,431
----------
REALIZED AND UNREALIZED GAIN/(LOSS) ON
INVESTMENTS (NOTES 1 AND 3):
Net realized gain on investments sold.......... 9,187,169
Net unrealized depreciation of investments
during the year............................... (11,077,338)
----------
NET REALIZED AND UNREALIZED LOSS ON
INVESTMENTS................................... (1,890,169)
----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS.................................... $11,078,262
----------
----------
</TABLE>
See Notes to Financial Statements.
14
<PAGE>
Statement of Cash
Flows
[LOGO] March 31,
1994
- ------------------------------------------------------------------------------
- --
<TABLE>
<S> <C> <C>
NET DECREASE IN CASH
Cash flows from operating activities and investing activities:
Interest and dividends received........................ $ 14,004,704
Operating expenses paid................................ (1,439,817)
Interest payments on Senior Money Market Notes(TM)..... (820,955)
Purchases of short-term securities, net................ (878,898)
Purchases of long-term securities...................... (140,045,848)
Proceeds from disposition of long-term securities...... 138,620,616
-------------
Net cash provided by operating and investing
activities.......................................... $
9,439,802
Cash flows from financing activities:
Offering cost paid related to issuance of 7.00%
Preferred Stock....................................... (157,361)
Cash dividends paid on 9.67% Cumulative Preferred
Stock................................................. (1,390,063)
Cash dividends paid on 7.00% Cumulative Preferred
Stock................................................. (1,575,000)
Cash dividends paid on Common Stock*................... (6,386,881)
-------------
Net cash used by financing activities................
(9,509,305)
----
- -------
Net decrease in cash.....................................
(69,503)
Cash -- beginning of year................................
43,429
----
- -------
Cash -- end of year...................................... $
(26,074)
----
- -------
----
- -------
RECONCILIATION OF NET INCREASE IN NET ASSETS TO NET CASH
USED BY OPERATING AND INVESTING ACTIVITIES
Net increase in net assets resulting from operations.....
$11,078,262
Accretion of discount on securities.................... (1,286,787)
Increase in investments................................ $ (180,048)
Decrease in interest and dividends receivable.......... 229,165
Increase in receivable for investment securities
sold.................................................. (3,489,283)
Increase in payable for investment securities
purchased............................................. 3,078,910
Decrease in accrued expenses and other payables........ (9,311)
Amortization of organization costs..................... 18,894
-------------
Total adjustments....................................
(1,638,460)
----
- -------
Net cash provided by operating and investing
activities.............................................. $
9,439,802
----
- -------
----
- -------
<FN>
- ------------
*Non-cash financing activities include reinvestment of dividends of
$3,988,030.
</TABLE>
See Notes to Financial Statements.
15
<PAGE>
[LOGO] Statement of Changes in Net
Assets
- ------------------------------------------------------------------------------
- --
<TABLE>
<CAPTION>
YEAR ENDED YEAR
ENDED
MARCH 31, MARCH
31,
1994
1993
------------- -------
- ------
<S> <C> <C>
Net investment income............................. $ 12,968,431 $
12,999,181
Net realized gain on investments sold............. 9,187,169
1,142,182
Net unrealized appreciation/(depreciation) of
investments during the year...................... (11,077,338)
4,993,559
------------- -------
- ------
Net increase in net assets resulting from
operations....................................... 11,078,262
19,134,922
Dividends paid from net investment income to:
9.67% Cumulative Preferred Stockholders......... (1,390,063)
(2,780,125)
7.00% Cumulative Preferred Stockholders......... (1,575,000) --
Common Stockholders............................. (10,349,911)
(9,938,301)
Increase in net assets from issuance of 7.00%
Cumulative Preferred Stock net of underwriting
commissions and offering costs of $673,475 (Note
5)............................................... --
29,326,525
Commercial Paper on deposit for redemption value
of 9.67% Cumulative Preferred Stock (Note 5)..... --
(28,750,000)
Net increase in net assets from Common Stock
transactions (Note 6)............................ 3,988,030
3,751,908
------------- -------
- ------
Net increase in net assets........................ 1,751,318
10,744,929
NET ASSETS:
Beginning of year................................. 116,586,796
105,841,867
------------- -------
- ------
End of year (including undistributed net
investment income of $1,672,341 and $2,019,530,
respectively).................................... $118,338,114
$116,586,796
------------- -------
- ------
------------- -------
- ------
</TABLE>
See Notes to Financial Statements.
16
<PAGE>
[LOGO] Financial
Highlights
- ------------------------------------------------------------------------------
- --
Contained below is per share operating performance data for a share
of
common stock outstanding, total investment return, ratios to average net
assets
and other supplemental information. This information has been derived
from
information provided in the financial statements and market price data for
the
Fund's shares.
FOR A COMMON STOCK SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
PERIOD
YEAR ENDED YEAR ENDED YEAR ENDED YEAR
ENDED YEAR ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH
31, MARCH 31, MARCH 31,
1994# 1993 1992
1991 1990 1989*
---------- ---------- ---------- ------
- ---- ---------- ----------
<S> <C> <C> <C> <C>
<C> <C>
Operating Performance:
Net asset value, beginning of
year............................. $ 6.86 $ 6.39 $ 5.58 $
6.30 $ 8.71 $ 9.23
---------- ---------- ---------- ------
- ---- ---------- ----------
Net investment income.............. 1.02 1.07 1.08
1.17 1.42 1.29
Net realized and unrealized
gain/(loss) on investments....... (0.13) 0.51 0.82
(0.74) (2.37) (0.55)
---------- ---------- ---------- ------
- ---- ---------- ----------
Net increase/(decrease) in net
asset value resulting from
investment operations............ 0.89 1.58 1.90
0.43 (0.95) 0.74
Underwriting commissions and
offering costs on 7.00%
Cumulative Preferred Stock....... -- (0.05) -- --
- -- --
Distributions:
Dividends declared to 7.00%
Preferred Stockholders........... (0.11) -- -- --
- -- --
Dividends declared to 9.67%
Preferred Stockholders........... (0.12) (0.23) (0.24)
(0.25) (0.26) (0.13)
Dividends paid from net investment
income........................... (0.82) (0.82) (0.85)
(0.90) (1.20) (1.01)
Change in accumulated undeclared
dividends on Preferred Stock..... 0.06 (0.01) -- --
- -- (0.12)
---------- ---------- ---------- ------
- ---- ---------- ----------
Total from distributions........... (0.99) (1.06) (1.09)
(1.15) (1.46) (1.26)
---------- ---------- ---------- ------
- ---- ---------- ----------
Net asset value, end of year....... $ 6.76 $ 6.86 $ 6.39 $
5.58 $ 6.30 $ 8.71
---------- ---------- ---------- ------
- ---- ---------- ----------
---------- ---------- ---------- ------
- ---- ---------- ----------
Market value, end of year.......... $ 7.13 $ 7.25 $ 6.63 $
5.50 $ 5.88 $ 9.50
---------- ---------- ---------- ------
- ---- ---------- ----------
---------- ---------- ---------- ------
- ---- ---------- ----------
Total investment return............ 10.02% 24.02% 39.12%
10.58% (27.68)% 5.88%
---------- ---------- ---------- ------
- ---- ---------- ----------
---------- ---------- ---------- ------
- ---- ---------- ----------
Ratios to average net assets
available to Common
Shareholders/supplemental
information:
Net assets, end of year (in
000's)........................... $87,726 $85,225 $75,818
$62,518 $69,213 $90,023
Net investment income.............. 14.38% 12.89% 14.16%
16.12% 15.11% 13.84%**
Interest expense................... 0.92% 1.14% 2.10%
4.18% 5.16% 4.61%**
Other expense...................... 1.60% 1.99% 2.15%
2.47% 2.32% 2.04%**
Portfolio turnover rate............ 102% 93% 86%
68% 81% 105%
<FN>
- ------------
*The Fund commenced operations on April 27, 1988.
**Annualized.
#Per share amounts have been calculated using the monthly average shares
method, which more appropriately presents the per share data for the year
ended March 31, 1994, since the use of the undistributed method does not
accord with results of operations.
</TABLE>
See Notes to Financial Statements.
17
<PAGE>
[LOGO] Financial Highlights
(Continued)
-------------------------------------------------------
- --
The table below sets out information with respect to Preferred Stock
and
Money Market Notes that are currently outstanding.
<TABLE>
<CAPTION>
AVERAGE MARKET
TOTAL AMOUNT INVOLUNTARY
VALUE PER
OUTSTANDING EXCLUSIVE ASSET LIQUIDATING
SHARE
OF TREASURY COVERAGE PREFERENCE
(EXCLUDE BANK
YEAR SECURITIES PER SHARE+ PER SHARE(2)
LOANS)(2)(4)
- ----------------------- --------------------- ----------- ------------ ---
- -----------
<S> <C> <C> <C> <C>
Year Ended 30,000,000* 2,583 1,000
1,000
3/31/94 25,800,000*** 558,675 100,000
100,000
Year Ended 30,000,000* 2,529 1,000
1,000
3/31/93(3) 25,800,000*** 546,948 100,000
100,000
Year Ended 28,750,000** 2,413 1,000
1,000
3/31/92 25,800,000*** 510,240 100,000
100,000
Year Ended 28,750,000** 2,169 1,000
1,000
3/31/91 25,800,000*** 458,692 100,000
100,000
Year Ended 28,750,000** 2,097 1,000
1,000
3/31/90 35,500,000*** 379,585 100,000
100,000
Period Ended 28,750,000** 2,182 1,000
1,000
4/27/88 to 3/31/89(1) 48,500,000*** 347,552 100,000
100,000
<FN>
- ---------
*7.00% Cumulative Preferred Stock, redeemable April 15, 2000.
**9.67% Cumulative Preferred Stock, redeemed April 15, 1993.
***Senior Money Market Notes(TM) due 1995
(1)The Fund commenced operations on April 27, 1988.
(2)Excludes accrued interest or accumulated undeclared dividends.
(3)Excludes 9.67% Cumulative Preferred Stock for which the Fund had
segregated
investments at March 31, 1993 to be used to redeem this issue plus
accumulated unpaid dividends on April 15, 1993 (Note 5).
(4)See Notes 4 and 5.
</TABLE>
See Notes to Financial Statements.
18
<PAGE>
Notes to Financial
Statements
[LOGO] March 31,
1994
- ------------------------------------------------------------------------------
- --
1. SIGNIFICANT ACCOUNTING POLICIES
Zenix Income Fund Inc. (the "Fund") is a diversified closed-end
management
investment company organized as a Maryland corporation and is registered
with
the Securities and Exchange Commission under the Investment Company Act of
1940,
as amended. The Fund commenced operations on April 27, 1988. The
policies
described below are followed consistently by the Fund in the preparation of
its
financial statements in conformity with generally accepted
accounting
principles.
PORTFOLIO VALUATION: The net asset value of the Fund's Common Stock
is
determined by The Boston Company Advisors, Inc. ("Boston Advisors") 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 (i) the Fund's
liabilities
(including the outstanding principal amount and accrued interest on
the
Senior Money Market Notes(TM) due 1995, (ii) the aggregate liquidation
value
(i.e., $1,000 per outstanding share) of the 7.00% Cumulative
Redeemable
Preferred Stock ("7.00% Cumulative Preferred Stock") and (iii)
accumulated
and unpaid dividends on the outstanding Cumulative Preferred Stock
issue.
Portfolio securities that are actively 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 asked 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 on such day. 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 reference to valuations of other securities which
are
considered comparable in quality,
19
<PAGE>
Notes to Financial Statements
(Continued)
[LOGO] March 31,
1994
- ------------------------------------------------------------------------------
- --
interest rate and maturity. Short-term investments which mature in less
than
60 days are valued at amortized cost, unless this method is determined by
the
Board of Directors not to represent fair value.
PAYMENT-IN-KIND BONDS: The Fund may invest in payment-in-kind
("PIK")
bonds. PIK bonds pay interest in cash or through the issuance of
additional
bonds. PIK bonds are recorded at fair value on the ex-dividend date.
PIK
bonds carry a risk in that unlike bonds which pay interest throughout
the
period to maturity. The Fund will realize no cash until the cash
payment
dates unless a portion of such securities is sold. If the issuer of a
PIK
bond defaults, the Fund may obtain no return at all on its investment.
Income
is recorded as earned on the accrual basis.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities
transactions
are recorded as of the trade date. Interest income is recorded on the
accrual
basis. Realized gains and losses from securities sold are recorded on
the
identified cost basis.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: It is the policy of
the
Fund, which may be changed by the Board of Directors, to pay dividends on
a
monthly basis to holders of Common Stock from investment company
taxable
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 at 7.00% per annum,
payable
semi-annually on June 15 and December 15. Distributions from net
realized
gains to holders of Common Stock are declared and paid annually, after
the
end of the fiscal year in which earned. To the extent that net
realized
capital gains can be offset by capital loss carryforwards, it is the
policy
of the Fund not to distribute such gains.
Income distributions and capital gain distributions on a Fund level
are
determined in accordance with income tax regulations which may differ
from
generally accepted accounting principles. These differences are primarily
due
to differing treatments of income and gains on various investment
securities
held by the Fund, timing differences and differing characterization
of
distributions made by the Fund as a whole.
20
<PAGE>
Notes to Financial Statements
(Continued)
[LOGO] March 31,
1994
- ------------------------------------------------------------------------------
- --
Permanent differences incurred during the year ended March 31,
1993
resulting from a tax basis currency gain was reclassified from
undistributed
net investment income to accumulated net realized gain on investments sold.
FEDERAL INCOME TAXES: It is the policy of the Fund to qualify as
a
regulated investment company, if such qualification is in the best
interest
of its shareholders, by complying with the requirements of the
Internal
Revenue Code applicable to regulated investment companies and by
distributing
substantially all of its taxable income to its shareholders. Therefore,
no
Federal income tax provision is required.
CASH FLOW INFORMATION: Cash, as used in the Statement of Cash Flows,
is
the amount reported as "Due to Custodian" in the Statement of Assets
and
Liabilities. The Fund issues and redeems its shares, invests in
securities,
and distributes dividends from net investment income and net realized
gains
(which are either paid in cash or reinvested at the discretion
of
shareholders). These activities are reported in the Statement 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 gain or loss on investment securities.
RECLASSIFICATIONS: During the current period, the Fund adopted
Statement
of Position 93-2 "Determination, Disclosure and Financial
Statement
Presentation of Income, Capital Gain, and Return of Capital Distributions
by
Investment Companies." Accordingly, certain reclassifications have been
made
to the components of capital in the Statement of Net Assets to conform
with
the accounting and reporting guidelines of this statement. Distributions
in
excess of book basis accumulated realized gains or undistributed
net
investment income that were the result of permanent book and tax
accounting
differences have been reclassified to paid-in capital. Permanent
differences
resulting from a tax basis net operating loss were reclassified to paid-
in
capital. Accordingly, amounts as of March 31, 1993 have been restated
to
reflect a decrease in paid-in capital, an increase in undistributed
net
investment income and a decrease in accumulated net
21
<PAGE>
Notes to Financial Statements
(Continued)
[LOGO] March 31,
1994
- ------------------------------------------------------------------------------
- --
realized gains of $49,453, $395,859 and $346,406, respectively. The
Statement
of Changes in Net Assets and Financial Highlights for prior periods have
not
been restated to reflect this change in presentation. Net investment
income,
net realized gains, and net assets on a book and tax basis were not
affected
by this change.
2. INVESTMENT ADVISORY FEE, SUB-INVESTMENT ADVISORY AND/OR
ADMINISTRATION FEE AND OTHER TRANSACTIONS
The Fund has entered into an investment advisory agreement (the
"Advisory
Agreement") with Greenwich Street Advisors, a division of Mutual
Management
Corp., which is controlled by Smith Barney Shearson Holdings Inc.
("Holdings").
Holdings is a wholly owned subsidiary of The Travelers Inc. Under the
Advisory
Agreement, the Fund pays a monthly fee at the annual rate of 0.50% of
the
average weekly value of the Fund's net assets (which, for purposes
of
determining such fee, shall mean the average weekly value of the total assets
of
the Fund, minus the sum of accrued liabilities of the Fund other than
the
outstanding principal amount of the Senior Money Market Notes(TM)
and
accumulated dividends on the cumulative preferred stock). Prior to July
30,
1993, Shearson Lehman Advisors served as adviser to the Fund.
The Fund has also entered into an administration agreement
(the
"Administration Agreement") with Boston Advisors, an indirect wholly
owned
subsidiary of Mellon Bank Corporation ("Mellon"). Under the
Administration
Agreement, the Fund pays a monthly fee at the annual rate of 0.20% of
the
average weekly value of the Fund's net assets as defined above. Prior to
the
close of business on May 21, 1993, Boston Advisors served as sub-
investment
adviser and administrator to the Fund.
No director, officer or employee of Smith Barney Shearson Inc. ("Smith
Barney
Shearson"), Boston Advisors or any of their affiliates receives any
compensation
from the Fund for serving as an officer or Director of the Fund. The Fund
pays
each Director who is not a director, officer or employee of Smith
Barney
Shearson, Boston Advisors or any of their affiliates $5,000 per annum plus
$500
per meeting attended and reimburses them for travel and out-of-pocket
expenses.
22
<PAGE>
Notes to Financial Statements
(Continued)
[LOGO] March 31,
1994
- ------------------------------------------------------------------------------
- --
Boston Safe Deposit and Trust Company, an indirect wholly owned subsidiary
of
Mellon, serves as the Fund's custodian. The Shareholder Services Group, Inc.,
a
subsidiary of First Data Corporation, serves as the Fund's transfer agent.
3. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
U.S.
government and short-term investments, aggregated $143,124,758 and
$142,109,899,
respectively. At March 31, 1994, aggregate gross unrealized appreciation for
all
securities in which there was an excess of value over tax cost was
$3,512,842,
and aggregate gross unrealized depreciation for all securities in which
there
was an excess of tax cost over value was $3,548,322.
4. SENIOR MONEY MARKET NOTES(TM) DUE 1995
The Fund issued Senior Money Market Notes(TM) under an indenture between
the
Fund and Chemical Bank Corp., as trustee. At March 31, 1994, the Fund had
an
outstanding Senior Money Market(TM) Notes balance of $25,800,000. For
each
28-day interest period the interest rate is the applicable rate per annum as
set
by the auction agent advising the Fund, and during the year ended March
31,
1994, the interest rates ranged from 3.06% to 3.60% with an effective rate
of
3.60%. Interest expense for the year ended March 31, 1994 was $825,663.
5. CUMULATIVE REDEEMABLE PREFERRED STOCK
On March 16, 1993, the Fund issued 30,000 shares of its 7.00%
Cumulative
Preferred Stock, which will be redeemed as a whole on April 15, 2000 at a
price
equal to $1,000 per share, plus accumulated and unpaid dividends. Proceeds
to
the Fund, before deduction of underwriting commissions of $450,000 was paid
to
Shearson Lehman Brothers, and before offering expenses of $223,475 amounted
to
$29,550,000. At March 31, 1994, 250,000 shares of $0.01 par value
7.00%
Cumulative Preferred Stock were authorized. Cumulative undeclared dividends
on
the 7.00% Cumulative Preferred Stock amounted to $612,500 at March 31, 1994.
23
<PAGE>
Notes to Financial Statements
(Continued)
[LOGO] March 31,
1994
- ------------------------------------------------------------------------------
- --
At March 31, 1993, the Fund had 28,750 shares of its 9.67%
Cumulative
Preferred Stock outstanding, which were redeemed as a whole on April 15, 1993
at
a price equal to $1,000 per share plus accumulated and unpaid dividends.
6. COMMON STOCK
At March 31, 1994, 250,000,000 shares of $.01 par value Common Stock
were
authorized.
Common Stock transactions were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
MARCH 31, 1994 MARCH 31, 1993
----------------------- ------------------
- -----
SHARES AMOUNT SHARES
AMOUNT
--------- ------------ --------- -------
- -----
<S> <C> <C> <C> <C>
Issued as reinvestment of
dividends from net investment
income.......................... 547,199 $ 3,988,030 575,317 $
3,751,908
--------- ------------ --------- -------
- -----
--------- ------------ --------- -------
- -----
</TABLE>
7. ORGANIZATION COSTS
Costs incurred by the Fund in connection with its organization and
initial
public offering of Senior Money Market Notes(TM), Cumulative Preferred Stock
and
Common Stock were $1,133,525 and were amortized on a straight-line basis over
a
five-year period beginning April 27, 1988, the date of the Fund's
commencement
of operations. As of March 31, 1994, all organization costs have been
fully
amortized.
8. CAPITAL LOSS CARRYFORWARD
As of March 31, 1994, the Fund had available for Federal tax purposes
unused
capital loss carryforwards of $25,803,177. This loss expires as follows:
<TABLE>
<CAPTION>
CARRYFORWARD EXPIRATION
AMOUNT DATE
- ------------- ------------
<S> <C>
$ 17,408,172 03/31/1999
8,395,005 03/31/2000
</TABLE>
24
<PAGE>
Notes to Financial Statements
(Continued)
[LOGO] March 31,
1994
- ------------------------------------------------------------------------------
- --
9. ASSET MAINTENANCE REQUIREMENT
The Fund is required to maintain certain asset coverages with respect to
the
Senior Money Market Notes(TM) (of at least 300%) and the Cumulative
Preferred
Stock (of at least 200%). If the Fund fails to maintain these requirements as
of
the last business day of a month and does not cure such failure by the
last
business day of the following month, the Fund is required to redeem a
specific
principal amount of the Senior Money Market Notes(TM), or 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.
10. CONCENTRATION OF CREDIT RISK
The Fund invests in securities offering high current income which
generally
will be in the lower rating categories of recognized rating agencies.
These
securities generally involve more credit risk than securities in the
higher
rating categories. In addition, the trading market for high yield securities
may
be relatively less liquid than the market for higher rated securities.
Quarterly Results of Operations
(Unaudited)
- ---------------------------------------------------------
<TABLE>
<CAPTION>
NET
REALIZED AND
UNREALIZED
GAIN/ NET INCREASE
INVESTMENT NET INVESTMENT (LOSS)
ON IN NET ASSETS
INCOME INCOME
INVESTMENTS FROM 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, 1992......... $4,121,399 $0.34 $3,428,319 $0.29 $
(1,090,652) $(0.09) $ 2,337,667 $ 0.20
September 30, 1992.... 3,665,498 0.31 3,002,571 0.25
2,480,165 0.21 5,482,736 0.46
December 31, 1992..... 3,770,298 0.31 3,077,594 0.25
(1,856,275) (0.15) 1,221,319 0.10
March 31, 1993........ 3,922,025 0.32 3,490,697 0.28
6,602,503 0.54 10,093,200 0.82
June 30, 1993......... 3,786,446 0.30 3,149,795 0.25
2,613,982 0.21 5,763,777 0.46
September 30, 1993.... 3,745,471 0.29 3,200,066 0.25
(276,601) (0.02) 2,923,465 0.23
December 31, 1993..... 3,631,803 0.28 3,014,890 0.24
2,056,085 0.16 5,070,975 0.40
March 31, 1994........ 4,075,066 0.31 3,603,680 0.28
(6,283,635) (0.48) (2,679,955) (0.20)
<FN>
- ------------
*Per share of Common Stock.
</TABLE>
25
<PAGE>
[LOGO] Report of Independent
Accountants
- ------------------------------------------------------------------------------
- --
To the Shareholders and Board of Directors of
Zenix Income Fund Inc.:
We have audited the accompanying statement of assets and liabilities
of
Zenix Income Fund Inc., including the schedule of portfolio investments, as
of
March 31, 1994, the related statements of operations and cash flows for the
year
then ended, the statement of changes in net assets for each of the two years
in
the period then ended and the financial highlights for each of the five years
in
the period ended March 31, 1994 and for the period from April 27,
1988
(commencement of operations) through March 31, 1989. 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 generally accepted
auditing
standards. 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, 1994 by correspondence with the custodian and brokers. 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
Zenix Income Fund Inc. as of March 31, 1994, the results of its operations
and
cash flows for the year then ended, the changes in its net assets for each
of
the two years in the period then ended, and the financial highlights for each
of
the five years in the period ended March 31, 1994 and for the period from
April
27, 1988 (commencement of operations) through March 31, 1989, in conformity
with
generally accepted accounting principles.
Coopers & Lybrand
Boston, Massachusetts
May 11, 1994
26
<PAGE>
[LOGO] Additional Information
(Unaudited)
- ------------------------------------------------------------------------------
- --
PORTFOLIO MANAGEMENT
John C. Bianchi, who is Vice President and Investment Officer of the Fund,
is
primarily responsible for management of the Fund's assets. Mr. Bianchi
has
served the Fund in these capacities since the commencement of the
Fund's
operations.
DIVIDEND REINVESTMENT PLAN
Under the Fund's Dividend Reinvestment Plan (the "Plan"), a shareholder
whose
Common Stock is registered in his own name will have all
distributions
reinvested automatically by The Shareholder Services Group, Inc. ("TSSG")
as
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 Common Stock under the Plan, but only if the service
is
provided by the broker or nominee, and the broker or nominee makes an
election
on behalf of the shareholder to participate in the Plan. Distributions
with
respect to Common Stock registered in the name of Shearson Lehman Brothers
will
automatically be reinvested by Shearson Lehman Brothers in additional
shares
under the Plan unless the shareholder elects to receive distributions in cash.
A
shareholder who holds Common Stock registered in the name of a broker or
other
nominee may not be able to transfer the Common Stock to another broker
or
nominee and continue to participate in the Plan. Investors who own Common
Stock
registered in street name should consult their broker or nominee for
details
regarding reinvestment.
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. Whenever
the
market price of the Fund's Common Stock is equal to or exceeds 98% of net
asset
value per share, participants will be issued shares of Common Stock valued
at
the greater of (i) 98% of net asset value per share or (ii) 95% of the
then
current market price. If 98% of net asset value per share of Common Stock at
the
time of valuation exceeds the market price of the Common Stock, TSSG will
buy
shares of the Fund's Common Stock on the open market, on the New York
Stock
Exchange, Inc. or elsewhere, beginning on the payment date of the dividend
or
distribution, until it has expended for such purchases all of the cash
that
would otherwise be payable to the participants. The number of purchased
shares
that will then be credited to the participants' accounts will be based on
the
average per share purchase price of the shares so
purchased,
27
<PAGE>
Additional Information
(Unaudited)
[LOGO]
(Continued)
- ------------------------------------------------------------------------------
- --
including brokerage commissions. If TSSG commences purchases in the open
market
and the market price of the shares subsequently exceeds 98% of net asset
value
before the completion of the purchases, TSSG will attempt to terminate
purchases
in the open market and cause the Fund to issue the remaining dividend
or
distribution in shares at 98% of net asset value per share. In this case,
the
number of shares of Common Stock received by the 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.
Plan participants are not subject to any charge for reinvesting dividends
or
capital gains distributions. Each Plan participant will, however, bear
a
proportionate share of brokerage commissions incurred with respect to
TSSG's
open market purchases of shares of Common Stock in connection with
the
reinvestment of dividends or capital gains distributions. For the fiscal
year
ending March 31, 1994, no such brokerage commissions were incurred.
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. A participant in the Plan will
be
treated for Federal income tax purposes as having received, on the
dividend
payment date, a dividend or distribution in an amount equal to the cash that
the
participant could have received instead of shares of Common Stock.
A shareholder may terminate participation in the Plan at any time
by
notifying TSSG in writing. A termination will be effective immediately if
notice
is received by TSSG not less than 10 days before any dividend or
distribution
record date. Otherwise, the termination will be effective, and only with
respect
to any subsequent dividends or distributions, on the first trading day after
the
dividend or distribution has been credited to the participant's account
in
additional shares of Common Stock of the Fund. Upon termination according to
a
participant's instructions, TSSG will either (a) issue certificates for
the
whole shares credited to a Plan account and a check representing any
fractional
shares or (b) sell the shares in the market. There will be a $5.00 fee
assessed
for liquidation service, plus brokerage commissions, and TSSG is authorized
to
sell a sufficient number of a participant's shares to cover such amounts.
The Plan is described in more detail on pages 26-27 of the Fund's
Prospectus
dated April 20, 1988. Information concerning the Plan may be obtained from
TSSG
at 1-(800) 331-1710.
28
<PAGE>
DIRECTORS
Charles F. Barber
Allan J. Bloostein
Martin Brody
Dwight B. Crane
Heath B. McLendon
OFFICERS
Heath B. McLendon
CHAIRMAN OF THE BOARD
AND INVESTMENT OFFICER
Stephen J. Treadway
PRESIDENT
Richard P. Roelofs
EXECUTIVE VICE PRESIDENT
John C. Bianchi
VICE PRESIDENT AND
INVESTMENT OFFICER
Kenneth A. Egan
INVESTMENT OFFICER
Vincent Nave
TREASURER
Francis J. McNamara, III
SECRETARY
This report is sent to the shareholders of the
ZENIX INCOME FUND INC.
for their information. 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.
