<PAGE>
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ZENIX
INCOME
FUND INC.
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SEMI-ANNUAL REPORT
September 30, 1996
<PAGE>
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ZENIX INCOME FUND INC.
September 30, 1996
Dear
Shareholder:
We are pleased to provide you with the semi-annual report for the Zenix
Income Fund Inc. for the period ended September 30, 1996. During the past six
months the Fund paid dividends totalling $0.36 per share. The table below shows
the annualized distribution rates for the Fund based on its September 30, 1996
net asset value (NAV) per share and New York Stock Exchange (NYSE) closing
price.
Annualized
Price Per Share Distribution Rate
--------------- -----------------
$6.46 (NAV) 11.15%
$7.00 (NYSE) 10.29%
The Zenix Income Fund generated a total return on NAV of 8.58% for the six-
month period ended September 30, 1996. The Fund outperformed the six-month
average total return for closed-end high yield funds of 7.27% for the same time
period, as reported by Lipper Analytical Services, largely due to the Fund's use
of leverage. (Lipper is an independent fund tracking organization.)
Market and Economic Overview
After expanding considerably during the second quarter of 1996, the U.S.
economy appears to have taken a breather during the third quarter. Although the
U.S. government's advance estimate of third quarter gross domestic product (GDP)
growth has not yet been released, many analysts are estimating that GDP growth
will be between 1.5% and 2.0% for the third quarter, down from 4.7% for the
second quarter of 1996.
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Consumer spending and residential construction spending slowed, net exports
remained even with the previous quarter, and inventories rose during the third
quarter. Despite this evidence of an economic slowdown, there are still areas of
growth within the U.S. economy. For example, job growth is healthy and wages
continue to rise. In addition, housing activity and auto sales have remained
surprisingly resilient despite higher interest rates.
Because of the uncertainty surrounding the future direction of the U.S.
economy, the bond markets have continued to experience significant volatility
over the past six months. However, this heightened volatility has been confined
to a narrow trading range of 6.75% to 7.20% on 30-year U.S. Treasury yields.
Bond market investors have closely monitored recent U.S. economic data for signs
of whether the rate of economic growth will continue to moderate, or whether the
U.S. economy's growth rate will accelerate during the final quarter of 1996. In
either case, we believe that the Federal Reserve Board will likely remain on the
sidelines until a more definitive picture emerges on the state of the U.S.
economy.
Despite recent pressures on the U.S. Treasury bond market, the high yield
bond market has turned in a solid performance over the past six months. A
combination of strong cash flows into high yield mutual funds, which have
outperformed all other fixed income funds year-to-date, a slowing new issue
calendar and investors seeking higher yields have all contributed to the high
yield bond market's strong performance. In addition, the current slow, steady
growth rate of the U.S. economy is ideal for the high yield bond market because
a stronger economy can potentially contribute to the financial strength of
companies that issue high yield debt, and increases the likelihood that these
companies will be able to meet their debt obligations.
Funds Investment Strategy
The Zenix Income Fund maintained a relatively conservative portfolio
posture over the past six months
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with a heavy emphasis on better quality, intermediate maturity B/B rated and
Ba/BB rated issues. As of September 30, 1996, almost 90% of the Fund's holdings
were rated B/B or higher. We will continue to avoid lower quality CCC/Caa rated
issues because of their extremely high default risk over the course of a full
economic cycle. Moreover, we believe our investment strategy of concentrating on
improving high yield credits rated B/B and BB/Ba is prudent over the long term.
The Zenix Income Fund's strategy has been to reduce and/or upgrade cyclical
holdings, and to emphasize stronger, better capitalized companies, as well as
companies within industries that we believe have excellent growth prospects. In
our view, increasing worldwide demand for oil and gas should cause prices to
continue to rise. We therefore believe the energy sector offers excellent
investment opportunities, and we will look to increase our holdings in this
sector. In addition, we believe the telecommunications, cable TV, technology and
media industries all have the potential to grow substantially. Because of our
positive outlook on these industries, we have continued to add to our existing
positions in companies such as Calpine (an independent power producer), Intelcom
Group (a telecommunications company), Intermedia (a Southeastern communications
company) and Time Warner (one of the world's largest media companies). One new
addition to the Fund's core holdings during the period covered by this report is
First Nationwide, a bank holding company based on the West Coast.
Despite the strong performance of the high yield bond market in the past
six months, we still expect a short-term market pullback, especially in light of
the uncertainty surrounding the U.S. economy and the increased level of new high
yield bond issues. In anticipation of this short-term pullback, we became more
defensive by eliminating or reducing several holdings. Included in this group
are Harvard Industries, Dan River and Farm Fresh, which are all companies that
have weaker credit ratings, have underperformed, and in our opinion have
deteriorating outlooks. We
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eliminated our position in Station Casinos to reduce the Fund's exposure to the
gaming industry which we believe is facing increasing competitive pressures.
Outlook
Although the pace of economic growth in the U.S. has slowed during the past
quarter, we believe that economic growth remains in a comfortable range. We
anticipate that inflation will stay at its current level of roughly 2.5% to
3.0%. In addition, we expect the bond markets to trade in a narrow range with no
major moves in either direction. This "Goldilocks" economy--not too hot and not
too cold--is ideal for the high yield investor. Consequently, it is not
surprising that over the past six and twelve months, the high yield bond market
has generated superior investment results compared to other types of bonds.
Going forward, we do not expect to see any major changes in interest rates or in
the U.S. bond markets for the remainder of 1996.
In closing, thank you for your investment in the Zenix Income Fund Inc. We
look forward to continuing to help you achieve your investment goals.
Sincerely,
/s/Heath B. McLendon /s/John C. Bianchi
Heath B. McLendon John C. Bianchi, C.F.A.
Chairman and Vice President and
Chief Executive Officer Investment Officer
October 15, 1996
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Schedule of Investments
September 30, 1996 (unaudited)
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<TABLE>
<CAPTION>
Face
Amount Rating Security Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS AND NOTES -- 96.8%
Aerospace/Defense -- 1.3%
$1,000,000 BB Airplanes Pass Through Trust, Corporate Collateralized
Mortgage Obligation, 10.875 due 3/15/19........................ $ 1,075,950
875,000 B Tracor, Inc., Sr. Sub. Notes, 10.875% due 8/15/01............... 938,437
------------
2,014,387
------------
Banking -- 0.9%
1,250,000 B First Nationwide Parent Holdings Ltd.,
Sr. Exchange Note, 12.500% due 4/15/03......................... 1,350,000
------------
Beverage, Foods & Tobacco -- 1.9%
2,735,000 B Consolidated Cigar Corp., Sr. Sub. Notes, 10.500% due 3/1/03.... 2,875,168
------------
Broadcasting -- 11.8%
3,000,000 CCC Australis Media Ltd., Sr. Sub. Discount Notes, step bond to yield
12.997% due 5/15/03(a)......................................... 1,770,000
2,075,000 BB- Bell Cablemedia, Sr. Discount Notes, step bond to yield
11.941%, due 7/15/99........................................... 1,597,750
Cablevision Systems Corp., Sr. Sub. Debentures:
2,000,000 B 10.750% due 4/4/04............................................. 2,075,000
1,650,000 B 9.875% due 2/15/13............................................. 1,588,125
2,200,000 B Comcast UK Cable, Debentures, step bond to yield
11.156% due 11/15/07........................................... 1,402,500
2,000,000 B Marcus Cable Operating Co., Sr. Debentures,
11.875% due 10/1/05............................................ 2,132,500
800,000 BB+ Rogers Cablesystems Ltd., Sr. Secured Second Priority
Debentures, 9.650% due 1/15/14++............................... 531,478
Rogers Cablesystems of America, Inc., Sr. Sub. Debentures:
1,000,000 BB+ 10.000% due 12/1/07............................................ 1,006,250
1,175,000 BB- 11.000% due 12/1/15............................................ 1,214,655
1,950,000 BB- Rogers Communications, Inc., Sr. Debentures,
10.875% due 4/15/04............................................ 2,020,688
950,000 B- SFX Broadcasting, Sr. Sub. Notes, 10.750% due 5/15/06........... 995,125
1,000,000 BB+ Videotron Group Ltd., Sr. Notes, 10.625% due 2/15/05............ 1,085,000
500,000 B Young Broadcasting Corp., Sr. Sub. Notes,
11.750% due 11/15/04........................................... 538,750
------------
17,957,821
------------
Building & Construction -- 0.6%
500,000 B+ American Standard, Inc., Sr. Sub. Debentures,
11.375% due 5/15/04............................................ 541,875
</TABLE>
See Notes to Financial Statements.
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Schedule of Investments (continued)
September 30, 1996 (unaudited)
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<TABLE>
<CAPTION>
Face
Amount Rating Security Value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Building & Construction -- 0.6% (continued)
$ 450,000 B- Miles Homes Services, Inc., Sr. Notes, 12.000% due 4/1/01............ $ 383,625
------------
925,500
------------
Chemicals -- 6.5%
2,000,000 B- Haynes International Inc., Sr. Sub. Notes, 11.625% due 9/1/04........ 2,065,000
3,000,000 B NL Industries, Inc., Sr. Secured Notes, 11.750% due 10/15/03......... 3,172,500
1,250,000 B+ Pt. Polysindo Eka Perkasa, Sr. Notes, 13.000% due 6/15/01............ 1,371,875
2,000,000 B+ Terra Industries, Inc., Sr. Notes, 10.500% due 6/15/05............... 2,132,500
1,000,000 B Texas Petrochemicals Corp., Sr. Sub. Notes, 11.125% due 7/1/06....... 1,057,500
------------
9,799,375
------------
Consumer Durables Goods/Home Furnishings -- 0.6%
625,000 A International Semi-Tech, Sr. Secured Discount Notes,
step bond to yield 11.495% due 8/15/03.............................. 378,125
500,000 B- TAG-Heuer International, Sr. Sub. Notes, 12.000% due 12/15/05........ 558,125
------------
936,250
------------
Diversified Manufacturing -- 2.1%
3,000,000 B- Interlake Corp., Sr. Notes, 12.000% due 11/15/01..................... 3,221,250
------------
Electronics/Computers -- 2.4%
2,000,000 B- Graphic Controls Corp., Sr. Sub. Notes, 12.000% due 9/15/05.......... 2,170,000
1,400,000 B+ Unisys Corp., Sr. Notes, 12.000% due 4/15/03......................... 1,456,000
------------
3,626,000
------------
Electric Utilities -- 1.7%
1,375,000 B Calpine Corp., Sr. Notes, 10.500% due 5/15/06+....................... 1,421,406
1,128,813 BB Midland Cogeneration Venture Limited Partnership,
Midland Funding, Sr. Secured Lease Obligation Bond,
Series C, 10.330% due 7/23/02....................................... 1,188,075
------------
2,609,481
------------
Finance -- 1.2%
1,750,000 B+ Owen Financial Corp., Notes, 11.875% due 10/1/03..................... 1,837,500
------------
Foods -- 2.8%
2,500,000 B+ TLC Beatrice International Holdings, Inc.,
Sr. Secured Notes, 11.500% due 10/1/05.............................. 2,628,125
------------
1,500,000 B- Van de Kamp, Inc., Sr. Sub Notes, 12.000% due 9/15/05................ 1,648,125
------------
4,276,250
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</TABLE>
See Notes to Financial Statements.
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Schedule of Investments (continued)
September 30, 1996 (unaudited)
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<TABLE>
<CAPTION>
Face
Amount Rating Security Value
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Grocery/Convenience Stores -- 2.2%
Pathmark Stores, Inc.:
$1,000,000 B Sub. Debentures, 12.625% due 6/15/02.......................... $ 1,037,500
2,275,000 B Sub. Notes, 11.625% due 6/15/02............................... 2,348,938
------------
3,386,438
------------
Healthcare/Drugs/Hospital Supplies -- 2.7%
900,000 B Magellan Health Services, Inc., Sr. Sub. Notes,
11.250% due 4/15/04........................................... 978,750
2,850,000 B- OrNda Health Corp., 12.250% due 5/15/02........................ 3,070,875
------------
4,049,625
------------
Hotel, Casinos & Gaming -- 4.3%
1,500,000 B Aztar Corp., Sr. Sub. Notes, 13.750% due 10/1/04............... 1,719,375
1,750,000 B+ Bally's Grand, Inc., 1st Mortgage Notes, Series B,
10.375% due 12/15/03.......................................... 1,925,000
2,000,000 B- Courtyard By Marriott II, Sr. Secured Notes,
10.750% due 2/1/08............................................ 2,042,500
620,000 NR Mohegan Tribal Gaming Authority, Sr. Notes,
13.500% due 11/15/02.......................................... 780,425
------------
6,467,300
------------
Insurance -- 2.7%
1,250,000 BB+ Bankers Life Holdings Corp., Sr. Sub. Notes, Series B,
13.000% due 11/1/02........................................... 1,428,125
2,500,000 BB+ Life Partners Group, Inc., Sr. Sub. Notes, 12.750% due 7/15/02. 2,709,375
------------
4,137,500
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Leisure -- 1.2%
842,265 NR Gillett Holdings, Inc., Sr. Sub. Notes, Series A,
12.250% due 6/30/02........................................... 889,642
1,050,000 B Remington Arms Co., Inc., Sr. Sub. Notes,
10.000% due 12/1/03+.......................................... 945,000
------------
1,834,642
------------
Machinery -- 0.7%
1,000,000 B- Alvey Systems, Sr. Sub. Notes, 11.375% due 1/31/03............. 1,048,750
------------
Metals & Mining -- 7.8%
1,000,000 NR Commonwealth Aluminum Corp., Sr. Sub. Notes,
10.750% due 10/1/06........................................... 1,027,500
2,000,000 B- Ivex Holdings Corp., Sr. Sub. Debentures,
step bond to yield 12.910% due 3/15/05........................ 1,335,000
</TABLE>
See Notes to Financial Statements.
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Schedule of Investments (continued)
September 30, 1996 (unaudited)
================================================================================
<TABLE>
<CAPTION>
Face
Amount Rating Security Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Metals & Mining -- 7.8% (continued)
$ 3,725,000 B- Kaiser Aluminum and Chemical Corp., Sr. Sub. Notes,
12.750% due 2/1/03.............................................. $ 4,046,281
2,000,000 B Renco Metals Inc., Sr. Notes, 11.500% due 7/1/03................. 2,102,500
2,500,000 B- Russell Metals, Inc., Sr. Notes, 10.250% due 6/15/00............. 2,468,750
800,000 B+ UCAR Global Enterprises, Inc., Sr. Sub. Notes,
12.000% due 1/15/05............................................. 918,000
-----------
11,898,031
-----------
Miscellaneous -- 2.6%
2,000,000 B- Euramax International PLC, Sr. Sub. Notes,
11.250% due 10/1/06............................................. 2,057,500
1,850,000 BB- Grupo Industrial Durango, Notes, 12.625% due 8/1/03.............. 1,958,688
-----------
4,016,188
-----------
Oil & Natural Gas -- 4.8%
2,825,000 B+ Global Marine, Inc., Sr. Secured Notes,
12.750% due 12/15/99............................................ 3,065,125
1,350,000 B+ Kelley Oil & Gas Corp., Sr. Notes, 13.500% due 6/15/99........... 1,513,688
1,675,000 BB- Santa Fe Energy Resources, Sr. Sub. Debentures,
11.000% due 5/15/04............................................. 1,873,906
800,000 B United Meridian Corp., Sr. Sub. Notes, 10.375% due 10/15/05...... 856,000
-----------
7,308,719
-----------
Packaging & Containers -- 0.9%
1,250,000 B Gaylord Container Corp., Sr. Notes, 11.500% due 5/15/01.......... 1,321,875
-----------
Paper/Forest Products & Printing -- 10.5%
1,300,000 NR American Pad & Paper Co., Sr. Sub. Notes,
13.000% due 11/15/05 (formerly William House Regency)........... 1,495,000
1,700,000 B Crown Paper Co., Sr. Sub. Notes, 11.000% due 9/1/05.............. 1,700,000
3,500,000 BB Indah Kiat International Finance Co., Guaranteed Secured Notes,
11.875% due 6/15/02............................................. 3,753,750
2,000,000 B- Riverwood International Corp., Sr. Sub. Notes,
10.875% due 4/1/08.............................................. 1,980,000
3,275,000 B+ S.D. Warren Co., Sr. Sub. Notes, 12.000% due 12/15/04............ 3,537,000
2,050,000 BB Tjiwi Kimia International, Sr. Notes, 13.250% due 8/1/01......... 2,296,000
2,150,000 B- UIH Australia, Inc., Sr. Discount Notes, step bond to yield
14.000% due 5/15/06............................................. 1,139,500
-----------
15,901,250
-----------
Personal Care -- 2.6%
3,130,000 B- Revlon Consumer Products Corp., Sr. Sub. Notes, Series B,
10.500% due 2/15/03............................................. 3,270,850
</TABLE>
See Notes to Financial Statements.
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Schedule of Investments (continued)
September 30, 1996 (unaudited)
================================================================================
<TABLE>
<CAPTION>
Face
Amount Rating Security Value
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Personal Care -- 2.6% (continued)
$ 700,000 B- Revlon Worldwide Corp., Sr. Secured Notes, zero coupon bond
to yield 20.606% due 3/15/98.......................................... $ 616,875
------------
3,887,725
------------
Real Estate -- 1.8%
2,500,000 NR Trizec Finance, Sr. Notes, 10.875% due 10/15/05......................... 2,715,625
------------
Retail -- 1.3%
1,750,000 B+ Barnes and Noble, Inc., Sr. Sub. Notes, Series B,
11.875% due 1/15/03.................................................... 1,914,063
------------
Telecommunications -- 14.9%
2,100,000 B- Allbritton Communications Co., Sr. Sub. Debentures,
11.500% due 8/15/04.................................................... 2,231,250
2,950,000 NR Clearnet Communications, Inc., step bond to yield
14.052% due 12/15/05................................................... 1,821,625
750,000 B+ Fonorola, Inc., Sr. Notes, 12.500% due 8/15/02.......................... 819,375
2,825,000 NR Intelcom Group USA, Inc., Sr. Discount Notes, step bond to yield
12.500% due 5/1/06..................................................... 1,765,625
3,125,000 B- Intermedia Communications, Sr. Discount Notes, step bond
to yield 12.500% due 5/15/06........................................... 1,960,938
2,000,000 BB- Mobile Telecommunications Technologies Corp., Sr. Notes,
13.500% due 12/15/02................................................... 2,110,000
4,050,000 CCC+ Nextel Communications, Inc., Sr. Discount Notes, step bond
to yield 12.295% due 8/15/04+.......................................... 2,632,500
2,000,000 NR Nextlink Communications, Sr. Discount Notes,
12.500% due 4/15/06.................................................... 2,075,000
1,250,000 NR Omnipoint Corp., Sr. Notes, 11.625% due 8/15/06+........................ 1,303,125
1,550,000 NR Pagemart, Inc., Sr. Discount Notes, step bond to yield
11.602% due 11/1/03.................................................... 1,212,875
4,750,000 BB Telewest Communications, Sr. Discount Debentures, step bond
to yield 10.990% due 10/1/07........................................... 3,051,875
2,500,000 B Teleport Communications, Sr. Discount Notes, step bond to
yield 11.416% due 7/1/07............................................... 1,612,500
------------
22,596,688
------------
Transportation -- 2.0%
2,805,000 BB- Sea Containers Limited, Sr. Sub. Debentures,
12.500% due 12/1/04.................................................... 3,078,488
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TOTAL CORPORATE BONDS AND NOTES
(Cost -- $141,784,838).................................................. 146,991,889
------------
</TABLE>
See Notes to Financial Statements.
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Schedule of Investments (continued)
September 30, 1996 (unaudited)
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<TABLE>
<CAPTION>
Shares Security Value
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS -- 1.2%
Oil & Natural Gas -- 1.2%
100,000 Freeport McMoran Resource, LP Depository Unit,
(Cost -- $2,096,400).................................. $ 1,887,500
------------
CONVERTIBLE PREFERRED STOCKS -- 0.5%
Healthcare -- 0.5%
43,421 Foxmeyer Health Corp., Series A, Convertible $4.20(b). 749,023
------------
Publishing -- 0.0%
282 K-III Communications Corp., Series B, Exchange $11.625 28,533
------------
TOTAL CONVERTIBLE PREFERRED STOCKS
(Cost -- $1,440,620).................................. 777,556
------------
WARRANTS -- 0.1%
9,735 Clearnet Communications, Inc., Expires 9/15/05........ 73,013
5,400 Miles Homes, Inc., Expires 4/1/97..................... 675
7,130 Pagemart, Inc., Expires 12/31/03+..................... 48,128
------------
TOTAL WARRANTS
(Cost -- $54,954)..................................... 121,816
------------
<CAPTION>
Face
Amount Security Value
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT -- 1.4%
$2,073,000 Chase Manhattan Bank, 5.545% due 10/1/96;
Proceeds at maturity -- $2,073,319; (Fully
collateralized by U.S. Treasury Notes,
6.000% due 9/30/98; Market value -- $2,114,816)
(Cost -- $2,073,000).................................. 2,073,000
------------
TOTAL INVESTMENTS -- 100%
(Cost -- $147,449,812**).............................. $151,851,761
============
</TABLE>
(a) Security issued with attached warrants.
(b) Formerly National InterGroup.
+ Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions that are exempt from
registration, normally to qualified institutional buyers.
++ Represents local currency.
** Aggregate cost for Federal income tax purposes is substantially the same.
See pages 11 and 12 for definitions of ratings.
See Notes to Financial Statements.
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Bond Ratings
================================================================================
All ratings are by Standard & Poor's Ratings Services ("Standard & Poor's"),
except those identified by an asterisk (*) are rated by Moody's Investors
Service Inc. ("Moody's"). The definitions of the applicable rating symbols are
set forth below:
Standard & Poor's -- Rating from "BBB" to "CCC" may be modified by the addition
of a plus (+) or minus (+) sign to show relative standings within the major
rating categories.
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
debt 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 debt in this
category than in higher rated categories.
BB -- Bonds rated "BB" have less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or
economic conditions which could lead to inadequate capacity to meet
timely interest and principal payments.
B -- Bonds rated "B" have a greater vulnerability to default but
currently have the capacity to meet interest payments and principal
payments. Adverse business, financial, or economic conditions will
likely impair capacity or willingness to pay interest and repay
principal. The "B" rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied
"BB" or "BB-" rating.
CCC -- Bonds rated "CCC" have a currently identifiable vulnerability to
default, and are dependent upon favorable business, financial, and
economic conditions to meet timely payment of interest and
repayment of principal. In the event of adverse business,
financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating
category is also used for debt subordinated to senior debt that is
assigned an actual or implied "B" or "B-" rating.
Moody's -- Numerical modifiers 1, 2 and 3 may be applied to each generic
rating from "Baa" to "Caa," where 1 is the highest and 3 the lowest
ranking within its generic category.
Baa -- Bonds that are 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 that are 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 time over
the future. Uncertainty of position characterizes bonds in this
class.
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Bond Ratings (continued)
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B -- Bonds that are 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 that are rated "Caa" are of poor standing. These issues may be
in default, or present elements of danger may exist with respect to
principal or interest.
NR -- Indicates that the bond is not rated by Standard & Poor's or
Moody's.
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Statement of Assets and Liabilities
September 30, 1996 (unaudited)
================================================================================
<TABLE>
<S> <C>
ASSETS:
Investments, at value (Cost -- $147,449,812)... $151,851,761
Cash........................................... 62
Receivable for securities sold................. 1,010,000
Interest receivable............................ 3,877,157
------------
Total Assets................................... 156,738,980
------------
LIABILITIES:
Bank loan (Note 7)............................. 30,000,000
Payable for securities purchased............... 1,865,610
Interest payable............................... 376,158
Investment advisory fees payable............... 59,373
Administration fees payable.................... 23,225
Accrued expenses............................... 106,289
------------
Total Liabilities.............................. 32,430,655
------------
Total Net Assets.................................. $124,308,325
============
NET ASSETS:
Par value of capital shares.................... $ 144,923
Capital paid in excess of par value............ 122,118,221
7.00% Cumulative Preferred Stock (Note 6)...... 30,000,000
Undistributed net investment income............ 821,209
Accumulated net realized loss on security
transactions................................ (33,177,977)
Net unrealized appreciation on investments..... 4,401,949
------------
Total Net Assets.................................. $124,308,325
============
<CAPTION>
Per Share
---------
<S> <C> <C>
NET ASSET VALUE, COMPRISED OF:
7.00% Cumulative Preferred Stock redemption value $1,000.00 $ 30,000,000
Cumulative undeclared dividends on 7.00%
Preferred Stock................................ 20.81 624,245
--------- ------------
Total allocated to Cumulative Preferred Stock..... $1,020.81 30,624,245
========= ------------
Common Stock (14,492,331 shares outstanding)...... $ 6.46 $ 93,684,080
========= ------------
Total Net Assets.................................. $124,308,325
============
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
[LOGO]
Statement of Operations
For the Six Months
Ended September 30, 1996 (unaudited)
================================================================================
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest..................................................... $8,144,301
Dividends.................................................... 182,871
----------
Total Investment Income...................................... 8,327,172
----------
EXPENSES:
Interest expense............................................. 895,903
Investment advisory fees (Note 2)............................ 379,139
Administration fees (Note 2)................................. 151,656
Shareholder communications................................... 82,396
Audit and legal.............................................. 61,887
Directors' fees.............................................. 20,424
Shareholder and system servicing fees........................ 15,991
Custody...................................................... 4,262
Other........................................................ 22,535
----------
Total Expenses............................................... 1,634,193
----------
Net Investment Income........................................... 6,692,979
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
AND FOREIGN CURRENCIES (NOTE 3):
Realized Gain (Loss) From:
Security transactions (excluding short-term securities)... (142,691)
Foreign currency transactions............................. 160,583
----------
Net Realized Gain............................................ 17,892
----------
Change in Net Unrealized Appreciation of Investments:
Beginning of period....................................... 2,661,532
End of period............................................. 4,401,949
----------
Increase in Net Unrealized Appreciation...................... 1,740,417
----------
Net Gain on Investments and Foreign Currencies.................. 1,758,309
----------
Increase in Net Assets From Operations.......................... $8,451,288
==========
</TABLE>
See Notes to Financial Statements.
14
<PAGE>
[LOGO]
Statements of Changes in Net Assets
For the Six Months Ended
September 30, 1996 (unaudited)
and Year Ended March 31, 1996
================================================================================
<TABLE>
<S> <C> <C>
September 30 March 31
------------ ------------
OPERATIONS:
Net investment income.......................... $ 6,692,979 $ 11,968,129
Net realized gain (loss)....................... 17,892 (393,167)
Increase in net unrealized appreciation........ 1,740,417 6,403,561
------------ ------------
Increase in Net Assets From Operations......... 8,451,288 17,978,523
------------ ------------
DIVIDENDS PAID FROM
NET INVESTMENT INCOME TO:
7.00% Cumulative Preferred Stock............... (1,050,000) (2,100,000)
Common Stock................................... (5,161,372) (10,105,946)
------------ ------------
Decrease in Net Assets From
Distributions To Shareholders................. (6,211,372) (12,205,946)
------------ ------------
FUND SHARE TRANSACTIONS (NOTE 8):
Net asset value of shares issued for
reinvestment of dividends..................... 1,750,442 3,623,826
------------ ------------
Increase in Net Assets From
Fund Share Transactions....................... 1,750,442 3,623,826
------------ ------------
Increase in Net Assets............................ 3,990,358 9,396,403
NET ASSETS:
Beginning of period............................ 120,317,967 110,921,564
------------ ------------
End of period*................................. $124,308,325 $120,317,967
============ ============
* Includes undistributed net investment
income of:.................................... $ 821,209 $ 179,019
============ ============
</TABLE>
See Notes to Financial Statements.
15
<PAGE>
[LOGO]
Statement of Cash Flows
For the Six Months Ended
September 30, 1996 (unaudited)
================================================================================
<TABLE>
<S> <C> <C>
NET DECREASE IN CASH:
Cash Flows From Operating and Investing Activities:
Interest and dividends received........................ $ 6,933,641
Operating expenses paid................................ (789,453)
Interest payments on bank loans........................ (587,645)
Proceeds from short-term securities, net............... (560,000)
Purchases of long-term securities...................... (74,549,308)
Proceeds from disposition of long-term securities...... 74,013,404
------------
Net Cash Provided By Operating and
Investing Activities.................................. $ 4,460,639
-----------
Cash Flows From Financing Activities:
Cash dividends paid on 7.00% Cumulative
Preferred Stock....................................... (1,050,000)
Net cash dividends paid on Common Stock*............... (3,410,930)
------------
Net Cash Used By Financing Activities.................. (4,460,930)
-----------
Net Decrease in Cash...................................... (291)
Cash--Beginning of Period................................. 353
-----------
Cash--End of Period....................................... $ 62
===========
RECONCILIATION OF NET INCREASE IN NET
ASSETS TO NET CASH PROVIDED BY OPERATING
AND INVESTING ACTIVITIES:
Net Increase in Net Assets From Operations................ $ 8,451,288
Amortization of discount on securities................. (1,271,891)
Decrease in investments................................ (5,647,141)
Increase in receivable for securities sold............. 868,839
Decrease in dividends and interest receivable.......... (63,161)
Decrease in payable for securities purchased........... 1,865,610
Decrease in accrued expenses........................... 257,095
------------
Total Adjustments...................................... (3,990,649)
-----------
Net Cash Provided By Operating and Investing Activities... $ 4,460,639
===========
</TABLE>
* Exclusive of dividend reinvestment of $1,750,442.
See Notes to Financial Statements.
16
<PAGE>
[LOGO]
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, as applicable; (d) foreign currencies (and receivables and payables for
unsettled foreign securities transactions) are translated into U.S. Dollars
based on the rate of exchange of such currencies against U.S. Dollars on the
date of valuation; (e) dividend income is recorded on the ex-dividend date and
interest income, is recorded on the accrual basis; (f) gains or losses on the
sale of securities are calculated by using the specific identification method;
(g) dividends and distributions to shareholders are recorded monthly by the Fund
on the ex-dividend date for the shareholders of Common Stock based on net
investment income. The holders of the 7.00% Cumulative Preferred Stock shall be
entitled to receive dividends when, as and if declared by the Board of Directors
of the Fund out of funds legally available to shareholders at a rate of 7.00%
per annum, payable semi-annually on June 15 and December 15; (h) the net asset
value of 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
17
<PAGE>
[LOGO]
Notes to Financial Statements
(unaudited)(continued)
================================================================================
value for the Fund's assets less (1) the Fund's liabilities (including the
outstanding principal amount), (2) the aggregate liquidation value (i.e., $1,000
per outstanding share) of the 7.00% Cumulative Redeemable Preferred Stock and
(3) accumulated and unpaid dividends on the outstanding Cumulative Redeemable
Preferred Stock issue; (i) the Fund intends to comply with the requirements of
the Internal Revenue Code of 1986, as amended, pertaining to regulated
investment companies and to make distributions of taxable income sufficient to
relieve it from substantially all Federal income taxes and excise taxes; (j) the
character of income and gains to be distributed are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles. At March 31, 1996, 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. 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
Smith Barney Mutual Funds Management Inc. ("SBMFM"), a subsidiary of Smith
Barney Holdings Inc. ("SBH"), through its Greenwich Street Advisors division,
acts as investment advisor to the Fund. The Fund pays SBMFM a management fee
calculated at an annual rate of 0.50% on the average daily net assets.
SBMFM 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 net assets as defined
above. These fees are calculated daily and paid monthly.
All officers and one Director of the Fund are employees of SB.
18
<PAGE>
[LOGO]
Notes to Financial Statements
(unaudited)(continued)
================================================================================
3. Investments
During the six months ended September 30, 1996, the aggregate cost of
purchases and proceeds from sales of investments (including maturities, but
excluding short-term securities) were $76,557,009 and $73,144,565, respectively.
At September 30, 1996, the aggregate gross unrealized appreciation and
depreciation of investments were as follows:
- ---------------------------------------------------------
Gross unrealized appreciation $ 7,604,891 *
Gross unrealized depreciation (3,202,942)*
- ---------------------------------------------------------
Net unrealized appreciation $ 4,401,949 *
- ---------------------------------------------------------
* Substantially the same for Federal income tax purposes.
4. Cash Flow Information
The Fund invest in securities and distributes dividends from net investment
income and net realized gains. 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 gains or losses on investment
securities.
5. Repurchase Agreements
The Fund purchases (and its custodian takes possession of) U.S. Government
securities from banks and securities dealers subject to agreements to resell the
securities to the sellers at a future date (generally, the next business day) at
an agreed upon higher repurchase price. The Fund requires continual maintenance
of the market value of the collateral in amounts at least equal to the
repurchase price.
6. Cumulative Redeemable Preferred Stock
On March 16, 1993, the Fund issued 30,000 shares of 7.00% Cumulative
Preferred Stock, which will be redeemed in full on April 15, 2000, at a price
equal to $1,000 per share, plus accumulated and unpaid dividends. On March 31,
1994, 250,000 shares of $0.01 par value 7.00% Cumulative Preferred Stock were
authorized but remained unissued. Cumulative undeclared dividends on the
outstanding Preferred Stock amounted to $624,245 at September 30, 1996.
19
<PAGE>
[LOGO]
Notes to Financial Statements
(unaudited)(continued)
================================================================================
7. Bank Loan
The Fund had a $30,000,000 revolving line of credit with PNC Bank, N.A.
Interest on the loan can be paid based on 30, 60 or 90 day periods as elected by
the Fund. The interest on the loan is currently calculated at the Federal Funds
rate plus 40 basis points. The line of credit expires on July 18, 1998.
Moody's Investors Service Inc. and Standard & Poor's Rating Services have
reconfirmed their respective Aa3 and AA+ ratings of the Fund's 7% Cumulative
Preferred Stock.
8. Common Stock
At September 30, 1996, 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, 1996 March 31, 1996
--------------------- ---------------------
Shares Amount Shares Amount
- --------------------------------------------------------------------------------
Shares issued on
reinvestment 262,272 $1,750,442 569,905 $3,623,826
- --------------------------------------------------------------------------------
9. Capital Loss Carryforward
As of March 31, 1996, the Fund had, for Federal income tax purposes,
capital loss carryforwards of approximately $33,035,000 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. This loss expires as follows:
3/31/99 3/31/00 3/31/03 3/31/04
- --------------------------------------------------------------------------------
Carryforward Amounts $17,408,000 $8,395,000 $4,873,000 $2,359,000
- --------------------------------------------------------------------------------
20
<PAGE>
[LOGO]
Notes to Financial Statements
(unaudited)(continued)
================================================================================
10. Asset Maintenance Requirement
The Fund is required to maintain certain asset coverages with respect to
the Cumulative Preferred Stock (of at least 200%). If the Fund fails to maintain
these requirements as of the last business day of a month and does not cure such
failure by the last business day of the following month, the Fund is required to
redeem certain of the Cumulative Preferred Stock in order to meet these
requirements. Additionally, failure to meet the foregoing asset requirements
would restrict the Fund's ability to pay dividends.
21
<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 period:
<TABLE>
<CAPTION>
1996(1) 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period......................... $ 6.31 $ 5.88 $ 6.76
-------- ------- -------
Income From Operations:
Net investment income..................................... 0.48 0.86 0.93
Net realized and unrealized gain (loss)................... 0.10 0.45 (0.78)
-------- ------- -------
Total Income From Operations.............................. 0.58 1.31 0.15
-------- ------- -------
Distributions:
Dividends declared to 7.00% Cumulative Preferred
Stockholders............................................ (0.07) (0.15) (0.16)
Dividends paid from net investment income................. (0.36) (0.73) (0.87)
-------- ------- -------
Total Distributions....................................... (0.43) (0.88) (1.03)
-------- ------- -------
Net Asset Value, End of Period............................... $ 6.46 $ 6.31 $ 5.88
======== ======= =======
Market Value, End of Period.................................. $ 7.00 $ 7.00 $ 6.63
======== ======= =======
Total Return................................................. 8.58%+++ 20.01% 6.41%
======== ======= =======
Net Assets*, End of Period (000's)........................... $ 93,684 $90,318 $80,309
======== ======= =======
Ratios to Average Net Assets Based on
Common Shares Outstanding:
Net Investment Income..................................... 11.11%+ 10.48% 15.35%
Interest Expense.......................................... 1.49+ 1.47 1.58
Other Expenses............................................ 1.23+ 1.21 1.65
Portfolio Turnover Rate...................................... 49% 87% 79%
</TABLE>
* Exclusive of preferred shares outstanding.
(1) For the six months ended September 30, 1996 (unaudited).
+++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
22
<PAGE>
[LOGO]
Financial Highlights (continued)
================================================================================
For a share of common stock outstanding throughout each period:
<TABLE>
<CAPTION>
1994# 1993 1992
------- ------- -------
<S> <C> <C> <C>
Net Asset Value, Beginning
of Period........................ $ 6.86 $ 6.39 $ 5.58
------- ------- -------
Income From Operations:
Net investment income.......... 1.02 1.07 1.08
Net realized and
unrealized gain (loss)........ (0.13) 0.51 0.82
------- ------- -------
Total Income From Operations... 0.89 1.58 1.90
------- ------- -------
Underwriting Commissions
and Offering Costs on
7.00% Cumulative Preferred
Stock............................ -- (0.05) --
------- ------- -------
Distributions:
Dividends declared to
7.00% Cumulative Preferred
Stockholders.................. (0.11) -- --
Dividends declared to
9.67% Cumulative Preferred
Stockholders.................. (0.12) (0.23) (0.24)
Dividends paid from net
investment income............. (0.82) (0.82) (0.85)
Change in accumulated
undeclared dividends on
Preferred Stock............... 0.06 (0.01) --
------ ------- -------
Total Distributions............ (0.99) (1.06) (1.09)
------ ------- -------
Net Asset Value, End of
Period........................... $ 6.76 $ 6.86 $ 6.39
======= ======= =======
Market Value, End of Period....... $ 7.13 $ 7.25 $ 6.63
======= ======= =======
Total Return...................... 10.02% 24.02% 39.12%
======= ======= =======
Net Assets*, End of Period
(000's).......................... $87,726 $85,225 $75,818
======= ======= =======
Ratios to Average Net Assets Based
on Common Shares Outstanding:
Net Investment Income.......... 14.38% 12.89% 14.16%
Interest Expense............... 0.92 1.14 2.10
Other Expenses................. 1.60 1.99 2.15
Portfolio Turnover Rate........... 102% 93% 86%
</TABLE>
# 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 net investment
income method does not accord with results of operations.
* Exclusive of preferred shares outstanding.
23
<PAGE>
[LOGO]
Financial Highlights (unaudited)
(continued)
================================================================================
The table below sets out information with respect to Cumulative Preferred
Stock, Senior Money Market Notes and Bank Credit Facility that are currently
outstanding.
<TABLE>
<CAPTION>
1996(1) 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
7% Cumulative Preferred Stock (2)
Total amount outstanding (000s) $ 30,000 $ 30,000 $ 30,000 $ 30,000 $ 30,000 $ --
Asset Coverage Per Share 2,560 2,490 2,439 2,583 2,529 --
Involuntary Liquidating Preference 1,000 1,000 1,000 1,000 1,000 --
Per Share (3)
Average Market Value Per Share (3)(4) 1,000 1,000 1,000 1,000 1,000 --
9.67% Cumulative Preferred Stock (5)
Total amount outstanding (000s) -- -- -- -- -- 28,750
Asset Coverage Per Share -- -- -- -- -- 2,413
Involuntary Liquidating Preference -- -- -- -- -- 1,000
Per Share (3)
Average Market Value Per Share (3)(4) -- -- -- -- -- 1,000
Senior Money Market Notes
Total amount outstanding (000s) -- -- 25,800 25,800 25,800 25,800
Asset Coverage Per Share -- -- 527,555 558,675 546,948 510,240
Involuntary Liquidating Preference -- -- 100,000 100,000 100,000 100,000
Per Share (3)
Average Market Value Per Share (3)(4) -- -- 100,000 100,000 100,000 100,000
PNC Bank Credit Facility
Total amount outstanding (000s) 30,000 30,000 -- -- -- --
Asset Coverage Per Share 512,000 498,000 -- -- -- --
Involuntary Liquidating Preference 100,000 100,000 -- -- -- --
Per Share (3)
Average Market Value Per Share (3)(4) 100,000 100,000 -- -- -- --
</TABLE>
(1) For the six months ended September 30, 1996.
(2) Redeemable April 15, 2000.
(3) Excludes accrued interest or accumulated undeclared dividends.
(4) See Note 7.
(5) Redeemable April 15, 1993.
24
<PAGE>
[LOGO]
Quarterly Results of Operations (unaudited)
================================================================================
<TABLE>
<CAPTION>
Net Increase
Net Realized (Decrease)
and Unrealized in Net Assets
Investment Net Investment Gain (Loss) From
Income Income on Investments Operations
-------------------- -------------------- -------------------- ---------------------
Per Per Per Per
Quarter Ended Total Share* Total Share* Total Share* Total Share*
- ----------------------- ---------- ------ ---------- ------ ----------- ------ ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
June 30, 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)
June 30, 1994 3,739,209 0.29 3,111,466 0.24 (3,899,320) (0.29) (787,854) (0.06)
September 30, 1994 3,771,958 0.28 3,215,851 0.24 (5,662,951) (0.42) (2,447,100) (0.17)
December 31, 1994 3,833,137 0.28 3,133,437 0.23 (4,508,973) (0.33) (1,375,536) (0.10)
March 31, 1995 3,651,680 0.27 2,926,309 0.22 3,514,541 0.26 6,440,850 0.48
June 30, 1995 3,390,611 0.25 2,647,561 0.19 (1,044,316) (0.07) 1,606,245 0.12
September 30, 1995 3,466,966 0.25 2,743,530 0.20 6,121,932 0.44 8,862,462 0.64
December 31, 1995 3,996,269 0.28 3,176,088 0.23 1,812,127 0.13 4,988,215 0.36
March 31, 1996 4,169,922 0.29 3,400,950 0.24 (879,349) (0.06) 2,521,601 0.18
June 30, 1996 4,102,702 0.29 3,322,425 0.23 (1,014,235) (0.07) 2,308,190 0.16
September 30, 1996 4,224,470 0.29 3,370,554 0.23 2,772,544 0.19 6,143,098 0.42
</TABLE>
* Per share of Common Stock.
25
<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>
1/24/95 1/31/95 $6.250 $5.58 $0.069 5.799%
2/21/95 2/28/95 6.250 5.78 0.063 5.990
3/24/95 3/31/95 6.625 5.87 0.063 5.874
4/21/95 4/28/95 6.625 5.96 0.063 6.290
5/23/95 5/31/95 6.875 6.10 0.063 6.530
6/23/95 6/30/95 6.625 6.03 0.063 6.290
7/26/95 7/31/95 6.625 6.15 0.060 6.290
8/22/95 8/31/95 6.625 6.16 0.060 6.290
9/26/95 9/30/95 6.625 6.17 0.060 6.294
10/24/95 10/31/95 6.625 6.25 0.060 6.290
11/20/95 11/30/95 6.625 6.22 0.060 6.290
12/26/95 12/31/95 6.500 6.28 0.060 6.175
1/23/96 1/26/96 6.625 6.39 0.060 6.294
2/20/96 2/23/96 7.000 6.52 0.060 6.650
3/26/96 3/29/96 7.000 6.31 0.060 6.650
4/23/96 4/26/96 6.875 6.27 0.060 6.531
5/28/96 5/31/96 6.875 6.33 0.060 6.531
6/25/96 6/28/96 6.750 6.22 0.060 6.413
7/23/96 7/26/96 6.875 6.22 0.060 6.531
8/27/96 8/30/96 6.875 6.22 0.060 6.531
9/24/96 9/27/96 7.125 6.37 0.060 6.769
- --------------------------------------------------------------------------------
</TABLE>
*As of record date
26
<PAGE>
[LOGO]
Additional Information (unaudited)
================================================================================
On June 18, 1996, the annual meeting of the shareholders of the Fund was
held for the purpose of voting on the following matters:
(1) To approve or disapprove for the Fund the election of seven directors
and
(2) To approve or disapprove the selection of KMPG Peat Marwick LLP as the
independent auditors for the current fiscal year of the Fund.
The results of the vote on Proposal 1 were as follows:
<TABLE>
<CAPTION>
Based on Common Shares Based on Preferred Shares
---------------------- -------------------------
% Voting % Voting % Voting % Voting
Directors in Favor Against in Favor Against
=============================================================================
<S> <C> <C> <C> <C>
Charles F. Barber N/A N/A 100.00 0
Allan J. Bloostein 97.906 2.094 100.00 0
Martin Brody 98.135 1.865 N/A N/A
Dwight B. Crane 98.090 1.910 N/A N/A
Robert A. Frankel N/A N/A 100.00 0
William R. Hutchinson 97.998 2.002 100.00 0
Heath B. McLendon 98.181 1.819 100.00 0
</TABLE>
The results of the vote on Proposal 2 were as follows:
<TABLE>
<CAPTION>
% Voting % Voting
in Favor Against % Abstaining
================================================================
<S> <C> <C> <C>
Common Shares 97.940 0.624 1.436
Preferred Shares 100.000 0 0
</TABLE>
* There are approximately 792,749 broker non-votes included in the amount
abstaining.
---------------------
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 at
market prices shares of its common stock in the open market.
27
<PAGE>
[LOGO]
Dividend Reinvestment Plan (unaudited)
================================================================================
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 First Data Investor Services Group, Inc. ("First
Data"), 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. 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, First Data 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 participant's account will be based on the
average per share purchase price of the shares so purchased, including brokerage
commissions. If First Data 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, First Data 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
28
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Dividend Reinvestment Plan (continued)
(unaudited)
================================================================================
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 First
Data'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, 1995, 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 First Data in writing. A termination will be effective immediately if
notice is received by First Data 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, First Data 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 First Data 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 First
Data at 1-(800) 331-1710.
29
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DIRECTORS
Charles F. Barber
Allan J. Bloostein
Martin Brody
Dwight B. Crane
Robert A. Frankel
William R. Hutchinson
Heath B. McLendon
OFFICERS
Heath B. McLendon
Chairman of the Board
and Investment Officer
Jessica Bibliowicz
President
Lewis E. Daidone
Senior Vice President
and Treasurer
John C. Bianchi
Vice President and
Investment Officer
Thomas M. Reynolds
Controller
Christina T. Sydor
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.
FD01206 11/96
