ZENIX INCOME FUND INC, N-30D, 1996-08-30

ZENIX INCOME FUND INC
N-30D, 1996-08-30

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ZENIX
Income
Fund Inc.
---

[LOGO]

Quarterly Report
June 30, 1996
<PAGE>

[LOGO]
Zenix Income Fund Inc.

June 30, 1996

Dear
Shareholder:

We are pleased to provide you with the first quarter report for the Zenix Income
Fund for the three-month period ended June 30, 1996. Over the past three months
the Fund paid dividends totaling $0.18 per share. The table below details the
annualized distribution rates based on the Fund's June 30, 1996 net asset value
(NAV) per share and New York Stock Exchange (NYSE) closing price.

Price Per Share Annualized Distribution Rate
--------------- ----------------------------

$6.25 (NAV) 11.52%
$6.75 (NYSE) 10.67%

The Zenix Income Fund generated a positive total return on NAV of 4.14% for the
past three months, compared to the high yield closed-end fund average total
returns of 2.39% for the same period, as reported by Lipper Analytical Services,
a major fund tracking organization. Because of its relatively higher credit
quality and somewhat greater interest rate sensitivity, the Fund's three month
performance was somewhat less than the average returns of other closed-end high
yield funds.

MARKET AND ECONOMIC OVERVIEW

The fixed income markets remained relatively volatile over the past three months
with the more interest-rate sensitive instruments, such as U.S. government
securities, and investment grade corporate bonds continuing to generate negative
returns. The longer end of the market performed extremely poorly. The 30-Year
Treasury Bond for example, posted a total return of -9.00% for the first six
months of 1996. Despite a rather

1
<PAGE>

turbulent bond market, high yield bonds, which tend to be slightly less
sensitive to interest rate fluctuations than government or investment-grade
corporate bonds, continued to post positive total returns as investors remained
optimistic that U.S. economic expansion would continue.

Within the high yield market, the lowest quality issues (i.e., CCC/Caa rated and
lower) which tend to be more sensitive to economic conditions, had returns of
roughly 10.00% over the past six months. This compares to modestly positive
total returns of about 1.50% for BB/Ba rated issues and slightly greater total
returns in the 4.50% range for B/B rated issues. Given the considerable rise in
interest rates in the first six months of 1996 and the negative performance for
both U.S. Treasury bonds and investment grade corporate bonds in response to the
stronger-than-expected economic growth, we are not surprised by this performance
disparity.

FUND STRATEGY

The Zenix Income Fund has maintained a relatively conservative investment
strategy over the past six months with a strong emphasis on the upper- and
middle-rated tiers of the high-yield market, those issues rated B/B and Ba/BB by
Standard and Poor's and Moody's. These bonds are issued by improving companies
which we believe have a great likelihood of receiving upgrades and, as a
consequence, should experience price appreciation.

Despite the fact the Fund's higher credit quality held back its relative
performance in the first six months of 1996, we will continue to avoid lower
quality CCC/Caa rated issues because we are not comfortable with the level of
risk associated with these issues. Moreover, we believe the Fund's investment
strategy of concentrating on improving high yield bonds rated B/B and BB/Ba is
prudent over the long term. As of June 30, 1996 approximately 92% of the Fund's
portfolio was invested in B/B-rated and BB/Ba-rated bonds.

In terms of industry breakdown, the Fund is heavily weighted in the
telecommunications and cable industries,

2
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which currently make up approximately 22% of total assets. Many companies within
these industries continue to show strong growth and tend to be less sensitive to
changing economic conditions. Because of our positive views on the
telecommunications and cable industries, we added several new issues to the Fund
including: Time Warner, which has significantly expanded its cable and
programming segments, and now has approximately 11.4 million subscribers;
Intelcom Group, an expanding Colorado-based company which provides alternate
local telecommunications access; and Intermedia Communications of Florida, which
gives local telephone companies in the Southeast access to its extensive fiber-
optic system and its voice and data networks.

In light of the strong performance of the high yield market in the past six
months -- in contrast to the sell-off in the treasury market -- we would not be
surprised to witness a short-term pullback in the market, especially considering
the increased level of new issues amounting to over $5 million, scheduled to be
offered over the next two months. In anticipation, we have modestly raised cash
reserves by eliminating or reducing several holdings including Harvard
Industries, Coleman, a camping equipment manufacturer, and Marvel Entertainment,
a company that specializes in comic books. In our view, the Fund's modestly
higher cash reserves will not only partially buffer against increased market
volatility, but will allow us greater flexibility to take advantage of any new
attractive investment opportunities. It is our opinion that unless the economy
is heading for a recession, the high yield market offers reasonable value. We
are still able to invest in select new issues at attractive yields. However,
there are some issues in the high yield market, particularly in the lower-rated
tiers of the market, that are in our view, overvalued. This situation exists in
the equity markets as well.

In closing, we anticipate the high yield market will generate competitive
performance returns as more investors become convinced that U.S. economic growth
will continue throughout the rest of the year. We believe

3
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the Fund's prudent investment philosophy should work well over a full economic
cycle and we look forward to meeting the challenges that may lie ahead in a more
volatile market.

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 Chief Vice President and
Executive Officer Investment Officer

July 23, 1996

4
<PAGE>

<TABLE>
<CAPTION>
Schedule of Investments
[LOGO] June 30, 1996 (unaudited)
- ---------------------------------------------------------------------------------------------------------------
Face
Amount Rating Security Value
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS AND NOTES -- 94.0%
Aerospace/Defense -- 1.3%
$1,000,000 BB Airplanes Pass Through Trust, Corporate Collateralized
Mortgage Obligation, 10.875% due 3/15/19....................... $1,042,500
875,000 B Tracor, Inc., Sr. Sub. Notes, 10.875% due 8/15/01................. 936,250
-----------
1,978,750
-----------
Automobile -- 2.9%
1,000,000 B Collins & Aikman Products Corp., Sr. Sub. Notes,
11.500% due 4/15/06............................................ 1,007,500
Harvard Industries, Inc., Sr. Notes:
2,600,000 B 12.000% due 7/15/04............................................ 2,577,250
900,000 NR 11.125% due 8/1/05+............................................ 851,625
-----------
4,436,375
-----------
Beverage, Food & Tobacco -- 3.0%
2,735,000 B Consolidated Cigar Corp., Sr. Sub. Notes,
10.500% due 3/1/03............................................. 2,851,237
1,750,000 B- Smith's Food & Drug Centers, Inc., Sr. Sub. Notes,
11.250% due 5/15/07............................................ 1,776,250
-----------
4,627,487
-----------
Broadcasting -- 10.4%
3,000,000 CCC Australis Media Ltd., Sr. Sub. Discount Notes, step bond to yield
14.290% due 5/15/03(a)......................................... 1,785,000
2,075,000 BB- Bell Cablemedia, Sr. Discount Notes, step bond to yield
14.230% due 7/15/99............................................ 1,462,875
1,650,000 B Cablevision Systems Corp., Sr. Sub. Debentures,
9.875% due 2/15/13........................................... 1,551,000
2,200,000 B Comcast UK Cable, Debentures, step bond to yield
11.700% due 11/15/07........................................... 1,281,500
500,000 BB Grupo Televisa, Sr. Notes, Series B, 11.875% due 5/15/06.......... 512,500
2,000,000 B Marcus Cable Operating Co., Sr. Debentures,
11.875% due 10/1/05............................................ 2,107,500
Rogers Cablesystems of America, Inc., Sr. Sub. Debentures:
1,000,000 BB- 10.000% due 12/1/07............................................ 983,750
1,175,000 BB- 11.000% due 12/1/15............................................ 1,226,406
800,000 BB+ Sr. Secured Second Priority Debentures, 9.650% due 1/15/14++... 511,093
1,950,000 BB- Rogers Communications, Inc., Sr. Debentures,
10.875% due 4/15/04............................................ 1,989,000
950,000 B- SFX Broadcasting, Sr. Sub. Notes, 10.750% due 5/15/06+............ 947,625
1,000,000 BB+ Videotron Group Ltd., Sr. Notes, 10.625% due 2/15/05.............. 1,050,000
</TABLE>
See Notes to Financial Statements.

5
<PAGE>

<TABLE>
<CAPTION>
Schedule of Investments (continued)
[LOGO] June 30, 1996 (unaudited)
- ----------------------------------------------------------------------------------------------------------------
Face
Amount Rating Security Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Broadcasting -- 10.4% (continued)
$ 500,000 B Young Broadcasting Corp., Sr. Sub. Notes,
11.750% due 11/15/04......................................... $ 531,250
----------
15,939,499
----------
Building/Construction -- 1.4%
500,000 B+ American Standard, Inc., Sr. Sub. Debentures,
11.375% due 5/15/04.......................................... 542,500
1,200,000 B- Greystone Homes, Inc., Sr. Notes, 10.750% due 3/1/04............ 1,200,000
450,000 B- Miles Homes Services, Inc., Sr. Notes, 12.000% due 4/1/01....... 333,563
----------
2,076,063
----------
Chemicals -- 5.9%
3,825,000 B NL Industries, Inc., Sr. Secured Notes, 11.750% due 10/15/03.... 3,925,406
600,000 BB Polysindo International Finance Co., Sr. Secured Notes,
11.375% due 6/15/06.......................................... 609,750
1,250,000 B+ Pt. Polysindo Eka Perkasa, Sr. Notes, 13.000% due 6/15/01....... 1,370,313
2,000,000 B+ Terra Industries, Inc., Sr. Notes, 10.500% due 6/15/05+......... 2,122,500
1,000,000 B Texas Petrochemicals Corp., Sr. Sub. Notes,
11.125% due 7/1/06........................................... 1,025,000
----------
9,052,969
----------
Consumer Durables Goods/Home Furnishings -- 0.8%
625,000 A International Semi-Tech, Sr. Secured Discount Notes,
step bond to yield 15.200% due 8/15/03....................... 363,281
425,000 B- Remington Products Co., Sr. Sub. Notes,
10.625% due 5/15/06+.......................................... 423,406
500,000 B- TAG-Heuer International, Sr. Sub. Notes,
12.000% due 12/15/05+......................................... 510,625
----------
1,297,312
----------
Consumer Non-Durable Goods -- 1.5%
2,000,000 B- Williamhouse Regency of Delaware., Inc., Sr. Sub. Notes,
13.000% due 11/15/05+........................................ 2,265,000
----------
Diversified Manufacturing -- 2.1%
3,000,000 B- Interlake Corp., Sr. Notes, 12.000% due 11/15/01................ 3,168,750
----------
Electronics/Computers -- 1.6%
1,000,000 B- Graphic Controls Corp., Sr. Sub. Notes, 12.000% due 9/15/05..... 1,065,000
1,400,000 B+ Unisys Corp., Sr. Notes, 12.000% due 4/15/03+................... 1,426,250
----------
2,491,250
----------
</TABLE>

See Notes to Financial Statements.

6
<PAGE>

<TABLE>
<CAPTION>
Schedule of Investments (continued)
[LOGO] June 30, 1996 (unaudited)
- -----------------------------------------------------------------------------------------------------
Face
Amount Rating Security Value
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Electric Utilities -- 1.7%
$1,375,000 B Calpine Corp., Sr. Notes, 10.500% due 5/15/06+................... $1,388,750
1,208,736 BB Midland Cogeneration Venture Limited Partnership,
Midland Funding, Sr. Secured Lease Obligation Bond,
Series C, 10.330% due 7/23/02................................. 1,260,107
----------
2,648,857
----------
Foods -- 2.7%
2,500,000 B+ TLC Beatrice International Holdings, Inc., Sr. Secured Notes,
11.500% due 10/1/05........................................... 2,540,625
1,500,000 B- Van De Kamp, Inc., Sr. Sub Notes, 12.000% due 9/15/05............ 1,608,750
----------
4,149,375
----------
Grocery/Convenience Stores -- 2.7%
925,000 B+ Farm Fresh, Inc., Sr. Notes, 12.250% due 10/1/00................. 803,594
38 B- Kash-N-Karry Food Stores, Inc., New Sr. Notes,
11.500% due 2/1/03............................................ 38
Pathmark Stores, Inc.:
1,000,000 B Sub. Debentures, 12.625% due 6/15/02.......................... 1,008,750
2,275,000 B Sub. Notes, 11.625% due 6/15/02............................... 2,266,469
----------
4,078,851
----------
Healthcare/Drugs/Hospital Supplies -- 2.6%
900,000 B Magellan Health Services, Inc., Sr. Sub. Notes,
11.250% due 4/15/04........................................... 972,000
2,850,000 B- OrNda Health Corp., 12.250% due 5/15/02.......................... 3,092,250
----------
4,064,250
----------
Hotel, Casinos and Gaming -- 6.5%
1,500,000 B Aztar Corp., Sr. Sub. Notes, 13.750% due 10/1/04................. 1,721,250
2,500,000 B+ Bally's Grand, Inc., 1st Mortgage Notes, Series B,
10.375% due 12/15/03.......................................... 2,750,000
2,000,000 B- Courtyard By Marriott II, Sr. Secured Notes,
10.750% due 2/1/08............................................ 1,965,000
620,000 NR Mohegan Tribal Gaming Authority, Sr. Notes,
13.500% due 11/15/02+......................................... 780,425
Station Casinos, Inc., Sr. Sub. Notes:
1,275,000 B 9.625% due 6/1/03............................................. 1,231,969
1,500,000 B 10.125% due 3/15/06........................................... 1,464,370
----------
9,913,014
----------
</TABLE>

See Notes to Financial Statements.

7
<PAGE>

<TABLE>
<CAPTION>
Schedule of Investments (continued)
[LOGO] June 30, 1996 (unaudited)
- ------------------------------------------------------------------------------------------------------
Face
Amount Rating Security Value
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Insurance Companies -- 2.7%
$ 1,250,000 BB+ Bankers Life Holdings Corp., Sr. Sub. Notes, Series B,
13.000% due 11/1/02......................................... $1,431,250
2,500,000 BB+ Life Partners Group, Inc., Sr. Sub. Notes, 12.750% due 7/15/02. 2,731,250
----------
4,162,500
----------
Leisure -- 1.2%
842,265 NR Gillett Holdings, Inc., Sr. Sub. Notes, Series A,
12.250% due 6/30/02......................................... 884,378
1,050,000 B Remington Arms Co., Inc., Sr. Sub. Notes,
10.000% due 12/01/03+....................................... 960,750
----------
1,845,128
----------
Machinery -- 0.5%
750,000 B- Day International Group, Sr. Sub. Notes, 11.125% due 6/1/05.... 771,562
----------
Metals/Mining -- 4.8%
3,725,000 B- Kaiser Aluminum and Chemical Corp., Sr. Sub. Notes,
12.750% due 2/1/03.......................................... 3,939,188
2,500,000 B- Russell Metals, Inc., Sr. Notes, 10.250% due 6/15/00........... 2,453,125
800,000 B+ UCAR Global Enterprises, Inc., Sr. Sub. Notes,
12.000% due 1/15/05......................................... 915,000
----------
7,307,313
----------
Oil & Natural Gas -- 7.9%
775,000 BB- California Energy, Inc., Sr. Secured Notes, 9.875% due 6/30/03. 785,656
1,675,000 B+ Clark USA, Inc., Sr. Notes, 10.875% due 12/1/05................ 1,737,813
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......... 1,427,620
2,500,000 B Mesa Operating Co., Sr. Sub. Notes, 10.625% due 7/1/06........ 2,550,000
1,675,000 BB- Santa Fe Energy Resources, Sr. Sub. Debentures,
11.000% due 5/15/04......................................... 1,811,094
800,000 B United Meridian Corp., Sr. Sub. Notes, 10.375% due 10/15/05.... 825,000
----------
12,202,308
----------
Packaging & Containers -- 1.5%
2,250,000 B Gaylord Container Corp., Sr. Notes, 11.500% due 5/15/01........ 2,303,438
----------
Paper/Forest Products & Printing -- 9.0%
1,700,000 B Crown Paper Co., Sr. Sub. Notes, 11.000% due 9/1/05............ 1,619,250
3,500,000 BB Indah Kiat International Finance Co., Guaranteed Secured Notes,
11.875% due 6/15/02......................................... 3,683,750
2,550,000 B+ Repap New Brunswick, Second Priority Sr. Notes,
10.625% due 4/15/05......................................... 2,390,625
</TABLE>
See Notes to Financial Statements.

8
<PAGE>

<TABLE>
<CAPTION>
Schedule of Investments (continued)
[LOGO] June 30, 1996 (unaudited)
- --------------------------------------------------------------------------------------------------------------
Face
Amount Rating Security Value
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Paper/Forest Products & Printing -- 9.0% (continued)
$2,500,000 B+ S.D. Warren Co., Sr. Sub. Notes, 12.000% due 12/15/04........... $2,650,000
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
13.920% due 5/15/06+......................................... 1,150,250
-----------
13,789,875
-----------
Personal Care -- 2.8%
3,130,000 B- Revlon Consumer Products Corp., Sr. Sub. Notes, Series B,
10.500% due 2/15/03.......................................... 3,157,388
1,300,000 B- Revlon Worldwide Corp., Sr. Secured Notes, zero coupon
bond to yield 28.220% due 3/15/98............................ 1,083,875
-----------
4,241,263
-----------
Real Estate -- 1.6%
2,500,000 NR Trizec Finance, Sr. Notes, 10.875% due 10/15/05................. 2,515,625
-----------
Retail -- 2.1%
3,000,000 B+ Barnes and Noble, Inc., Sr. Sub. Notes, Series B,
11.875% due 1/15/03.......................................... 3,225,000
-----------
Telecommunications -- 10.4%
2,950,000 NR Clearnet Communications, Inc., step bond to yield
14.770% due 12/15/05......................................... 1,843,750
750,000 B+ Fonorola, Inc., Sr. Notes, 12.500% due 8/15/02.................. 806,250
2,825,000 NR Intelcom Group USA, Inc., Sr. Discount Notes, step bond to yield
12.440% due 5/1/06+.......................................... 1,571,401
1,125,000 B- Intermedia Communications, Sr. Discount Notes, step bond
to yield 12.440% due 5/15/06................................. 630,000
650,000 B- Metrocall, Inc., Sr. Sub. Notes, 10.375% due 10/1/07............ 612,625
2,000,000 BB- Mobile Telecommunications Technologies Corp., Sr. Notes,
13.500% due 12/15/02......................................... 2,127,500
4,050,000 CCC+ Nextel Communications, Inc., Sr. Discount Notes, step
bond to yield 14.310% due 8/15/04+........................... 2,399,625
2,000,000 NR Nextlink Communications, Sr. Discount Notes,
12.500% due 4/15/06.......................................... 2,000,000
1,550,000 NR Pagemart, Inc., Sr. Discount Notes, step bond to yield
13.740% due 11/1/03.......................................... 1,191,563
4,750,000 BB Telewest Communications, Sr. Discount Debentures, step bond
to yield 11.560% due 10/1/07................................. 2,814,375
-----------
15,997,089
-----------
Textiles and Apparel -- 0.4%
650,000 B Dan River, Inc., Sr. Sub. Notes, 10.125% due 12/15/03........... 624,812
-----------
</TABLE>

See Notes to Financial Statements.

9
<PAGE>

<CAPTION>
Shares Security Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS -- 1.3%
Oil & Natural Gas -- 1.3%
100,000 Freeport McMoRan Resource, LP Depository Unit
(Cost -- $2,096,400)........................................... 1,987,500
-------------
PREFERRED CONVERTIBLE STOCK -- 0.8%
Healthcare -- 0.8%
42,312 Foxmeyer Health Corp., Series A, Convertible $4.20............. 1,142,412
-------------

Publishing -- 0.0%
275 K-III Communications Corp., Series B, Exchange $11.625......... 27,178
-------------
TOTAL PREFERRED CONVERTIBLE STOCK
(Cost -- $1,386,930)........................................... 1,169,590
-------------
WARRANTS -- 0.0%
5,400 Miles Homes, Inc., Expires 4/1/97.............................. 1,350

7,130 Pagemart, Inc., Expires 12/31/03+.............................. 57,040
-------------
TOTAL WARRANTS
(Cost -- $0)................................................... 58,390
-------------
<CAPTION>
Face
Amount Security Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT -- 3.9%
$ 5,949,000 Citibank Corp., 5.396% due 7/1/96;
Proceeds at maturity -- $5,951,675;
(Fully collateralized by U.S. Treasury Notes,
6.375% due 5/15/99; Market value -- $6,068,611)
(Cost -- $5,949,000)........................................... 5,949,000
-------------
TOTAL INVESTMENTS -- 100%
(Cost -- $152,084,995**)....................................... $ 153,455,251
=============
</TABLE>
(a) Securities issued with attached warrants.
+ Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions 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.

10
<PAGE>

[LOGO] Bond Ratings
- --------------------------------------------------------------------------------
All ratings are by Standard & Poor's Corporation ("Standard & Poor's"), except
those identified by an asterisk (*) are rated by Moody's Investors Services
("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.

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.

11
<PAGE>

[LOGO] Bond Ratings (continued)
- --------------------------------------------------------------------------------
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.

12
<PAGE>

<TABLE>
<CAPTION>
Statement of Assets and Liabilities
[LOGO] June 30, 1996 (unaudited)
- --------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investments, at value (Cost -- $152,084,995).................. $153,455,251
Cash.......................................................... 792
Interest receivable........................................... 2,861,300
------------
Total Assets.................................................. 156,317,343
------------
LIABILITIES:
Bank loan (Note 7)............................................ 30,000,000
Payable for securities purchased.............................. 6,166,458
Interest payable.............................................. 63,825
Investment advisory fees payable.............................. 54,265
Administration fees payable................................... 21,182
Accrued expenses.............................................. 129,011
------------
Total Liabilities............................................. 36,434,741
------------
Total Net Assets................................................ $119,882,602
============
NET ASSETS:
Par value of capital shares................................... $ 143,599
Capital paid in excess of par value........................... 121,244,112
7% Cumulative Preferred Stock (Note 6)........................ 30,000,000
Undistributed net investment income........................... 43,463
Accumulated net realized loss on security transactions........ (32,918,828)
Net unrealized appreciation on investments.................... 1,370,256
------------
Total Net Assets................................................ $119,882,602
============

Per Share
-----------
NET ASSET VALUE, COMPRISED OF:
7% Cumulative Preferred Stock redemption value.................. $ 1,000.00 $ 30,000,000
Cumulative undeclared dividends on 7.00%
Preferred Stock.............................................. 3.16 94,930
------------ ------------
Total allocated to Preferred Stock.............................. $ 1,003.16 30,094,930
============ ------------
Common Stock (14,359,860 shares outstanding).................... $ 6.25 $ 89,787,672
============ ------------
Total Net Assets................................................ $119,882,602
============
</TABLE>

See Notes to Financial Statements.

13
<PAGE>

Statement of Operations
For the Three Months
[LOGO] Ended June 30, 1996 (unaudited)
- ------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest................................................... $ 4,006,146
Dividends.................................................. 96,556
-----------
Total Investment Income................................... 4,102,702
-----------

EXPENSES:
Interest expense.......................................... 438,570
Investment advisory fees (Note 2)......................... 184,428
Administration fees (Note 2).............................. 73,771
Shareholder communications................................ 40,808
Audit and legal........................................... 15,707
Shareholder and system servicing fees..................... 7,924
Directors' fees........................................... 7,479
Custody................................................... 2,119
Other..................................................... 9,471
-----------
Total Expenses............................................ 780,277
-----------
Net Investment Income...................................... 3,322,425
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCIES (NOTE 3):
Realized Gain From:
Security transactions (excluding short-term securities).. 116,458
Foreign currency transactions............................ 160,583
-----------
Net Realized Gain......................................... 277,041
-----------
Change in Net Unrealized Appreciation (Depreciation) of
Investments and Foreign Currencies:
Beginning of period...................................... 2,661,532
End of period............................................ 1,370,256
-----------
Decrease in Net Unrealized Appreciation................... (1,291,276)
-----------
Net Loss on Investments and Foreign Currencies............. (1,014,235)
-----------
Increase in Net Assets From Operations..................... $ 2,308,190
===========
</TABLE>

See Notes to Financial Statements.

14
<PAGE>

<TABLE>
<CAPTION>
Statements of Changes in Net Assets
For the Three Months Ended June 30, 1996
[LOGO] (unaudited) and Year Ended March 31, 1996
- -----------------------------------------------------------------------------------------------
June 30 March 31
------------- -------------
<S> <C> <C>
OPERATIONS:
Net investment income.......................................... $ 3,322,425 $ 11,968,129
Net realized gain (loss)....................................... 277,041 (393,167)
Increase (decrease) in net unrealized
appreciation................................................ (1,291,276) 6,403,561
------------ ------------
Increase in Net Assets From Operations......................... 2,308,190 17,978,523
------------ ------------
DIVIDENDS PAID FROM
NET INVESTMENT INCOME TO:
7.00% Cumulative Preferred Stock............................... (1,050,000) (2,100,000)
Common Stock................................................... (2,568,564) (10,105,946)
------------ ------------
Decrease in Net Assets From
Distributions To Shareholders.................................. (3,618,564) (12,205,946)
------------ ------------
FUND SHARE TRANSACTIONS (NOTE 8):
Net value of shares issued for
reinvestment of dividends.................................... 875,009 3,623,826
------------ ------------
Increase in Net Assets From
Fund Share Transactions...................................... 875,009 3,623,826
------------ ------------
Increase (Decrease) in Net Assets................................ (435,365) 9,396,403
NET ASSETS:
Beginning of period............................................ 120,317,967 110,921,564
------------ ------------
End of period*................................................. $119,882,602 $120,317,967
============ ============
* Includes undistributed net investment
income of:..................................................... $ 43,463 $ 179,019
============ ============
</TABLE>

See Notes to Financial Statements.

15
<PAGE>

<TABLE>
<CAPTION>
Statement of Cash Flows
For the Three Months Ended
[LOGO] June 30, 1996 (unaudited)
- --------------------------------------------------------------------------------------------
<S> <C> <C>
NET INCREASE IN CASH:
Cash Flows From Operating and Investing Activities:
Interest and dividends received.......................... $ 4,392,534
Operating expenses paid.................................. (377,298)
Interest payments on bank loans.......................... (442,645)
Proceeds from short-term securities, net................. (4,436,000)
Purchases of long-term securities........................ (32,750,708)
Proceeds from disposition of long-term securities........ 36,358,112
------------
Net Cash Provided By Operating and
Investing Activities $ 2,743,995
------------
Cash Flows From Financing Activities:
Cash dividends paid on 7.00% Cumulative
Preferred Stock (1,050,000)
Net cash dividends paid on Common Stock*................. (1,693,556)
------------
Net Cash Used By Financing Activities.................... (2,743,556)
------------
Net Increase in Cash..................................... 439
Cash--Beginning of Period................................ 353
------------
Cash--End of Period...................................... $ 792
============
RECONCILIATION OF NET INCREASE IN NET
ASSETS TO NET CASH PROVIDED BY OPERATING
AND INVESTING ACTIVITIES:
Net Increase in Net Assets From Operations................. $ 2,308,191
Amortization of discount on securities................... (600,133)
Increase in investments.................................. (7,922,390)
Decrease in receivable for securities sold............... 1,878,839
Decrease in dividends and interest receivable............ 952,696
Increase in payable for securities purchased............. 6,166,458
Decrease in accrued expenses............................. (39,666)
------------
Total Adjustments........................................ 435,804
------------
Net Cash Provided By Operating and Investing Activities.... $ 2,743,995
============
</TABLE>
* Exclusive of dividend reinvestment of $875,009.

See Notes to Financial Statements.

16
<PAGE>

Notes to Financial Statements
[LOGO] (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; securities that have a
maturity of 60 days or more are valued at prices based on market quotations for
securities of similar type, yield 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 holders 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

17
<PAGE>

Notes to Financial Statements
[LOGO] (unaudited)(continued)
- --------------------------------------------------------------------------------
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 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
are 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>

Notes to Financial Statements
[LOGO] (unaudited)(continued)
- --------------------------------------------------------------------------------
3. Investments

During the three months ended June 30, 1996, the aggregate cost of
purchases and proceeds from sales of investments (including maturities, but
excluding short-term investments) were $38,923,851 and $34,479,273,
respectively.

At June 30, 1996, aggregate gross unrealized appreciation for all securities
in which there is an excess of market value over tax cost amounted to
approximately $4,310,276, and aggregate gross unrealized depreciation for all
securities in which there is an excess of tax cost over market value amounted to
approximately $2,940,020 or a net unrealized appreciation of $1,370,256.

4. Cash Flow Information

The Fund shares (based on market conditions and discretion of
shareholders), invests 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 its 7.00% Cumulative
Preferred Stock, which will be redeemed in full on April 15, 2000 at a price
equal to $1,000 per share, plus accumulated and unpaid dividends. At March 31,
1996, 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 $94,930 at June 30, 1996.

19
<PAGE>

Notes to Financial Statements
[LOGO] (unaudited)(continued)
- -------------------------------------------------------------------------------
7. Bank Loan

At June 30, 1996, the Fund had a $30,000,000 credit facility with PNC Bank,
N.A. Interest is calculated on a daily basis using the Federal Funds rate plus
40 basis points.

Moody's Investors Service Inc. and Standard & Poor's Corporation have
reconfirmed their respective Aa3 and AA+ ratings of the Fund's 7% Cumulative
Preferred Stock.

8. Common Stock

At June 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:

Three Months Ended Year Ended
June 30, 1996 March 31, 1996
--------------------------- --------------------------
Shares Amount Shares Amount
-------------------------------------------------------------
[S] [C] [C] [C] [C]
Shares issued on
reinvestment 134,801 $875,009 569,905 $3,623,826

9. Capital Loss Carryforward

As of March 31, 1996, the Fund had, for Federal 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>

Notes to Financial Statments
[LOGO] (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>

Period Ended Year Ended Year Ended
June 30, March 31, March 31,
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............................... 0.24 0.86 0.93
Net realized and unrealized gain (loss)............. (0.02) 0.45 (0.78)
--------- ------- -------
Total Income From Operations........................ 0.22 1.31 0.15
Underwriting Commissions and Offering Costs on 7.00%
Cumulative Preferred Stock.......................... -- -- --
--------- ------- -------
Distributions:
Dividends declared to 7.00% Preferred Stockholders.. (0.07) (0.15) (0.16)
Dividends declared to 9.67% Preferred Stockholders.. -- -- --
Dividends paid from net investment income........... (0.18) (0.73) (0.87)
Change in accumulated undeclared dividends on
Preferred Stock (0.03) -- --
--------- ------- -------
Total Distributions................................. (0.28) (0.88) (1.03)
--------- ------- -------
Net Asset Value, End of Period........................ $ 6.25 $ 6.31 $ 5.88
========= ======= =======
Market Value, End of Period........................... $ 6.75 $ 7.00 $ 6.63
========= ======= =======
Total Return.......................................... 4.14%++ 20.01% 6.41%
========= ======= =======
Net Assets*, End of Period (000's).................... $ 89,883 $90,318 $80,309
Ratios to Average Net Assets Based on ========= ======= =======
Common Shares Outstanding:
Net Investment Income............................... 11.13%+ 10.48% 15.35%
Interest Expense.................................... 1.47+ 1.47 1.58
Other Expenses...................................... 1.14+ 1.21 1.65

Portfolio Turnover Rate............................... 22% 87% 79%
</TABLE>

* Related to common shares.
(1) For the period April 1, 1996 through June 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>

Year Ended Year Ended Year Ended
March 31, March 31, March 31,
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..................... (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% Preferred Stockholders... (0.11) -- --
Dividends declared to 9.67% 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.

* Related to common shares.

23
<PAGE>

Financial Highlights (unaudited)
[LOGO] (continued)
- --------------------------------------------------------------------------------
The table below sets out information with respect to Preferred Stock, Senior
Money Market Notes and Bank Credit Facility that are currently outstanding.

Total Amount Involuntary Average Market
Outstanding Asset Liquidating Value Per Share
Exclusive of Coverage Preference (Excludes Bank
Treasury Securities Per Share Per Share(1) Loans)(1)(2)
------------------- ----------- ----------------- -------------------
<S> <C> <C> <C> <C>

Three Months Ended $30,000,000 * $ 2,500 $ 1,000 $ 1,000
6/30/96 30,000,000 + 499,000 100,000 100,000
Year Ended 30,000,000 * 2,490 1,000 1,000
3/31/96 30,000,000 + 498,000 100,000 100,000
Year Ended 30,000,000 * 2,439 1,000 1,000
3/31/95 25,800,000 *** 527,555 100,000 100,000
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(4) 48,500,000 *** 347,552 100,000 100,000
</TABLE>
* 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.
+ PNC Bank credit facility.
(1) Excludes accrued interest or accumulated undeclared dividends.
(2) See Note 7.
(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 4).
(4) The Fund commenced operations on April 27, 1988.

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 0.24 (1,014,235) (0.07) 2,308,190 0.16
</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 $0.0690 5.799%
2/21/95 2/28/95 6.250 5.78 0.0630 5.990
3/24/95 3/31/95 6.625 5.87 0.0630 5.874
4/21/95 4/28/95 6.625 5.96 0.0630 6.290
5/23/95 5/31/95 6.875 6.10 0.0630 6.530
6/23/95 6/30/95 6.625 6.03 0.0630 6.290
7/26/95 7/31/95 6.625 6.15 0.0600 6.290
8/22/95 8/31/95 6.625 6.16 0.0600 6.290
9/26/95 9/30/95 6.625 6.17 0.0600 6.294
10/24/95 10/31/95 6.625 6.25 0.0600 6.290
11/20/95 11/30/95 6.625 6.22 0.0600 6.290
12/26/95 12/31/95 6.500 6.28 0.0600 6.175
1/23/96 1/26/96 6.625 6.39 0.0600 6.294
2/20/96 2/23/96 7.000 6.52 0.0600 6.650
3/26/96 3/29/96 7.000 6.31 0.0600 6.650
4/23/96 4/26/96 6.875 6.27 0.0600 6.531
5/28/96 5/31/96 6.875 6.33 0.0600 6.531
6/25/96 6/28/96 6.750 6.22 0.0600 6.413
</TABLE>
- --------------------------------------------------------------------------------
* As of record date

26
<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

27
<PAGE>

Dividend Reinvestment Plan (continued)
[LOGO] (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.

28
<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:

Directors Votes For in % Votes Against in %
---------------------------------------------------------------------
Charles F. Barber 96.67 0
Allan J. Bloostein 98.01 1.198
Martin Brody 98.24 1.175
Dwight B. Crane 98.19 1.803
Robert A. Frankel 96.67 0
William R. Hutchinson 98.10 1.896
Heath B. McLendon 98.28 1.712
---------------------------------------------------------------------

The results of the vote on Proposal 2 were as follows:

% Voting in Favor % Voting Against % Abstaining*
---------------- ---------------- ------------

97.94% 0.617% 1.46%

* 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.

This report, including the financial statements herein, is sent to the
shareholders of the Fund 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.

29
<PAGE>

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.

FD01153 8/96