<PAGE>
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ZENIX
Income
Fund Inc.
---
[LOGO]
Semi-Annual Report
September 30, 1997
<PAGE>
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Zenix Income Fund Inc.
Dear Shareholder:
We are pleased to provide you with the semi-annual report for the Zenix
Income Fund Inc. ("Fund") for the period ended September 30, 1997. Over the past
six months the Fund paid income dividends totaling $0.37 per common share.
During September 1997, the Fund raised its monthly income dividend to $0.063
from $0.061 per common share. The table below shows the annualized distribution
rate and six-month total return for the Fund based on its September 30, 1997 net
asset value ("NAV") per share and its New York Stock Exchange ("NYSE") closing
price.
<TABLE>
<CAPTION>
Price Annualized Six-Month
Per Share Distribution Rate* Total Return
--------- ------------------ ------------
<S> <C> <C>
$7.04 (NAV) 10.74% 14.80%
$8.00 (NYSE) 9.45% 16.06%
</TABLE>
The Fund generated a total return on NAV of 14.80% for the six-month period
ended September 30, 1997. The Fund outperformed the six-month average total
return for closed-end high yield funds of 11.50% for the same time period, as
reported by Lipper Analytical Services, Inc. ("Lipper"), largely due to the
Fund's use of leverage. (Lipper is an independent fund-tracking organization.) A
full discussion of the past six-month's economic and market conditions as well
as the investment strategy employed by the Fund during this time follows.
- ----------
*This distribution rate assumes monthly dividends at the current rate of $0.063
per share for twelve months.
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Market and Economic Overview
The U.S. bond markets have generated respectable total returns over the
past six months with interest rates modestly lower so far in 1997. The high
yield bond market generated the strongest total returns in the domestic fixed
income arena as a result of both strong technical market conditions as well as
very positive fundamental conditions.
Despite a considerable amount of new high yield bond issuance, there
continues to be significant demand from both institutional investors and retail
mutual funds. We have seen a record amount of new issuance (i.e., more than $90
billion) during the first nine months of this year and we expect this trend to
continue over the remainder of the year.
There has been more than adequate demand to absorb the heavy new issue
supply. Increasing amounts of capital are flowing into the high yield market
from a variety of sources. The open-end high yield mutual funds have had over
$15 billion of cash inflows over the first nine months of 1997. More
importantly, the high yield market has continued to broaden and mature into a
more widely accepted investment alternative among more traditional institutional
investors. Pension funds are allocating larger percentages of their investment
portfolios to the high yield bond market. For example, the State of Florida
recently allocated $900 million of its pension assets to the high yield bond
market.
During the past twelve months, there has been a meaningful increase in the
number of structured transactions incorporating high yield securities, which has
coincided with the increased investor demand for high yield securities. In the
past two years, a number of institutions, particularly insurance companies and
institutional money managers, have begun creating Collateralized Bond
Obligations ("CBOs") which use high yield securities as collateral. These
instruments are similar to Collateralized Mortgage Obligations ("CMOs") in
structure except they utilize high yield bonds instead of mortgage pass through
securities as their collateral. The CBOs sponsor not only receives a management
fee to manage the CBOs portfolio, but also takes an equity stake in the CBOs to
enhance returns even further. Given the intense demand for current yield over
the past year from many bond investors, there has been a significant increase in
the creation of CBOs. Put simply, the amount of capital being deployed into the
high yield market has risen to record levels.
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Given record investor demand and with the significant amount of capital
invested into the market, many high yield bonds have appreciated to fully valued
levels. For example, yield premiums over U.S. Treasuries have narrowed
approximately 100 basis points tighter than their historical averages. In
addition to the above technical factors, there are a number of positive
fundamental factors affecting the valuations of high yield bonds. Economic
conditions remain generally supportive with moderate growth and low inflation.
The stock market, with its higher valuations, has enabled a number of high yield
companies to issue stock to further bolster their balance sheets. In addition,
the banking system remains highly liquid, allowing it to accommodate many high
yield borrowers. Consequently, high yield bond default rates have been at the
low end of their historical range, at approximately 1.5% per year so far during
1997. As long as the overall economic and market conditions remain relatively
favorable, we believe high yield bond spreads should remain at the narrow end of
their historical range.
Because of these positive fundamental factors, we do not believe the high
yield market is becoming increasingly speculative. However, we are naturally
becoming more sensitive to the possibility of disappointment and
underperformance among select individual issues. This has happened in the stock
market throughout the year. Given the high valuation levels of many financial
markets, we will continue to be more selective and cautious with respect to our
investments.
Portfolio Strategy
Little has changed in the Fund since our last quarterly report. In this
moderate growth environment, we still expect the stronger high yield companies
to outperform and these companies tend to be in industries that stand to benefit
from new technology. We continue to find a number of attractive opportunities in
the telecommunications, media, cable TV and oil and natural gas industries, and
the Fund remains heavily weighted in these areas. Some of the issues that we
continue to favor include Time Warner, Cablevision Systems Corp., Nextel
Communications Inc., Rogers Cablesystems, Teleport Communications, Pride
Petroleum and Parker Drilling to name a few. All of these companies are
generating improving results either through increased market share and/or
improved internal cost controls.
3
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We firmly believe that over a full economic cycle the better quality
high-yield issues offer superior risk-adjusted returns and lower default risk
relative to lower-quality issues. We continue to maintain a meaningful
percentage of stronger BB-rated issues in the Fund. We are also maintaining an
intermediate average maturity in order to limit the Fund's interest rate
sensitivity. Considering the trend toward greater industry competition and
little pricing power in most sectors of the U.S. economy, we believe our prudent
and conservative approach to high yield bond investing should generate
consistent positive returns for shareholders over a full economic cycle. We
therefore will continue to avoid sectors of the economy that are not growing
fast or are facing intense industry competition, such as general retailers and
restaurants.
Market Outlook
We remain optimistic about the total return prospects for the high yield
market for the remainder of 1997. At the very least, we expect a narrow trading
range for general interest rates over the fourth quarter, especially if U.S.
economic activity remains moderate and inflation stays subdued. We still believe
the U.S. economy could grow more slowly over the next several months with modest
inflation. Given our expectations, we have focused on maintaining sound credit
quality in the Fund.
In closing, thank you for investing in the Zenix Income Fund Inc. We look
forward to continuing to help you pursue your investment goals. If you have any
questions about your investment in the Fund, please call First Data Investor
Services Group, Inc. at (800) 331-1710.
Sincerely,
/s/ Heath B. McLendon /s/ John C. Bianchi
Heath B. McLendon John C. Bianchi, CFA
Chairman Vice President and
Investment Officer
October 24, 1997
4
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<PAGE>
<TABLE>
<CAPTION>
[LOGO]
Schedule of Investments
September 30, 1997 (unaudited)
==================================================================================================================
Face
Amount Rating Security Value
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS AND NOTES -- 94.2%
Aerospace/Defense -- 1.5%
$2,000,000 BB Airplanes Pass Through Trust, Corporate Collateralized
Mortgage Obligation, 10.875% due 3/15/19 ............................ $ 2,359,420
------------
Banking -- 2.4%
3,375,000 B First Nationwide Parent Holdings Ltd.,
Sr. Exchange Notes, 12.500% due 4/15/03 ............................. 3,805,313
------------
Beverage, Food and Tobacco -- 1.8%
2,735,000 B Consolidated Cigar Corp., Sr. Sub. Notes, 10.500% due 3/1/03 ............. 2,858,075
------------
Broadcasting/Cable -- 13.2%
750,000 B- All American Communications Inc., Sr. Sub. Notes,
10.875% due 10/15/01 ................................................ 823,125
Australis Media Ltd., Sr. Discount Notes:
650,000 NR Step bond to yield 11.404% due 11/1/02 .............................. 526,500
23,303 CCC+ Step bond to yield 13.590% due 5/15/03# ............................. 18,643
Cablevision Systems Corp., Sr. Sub. Debentures:
700,000 B 10.750% due 4/1/04 .................................................. 756,000
2,425,000 B 9.875% due 2/15/13 .................................................. 2,619,000
2,200,000 B Comcast UK Cable, Debentures, step bond to yield
11.156% due 11/15/07 ................................................ 1,732,500
500,000 B Marcus Cable Capital Corp., Sr. Discount Notes,
step bond to yield 12.747% due 12/15/05 ............................. 415,000
2,000,000 B Marcus Cable Operating Co., Sr. Debentures,
11.875% due 10/1/05 ................................................. 2,185,000
Rogers Cablesystems of America Inc.:
850,000 BB+ Sr. Notes, Series B, 10.000% due 3/15/05 ............................ 932,875
1,000,000 BB+ Sr. Sub. Debentures, 10.000% due 12/1/07 ............................ 1,092,656
2,100,000 BB- Sr. Sub. Debentures, 11.000% due 12/1/15 ............................ 2,404,500
900,000 BB- Rogers Communications Inc., Sr. Debentures,
8.875% due 7/15/07 .................................................. 909,000
1,850,000 BB Telewest Communications PLC, Sr. Discount Debentures,
step bond to yield 10.994% due 10/1/07 .............................. 1,392,125
TV Azteca SA, Guaranteed Sr. Notes:
525,000 B+ Series A, 10.125% due 2/15/04 ....................................... 553,875
950,000 B Series B, 10.500% due 2/15/07+ ...................................... 1,014,125
UIH Australia Inc., Sr. Discount Notes, step bond to yield:
300,000 B- 12.775% due 5/15/06+ ................................................ 215,250
2,150,000 B- 14.000% due 5/15/06+ ................................................ 1,553,375
1,000,000 BB+ Videotron Group Ltd., Sr. Notes, 10.625% due 2/15/05 ..................... 1,127,500
</TABLE>
See Notes to Financial Statements
5
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<TABLE>
<CAPTION>
[LOGO]
Schedule of Investments (continued)
September 30, 1997 (unaudited)
==================================================================================================================
Face
Amount Rating Security Value
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Broadcasting/Cable -- 13.2% (continued)
$ 900,000 B- Wireless One Inc., Sr. Discount Notes,
13.000% due 10/15/03 ................................................ $ 433,125
500,000 B Young Broadcasting Corp., Guaranteed Sr. Sub. Notes,
11.750% due 11/15/04 ................................................ 560,000
------------
21,264,174
------------
Building/Construction -- 0.2%
275,000 NR American Builders and Contractors Supply Inc.,
Sr. Sub. Notes, 10.625% due 5/15/07 ................................. 288,406
------------
Chemicals -- 3.0%
450,000 CCC+ Interlake Corp., Sr. Sub. Debentures, 12.125% due 3/1/02 ................. 470,250
1,000,000 B NL Industries Inc., Sr. Secured Notes, 11.750% due 10/15/03 .............. 1,105,000
2,000,000 B+ Terra Industries Inc., Sr. Notes, 10.500% due 6/15/05 .................... 2,207,500
1,000,000 B Texas Petrochemical Corp., Sr. Sub. Notes,
11.125% due 7/1/06 .................................................. 1,096,250
------------
4,879,000
------------
Diversified Manufacturing -- 1.0%
1,500,000 B Unifrax Investment Corp., Sr. Notes,
10.500% due 11/1/03 ................................................. 1,552,500
------------
Electric Utilities -- 1.8%
Calpine Corp., Sr. Notes:
1,000,000 BB- 10.500% due 5/15/06 ................................................. 1,100,000
750,000 BB- 8.750% due 7/15/07+ ................................................. 766,875
983,733 BB- Midland Cogeneration Venture Limited Partnership,
Midland Funding, Sr. Secured Lease Obligation Bond,
Series C, 10.330% due 7/23/02 ....................................... 1,088,256
------------
2,955,131
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Electronics-Computers -- 6.4%
650,000 B- Axiohm Transaction Solutions, Sr. Sub. Notes,
9.750% due 10/1/07+ ................................................. 659,750
1,000,000 B Celestica International Inc., Guaranteed Sr. Sub. Notes,
10.500% due 12/31/06 ................................................ 1,083,750
1,000,000 B Fairchild Semiconductor Inc., Sr. Sub. Notes,
10.125% due 3/15/07+ ................................................ 1,072,500
582,998 B FSC Semiconductor Inc., Sr. Sub. Notes,
11.740% due 3/14/08++ ............................................... 582,998
2,000,000 B- Graphic Controls Corp., Sr. Sub. Notes, 12.000% due 9/15/05 .............. 2,252,500
</TABLE>
See Notes to Financial Statements
6
<PAGE>
<TABLE>
<CAPTION>
[LOGO]
Schedule of Investments (continued)
September 30, 1997 (unaudited)
==================================================================================================================
Face
Amount Rating Security Value
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Electronics-Computers -- 6.4% (continued)
Unisys Corp., Sr. Notes:
$1,400,000 B+ 12.000% due 4/15/03 ................................................. $ 1,575,000
1,575,000 B+ 11.750% due 10/15/04 ................................................ 1,771,875
1,200,000 B- Viasystems Inc., Sr. Sub. Notes, 9.750% due 6/1/07+ ...................... 1,251,000
------------
10,249,373
------------
Finance -- 5.1%
1,500,000 B Amresco Inc., Sr. Sub. Notes, Series A,
10.000% due 3/15/04 ................................................. 1,578,750
900,000 B+ Imperial Credit Industries Inc., Sr. Notes,
9.875% due 1/15/07 .................................................. 915,750
1,000,000 NR Intertek Finance PLC, Sr. Sub. Notes,
Series B, 10.250% due 11/1/06 ....................................... 1,050,000
1,000,000 B- Ocwen Capital Trust, Guaranteed Notes,
10.875% due 8/1/27 .................................................. 1,065,000
2,750,000 B+ Ocwen Financial Corp., Notes,
11.875% due 10/1/03 ................................................. 3,083,438
500,000 BB+ SIG Capital Trust I, Preferred Secured Notes,
9.500% due 8/15/27+ ................................................. 510,000
------------
8,202,938
------------
Foods -- 2.9%
2,500,000 BB- TLC Beatrice International Holdings Inc.,
Sr. Secured Notes, 11.500% due 10/1/05 .............................. 2,953,125
1,500,000 B- Van de Kamp Inc., Sr. Sub. Notes, 12.000% due 9/15/05 .................... 1,672,500
------------
4,625,625
------------
Health Care/Drugs/Hospital Supplies -- 2.9%
1,600,000 BB ICN Pharmaceutical Inc., Sr. Notes,
9.250% due 8/15/05+ ................................................. 1,672,000
1,050,000 B Magellan Health Services Inc., Sr. Sub. Notes,
11.250% due 4/15/04 ................................................. 1,168,125
Tenet Healthcare Corp.:
750,000 BB Sr. Notes, 8.000% due 1/15/05 ....................................... 780,000
1,000,000 B+ Sr. Sub. Notes, 8.625% due 1/15/07 .................................. 1,058,750
------------
4,678,875
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Hotels, Casinos and Gaming -- 6.0%
1,500,000 B Aztar Corp., Sr. Sub. Notes, 13.750% due 10/1/04 ......................... 1,717,500
2,000,000 B- Courtyard By Marriott II, Sr. Secured Notes,
10.750% due 2/1/08 .................................................. 2,180,000
</TABLE>
See Notes to Financial Statements
7
<PAGE>
<TABLE>
<CAPTION>
[LOGO]
Schedule of Investments (continued)
September 30, 1997 (unaudited)
==================================================================================================================
Face
Amount Rating Security Value
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Hotels, Casinos and Gaming -- 6.0% (continued)
$1,500,000 BB Grand Casinos Inc., Guaranteed 1st Mortgage,
10.125% due 12/1/03 ................................................. $ 1,593,750
300,000 NR HMC Acquisition Properties Inc., Sr. Notes,
Series B, 9.000% due 12/15/07 ....................................... 310,125
2,130,000 BB- HMH Properties Inc., Sr. Notes,
Series B, 9.500% due 5/15/05 ........................................ 2,252,475
620,000 BB+ Mohegan Tribal Gaming Authority,
Sr. Secured Notes, 13.500% due 11/15/02 ............................. 812,200
725,000 B Signature Resorts Inc., Sr. Sub. Notes,
9.500% due 8/15/27+ ................................................. 732,250
------------
9,598,300
------------
Leisure -- 0.7%
1,650,000 B- Coleman Escrow Corp., Sr. Secured 1st Priority Discount Notes,
zero coupon bond to yield 11.410% due 5/15/01+ ...................... 1,122,000
------------
Machinery -- 1.8%
1,000,000 B- Alvey Systems Inc., Sr. Sub. Notes,
11.375% due 1/31/03 ................................................. 1,050,000
1,667,000 B- Terex Corp., Sr. Secured Notes,
13.250% due 5/15/02 ................................................. 1,921,218
------------
2,971,218
------------
Metals/Mining -- 4.6%
800,000 BB- Echo Bay Mines Inc., Jr. Sub. Debentures,
11.000% due 4/1/27 .................................................. 776,000
2,400,000 B- Haynes International Inc., Sr. Sub. Notes,
11.625% due 9/1/04 .................................................. 2,664,000
1,075,000 B- Kaiser Aluminum and Chemical Corp., Sr. Sub. Notes,
12.750% due 2/1/03 .................................................. 1,166,375
1,800,000 B- Russell Metals Inc., Sr. Notes, 10.250% due 6/15/00 ...................... 1,883,250
800,000 B+ UCAR Global Enterprises Inc.,
Sr. Sub. Notes, 12.000% due 1/15/05 ................................. 916,000
------------
7,405,625
------------
Oil and Natural Gas -- 5.5%
500,000 B Canadian Forest Oil Ltd., Sr. Sub. Notes,
8.750% due 9/15/07+ ................................................... 502,500
600,000 BB Clark Oil Refining Corp., Sr. Notes,
10.500% due 12/1/01 ................................................... 624,000
</TABLE>
See Notes to Financial Statements
8
<PAGE>
<TABLE>
<CAPTION>
[LOGO]
Schedule of Investments (continued)
September 30, 1997 (unaudited)
==================================================================================================================
Face
Amount Rating Security Value
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Oil and Natural Gas -- 5.5% (continued)
$1,425,000 B+ Dawson Production Services Inc., Sr. Notes,
9.375% due 2/1/07 ................................................... $ 1,492,688
1,800,000 B+ Parker Drilling Co., Sr. Notes, 9.750% due 11/15/06 ...................... 1,930,500
900,000 BB- Pride Petroleum Services Inc., Sr. Notes,
9.375% due 5/1/07 ................................................... 961,875
1,675,000 BB- Santa Fe Energy Resources Inc., Sr. Sub. Debentures,
11.000% due 5/15/04 ................................................. 1,821,563
700,000 B- Stone Energy Corp., Sr. Sub. Notes,
8.750% due 9/15/07+ ................................................. 701,750
800,000 B United Meridian Corp., Sr. Sub. Notes,
10.375% due 10/15/05 ................................................ 874,000
------------
8,908,876
------------
Packaging/Containers -- 0.8%
750,000 B Huntsman Packaging Corp., Sr. Notes,
11.500% due 8/15/07+ ................................................ 765,000
1,000,000 NR Impress Metal Packaging Holdings, Sr. Sub. Notes,
9.875% due 5/29/07+ ................................................. 600,158
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1,365,158
------------
Paper/Forest Products and Printing -- 7.9%
1,300,000 B- American Pad & Paper Co., Sr. Sub. Notes,
13.000% due 11/15/05 ................................................ 1,527,500
1,375,000 B+ Asia Pulp & Paper Ltd., Guaranteed Preferred Notes,
Series A, 12.000% due 12/29/49+ ..................................... 1,399,063
1,500,000 B Goss Graphic Systems Inc., Sr. Sub. Notes,
12.000% due 10/15/06 ................................................ 1,680,000
2,000,000 BB Indah Kiat International Finance Co., Guaranteed
Secured Notes, 11.875% due 6/15/02 .................................. 2,167,500
3,275,000 B+ S.D. Warren Co., Sr. Sub. Notes, 12.000% due 12/15/04 .................... 3,717,125
2,050,000 BB Tjiwi Kimia International, Sr. Notes, 13.250% due 8/1/01 ................. 2,275,500
------------
12,766,688
------------
Pollution Control -- 1.1%
1,000,000 B+ Allied Waste North America Inc., Sr. Sub. Notes,
10.250% due 12/1/06+ ................................................ 1,097,500
675,000 NR Clisa SA, Guaranteed Sr. Notes,
11.625% due 6/1/04+ ................................................. 719,719
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1,817,219
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</TABLE>
See Notes to Financial Statements
9
<PAGE>
<TABLE>
<CAPTION>
[LOGO]
Schedule of Investments (continued)
September 30, 1997 (unaudited)
==================================================================================================================
Face
Amount Rating Security Value
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Publishing -- 0.7%
$1,500,000+++ NR ITT Promedia Corp., Sr. Sub. Notes,
9.125% due 9/15/07+ ................................................ $ 889,621
275,000 NR ITT Publimedia, Sr. Sub. Notes,
9.375% due 9/15/07+ ................................................ 287,375
------------
1,176,996
------------
Real Estate -- 1.2%
1,675,000 BB- Trizec Finance Ltd., Sr. Notes, 10.875% due 10/15/05 ..................... 1,915,781
------------
Telecommunications -- 17.5%
950,000 BB- Century Communications Corp., Sr. Notes,
8.750% due 10/1/07 .................................................. 952,375
2,100,000 NR Clearnet Communications Inc., Sr. Discount Notes,
step bond to yield, 13.778% due 12/15/05 ............................ 1,643,250
2,000,000 NR Colt Telecommunications Group PLC, Sr. Discount Notes,
step bond to yield 11.976% due 12/15/06 ............................. 1,495,000
750,000 B+ Fonorola Inc., Sr. Notes, 12.500% due 8/15/02 ............................ 839,063
1,350,000 B Globalstar LP Corp., Sr. Notes, 11.375% due 2/15/04+ ..................... 1,407,375
700,000 B Hermes Eurorail Telecommunications Inc., Sr. Notes,
11.500% due 8/15/07+ ................................................ 757,750
675,000 NR Hyperion Telecommunications Inc., Sr. Notes,
12.250% due 9/1/04+ ................................................. 739,125
1,225,000 NR Intelcom Group USA Inc., Sr. Discount Notes, step bond to yield
12.500% due 5/1/06 .................................................. 897,313
3,300,000 B- Intermedia Communications, Sr. Discount Notes,
step bond to yield 12.415% due 5/15/06 .............................. 2,549,250
Iridium LLC Capital Corp.,
625,000 B- Sr. Discount Notes, 14.000% due 7/15/05+ ............................ 676,563
1,000,000 B- Sr. Notes, 13.000% due 7/15/05+ ..................................... 1,047,500
1,725,000 B McLeod Inc., Sr. Discount Notes,
step bond to yield 10.594% due 3/1/07+ .............................. 1,229,063
1,600,000 NR Metronet Communications Inc., Sr. Notes,
12.000% due 8/15/07+ ................................................ 1,768,000
725,000 NR Microcell Telecommunications Inc., Sr. Discount Notes,
Series B, step bond to yield 11.832% due 6/1/06 ..................... 493,000
Nextel Communications Inc., Sr. Discount Notes,
step bond to yield:
3,100,000 CCC- 11.846% due 8/15/04+ ........................................... 2,689,250
1,400,000 CCC 10.625% due 9/15/07+ ........................................... 875,000
</TABLE>
See Notes to Financial Statements
10
<PAGE>
<TABLE>
<CAPTION>
[LOGO]
Schedule of Investments (continued)
September 30, 1997 (unaudited)
==================================================================================================================
Face
Amount Rating Security Value
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Telecommunications -- 17.5% (continued)
$2,000,000 NR Nextlink Communications, Sr. Discount Notes,
12.500% due 4/15/06 ................................................. $ 2,310,000
1,550,000 NR Pagemart Inc., Sr. Discount Notes, step bond to yield
11.602% due 11/1/03 ................................................. 1,426,000
1,325,000 B- Primus Telecommunications Group, Sr. Notes,
11.750% due 8/1/04 .................................................. 1,411,125
1,300,000 NR RSL Communications Ltd., Sr. Notes,
12.250% due 11/15/06+ ............................................... 1,387,750
1,350,000 B Teleport Communications Inc., Sr. Discount Notes,
step bond to yield 11.416% due 7/1/07 ............................... 1,066,500
700,000 NR Telesystems International Wireless Corp., Sr. Discount Notes,
step bond to yield 13.250% due 6/30/07+ ............................. 437,500
------------
28,097,752
------------
Textile -- 0.9%
1,250,000 BB Pt. Polysindo Eka Perkasa, Sr. Notes,
13.000% due 6/15/01 ................................................. 1,387,500
------------
Transportation -- 3.3%
650,000 NR Central Transport Rental Corp., Guaranteed Secured Notes,
9.500% due 4/30/03 .................................................. 692,250
1,450,000 BB Guangzhou Shenzhen Superhighway, Sr. Notes,
10.250% due 8/15/07+ ................................................ 1,450,000
2,805,000 BB- Sea Containers Limited, Sr. Sub. Debentures,
12.500% due 12/1/04 ................................................. 3,190,683
------------
5,332,933
------------
TOTAL CORPORATE BONDS AND NOTES
(Cost -- $141,491,719) ................................................... 151,584,876
------------
<CAPTION>
Shares Security Value
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PREFERRED STOCKS -- 4.7%
Banking -- 0.3%
20,100 California Federal Preferred Capital Corp. ......................................... 527,625
------------
Broadcasting/Cable -- 3.8%
5,394 Time Warner Inc., Series K, Exchange 0.000%+ ....................................... 6,156,102
------------
Publishing -- 0.0%
298 K-III Communications Corp., Series B, Exchange $11.625+ ............................ 32,420
------------
</TABLE>
See Notes to Financial Statements
11
<PAGE>
<TABLE>
<CAPTION>
[LOGO]
Schedule of Investments (continued)
September 30, 1997 (unaudited)
==================================================================================================================
Shares Security Value
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Telecommunications -- 0.6%
775 IXC Communications Inc.+ ........................................................... $ 889,313
------------
TOTAL PREFERRED STOCKS
(Cost -- $7,163,580) ............................................................... 7,605,460
------------
WARRANTS -- 0.3%
Broadcasting/Cable -- 0.0%
1,725 Australis Holdings Property Ltd., Expire 10/30/01 .................................. 52
------------
Telecommunications -- 0.3%
9,735 Clearnet Communications Inc., Expire 9/15/05+ ...................................... 53,543
1,000 Globalstar Telecommunications, Expire 2/15/04 ...................................... 110,000
1,000 Iridium World Communications Ltd., Expire 7/15/05 .................................. 155,000
6,468 Nextel Communications Inc., Expire 4/25/99 ......................................... 111,573
7,130 Pagemart Inc., Expire 12/31/03+ .................................................... 57,040
1,300 RSL Communications Ltd., Expire 11/15/06 ........................................... 7,800
------------
494,956
------------
TOTAL WARRANTS
(Cost -- $378,241) ................................................................. 495,008
------------
<CAPTION>
Face
Amount Security Value
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT -- 0.8%
$1,221,000 Goldman Sachs & Co., 6.100% due 10/1/97;
Proceeds at maturity -- $1,221,207; (Fully collateralized
by U.S. Treasury Notes, 5.875% due 9/30/02;
Market value -- $1,245,920) (Cost -- $1,221,000) .................................. 1,221,000
------------
TOTAL INVESTMENTS -- 100%
(Cost -- $150,254,540** ) .......................................................... $160,906,344
============
</TABLE>
# Security 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.
++ Restricted security (Note 11).
+++ Represents local currency.
** Aggregate cost for Federal income tax purposes is substantially the same.
See Notes to Financial Statements
12
<PAGE>
[LOGO]
Bond Ratings
================================================================================
All ratings are by Standard & Poor's Ratings Service ("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 -- Ratings from "BBB" to "CCC" may be modified by the addition
of a plus (+) or minus (-) sign to show relative standings within the major
rating categories.
BBB -- Bonds rated "BBB" are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit
adequate protection parameters, adverse economic conditions or
changing circumstances, are more likely to lead to a weakened
capacity to pay interest and repay principal for bonds in this
category than in higher rated categories.
BB -- 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 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 "B," 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.
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.
NR -- Indicates that the bond is not rated by Standard & Poor's or
Moody's.
13
<PAGE>
<TABLE>
<CAPTION>
[LOGO]
Statement of Assets and Liabilities
September 30, 1997 (unaudited)
================================================================================
<S> <C> <C>
ASSETS:
Investments, at value (Cost -- $150,254,540).. $160,906,344
Cash ......................................... 100
Interest and dividend receivables ............ 3,830,921
Receivable for securities sold ............... 2,220,690
------------
Total Assets ................................. 166,958,055
------------
LIABILITIES:
Bank loan (Note 7) ........................... 30,000,000
Payable for securities purchased ............. 658,125
Investment advisory fees payable ............. 94,985
Interest payable ............................. 92,692
Administration fees payable .................. 37,470
Accrued expenses ............................. 97,184
------------
Total Liabilities ............................ 30,980,456
------------
Total Net Assets ................................ $135,977,599
============
NET ASSETS:
Par value of capital shares .................. $ 149,679
Capital paid in excess of par value .......... 125,388,427
7.00% Cumulative Preferred Stock (Note 6) .... 30,000,000
Undistributed net investment income .......... 1,076,596
Accumulated net realized loss from
security transactions ...................... (31,288,907)
Net unrealized appreciation on investments ... 10,651,804
------------
Total Net Assets ................................ $135,977,599
============
Per Share
---------
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 ............................ 20.81 624,243
---------- ------------
Total allocated to Cumulative Preferred Stock ... $ 1,020.81 30,624,243
========== ------------
Common Stock (14,967,904 shares outstanding) .... $ 7.04 105,353,356
========== ------------
Total Net Assets ................................ $135,977,599
============
</TABLE>
See Notes to Financial Statements.
14
<PAGE>
<TABLE>
<CAPTION>
[LOGO]
Statement of Operations
For the Six Months Ended
September 30, 1997 (unaudited)
================================================================================
<S> <C>
INVESTMENT INCOME:
Interest ................................................... $ 8,038,223
Dividends .................................................. 339,995
Less: Interest expense (Note 7) ............................ (915,200)
------------
Total Investment Income .................................... 7,463,018
------------
EXPENSES:
Investment advisory fees (Note 2) .......................... 403,198
Administration fees (Note 2) ............................... 161,279
Shareholder communications ................................. 87,739
Audit and legal ............................................ 44,430
Directors' fees ............................................ 17,548
Shareholder and system servicing fees ...................... 15,943
Listing fees ............................................... 12,400
Custody .................................................... 3,609
Other ...................................................... 7,655
------------
Total Expenses ............................................. 753,801
------------
Net Investment Income ......................................... 6,709,217
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
AND FOREIGN CURRENCIES (NOTE 3):
Realized Gain (Loss) From:
Security transactions (excluding short-term securities) .. 714,270
Foreign currency transactions ............................ (33,680)
------------
Net Realized Gain .......................................... 680,590
------------
Change in Net Unrealized Appreciation of Investments:
Beginning of period ...................................... 2,870,108
End of period ............................................ 10,651,804
------------
Increase in Net Unrealized Appreciation .................... 7,781,696
------------
Net Gain on Investments ....................................... 8,462,286
------------
Increase in Net Assets From Operations ........................ $ 15,171,503
============
</TABLE>
See Notes to Financial Statements.
15
<PAGE>
<TABLE>
<CAPTION>
[LOGO]
Statements of Changes in Net Assets
For the Six Months Ended
September 30, 1997 (unaudited)
and the Year Ended March 31, 1997
================================================================================
<S> <C> <C>
September 30 March 31
------------- -------------
OPERATIONS:
Net investment income ..................... $ 6,709,217 $ 13,332,776
Net realized gain ......................... 680,590 939,501
Increase in net unrealized appreciation ... 7,781,696 208,576
------------- -------------
Increase in Net Assets From Operations .... 15,171,503 14,480,853
------------- -------------
DIVIDENDS PAID FROM
NET INVESTMENT INCOME TO:
7.00% Cumulative Preferred Stock .......... (1,050,000) (2,100,000)
Common Stock .............................. (5,460,851) (10,475,099)
------------- -------------
Decrease in Net Assets From
Distributions To Shareholders ........... (6,510,851) (12,575,099)
------------- -------------
FUND SHARE TRANSACTIONS (NOTE 8):
Net asset value of shares issued for
reinvestment of dividends ............... 1,640,869 3,452,357
------------- -------------
Increase in Net Assets From
Fund Share Transactions ................. 1,640,869 3,452,357
------------- -------------
Increase in Net Assets ....................... 10,301,521 5,358,111
NET ASSETS:
Beginning of period ....................... 125,676,078 120,317,967
------------- -------------
End of period* ............................ $ 135,977,599 $ 125,676,078
============= =============
* Includes undistributed net investment
income of: .............................. $ 1,076,596 $ 911,910
============= =============
</TABLE>
See Notes to Financial Statements.
16
<PAGE>
<TABLE>
<CAPTION>
[LOGO]
Statement of Cash Flows
For the Six Months Ended
September 30, 1997 (unaudited)
======================================================================================
<S> <C> <C>
NET DECREASE IN CASH:
Cash Flows From Operating and Investing Activities:
Interest and dividends received ..................... $ 6,717,282
Operating expenses paid ............................. (750,193)
Interest payments on bank loans ..................... (901,500)
Purchases of long-term securities ................... (62,564,595)
Proceeds from short-term securities, net ............ 6,326,000
Proceeds from disposition of long-term securities ... 56,042,877
------------
Net Cash Provided By Operating and
Investing Activities .............................. $ 4,869,871
------------
Cash Flows From Financing Activities:
Cash dividends paid on 7.00% Cumulative
Preferred Stock ................................... (1,050,000)
Net cash dividends paid on Common Stock* ............ (3,819,982)
------------
Net Cash Used By Financing Activities ............... (4,869,982)
------------
Net Decrease in Cash .................................. (111)
Cash--Beginning of Period ............................. 211
------------
Cash--End of Period ................................... $ 100
============
RECONCILIATION OF INCREASE IN NET ASSETS
FROM OPERATIONS TO NET CASH PROVIDED
BY OPERATING AND INVESTING ACTIVITIES:
Increase in Net Assets From Operations ................ $ 15,171,503
Accretion of discount on securities ................. (1,456,051)
Increase in investments ............................. (8,903,042)
Increase in receivable for securities sold .......... (420,627)
Increase in dividends and interest receivables ...... (197,345)
Increase in payable for securities purchased ........ 658,125
Increase in accrued expenses ........................ 17,308
------------
Total Adjustments ................................... (10,301,632)
------------
Net Cash Provided By Operating and Investing Activities $ 4,869,871
============
</TABLE>
*Exclusive of dividend reinvestment of $1,640,869.
See Notes to Financial Statements.
17
<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, which approximates value; (d) the accounting records of the Fund are
maintained in U.S. dollars. All assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the rate of exchange of
such currencies against U.S. dollars on the date of valuation. Purchases and
sales of securities, and income and expenses are translated at the rate of
exchange quoted on the respective date that such transactions are recorded.
Differences between income or expense amounts recorded and collected or paid are
adjusted when reported by the custodian bank; (e) dividend income is recorded on
the ex-dividend date and interest income is recorded on an accrual basis; (f)
gains or losses on the sale of securities are calculated by using the specific
identification method; (g) dividends and distributions to shareholders are
recorded monthly by the Fund on the ex-dividend date for the shareholders of
Common Stock based on net investment income. The holders of the 7.00% Cumulative
Preferred Stock shall be entitled to receive dividends when, as and if declared
by the Board of Directors of the Fund out of funds legally available to
shareholders at a rate of 7.00% per annum, payable semi-annually on June 15 and
December 15; (h) the net asset value of the Fund's Common Stock is
18
<PAGE>
[LOGO]
Notes to Financial Statements
(unaudited)(continued)
================================================================================
determined no less frequently than the close of business on the Fund's last
business day of each week (generally Friday). It is determined by dividing the
value of the net assets available to Common Stock by the total number of shares
of Common Stock outstanding. For the purpose of determining the net asset value
per share of the Common Stock, the value of the Fund's net assets shall be
deemed to equal the value for the Fund's assets less (1) the Fund's liabilities
(including the outstanding principal amount on the bank loan), (2) the aggregate
liquidation value (i.e., $1,000 per outstanding share) of the 7.00% Cumulative
Redeemable Preferred Stock and (3) accumulated and unpaid dividends on the
outstanding Cumulative Redeemable Preferred Stock issue; (i) the Fund intends to
comply with the requirements of the Internal Revenue Code of 1986, as amended,
pertaining to regulated investment companies and to make distributions of
taxable income sufficient to relieve it from substantially all Federal income
and excise taxes; (j) the character of income and gains to be distributed are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. At March 31, 1997, reclassifications
were made to the Fund's capital accounts to reflect permanent book/tax
differences and income and gains available for distributions under income tax
regulations. Accordingly, a portion of accumulated net realized loss amounting
to $67,822 was reclassified to paid-in-capital. Net investment income, net
realized gains and net assets were not affected by this change; and (k)
estimates and assumptions are required to be made regarding assets, liabilities
and changes in net assets resulting from operations when financial statements
are prepared. Changes in the economic environment, financial markets and any
other parameters used in determining these estimates could cause actual results
to differ.
2. Advisory Agreement and Transactions with Affiliated Persons
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% of the average daily net assets. This fee
is calculated daily and paid monthly.
19
<PAGE>
[LOGO]
Notes to Financial Statements
(unaudited)(continued)
================================================================================
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 daily net assets. This fee
is calculated daily and paid monthly.
All officers and one Director of the Fund are employees of Smith Barney
Inc.
3. Investments
During the six months ended September 30, 1997, the aggregate cost of
purchases and proceeds from sales of investments (including maturities, but
excluding short-term securities) were as follows:
<TABLE>
================================================================================
<S> <C>
Purchases $63,222,720
- --------------------------------------------------------------------------------
Sales 56,463,504
================================================================================
</TABLE>
At September 30, 1997, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
<TABLE>
================================================================================
<S> <C>
Gross unrealized appreciation $11,106,298
Gross unrealized depreciation (454,494)
- --------------------------------------------------------------------------------
Net unrealized appreciation $10,651,804
================================================================================
</TABLE>
4. Cash Flow Information
The Fund invests in securities and distributes dividends from net
investment income and net realized gains. These activities are reported in the
Statements of Changes in Net Assets. Information on cash payments is presented
in the Statement of Cash Flows. Accounting practices that do not affect
reporting activities on a cash basis include unrealized gains or losses on
investment securities.
5. Repurchase Agreements
The Fund purchases (and its custodian takes possession of) U.S. government
securities from banks and securities dealers subject to agreements to resell the
securities to the sellers at a future date (generally, the next business day) at
an agreed upon higher repurchase price. The Fund
20
<PAGE>
[LOGO]
Notes to Financial Statements
(unaudited)(continued)
================================================================================
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, 220,000 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 $624,243 at September 30, 1997.
Moody's Investors Service, Inc. and Standard & Poor's Ratings Service have
reconfirmed their respective Aa3 and AA+ ratings of the Fund's 7% Cumulative
Preferred Stock.
7. Bank Loan
The Fund has a $30,000,000 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. Interest expense
related to the loan for the six months ended September 30, 1997 was $915,200.
8. Common Stock
At September 30, 1997, 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:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
September 30, 1997 March 31, 1997
-------------------- --------------------
Shares Amount Shares Amount
================================================================================
<S> <C> <C> <C> <C>
Shares issued on
reinvestment 226,264 $1,640,869 516,581 $3,452,357
================================================================================
</TABLE>
21
<PAGE>
[LOGO]
Notes to Financial Statements
(unaudited)(continued)
================================================================================
9. Capital Loss Carryforward
As of March 31, 1997, the Fund had, for Federal income tax purposes,
capital loss carryforwards of approximately $32,003,000 available to offset
future realized capital gains, if any. To the extent that these carryforward
losses are used to offset capital gains, it is probable that the gains so offset
will not be distributed.
The amount and expiration of the carryforwards are indicated below.
Expiration occurs on March 31 of the year indicated:
<TABLE>
<CAPTION>
1999 2000 2003 2004
================================================================================
<S> <C> <C> <C> <C>
Carryforward Amounts $16,444,000 $8,395,000 $4,873,000 $2,291,000
================================================================================
</TABLE>
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.
11. Restricted Securities
Certain of the Fund's Investments are valued at the direction of the Fund's
Board of Directors; these securities are restricted as to resale and have been
valued in good faith, taking into consideration the appropriate economic,
financial and other pertinent available information pertaining to the restricted
securities. The table below shows the security valued by the Fund's Board of
Directors:
<TABLE>
<CAPTION>
9/30/97 Value Percentage
Face Acquisition Fair Per of Net
Security Amount Date Value Unit Assets Cost
====================================================================================================
<S> <C> <C> <C> <C> <C> <C>
FSC Semiconductor Inc.,
Sr. Sub. Notes,
11.740% due 3/14/08 $582,998 6/7/97 $582,998 $100.00 0.43% $536,860
====================================================================================================
</TABLE>
22
<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>
1997(1) 1997 1996
-------- ------- -------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period .............. $6.45 $6.31 $5.88
-------- ------- -------
Income From Operations:
Net investment income .......................... 0.45 0.92 0.86
Net realized and unrealized gain ............... 0.58 0.08 0.45
-------- ------- -------
Total Income From Operations ................... 1.03 1.00 1.31
-------- ------- -------
Distributions:
Dividends declared to 7.00% Cumulative Preferred
Stockholders ................................. (0.07) (0.14) (0.15)
Dividends paid from net investment income ...... (0.37) (0.72) (0.73)
-------- ------- -------
Total Distributions ............................ (0.44) (0.86) (0.88)
-------- ------- -------
Net Asset Value, End of Period .................... $7.04 $6.45 $6.31
======== ======= =======
Market Value, End of Period ....................... $8.00 $7.25 $7.00
======== ======= =======
Total Return, Based on Market Value ............... 16.06%++ 15.55% 18.35%
======== ======= =======
Total Return, Based on Net Asset Value* ........... 14.80%++ 14.04% 20.01%
======== ======= =======
Net Assets**, End of Period (000's) ............... $105,353 $95,034 $90,318
======== ======= =======
Ratios to Average Net Assets Based on
Common Shares Outstanding:
Net Investment Income .......................... 10.30%+ 10.85% 10.48%
Interest Expense ............................... 1.41+ 1.45 1.47
Other Expenses ................................. 1.16+ 1.20 1.21
Portfolio Turnover Rate ........................... 37% 101% 87%
</TABLE>
- ----------
(1) For the six months ended September 30, 1997 (unaudited).
++ Total return is not annualized, as it may not be representative of the
total return for the year.
* Total return is based on the beginning and ending net asset value for the
period. Dividends are reinvested in accordance with the Fund's dividend
reinvestment plan.
** Exclusive of preferred shares outstanding.
+ Annualized.
23
<PAGE>
[LOGO]
Financial Highlights (continued)
================================================================================
For a share of common stock outstanding throughout each year:
<TABLE>
<CAPTION>
1995 1994# 1993
------- ------- -------
<S> <C> <C> <C>
Net Asset Value, Beginning of Year ................. $6.76 $6.86 $6.39
------- ------- -------
Income From Operations:
Net investment income ........................... 0.93 1.02 1.07
Net realized and unrealized gain (loss) ......... (0.78) (0.13) 0.51
------- ------- -------
Total Income From Operations .................... 0.15 0.89 1.58
------- ------- -------
Underwriting Commissions and Offering Costs on 7.00%
Cumulative Preferred Stock ...................... -- -- (0.05)
------- ------- -------
Distributions:
Dividends declared to 7.00% Cumulative Preferred
Stockholders .................................. (0.16) (0.11) --
Dividends declared to 9.67% Cumulative Preferred
Stockholders .................................. -- (0.12) (0.23)
Dividends paid from net investment income ....... (0.87) (0.82) (0.82)
Change in accumulated undeclared dividends on
Preferred Stock ............................... -- 0.06 (0.01)
------- ------- -------
Total Distributions ............................. (1.03) (0.99) (1.06)
------- ------- -------
Net Asset Value, End of Year ....................... $5.88 $6.76 $6.86
======= ======= =======
Market Value, End of Year .......................... $6.63 $7.13 $7.25
======= ======= =======
Total Return, Based on Market Value ................ 6.41% 10.02% 24.02%
======= ======= =======
Total Return, Based on Net Asset Value* ............ (0.53)% 10.24% 21.66%
======= ======= =======
Net Assets**, End of Year (000's) .................. $80,309 $87,726 $85,225
======= ======= =======
Ratios to Average Net Assets Based on
Common Shares Outstanding:
Net Investment Income ........................... 15.35% 14.38% 12.89%
Interest Expense ................................ 1.58 0.92 1.14
Other Expenses .................................. 1.65 1.60 1.99
Portfolio Turnover Rate ............................ 79% 102% 93%
</TABLE>
- ----------
# Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the period.
* Total return is based on the beginning and ending net asset value for the
period. Dividends are reinvested in accordance with the Fund's dividend
reinvestment plan.
** Exclusive of preferred shares outstanding.
24
<PAGE>
[LOGO]
Other Financial Information (unaudited)
================================================================================
The table below sets out information with respect to Cumulative Preferred
Stock, Senior Money Market Notes and Bank Credit Facility:
<TABLE>
<CAPTION>
1997(1) 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
7.00% Cumulative Preferred Stock (2)
Total amount outstanding (000s) $ 30,000 $ 30,000 $ 30,000 $ 30,000 $ 30,000 $ 30,000
Asset Coverage Per Share 2,760 2,580 2,490 2,439 2,583 2,529
Involuntary Liquidating Preference
Per Share (3) 1,000 1,000 1,000 1,000 1,000 1,000
Average Market Value Per Share (3)(4) 1,000 1,000 1,000 1,000 1,000 1,000
Senior Money Market Notes
Total amount outstanding (000s) -- -- -- 25,800 25,800 25,800
Asset Coverage Per Share -- -- -- 527,555 558,675 546,948
Involuntary Liquidating Preference
Per Share (3) -- -- -- 100,000 100,000 100,000
Average Market Value Per Share (3) -- -- -- 100,000 100,000 100,000
PNC Bank Credit Facility
Total amount outstanding (000s) 30,000 30,000 30,000 -- -- --
Asset Coverage Per Share 551,000 516,000 498,000 -- -- --
Involuntary Liquidating Preference
Per Share (3) 100,000 100,000 100,000 -- -- --
Average Market Value Per Share (3)(5) 100,000 100,000 100,000 -- -- --
</TABLE>
- ----------
(1) For the six months ended September 30, 1997.
(2) Redeemable April 15, 2000.
(3) Excludes accrued interest or accumulated undeclared dividends.
(4) See Note 6.
(5) See Note 7.
25
<PAGE>
<TABLE>
<CAPTION>
[LOGO]
Quarterly Results of Operations (unaudited)
====================================================================================================================================
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, 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
December 31, 1996 4,132,306 0.28 3,304,424 0.22 1,557,018 0.11 4,861,442 0.33
March 31, 1997 4,132,818 0.28 3,335,373 0.23 (2,167,250) (0.15) 1,168,123 0.08
June 30, 1997 3,810,798 0.26 3,442,440 0.23 4,087,876 0.29 7,530,316 0.52
September 30, 1997 3,652,220 0.24 3,266,777 0.22 4,374,410 0.29 7,641,187 0.51
</TABLE>
- ----------------
* Per share of Common Stock.
26
<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 6.29 0.060 6.531
9/24/96 9/27/96 7.125 6.37 0.060 6.769
10/22/96 10/25/96 7.125 6.40 0.060 6.769
11/25/96 11/29/96 7.125 6.47 0.060 6.769
12/23/96 12/27/96 7.125 6.53 0.061 6.769
1/28/97 1/31/97 7.250 6.62 0.061 6.888
2/25/97 2/28/97 7.375 6.73 0.061 7.006
3/24/97 3/27/97 7.125 6.51 0.061 6.769
4/22/97 4/25/97 7.125 6.38 0.061 6.769
5/27/97 5/30/97 7.500 6.59 0.061 7.125
6/24/97 6/27/97 7.625 6.77 0.061 7.244
7/22/97 7/25/97 7.750 6.86 0.061 7.363
8/26/97 8/29/97 7.938 6.89 0.061 7.541
9/23/97 9/26/97 7.938 7.02 0.063 7.541
====================================================================================================================================
</TABLE>
* As of record date
27
<PAGE>
[LOGO]
Dividend Reinvestment Plan
(unaudited)
================================================================================
Under the Fund's Dividend Reinvestment Plan ("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 or elsewhere, as soon as practicable after the record 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 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
28
<PAGE>
[LOGO]
Dividend Reinvestment Plan
(unaudited)(continued)
================================================================================
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 six months
ended September 30, 1997, 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.
----------------------
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940, as amended, that from time to time the Fund may purchase
shares of its common stock in the open market.
29
<PAGE>
- --------------------------------------------------------------------------------
DIRECTORS
Allan J. Bloostein
Martin Brody
Dwight B. Crane
Robert A. Frankel
William R. Hutchinson
Heath B. McLendon
Charles F. Barber, Emeritus
OFFICERS
Heath B. McLendon
Chairman of the Board
and Investment Officer
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 intended only for the shareholders of the
ZENIX Income Fund Inc.
It is not a Prospectus, circular or representation
intended for use in the purchase or sale of shares of
the Fund or of any securities mentioned in the report.
FD01206 11/97
================================================================================
