<PAGE>
==========
ZENIX
INCOME
FUND INC.
==========
[LOGO]
Quarterly Report
June 30, 1997
<PAGE>
- --------------------------------------[LOGO]------------------------------------
Zenix Income Fund Inc.
Dear Shareholder:
We are pleased to provide the first quarter report for the Zenix Income
Fund Inc. ("Fund") for the period ended June 30, 1997. Over the past three
months, the Fund paid income dividends on common shares totaling $0.18 per
share. The table below shows the annualized distribution rates and three-month
total return for the Fund based on its June 30, 1997 net asset value (NAV) per
share and New York Stock Exchange (NYSE) closing price.
<TABLE>
<CAPTION>
Price Annualized Three-Month
Per Share Distribution Rate Total Return
--------- ----------------- ------------
<S> <C> <C>
$6.74 (NAV) 10.86% 7.24%
$7.69 (NYSE) 9.52% 8.81%
</TABLE>
In comparison, the average total return on NAV was 5.66% for closed-end
high yield bond funds during the same period according to Lipper Analytical
Services, Inc., an independent fund-tracking organization. In addition, over the
past three months, the Fund generally outperformed the other domestic bond
markets, far exceeding the 3.00% to 4.00% average total returns on intermediate-
and long-term U.S. Treasuries, government agency securities and investment grade
corporate bonds.
Market and Economic Overview
The U.S. bond market rebounded from a weak first quarter of 1997 to post
its best quarterly return since the fourth quarter of 1995. Unlike the first
quarter of 1997 when a strong economy caused the Federal Reserve Board ("Fed")
to tighten rates by 25 basis points (0.25%) and bond returns were relatively
poor, the second quarter of 1997 brought a slowing economy and low inflation.
This environment enabled the Fed to keep monetary policy on hold and the fixed
income markets responded with
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solid returns. Since the end of March, the long-term U.S. Treasury bond has
dropped in yield by 70 basis points (0.70%) from a peak of 7.20% to 6.50% as of
this report.
Throughout the past three months, the high yield bond market has generally
outperformed the more interest-rate sensitive, longer maturity Treasury and
investment grade bond markets. The high yield bond market has continued to rally
on strong demand from both new investors and mutual funds. Given the market's
strong condition, we have seen a record amount of new high yield bond issuance
(more than $60 billion) during the first six months of this year. We expect this
trend to continue during the second half of the year. There has been more than
adequate demand to absorb the heavy supply of new issues. Increasing amounts of
capital are flowing into the high yield bond market from a variety of sources.
Traditional open-end high yield bond funds have had more than $10 billion of
cash inflows during the first six months of 1997, not to mention the roughly $5
billion of dividends that were reinvested in additional fund shares.
More importantly, the high yield bond market has continued to broaden and
mature into a more widely accepted investment alternative among more traditional
institutional investors. Pension funds are allocating increasing percentages of
their portfolios to the high yield bond market. For example, two large New York
City pension funds that together have nearly $13 billion in assets recently
boosted their high yield bond investments by more than $250 million,
concentrating on the better quality rated issues.
Moreover, during the past twelve months there has been a meaningful
increase in the number of structured transactions incorporating high yield
securities that has caused the demand for high yield bonds to rise even more. In
the past two years, a number of institutions, particularly insurance companies,
have begun to create collateralized bond obligations (CBOs) that use high yield
securities as collateral. Given the intense demand on the part of many investors
for current yield the past year has resulted in a significant increase in the
creation of CBOs. The amount of total capital invested in the high yield bond
market has risen to record levels.
Because of this record demand for high yield bonds, many issues have
appreciated to fully valued levels with yield premiums over U.S. Treasuries
approximately 100 basis points tighter than their historical averages. In
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addition to the technical factors we have noted, there are a number of positive
fundamental factors driving the valuations of high yield bonds. Besides the huge
inflow of new capital into the high yield market, economic conditions remain
supportive.
With its high valuations, the stock market has enabled many companies that
issue high yield bonds to issue equity securities to further bolster their
balance sheets. In addition, the highly liquid banking industry has been able to
meet the needs of many high yield borrowers. As a consequence, high yield
default rates remain at the low end of their historical range at about 1.5% per
year over the last two years. As long as economic and market conditions remain
relatively benign, high yield bond spreads should stay at the tighter end of
their historical range. Because of these positive fundamental factors, we do not
believe that the high yield bond market has become increasingly speculative.
However, we are sensitive that individual issues may ultimately disappoint
investors and underperform.
We believe the high yield market is fully valued at this time. Since we
still expect the U.S. economy to grow moderately over the foreseeable future
with little serious threat of either an acceleration of inflation or an economic
recession, we do not anticipate any material deterioration in high yield bond
performance.
If the U.S. economy were to defy expectations and strengthen too quickly
and cause the Fed to raise short-term interest rates, we would expect the high
yield issues to be negatively affected. Given the recent slowdown of economic
growth in the second quarter of 1997, we do not believe the Fed will need to
raise interest rates unless economic growth begins to pick up substantially. In
our view, the current environment of solid economic growth, modest inflation and
a supportive equity market remains positive for the high yield market.
Nevertheless, selectivity has become increasingly more important when making
investment decisions, especially given the high yield market's fully valued
levels and potential for disappointment among some companies.
Portfolio Strategy
We remain optimistic about the total return prospects for the high yield
bond market in 1997. As economic activity moderates and inflation remains
subdued, we would expect a decline in interest rates in the second half of this
year.
3
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<PAGE>
In an environment of moderate economic growth, we would expect the stronger
high yield bond companies to perform better than the weaker ones. These tend to
be companies that are in industries that continue to benefit from new
technology. We have found many attractive opportunities in the
telecommunications, media, cable TV and oil and natural gas industries, and the
Fund is overweighted in these areas. Some of the issues that we continue to
favor include Time Warner, Cablevision Systems Corporation, Brooks Fiber, Nextel
Communications Inc., Rogers Cablesystems, Teleport, Pride Petroleum and Parker
Drilling, to name a few. All of these companies continue to generate improving
results through either increased market share, improved internal cost controls,
or both.
In closing, thank you for investing in the Zenix Income Fund Inc. We look
forward to continuing to help you achieve your investment goals. Should 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
July 21, 1997
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<TABLE>
<CAPTION>
Schedule of Investments (continued)
June 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 .............................. $ 2,300,840
-----------
Banking -- 2.4%
3,375,000 B First Nationwide Parent Holdings Ltd.,
Sr. Exchange Notes, 12.500% due 4/15/03 .......... 3,796,875
-----------
Beverage, Food & Tobacco -- 1.8%
2,735,000 B Consolidated Cigar Corp., Sr. Sub. Notes,
10.500% due 3/1/03 ............................... 2,878,587
-----------
Broadcasting/Cable -- 16.0%
750,000 B- All American Communications Inc., Sr. Sub. Notes,
10.875% due 10/15/01 ............................. 789,375
2,100,000 B- Allbritton Communications Co., Sr. Sub. Debentures,
11.500% due 8/15/04 .............................. 2,212,875
1,000,000 NR Australis Media Ltd., Sr. Discount Notes, step bond
to yield 13.590% due 5/15/03++ ................... 730,000
Cablevision Systems Corp., Sr. Sub. Debentures:
2,000,000 B 10.750% due 4/1/04 ............................... 2,077,500
1,150,000 B 9.875% due 2/15/13 ............................... 1,213,250
2,200,000 B Comcast UK Cable, Debentures, step bond to yield
11.156% due 11/15/07 ............................. 1,655,500
Globo Communicacoes Co., Guaranteed Notes:
500,000 BB- Series A, 9.875% due 12/20/04+ ................... 527,500
500,000 BB- Series B, 10.500% due 12/20/06+ .................. 533,750
500,000 B Marcus Cable Capital Corp., Sr. Discount Notes,
step bond to yield 12.747% due 12/15/05 .......... 397,500
2,000,000 B Marcus Cable Operating Co., Sr. Debentures,
11.875% due 10/1/05 .............................. 2,165,000
Rogers Cablesystems of America Inc., Sr. Sub.
Debentures:
1,000,000 BB+ 10.000% due 12/1/07 .............................. 1,077,500
2,100,000 BB- 11.000% due 12/1/15 .............................. 2,294,250
800,000# BB+ Sr. Secured Second Priority Debentures,
9.650% due 1/15/14 ............................. 588,575
1,950,000 BB- Rogers Communications Inc., Sr. Debentures,
10.875% due 4/15/04 .............................. 2,049,937
950,000 B- SFX Broadcasting Inc., Sr. Sub. Notes,
10.750% due 5/15/06 .............................. 1,040,250
1,850,000 BB Telewest Communications PLC, Sr. Discount Debentures,
step bond to yield 10.994% due 10/1/07 ........... 1,341,250
</TABLE>
See Notes to Financial Statements.
5
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<TABLE>
<CAPTION>
Schedule of Investments (continued)
June 30, 1997 (unaudited)
====================================================================================
Face
Amount Rating Security Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Broadcasting/Cable -- 16.0% (continued)
$ 950,000 B TV Azteca SA, Guaranteed Sr. Notes, Series B,
10.500% due 2/15/07+ ............................. $ 978,500
2,150,000 B- UIH Australia Inc., Sr. Discount Notes, step bond to
yield 14.000% due 5/15/06 ........................ 1,330,313
1,000,000 BB+ Videotron Group Ltd., Sr. Notes,
10.625% due 2/15/05 .............................. 1,105,000
900,000 B- Wireless One Inc., Sr. Discount Notes,
13.000% due 10/15/03 ............................. 558,000
500,000 B Young Broadcasting Corp., Guaranteed Sr. Sub. Notes,
11.750% due 11/15/04 ............................. 552,500
-----------
25,218,325
-----------
Building/Construction -- 0.2%
275,000 NR American Builders and Contractors Supply Inc.,
Sr. Sub. Notes, 10.625% due 5/15/07+ ............. 283,250
-----------
Chemicals -- 3.7%
1,000,000 B NL Industries Inc., Sr. Secured Notes,
11.750% due 10/15/03 ............................. 1,090,000
1,250,000 BB Pt. Polysindo Eka Perkasa, Sr. Notes,
13.000% due 6/15/01 .............................. 1,420,312
2,000,000 B+ Terra Industries Inc., Sr. Notes,
10.500% due 6/15/05 .............................. 2,182,500
1,000,000 B Texas Petrochemical Corp., Sr. Sub. Notes,
11.125% due 7/1/06 ............................... 1,077,500
-----------
5,770,312
-----------
Consumer Durables Goods/Home Furnishings -- 0.2%
325,000 B- TAG-Heuer International Inc., Sr. Sub. Notes
12.000% due 12/15/05 ............................. 370,500
-----------
Diversified Manufacturing -- 1.0%
1,500,000 B Unifrax Investment Corp., Sr. Notes,
10.500% due 11/1/03 .............................. 1,558,125
-----------
Electric Utilities -- 1.4%
1,000,000 BB- Calpine Corp., Sr. Notes, 10.500% due 5/15/06 ....... 1,080,000
1,070,978 BB- Midland CogenerationVenture Limited Partnership,
Midland Funding, Sr. Secured Lease Obligation Bond,
Series C, 10.330% due 7/23/02 .................... 1,156,655
-----------
2,236,655
-----------
</TABLE>
See Notes to Financial Statements.
6
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<TABLE>
<CAPTION>
Schedule of Investments (continued)
June 30, 1997 (unaudited)
====================================================================================
Face
Amount Rating Security Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Electronics-Computers -- 4.7%
$ 150,000 BB- Advanced Micro Devices Inc., Sr. Notes,
11.000% due 8/1/03 ............................... $ 168,375
1,000,000 B Celestica International Inc., Guaranteed Sr.
Sub. Notes, 10.500% due 12/31/06 ................. 1,080,000
1,000,000 B Fairchild Semiconductor Inc., Sr. Sub. Notes,
10.125% due 3/15/07+ ............................. 1,060,000
550,000 B FSC Semiconductor Inc., 11.740% due 3/14/08 ......... 572,000
2,000,000 B- Graphic Controls Corp., Sr. Sub. Notes,
12.000% due 9/15/05 .............................. 2,205,000
1,400,000 B+ Unisys Corp., Sr. Notes, 12.000% due 4/15/03 ........ 1,533,000
800,000 B- Viasystems Inc., Sr. Sub. Notes,
9.750% due 6/1/07+ ............................... 820,000
-----------
7,438,375
-----------
Finance -- 3.4%
1,500,000 B Amresco Inc., Sr. Sub. Notes, Series A,
10.000% due 3/15/04 .............................. 1,515,000
900,000 B+ Imperial Credit Industries Inc., Sr. Notes,
9.875% due 1/15/07 ............................... 897,750
2,750,000 B+ Ocwen Financial Corp., Notes,
11.875% due 10/1/03 .............................. 3,011,250
-----------
5,424,000
-----------
Foods -- 2.8%
2,500,000 BB- TLC Beatrice International Holdings Inc., Sr.
Secured Notes, 11.500% due 10/1/05 ............... 2,815,625
1,500,000 B- Van De Kamp Inc., Sr. Sub. Notes,
12.000% due 9/15/05 .............................. 1,670,625
-----------
4,486,250
-----------
Grocery/Convenience Stores -- 0.8%
1,700,000 B Pathmark Stores Inc., step bond to yield
13.096% due 11/1/03 .............................. 1,185,750
-----------
Healthcare/Drugs/Hospital Supplies -- 1.8%
900,000 B Magellan Health Services Inc., Sr. Sub. Notes,
11.250% due 4/15/04 .............................. 1,003,500
Tenet Healthcare Corp.:
750,000 BB Sr. Notes, 8.000% due 1/15/05 .................... 755,625
1,000,000 B+ Sr. Sub. Notes, 8.625% due 1/15/07 ............... 1,027,500
-----------
2,786,625
-----------
</TABLE>
See Notes to Financial Statements.
7
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<TABLE>
<CAPTION>
Schedule of Investments (continued)
June 30, 1997 (unaudited)
====================================================================================
Face
Amount Rating Security Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Hotel, Casinos and Gaming -- 4.2%
$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
1,500,000 BB Grand Casinos Inc., Guaranteed 1st Mortgage,
10.125% due 12/1/03 .............................. 1,563,750
400,000 B Horseshoe Gaming LLC, Sr. Sub. Notes,
9.375% due 6/15/07+ .............................. 402,500
620,000 BB+ Mohegan Tribal Gaming Authority, Sr. Secured Notes,
13.500% due 11/15/02 ............................. 814,525
-----------
6,678,275
-----------
Leisure -- 0.4%
925,000 B- Coleman Escrow Corp., Sr. Secured 1st Priority
Disc. Notes, zero coupon bond to yield
10.870% due 5/15/01+ ............................. 585,063
-----------
Machinery -- 2.4%
1,000,000 B- Alvey Systems Inc., Sr. Sub. Notes,
11.375% due 1/31/03 .............................. 1,035,000
2,500,000 B- Terex Corp., Sr. Secured Notes,
13.250% due 5/15/02 .............................. 2,806,250
-----------
3,841,250
-----------
Metals/Mining -- 5.8%
1,000,000 B- Commonwealth Aluminum Corp., Sr. Sub. Notes,
10.750% due 10/1/06 .............................. 1,057,500
500,000 BB- Echo Bay Mines Inc., Jr. Sub. Debentures,
11.000% due 4/1/27 ............................... 513,750
1,000,000 B Envirosource Inc., Sr. Notes,
9.750% due 6/15/03 ............................... 988,750
2,400,000 B- Haynes International Inc., Sr. Sub. Notes,
11.625% due 9/1/04 ............................... 2,595,000
1,075,000 B- Kaiser Aluminum and Chemical Corp., Sr. Sub. Notes,
12.750% due 2/1/03 ............................... 1,171,750
1,800,000 B- Russell Metals Inc., Sr. Notes, 10.250% due 6/15/00 . 1,858,500
800,000 B+ UCAR Global Enterprises Inc., Sr. Sub. Notes,
12.000% due 1/15/05 .............................. 906,000
-----------
9,091,250
-----------
</TABLE>
See Notes to Financial Statements.
8
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<TABLE>
<CAPTION>
Schedule of Investments (continued)
June 30, 1997 (unaudited)
====================================================================================
Face
Amount Rating Security Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Oil and Natural Gas -- 6.4%
$ 600,000 BB Clark Oil Refining Corp., Sr. Notes,
10.500% due 12/1/01 .............................. $ 622,500
1,700,000 B+ Dawson Production Services Inc., Sr. Notes,
9.375% due 2/1/07 ................................ 1,742,500
1,500,000 B+ Global Marine Inc., Sr. Secured Notes,
12.750% due 12/15/99 ............................. 1,575,000
1,000,000 B Lomak Petroleum Inc., Sr. Sub. Notes,
8.750% due 1/15/07 ............................... 990,000
1,500,000 B+ Parker Drilling Co., Sr. Notes,
9.750% due 11/15/06 .............................. 1,567,500
900,000 BB- Pride Petroleum Services Inc., Sr. Notes,
9.375% due 5/1/07 ................................ 936,000
1,675,000 BB- Santa Fe Energy Resources Inc., Sr. Sub.
Debentures, 11.000% due 5/15/04 .................. 1,817,375
800,000 B United Meridian Corp., Sr. Sub. Notes,
10.375% due 10/15/05 ............................. 868,000
-----------
10,118,875
-----------
Packaging/Containers -- 3.2%
500,000 B- Gaylord Container Corp., Sr. Sub. Debentures,
12.750% due 5/15/05 .............................. 551,250
1,000,000 NR Impress Metal Packaging Holdings, Sr. Sub. Notes,
9.875% due 5/29/07+ .............................. 595,375
2,000,000 B- Ivex Holdings Corp., Sr. Sub. Debentures,
step bond to yield 12.910% due 3/15/05 ........... 1,567,500
850,000 B- Stone Container Corp., Sr. Sub. Debentures,
11.500% due 8/15/06+ ............................. 887,188
1,325,000 B+ Vicap SA, Guaranteed Sr. Notes,
11.375% due 5/15/07+ ............................. 1,392,906
-----------
4,994,219
-----------
Paper/Forest Products and Printing -- 8.4%
1,300,000 B- American Pad & Paper Co., Sr. Sub. Notes,
13.000% due 11/15/05 ............................. 1,517,750
1,775,000 B+ Asia Pulp & Paper Ltd., Guaranteed Preferred Notes,
Series A, 12.000% due 12/29/49+ .................. 1,810,500
1,500,000 B Goss Graphic Systems Inc., Sr. Sub. Notes,
12.000% due 10/15/06 ............................. 1,653,750
2,000,000 BB Indah Kiat International Finance Co.,
Guaranteed Secured Notes, 11.875% due 6/15/02 .... 2,200,000
3,275,000 B+ S.D. Warren Co., Sr. Sub. Notes,
12.000% due 12/15/04 ............................. 3,655,719
</TABLE>
See Notes to Financial Statements.
9
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<TABLE>
<CAPTION>
Schedule of Investments (continued)
June 30, 1997 (unaudited)
====================================================================================
Face
Amount Rating Security Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Paper/Forest Products and Printing -- 8.4% (continued)
$2,050,000 BB Tjiwi Kimia International, Sr. Notes,
13.250% due 8/1/01 ............................... $ 2,337,000
-----------
13,174,719
-----------
Pollution Control -- 1.1%
1,000,000 B+ Allied Waste North America Inc., Sr. Sub. Notes,
10.250% due 12/1/06+ ............................. 1,080,000
675,000 NR Clisa SA, Guaranteed Sr. Notes,
11.625% due 6/1/04+ .............................. 709,594
-----------
1,789,594
-----------
Real Estate -- 1.2%
1,675,000 BB- Trizec Finance Ltd., Sr. Notes,
10.875% due 10/15/05 ............................. 1,863,438
-----------
Retail -- 0.6%
900,000 B+ Barnes and Noble Inc., Sr. Sub. Notes, Series B,
11.875% due 1/15/03 .............................. 976,500
-----------
Telecommunications -- 16.0%
2,950,000 NR Clearnet Communications Inc., Sr. Discount Notes,
step bond to yield 14.052% due 12/15/05 .......... 2,035,500
2,000,000 NR Colt Telecommunications Group PLC, Sr. Discount
Notes, step bond to yield 11.976% due 12/15/06 ... 1,305,000
600,000 NR Dobson Communications Corp., Sr. Notes,
11.750% due 4/15/07 .............................. 588,000
750,000 B+ Fonorola Inc., Sr. Notes,
12.500% due 8/15/02 .............................. 810,000
1,000,000 B Globalstar LP Corp., Sr. Notes,
11.375% due 2/15/04+ ............................. 1,007,500
500,000 B+ ICO Inc., Sr. Notes,
10.375% due 6/1/07+ .............................. 515,000
1,250,000 B ITC Deltacom Inc., Sr. Notes,
11.000% due 6/1/07+ .............................. 1,284,375
1,225,000 NR Intelcom Group USA Inc., Sr. Discount Notes, step
bond to yield 12.500% due 5/1/06 ................. 817,688
350,000 B Intercel Inc., Sr. Notes,
11.125% due 6/1/07+ .............................. 352,625
3,300,000 B- Intermedia Communications, Sr. Discount Notes,
step bond to yield 12.415% due 5/15/06 ........... 2,310,000
2,375,000 NR McCaw International Ltd., Sr. Discount Notes,
step bond to yield 13.309% due 4/15/07+ .......... 1,187,500
</TABLE>
See Notes to Financial Statements.
10
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<TABLE>
<CAPTION>
Schedule of Investments (continued)
June 30, 1997 (unaudited)
====================================================================================
Face
Amount Rating Security Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Telecommunications -- 16.0% (continued)
$2,250,000 B McLeod Inc., Sr. Discount Notes, step bond to yield
10.530% due 3/1/07+ .............................. $ 1,434,375
625,000 B Multicanal SA Notes,
10.500% due 2/1/07+ .............................. 669,531
5,050,000 CCC- Nextel Communications Inc., Sr. Discount Notes,
step bond to yield 12.200% due 8/15/04 ........... 3,901,125
2,000,000 NR Nextlink Communications, Sr. Discount Notes,
12.500% due 4/15/06 .............................. 2,130,000
1,550,000 NR Pagemart Inc., Sr. Discount Notes, step bond to
yield 11.602% due 11/1/03 ........................ 1,348,500
1,300,000 NR RSL Communications Ltd., Sr. Notes,
12.250% due 11/15/06 ............................. 1,378,000
2,500,000 B Teleport Communications Inc., Sr. Discount Notes,
step bond to yield 11.416% due 7/1/07 ............ 1,809,375
700,000 NR Telesystems International Wireless Corp.,
Sr. Discount Notes, step bond to
yield 13.250% due 6/30/07+ ....................... 378,000
-----------
25,262,094
-----------
Textiles -- 0.4%
600,000 B Polytama International Corp., Guaranteed Secured
Notes, 11.250% due 6/15/07 ....................... 621,000
-----------
Transportation -- 2.4%
650,000 NR Central Transport Rental Corp., Guaranteed Secured
Notes, 9.500% due 4/30/03 ........................ 632,125
2,805,000 BB- Sea Containers Limited, Sr. Sub. Debentures,
12.500% due 12/1/04 .............................. 3,155,625
-----------
3,787,750
-----------
TOTAL CORPORATE BONDS AND NOTES
(Cost-- $141,073,455) ............................... 148,518,496
-----------
<CAPTION>
Shares Security Value
- ------------------------------------------------------------------------------------
<S> <C> <C>
PREFERREDSTOCKS -- 4.3%
Banking -- 0.4%
20,100 California Federal Preferred Capital Corp. .......... 520,088
-----------
Broadcasting/Cable -- 3.7%
5,259 Time Warner Inc., Series K, Exchange 0.000% ......... 5,850,906
-----------
</TABLE>
See Notes to Financial Statements.
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<TABLE>
<CAPTION>
Schedule of Investments (continued)
June 30, 1997 (unaudited)
====================================================================================
Shares Security Value
- ------------------------------------------------------------------------------------
<S> <C> <C>
Healthcare -- 0.2%
44,560 Avatex Corp., Series A, Payment-in-kind,
Exchange $4.200 .................................. $ 356,480
------------
Publishing -- 0.0%
298 K-III Communications Corp., Series B,
Exchange $11.625 ................................. 32,197
------------
TOTAL PREFERRED STOCKS
(Cost-- $7,666,913) ................................. 6,759,671
------------
WARRANTS -- 0.1%
9,735 Clearnet Communications Inc., Expires 9/15/05+ ...... 53,543
7,130 Pagemart Inc., Expires 12/31/03 ..................... 19,608
1,300 RSL Communications Ltd., Expires 11/15/06 ........... 3,900
------------
TOTAL WARRANTS
(Cost-- $58,839) .................................... 77,051
------------
<CAPTION>
Face
Amount Security Value
- ------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT -- 1.4%
$2,267,000 Chase Manhattan Bank, 5.748% due 7/1/97; Proceeds at
maturity -- $2,267,362; (Fully collateralized by
U.S. Treasury Notes, 6.250% due 6/30/02;
Market value -- $2,312,342)
(Cost -- $2,267,000) ............................... 2,267,000
------------
TOTAL INVESTMENTS -- 100%
(Cost -- $151,066,207**) ........................... $157,622,218
============
</TABLE>
++ Security issued with attached warrants.
+ Security is exempt from registration under Rule 144A of the Securities Act
of 1933. This security 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 page 13 for definitions of ratings.
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>
[LOGO]
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
June 30, 1997 (unaudited)
======================================================================================================
<S> <C> <C>
ASSETS:
Investments, at value (Cost-- $151,066,207) ...................... $ 157,622,218
Cash ............................................................. 353,633
Interest receivable .............................................. 2,773,975
-------------
Total Assets ..................................................... 160,749,826
-------------
LIABILITIES:
Bank loan (Note 7) ............................................... 30,000,000
Interest payable ................................................. 239,700
Investment advisory fees payable ................................. 90,078
Administration fees payable ...................................... 35,508
Accrued expenses ................................................. 105,642
-------------
Total Liabilities ................................................ 30,470,928
-------------
Total Net Assets .................................................... $ 130,278,898
=============
NET ASSETS:
Par value of capital shares ...................................... $ 148,592
Capital paid in excess of par value .............................. 124,576,176
7.00% Cumulative Preferred Stock (Note 6) ........................ 30,000,000
Undistributed net investment income .............................. 599,323
Accumulated net realized loss from
security transactions .......................................... (31,601,204)
Net unrealized appreciation on investments ....................... 6,556,011
-------------
Total Net Assets .................................................... $ 130,278,898
=============
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 ................................................ 3.16 94,928
------------- -------------
Total allocated to Cumulative Preferred Stock ....................... $ 1,003.16 30,094,928
============= -------------
Common Stock (14,859,171 shares outstanding) ........................ $ 6.74 100,183,970
============= -------------
Total Net Assets .................................................... $ 130,278,898
=============
</TABLE>
See Notes to Financial Statements.
14
<PAGE>
[LOGO]
<TABLE>
<CAPTION>
Statement of Operations
For the Three Months Ended
June 30, 1997 (unaudited)
===============================================================================
<S> <C>
INVESTMENT INCOME:
Interest .................................................. $ 4,087,960
Dividends ................................................. 176,046
Less: Interest expense (Note 7) ........................... (453,208)
------------
Total Investment Income ................................... 3,810,798
------------
EXPENSES:
Investment advisory fees (Note 2) ......................... 197,300
Administration fees (Note 2) .............................. 78,920
Shareholder communications ................................ 43,630
Audit and legal ........................................... 20,086
Directors' fees ........................................... 8,726
Shareholder and system servicing fees ..................... 7,928
Listing fees .............................................. 6,200
Custody ................................................... 1,795
Other ..................................................... 3,773
------------
Total Expenses ............................................ 368,358
------------
Net Investment Income ........................................ 3,442,440
------------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS (NOTE 3):
Realized Gain From Securities Transactions
(excluding short-term securities):
Proceeds from sales ..................................... 17,817,903
Cost of securities sold ................................. 17,415,930
------------
Net Realized Gain ......................................... 401,973
------------
Change in Net Unrealized Appreciation of Investments:
Beginning of period ..................................... 2,870,108
End of period ........................................... 6,556,011
------------
Increase in Net Unrealized Appreciation ................... 3,685,903
------------
Net Gain on Investments ...................................... 4,087,876
------------
Increase in Net Assets From Operations ....................... $ 7,530,316
============
</TABLE>
See Notes to Financial Statements.
15
<PAGE>
[LOGO]
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
For the Three Months Ended
June 30, 1997 (unaudited)
and the Year Ended March 31, 1997
================================================================================
June 30 March 31
------------- -------------
<S> <C> <C>
OPERATIONS:
Net investment income ..................... $ 3,442,440 $ 13,332,776
Net realized gain ......................... 401,973 939,501
Increase in net unrealized appreciation ... 3,685,903 208,576
------------- -------------
Increase in Net Assets From Operations .... 7,530,316 14,480,853
------------- -------------
DIVIDENDS PAID FROM
NET INVESTMENT INCOME TO:
7.00% Cumulative Preferred Stock .......... (1,050,000) (2,100,000)
Common Stock .............................. (2,705,027) (10,475,099)
------------- -------------
Decrease in Net Assets From
Distributions To Shareholders ........... (3,755,027) (12,575,099)
------------- -------------
FUND SHARE TRANSACTIONS (NOTE 8):
Net asset value of shares issued for
reinvestment of dividends ............... 827,531 3,452,357
------------- -------------
Increase in Net Assets From
Fund Share Transactions ................. 827,531 3,452,357
------------- -------------
Increase in Net Assets ....................... 4,602,820 5,358,111
NET ASSETS:
Beginning of period ....................... 125,676,078 120,317,967
------------- -------------
End of period* ............................ $ 130,278,898 $ 125,676,078
============= =============
* Includes undistributed net investment
income of: .............................. $ 599,323 $ 911,910
============= =============
</TABLE>
See Notes to Financial Statements.
16
<PAGE>
[LOGO]
<TABLE>
<CAPTION>
Statement of Cash Flows
For the Three Months Ended
June 30, 1997 (unaudited)
=====================================================================================
<S> <C> <C>
NET INCREASE IN CASH:
Cash Flows From Operating and Investing Activities:
Interest and dividends received ..................... $ 4,333,132
Operating expenses paid ............................. (363,161)
Interest payments on bank loans ..................... (292,500)
Purchases of long-term securities ................... (25,173,181)
Proceeds from short-term securities, net ............ 5,280,000
Proceeds from disposition of long-term securities ... 19,496,628
------------
Net Cash Provided By Operating and
Investing Activities .............................. $ 3,280,918
------------
Cash Flows From Financing Activities:
Cash dividends paid on 7.00% Cumulative
Preferred Stock ................................... (1,050,000)
Net cash dividends paid on Common Stock* ............ (1,877,496)
------------
Net Cash Used By Financing Activities ............... (2,927,496)
------------
Net Increase in Cash .................................. 353,422
Cash--Beginning of Period ............................. 211
------------
Cash--End of Period ................................... $ 353,633
============
RECONCILIATION OF INCREASE IN NET ASSETS
FROM OPERATIONS TO NET CASH PROVIDED
BY OPERATING AND INVESTING ACTIVITIES:
Increase in Net Assets From Operations ................ $ 7,530,316
Amortization of discount on securities .............. (770,812)
Increase in investments ............................. (6,304,155)
Decrease in receivable for securities sold .......... 1,800,063
Decrease in dividends and interest receivables ...... 859,601
Increase in accrued expenses ........................ 165,905
------------
Total Adjustments ................................... (4,249,398)
------------
Net Cash Provided By Operating and Investing Activities $ 3,280,918
============
</TABLE>
*Exclusive of dividend reinvestment of $827,531.
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), (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% on 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 net assets as defined
above. 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 three months ended June 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 $25,173,181
- --------------------------------------------------------------------------------
Sales 17,817,903
- --------------------------------------------------------------------------------
</TABLE>
At June 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 $8,149,190
Gross unrealized depreciation (1,593,179)
- --------------------------------------------------------------------------------
Net unrealized appreciation $6,556,011
- --------------------------------------------------------------------------------
</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
20
<PAGE>
[LOGO]
Notes to Financial Statements
(unaudited)(continued)
================================================================================
next business day) at an agreed upon higher repurchase price. The Fund requires
continual maintenance of the market value of the collateral in amounts at least
equal to the repurchase price.
6. Cumulative Redeemable Preferred Stock
On March 16, 1993, the Fund issued 30,000 shares of 7.00% Cumulative
Preferred Stock, which will be redeemed in full on April 15, 2000, at a price
equal to $1,000 per share, plus accumulated and unpaid dividends. On March 31,
1994, 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 $94,928 at June 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 three months ended June 30, 1997 was $453,208.
8. Common Stock
At June 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>
Three Months Ended Year Ended
June 30, 1997 March 31, 1997
-------------------- ------------------
Shares Amount Shares Amount
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares issued on
reinvestment 117,531 $827,531 516,581 $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.
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 .......................... 0.23 0.92 0.86
Net realized and unrealized gain ............... 0.28 0.08 0.45
----------- ---------- ----------
Total Income From Operations ................... 0.51 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 ...... (0.18) (0.72) (0.73)
Change in accumulated undeclared dividends on
Preferred Stock .............................. 0.03 -- --
----------- ---------- ----------
Total Distributions ............................ (0.22) (0.86) (0.88)
----------- ---------- ----------
Net Asset Value, End of Period .................... $6.74 $6.45 $6.31
=========== ========== ==========
Market Value, End of Period ....................... $7.69 $7.25 $7.00
=========== ========== ==========
Total Return, Based on Market Value ............... 8.81%++ 15.55% 18.35%
=========== ========== ==========
Total Return, Based on Net Asset Value ............ 7.24%++ 14.04% 20.01%
=========== ========== ==========
Net Assets*, End of Period (000's) ................ $100,184 $95,034 $90,318
=========== ========== ==========
Ratios to Average Net Assets Based on
Common Shares Outstanding:
Net Investment Income .......................... 10.88%+ 10.85% 10.48%
Interest Expense ............................... 1.43+ 1.45 1.47
Other Expenses ................................. 1.16+ 1.20 1.21
Portfolio Turnover Rate ........................... 12% 101% 87%
</TABLE>
- ----------
(1) For the three months ended June 30, 1997 (unaudited).
++ Total return is not annualized, as it may not be representative of the
total return for the year.
* 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.
* 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 2,670 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 534,000 516,000 498,000 -- -- --
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 three months ended June 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>
[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, 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 0.28 7,530,316 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
=================================================================================
</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 (continued)
(unaudited)
================================================================================
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 three months
ended June 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 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 8/97
