_________
ZENIX
Income
Fund Inc.
_________
[LOGO]
QUARTERLY REPORT
December 31, 1996
<PAGE>
- --------------------------------------------------------------------------------
[LOGO]
ZENIX INCOME FUND INC.
December 31, 1996
Dear
Shareholder:
We are pleased to provide you with the third quarter report for the Zenix
Income Fund Inc. for the nine-month period ended December 31, 1996. Over the
past nine months the Fund paid dividends on common shares totaling $0.54 per
share. The table below shows the annualized distribution rates and nine-month
total returns for the Fund based on its December 31, 1996 net asset value (NAV)
per share and New York Stock Exchange (NYSE) closing price.
Price Annualized Nine-Month
Per Share Distribution Rate Total Return
---------- ----------------- ------------
$6.58 (NAV) 11.12% 13.30%
$7.13 (NYSE) 10.26% 10.59%
The Fund's total return on NAV of 13.30%, compares favorably to the average
total return on NAV of 11.35% for closed-end high yield bond funds during the
same time period, according to Lipper Analytical Services, an independent fund
tracking organization. The Zenix Income Fund's outperformance was the result of
a combination of prudent issue selection as well as the Fund's use of leverage.
Market and Economic Overview
The fixed income markets began to rally in the fourth quarter of 1996, with
strong performance gains by investment grade and U.S. Treasury bonds. The
ongoing slowdown in U.S. economic growth over the past three months, combined
with favorable inflation data, helped to bolster the domestic fixed income
markets. The bond market rally was also fueled by the
1
<PAGE>
Federal Reserve Board's decision to remain on the sidelines, and not raise
interest rates. However, since early December, several factors have prevented
interest rates from declining further. For example, Federal Reserve Chairman
Alan Greenspan's comments about "irrational exuberance" in the financial markets
caused a widespread but temporary sell-off. In addition, reports of
stronger-than-expected growth in the manufacturing and construction sectors have
caused inflation fears to resurface in the bond market.
While the high yield market has generally outperformed the more
interest-rate sensitive, longer maturity Treasury and investment grade markets
throughout much of 1996, the high yield market's performance lagged that of the
other bond markets during the past three months. In particular, the lower
quality issues (CCC/Caa and CC/Ca) turned in disappointing performance most
likely due to the slowdown in U.S. economic growth and an increasing number of
bond defaults in 1996. The most visible defaults or failures in 1996 included
Marvel Entertainment, Moblemedia, Anchor Glass, CAI Wireless and MidAmerican
West. A number of these issues experienced price declines of between 60% to 80%.
Given our relatively conservative investment philosophy, we avoided these
issues.
In contrast to the performance of the lower-rated high yield issues, the
current steady growth rate of the U.S. economy has been particularly
constructive for the better quality high yield issues (BB/Ba and B/B). During
the past three months, the performance of better quality issues has exceeded
that of the more speculative, lower quality issues. In addition, more investors
have become dissatisfied with the modest returns and extreme price swings in the
U.S. Treasury market during 1996 and have invested increasing amounts of money
into the upper-rated tier of the high yield market for yields of 3% to 4% (300
to 400 basis points) higher than those offered by Treasuries. In fact, during
the course of 1996, over $15 billion flowed into high yield bond funds. At the
same time, a large number of institutional investors such as insurance companies
and municipal and corporate
2
<PAGE>
pension fund managers allocated a larger portion of their assets to the high
yield market, particularly the better quality issues. In our view, this trend is
likely to continue well into 1997 as investors search for higher yielding
investment alternatives. However, selectivity has become increasingly more
important when picking investment ideas given the high yield market's fully
valued levels and the likelihood of an increasing number of bond defaults in
1997.
Portfolio Strategy
Despite the increasing number of disappointments, the outlook for the high
yield bond market in 1997 is still positive for a large number of companies that
are successfully competing in their markets. These companies tend to be in
industries that continue to benefit from new technology. We have found many
growth 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, Brooks Fiber, Teleport,
and Revlon to name a few. All of these companies continue to generate improving
results through either increased market share and/or improved internal cost
controls.
We still firmly believe that the better quality high yield issues offer
superior risk adjusted returns and lower default risk relative to lower-rated
issues. Considering the trend toward greater industry competition and little
pricing power in most sectors of the domestic economy, we believe our prudent
approach to high yield investing will generate the most consistent positive
returns in 1997. We therefore will continue to avoid the sectors of the economy
that are experiencing weak consumer spending trends as well as heavy industry
competition. In addition, we will continue to place more emphasis on higher
quality issues and avoid the weaker, lower-tier issues.
We have experienced a slight rise in our cash reserves as a result of some
sector shifting and profit taking. However, we expect to be fully invested
within the first quarter of 1997 as we take advantage of a relatively heavy new
issue calendar in the coming months.
3
<PAGE>
As the Fund becomes fully invested, we will begin to extend the Fund's average
maturity modestly to the 7- to 8-year range from the 5- to 6-year range. This
strategy should not be construed as an attempt to time the beneficial effects of
falling interest rates, but rather as a reflection of the Fund being fully
invested.
Outlook
In our opinion, the U.S. economy will remain in a moderate growth
environment at least through the first half of 1997. We expect most consumer
sensitive sectors will continue to experience problems as individuals slowly
reduce their debt burdens. As a result, we believe there will be a continued
increase in default rates among high yield issuers, especially the weaker, more
vulnerable companies that are having trouble competing. However, we do remain
optimistic on the high yield market's prospects for 1997, particularly among the
higher rated issues, and are positioned accordingly.
Given our expectations for modest economic growth with continued low
inflation, we remain constructive on the bond market as a whole. Although we
expect intermediate- and long-term interest rates to decline over the first half
of 1997, there is still the possibility for some market turbulence over the next
six months resulting from conflicting or inconclusive economic data.
In closing, thank you for investing in the Zenix Income Fund. We look
forward to continuing to help you achieve your investment goals.
Sincerely,
/s/ Heath B. McLendon /s/ John C. Bianchi, CFA
Heath B. McLendon John C. Bianchi, CFA
Chairman and Vice President and Chief
Executive Officer Investment Officer
January 15, 1997
4
<PAGE>
[LOGO]
Schedule of Investments
December 31, 1996 (unaudited)
================================================================================
<TABLE>
<CAPTION>
Face
Amount Rating Security Value
- ---------------------------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES -- 89.3%
Aerospace/Defense -- 2.0%
<S> <C> <C> <C>
$ 2,000,000 BB Airplanes Pass Through Trust, Corporate Collateralized
Mortgage Obligation, 10.875% due 3/15/19 .................... $ 2,206,120
875,000 B Tracor, Inc., Sr. Sub. Notes, 10.875% due 8/15/01 ............. 935,156
-------------
3,141,276
-------------
Banking -- 2.4%
3,375,000 B First Nationwide Parent Holdings Ltd.,
Sr. Exchange Note, 12.500% due 4/15/03 ...................... 3,754,688
-------------
Beverage, Food & Tobacco -- 1.9%
2,735,000 B Consolidated Cigar Corp., Sr. Sub. Notes,
10.500% due 3/1/03 .......................................... 2,875,169
-------------
Broadcasting -- 16.5%
750,000 B- All American Communications, Inc., Sr. Sub. Notes,
10.875% due 10/15/01 ........................................ 761,250
2,100,000 B- Allbritton Communications Co., Sr. Sub. Debentures,
11.500% due 8/15/04 ......................................... 2,226,000
2,600,000 NR Australis Media Ltd., Sr. Sub. Discount Notes,
step bond to yield 13.590% due 5/15/03+ ..................... 1,482,000
2,075,000 BB- Bell Cablemedia PLC, Sr. Discount Notes, step bond to yield
11.941% due 7/15/99 ......................................... 1,823,406
Cablevision Systems Corp., Sr. Sub. Debentures:
2,000,000 B 10.750% due 4/4/04 .......................................... 2,080,000
1,650,000 B 9.875% due 2/15/13 .......................................... 1,633,500
2,200,000 B Comcast UK Cable, Debentures, step bond to yield
11.156% due 11/15/07 ........................................ 1,556,500
Globo Comunicacoes, Notes:
1,000,000 NR Series A, 9.875%, due 12/20/04+++............................ 1,000,000
1,000,000 NR Series B, 10.500% due 12/20/06+++............................ 1,000,000
2,000,000 B Marcus Cable Operating Co., Sr. Debentures,
11.875% due 10/1/05 ......................................... 2,100,000
1,200,000 B NWCG Holdings, Sr. Discount Notes,
zero coupon bond to yield 7.220% due 6/15/99 ................ 1,008,000
Rogers Cablesystems of America, Inc., Sr. Sub. Debentures:
1,000,000 BB+ 10.000% due 12/1/07 ......................................... 1,055,000
1,175,000 BB- 11.000% due 12/1/15 ......................................... 1,269,000
800,000 BB+ Sr. Secured Second Priority Debentures,
9.650% due 1/15/14++ ........................................ 571,970
1,950,000 BB- Rogers Communications, Inc., Sr. Debentures,
10.875% due 4/15/04 ......................................... 2,052,375
</TABLE>
See Notes to Financial Statements.
5
<PAGE>
[LOGO]
Schedule of Investments (continued)
December 31, 1996 (unaudited)
================================================================================
<TABLE>
<CAPTION>
Face
Amount Rating Security Value
- -----------------------------------------------------------------------------------------------------
Broadcasting -- 16.5% (continued)
<S> <C> <C> <C>
$ 950,000 B- SFX Broadcasting, Inc., Sr. Sub. Notes,
10.750% due 5/15/06 ......................................... $ 1,004,625
2,150,000 NR UIH Australia, Inc., Sr. Discount Notes, step bond to yield
14.000% due 5/15/06 ......................................... 1,139,500
1,000,000 BB+ Videotron Group Ltd., Sr. Notes, 10.625% due 2/15/05 .......... 1,110,000
500,000 B Young Broadcasting Corp., Sr. Sub. Notes,
11.750% due 11/15/04 ........................................ 548,750
-------------
25,421,876
-------------
Building and Construction -- 0.4%
500,000 BB- American Standard, Inc., Sr. Sub. Debentures,
11.375% due 5/15/04 ......................................... 540,000
-------------
Chemicals -- 5.9%
2,000,000 B- Haynes International, Inc., Sr. Sub. Notes,
11.625% due 9/1/04 .......................................... 2,110,000
1,500,000 B NL Industries, Inc., Sr. Secured Notes,
11.750% due 10/15/03 ........................................ 1,593,750
1,250,000 BB Pt. Polysindo Eka Perkasa, Sr. Notes,
13.000% due 6/15/01 ......................................... 1,403,125
700,000 B Spinnaker Industries, Inc., Sr. Notes,
10.750% due 10/15/06+++ ..................................... 724,500
2,000,000 B+ Terra Industries, Inc., Sr. Notes, 10.500% due 6/15/05 ........ 2,182,500
1,000,000 NR Texas Petrochemicals Corp., Sr. Sub. Notes,
11.125% due 7/1/06 .......................................... 1,077,500
-------------
9,091,375
-------------
Consumer Durables Goods/Home Furnishings -- 0.5%
625,000 B+ International Semi-Tech, Sr. Secured Discount Notes,
step bond to yield 11.495% due 8/15/03 ...................... 410,937
325,000 B+ TAG-Heuer International, Sr. Sub. Notes,
12.000% due 12/15/05 ........................................ 375,375
-------------
786,312
-------------
Diversified Manufacturing -- 3.1%
3,000,000 B- Interlake Corp., Sr. Notes, 12.000% due 11/15/01 .............. 3,232,500
1,500,000 B Unifrax Investment Corp., Sr. Notes,
10.500% due 11/1/03 ......................................... 1,554,375
-------------
4,786,875
-------------
Electric Equipment -- 1.0%
1,500,000 B Goss Graphic Systems Inc., Sr. Sub. Notes,
12.000% due 10/15/06 ........................................ 1,533,750
-------------
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
[LOGO]
Schedule of Investments (continued)
December 31, 1996 (unaudited)
================================================================================
<TABLE>
<CAPTION>
Face
Amount Rating Security Value
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Electric Utilities -- 1.7%
$ 1,375,000 B+ Calpine Corp., Sr. Notes, 10.500% due 5/15/06 ................. $ 1,462,655
1,128,814 BB- Midland Cogeneration Venture Limited Partnership,
Midland Funding, Sr. Secured Lease Obligation Bond,
Series C, 10.330% due 7/23/02 ............................... 1,209,241
-------------
2,671,896
-------------
Electronics-Computers -- 3.1%
1,000,000 B Celestica International, Inc., Guaranteed Sr. Sub. Notes,
10.500% due 12/31/06+++ ...................................... 1,053,750
2,000,000 B- Graphic Controls Corp., Sr. Sub. Notes,
12.000% due 9/15/05 ......................................... 2,220,000
1,400,000 B+ Unisys Corp., Sr. Notes, 12.000% due 4/15/03 .................. 1,492,750
-------------
4,766,500
-------------
Finance -- 1.2%
1,750,000 B+ Ocwen Financial Corp., Notes,
11.875% due 10/1/03 ......................................... 1,892,188
-------------
Foods -- 2.8%
2,500,000 BB- TLC Beatrice International Holdings, Inc.,
Sr. Secured Notes, 11.500% due 10/1/05 ...................... 2,656,250
1,500,000 B- Van de Kamp, Inc., Sr. Sub. Notes, 12.000% due 9/15/05 ........ 1,661,250
-------------
4,317,500
-------------
Grocery/Convenience Stores -- 2.2%
Pathmark Stores, Inc.:
1,000,000 B- Sub. Debentures, 12.625% due 6/15/02 ........................ 1,037,500
2,275,000 B- Sub. Notes, 11.625% due 6/15/02 ............................. 2,331,875
-------------
3,369,375
-------------
Healthcare/Drugs/Hospital Supplies -- 2.6%
900,000 B Magellan Health Services, Inc., Sr. Sub. Notes,
11.250% due 4/15/04 ......................................... 996,750
2,850,000 B OrNda Health Corp., 12.250% due 5/15/02 ....................... 3,038,813
-------------
4,035,563
-------------
Hotel, Casinos and Gaming -- 2.9%
1,500,000 B Aztar Corp., Sr. Sub. Notes, 13.750% due 10/1/04 .............. 1,605,000
2,000,000 B- Courtyard By Marriott II, Sr. Secured Notes,
10.750% due 2/1/08 .......................................... 2,125,000
620,000 BB+ Mohegan Tribal Gaming Authority, Sr. Notes,
13.500% due 11/15/02 ........................................ 806,000
-------------
4,536,000
-------------
</TABLE>
See Notes to Financial Statements.
7
<PAGE>
[LOGO]
Schedule of Investments (continued)
December 31, 1996 (unaudited)
================================================================================
<TABLE>
<CAPTION>
Face
Amount Rating Security Value
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Leisure -- 0.6%
$ 842,265 NR Gillett Holdings, Inc., Sr. Sub. Notes, Series A,
12.250% due 6/30/02 ......................................... $ 886,484
-------------
Machinery -- 0.7%
1,000,000 B- Alvey Systems, Inc., Sr. Sub. Notes,
11.375% due 1/31/03 ......................................... 1,055,000
-------------
Metals & Mining -- 5.1%
1,000,000 B- Commonwealth Aluminum Corp., Sr. Sub. Notes,
10.750% due 10/1/06 ......................................... 1,030,000
3,725,000 CCC+ Kaiser Aluminum and Chemical Corp., Sr. Sub. Notes,
12.750% due 2/1/03 .......................................... 3,990,406
1,800,000 B Russell Metals, Inc., Sr. Notes, 10.250% due 6/15/00 .......... 1,836,000
800,000 BB- UCAR Global Enterprises, Inc., Sr. Sub. Notes,
12.000% due 1/15/05 ......................................... 926,000
-------------
7,782,406
-------------
Oil & Natural Gas -- 5.2%
2,000,000 BB- Global Marine, Inc., Sr. Secured Notes,
12.750% due 12/15/99 ........................................ 2,155,000
1,500,000 B- Kelley Oil & Gas Corp., Sr. Notes, 13.500% due 6/15/99 ........ 1,560,000
1,500,000 B+ Parker Drilling Co., Sr. Notes, 9.750% due 11/15/06++ ......... 1,582,500
1,675,000 BB- Santa Fe Energy Resources, Inc., Sr. Sub. Debentures,
11.000% due 5/15/04 ......................................... 1,867,625
800,000 B United Meridian Corp., Sr. Sub. Notes,
10.375% due 10/15/05 ........................................ 879,000
-------------
8,044,125
-------------
Packaging and Containers -- 1.0%
2,000,000 B- Ivex Holdings Corp., Sr. Sub. Debentures,
step bond to yield 12.910% due 3/15/05 ...................... 1,550,000
-------------
Paper/Forest Products & Printing -- 6.2%
1,300,000 B- American Pad & Paper Co., Sr. Sub. Notes,
13.000% due 11/15/05 ........................................ 1,530,750
2,000,000 BB Indah Kiat International Finance Co., Guaranteed Secured
Notes, 11.875% due 6/15/02 .................................. 2,197,500
3,275,000 B+ S.D. Warren Co., Sr. Sub. Notes, 12.000% due 12/15/04 ......... 3,545,188
2,050,000 BB Tjiwi Kimia International, Sr. Notes, 13.250% due 8/1/01 ...... 2,334,438
-------------
9,607,876
-------------
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
[LOGO]
Schedule of Investments (continued)
December 31, 1996 (unaudited)
================================================================================
<TABLE>
<CAPTION>
Face
Amount Rating Security Value
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Personal Care -- 1.8%
$ 2,000,000 B- Revlon Consumer Products Corp., Sr. Sub. Notes, Series B,
10.500% due 2/15/03 ......................................... $ 2,105,000
700,000 B- Revlon Worldwide Corp., Sr. Secured Notes,
zero coupon bond to yield 20.606% due 3/15/98 ............... 603,750
-------------
2,708,750
-------------
Pollution Control -- 0.7%
1,000,000 B+ Allied Waste North America Inc., Sr. Sub. Notes,
10.250% due 12/1/06+++ ...................................... 1,055,000
-------------
Real Estate -- 1.8%
2,500,000 BB- Trizec Finance Ltd., Sr. Notes, 10.875% due 10/15/05 ........ 2,768,750
-------------
Retail -- 1.3%
1,750,000 B+ Barnes and Noble, Inc., Sr. Sub. Notes, Series B,
11.875% due 1/15/03 ......................................... 1,920,625
-------------
Telecommunications -- 12.7%
2,950,000 NR Clearnet Communications, Inc., step bond to yield
14.052% due 12/15/05 ........................................ 1,924,875
1,750,000 NR Colt Telecommunications Group PLC, Sr. Discount Notes,
12.000% due 12/15/06 ........................................ 1,050,000
750,000 B+ Fonorola, Inc., Sr. Notes, 12.500% due 8/15/02 ................ 821,250
2,825,000 NR Intelcom Group USA, Inc., Sr. Discount Notes,
step bond to yield 12.500% due 5/1/06+++ .................... 1,850,375
3,125,000 B- Intermedia Communications, Sr. Discount Notes,
step bond to yield 12.500% due 5/15/06 ...................... 2,125,000
3,550,000 CCC- Nextel Communications, Inc., Sr. Discount Notes,
step bond to yield 12.295% due 8/15/04 ...................... 2,422,875
2,000,000 NR Nextlink Communications, Sr. Discount Notes,
12.500% due 4/15/06 ......................................... 2,145,000
1,250,000 NR Omnipoint Corp., Sr. Notes, 11.625% due 8/15/06 ............... 1,306,250
1,550,000 NR Pagemart, Inc., Sr. Discount Notes, step bond to yield
11.602% due 11/1/03 ......................................... 1,236,125
1,000,000 NR RSL Communications Ltd., Sr. Notes,
12.250% due 11/15/06+++ ..................................... 1,005,000
2,500,000 B Teleport Communications, Inc., Sr. Discount Notes,
step bond to yield 11.416% due 7/1/07 ....................... 1,728,125
2,750,000 BB Telewest Communications PLC, Sr. Discount Debentures,
step bond to yield 10.992% due 10/1/07 ...................... 1,918,125
-------------
19,533,000
-------------
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
[LOGO]
Schedule of Investments (continued)
December 31, 1996 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Face
Amount Rating Security Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Transportation -- 2.0%
$ 2,805,000 BB- Sea Containers Ltd., Sr. Sub. Debentures,
12.500% due 12/1/04 ......................................... $ 3,099,525
-------------
TOTAL CORPORATE BONDS AND NOTES
(Cost-- $130,700,362) ......................................... 137,531,884
-------------
Shares Security Value
- -----------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS -- 0.3%
Healthcare -- 0.3%
44,560 Foxmeyer Health Corp., Series A, Convertible $4.20 ............ 395,470
Publishing -- 0.0%
289 K-III Communications Corp., Series B, Exchange $11.625......... 29,260
-------------
TOTAL CONVERTIBLE PREFERRED STOCKS
(Cost -- $1,513,882).......................................... 424,730
-------------
PREFERRED STOCK -- 0.7%
1,000 Fresensius Medical Care Capital Trust (Cost-- $1,000,000) 1,017,500
-------------
WARRANTS -- 0.0%
9,735 Clearnet Communications, Inc., Expire 9/15/05................. 41,374
5,400 Degeorge Financial Corp., Expire 4/1/97....................... 54
7,130 Pagemart, Inc., Expire 12/31/03............................... 32,085
-------------
TOTAL WARRANTS
(Cost -- $0) ................................................. 73,513
-------------
Face
Amount Security Value
- ----------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 9.7%
$ 14,934,000 Citibank Securities, 6.893% due 1/2/97;
Proceeds at maturity -- $14,939,719; (Fully collateralized
by U.S. Treasury Notes, 5.750% due 12/31/98; Market
value -- $15,233,119) (Cost -- $14,934,000.................... 14,934,000
-------------
TOTAL INVESTMENTS -- 100%
(Cost -- $148,148,244**) .................................... $ 153,981,627
=============
</TABLE>
+ Security issued with attached warrants.
++ Represents local currency.
+++ Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions that are exempt from
registration, normally to qualified institutional buyers.
** Aggregate cost for Federal income tax purposes is substantially the same.
See page 11 for definitions of ratings.
See Notes to Financial Statements.
10
<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 -- Rating from "BBB" to "CCC" may be modified
by the addition of a plus (+) or minus (-) sign to show relative standings
within the major rating categories.
BBB -- Bonds rated "BBB" are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit
adequate protection parameters, adverse economic conditions or
changing circumstances, are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
BB -- Bonds rated "BB" have less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or economic
conditions which could lead to inadequate capacity to meet timely
interest and principal payments.
B -- Bonds rated "B" have a greater vulnerability to default but
currently have the capacity to meet interest payments and principal
payments. Adverse business, financial, or economic conditions will
likely impair capacity or willingness to pay interest and repay
principal. The "B" rating category is also used for debt subordinated
to senior debt that is assigned an actual or implied "BB" or "BB-"
rating.
CCC -- Bonds rated "CCC" have a currently identifiable vulnerability to
default, and are dependent upon favorable business, financial, and
economic conditions to meet timely payment of interest and repayment
of principal. In the event of adverse business, financial, or
economic conditions, it is not likely to have the capacity to pay
interest and repay principal. The "CCC" rating category is also used
for debt subordinated to senior debt that is assigned an actual or
implied "B" or "B-" rating.
Moody's -- Numerical modifiers 1, 2 and 3 may be applied to each generic rating
from "Baa" to "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.
11
<PAGE>
[LOGO]
Statement of Assets and Liabilities
December 31, 1996 (unaudited)
================================================================================
<TABLE>
<CAPTION>
ASSETS:
<S> <C> <C>
Investments, at value (Cost--$148,148,244) .......... $ 153,981,627
Cash ................................................ 428
Interest receivable ................................. 2,664,300
-------------
Total Assets ........................................ 156,646,355
-------------
LIABILITIES:
Bank loan (Note 7) .................................. 30,000,000
Interest payable .................................... 84,492
Investment advisory fees payable .................... 63,446
Administration fees payable ......................... 24,855
Accrued expenses .................................... 121,188
-------------
Total Liabilities ................................... 30,293,981
-------------
Total Net Assets .................................... $ 126,352,374
=============
NET ASSETS:
Par value of capital shares ......................... $ 146,199
Capital paid in excess of par value ................. 122,980,370
7.00% Cumulative Preferred Stock (Note 6) ........... 30,000,000
Undistributed net investment income ................. 444,815
Accumulated net realized loss from
security transactions ............................. (33,052,393)
Net unrealized appreciation on investments .......... 5,833,383
-------------
Total Net Assets .................................... $ 126,352,374
=============
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 .................................. 3.45 103,559
----------- ------------
Total allocated to Cumulative Preferred Stock ...... $ 1,003.45 30,103,559
=========== ------------
Common Stock (14,619,887 shares outstanding) ....... $ 6.58 96,248,815
========== ------------
Total Net Assets.................................... $126,352,374
============
</TABLE>
See Notes to Financial Statements.
12
<PAGE>
[LOGO]
Statement of Operations
For the Nine Months Ended
December 31, 1996 (unaudited)
================================================================================
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest .............................................. $ 12,217,533
Dividends ............................................. 241,945
Less: Interest expense ................................ (1,341,737)
-------------
Total Investment Income ............................... 11,117,741
-------------
EXPENSES:
Investment advisory fees (Note 2) ..................... 574,907
Administration fees (Note 2) .......................... 229,963
Shareholder communications ............................ 123,985
Audit and legal ....................................... 85,327
Directors' fees ....................................... 30,507
Shareholder and system servicing fees ................. 24,057
Registration fees ..................................... 24,000
Custody ............................................... 10,000
Other ................................................. 17,592
-------------
Total Expenses ........................................ 1,120,338
-------------
Net Investment Income .................................. 9,997,403
-------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
AND FOREIGN CURRENCIES (NOTE 3):
Realized Gain (Loss) From:
Security transactions (excluding short-term securities) (17,107)
Foreign currency transactions.......................... 160,583
-------------
Net Realized Gain ..................................... 143,476
-------------
Change in Net Unrealized Appreciation of Investments:
Beginning of period ................................. 2,661,532
End of period ........................................ 5,833,383
-------------
Increase in Net Unrealized Appreciation ............... 3,171,851
-------------
Net Gain on Investments and Foreign Currencies ........ 3,315,327
-------------
Increase in Net Assets From Operations ................ $ 13,312,730
=============
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
[LOGO]
Statements of Changes in Net Assets
For the Nine Months Ended
December 31, 1996 (unaudited)
and Year Ended March 31, 1996
================================================================================
<TABLE>
<CAPTION>
December 31 March 31
----------- ------------
<S> <C> <C>
OPERATIONS:
Net investment income ..................... $ 9,997,403 $ 11,968,129
Net realized gain (loss) .................. 143,476 (393,167)
Increase in net unrealized appreciation ... 3,171,851 6,403,561
------------ ------------
Increase in Net Assets From Operations .... 13,312,730 17,978,523
------------ ------------
DIVIDENDS PAID FROM
NET INVESTMENT INCOME TO:
7.00% Cumulative Preferred Stock .......... (2,100,000) (2,100,000)
Common Stock .............................. (7,792,190) (10,105,946)
------------ ------------
Decrease in Net Assets From
Distributions To Shareholders ............. (9,892,190) (12,205,946)
------------ ------------
FUND SHARE TRANSACTIONS (NOTE 8):
Net asset value of shares issued for
reinvestment of dividends ................ 2,613,867 3,623,826
------------ ------------
Increase in Net Assets From
Fund Share Transactions .................. 2,613,867 3,623,826
------------ ------------
Increase in Net Assets ....................... 6,034,407 9,396,403
NET ASSETS:
Beginning of period ........................ 120,317,967 110,921,564
------------ ------------
End of period* ............................. $126,352,374 $120,317,967
============ ============
* Includes undistributed net investment
income of: ................................ $ 444,815 $ 179,019
============ ============
</TABLE>
See Notes to Financial Statements.
14
<PAGE>
[LOGO]
Statement of Cash Flows
For the Nine Months Ended
December 31, 1996 (unaudited)
================================================================================
<TABLE>
<S> <C>
NET INCREASE IN CASH:
Cash Flows From Operating and Investing Activities:
Interest and dividends received .......................... $ 11,803,168
Operating expenses paid .................................. (1,150,898)
Interest payments on bank loans .......................... (1,325,145)
Purchases of short-term securities, net .................. (13,421,000)
Purchases of long-term securities ........................ (100,566,313)
Proceeds from disposition of long-term securities......... 111,938,586
-----------
Net Cash Provided By Operating and
Investing Activities................................... $ 7,278,398
-----------
Cash Flows From Financing Activities:
Cash dividends paid on 7.00% Cumulative
Preferred Stock ........................................ (2,100,000)
Net cash dividends paid on Common Stock*.................. (5,178,323)
-----------
Net Cash Used By Financing Activities..................... (7,278,323)
-----------
Net Increase in Cash........................................ 75
Cash--Beginning of Period................................... 353
-----------
Cash--End of Period......................................... $ 428
===========
RECONCILIATION OF INCREASE IN NET ASSETS
FROM OPERATIONS TO NET CASH PROVIDED
BY OPERATING AND INVESTING ACTIVITIES:
Increase in Net Assets From Operations...................... $13,312,730
Amortization of discount on securities.................... (1,809,409)
Increase in investments................................... (7,239,490)
Decrease in receivable for securities sold................ 1,878,839
Decrease in dividends and interest receivable............. 1,149,696
Decrease in accrued expenses.............................. (13,968)
----------
Total Adjustments......................................... (6,034,332)
-----------
Net Cash Provided By Operating and Investing Activities..... $ 7,278,398
===========
</TABLE>
* Exclusive of dividend reinvestment of $2,613,867.
See Notes to Financial Statements.
15
<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 asked prices provided by the principal market
makers; any security for which the primary market is an exchange is valued at
the last sale price on such exchange on the day of valuation or, if there was no
sale on such day, at the last bid price quoted. 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 market 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. Difference between income and 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 the accrual basis; (f) gains or losses on the sale of securities are
calculated by using the specific identification method; (g) dividends and
distributions to shareholders are recorded monthly by the Fund on the
ex-dividend date for the shareholders of Common Stock based on net investment
income. The holders of the 7.00% Cumulative Preferred Stock shall be entitled to
receive dividends when, as and if declared by the Board of Directors of the Fund
out of funds legally available to shareholders at a rate of 7.00% per annum,
payable semi-annually on June 15 and December 15; (h) the net asset value of the
Fund's Common Stock is determined no less frequently than the close of business
on the
16
<PAGE>
[LOGO]
Notes to Financial Statements
(unaudited)(continued)
================================================================================
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
taxes and excise taxes; (j) the character of income and gains to be distributed
are determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. At March 31, 1996, reclassifications
were made to the Fund's capital accounts to reflect permanent book/tax
differences and income and gains available for distributions under income tax
regulations. Net investment income, net realized gains and net assets were not
affected by this change; and (k) estimates and assumptions are required to be
made regarding assets, liabilities and changes in net assets resulting from
operations when financial statements are prepared. Changes in the economic
environment, financial markets and any other parameters used in determining
these estimates could cause actual results to differ.
2. Advisory Agreement and Transactions with Affiliated Persons
Smith Barney Mutual Funds Management Inc. ("SBMFM"), a subsidiary of Smith
Barney Holdings Inc. ("SBH"), through its Greenwich Street Advisors division,
acts as investment advisor to the Fund. The Fund pays SBMFM a management fee
calculated at an annual rate of 0.50% on the average daily net assets. This fee
is calculated daily and paid monthly.
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 SB.
17
<PAGE>
[LOGO]
Notes to Financial Statements
(unaudited)(continued)
================================================================================
3. Investments
During the nine months ended December 31, 1996, the aggregate cost of
purchases and proceeds from sales of investments (including maturities, but
excluding short-term securities) were as follows:
================================================================================
Purchases $100,647,110
- --------------------------------------------------------------------------------
Sales 90,493,653
================================================================================
At December 31, 1996, the aggregate gross unrealized appreciation and
depreciation of investments were as follows:
================================================================================
Gross unrealized appreciation $9,429,902*
- --------------------------------------------------------------------------------
Gross unrealized depreciation (3,596,519)*
- --------------------------------------------------------------------------------
Net unrealized appreciation $ 5,833,383*
================================================================================
* Substantially the same for Federal income tax purposes.
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
Statement of Changes in Net Assets. Information on cash payments is presented in
the Statement of Cash Flows. Accounting practices that do not affect reporting
activities on a cash basis include unrealized gains or losses on investment
securities.
5. Repurchase Agreements
The Fund purchases (and its custodian takes possession of) U.S. Government
securities from banks and securities dealers subject to agreements to resell the
securities to the sellers at a future date (generally, the next business day) at
an agreed upon higher repurchase price. The Fund requires continual maintenance
of the market value of the collateral in amounts at least equal to the
repurchase price.
18
<PAGE>
[LOGO]
Notes to Financial Statements
(unaudited)(continued)
================================================================================
6. Cumulative Redeemable Preferred Stock
On March 16, 1993, the Fund issued 30,000 shares of 7.00% Cumulative
Preferred Stock, which will be redeemed in full on April 15, 2000, at a price
equal to $1,000 per share, plus accumulated and unpaid dividends. On March 31,
1994, 250,000 shares of $0.01 par value 7.00% Cumulative Preferred Stock were
authorized but remained unissued. Cumulative undeclared dividends on the
outstanding Preferred Stock amounted to $103,559 at December 31, 1996.
7. Bank Loan
The Fund has a $30,000,000 revolving line of credit with PNC Bank, N.A.
Interest on the loan can be paid based on 30, 60 or 90 day periods as elected by
the Fund. The interest on the loan is currently calculated at the Federal Funds
rate plus 40 basis points. The line of credit expires on July 18, 1998.
Moody's Investors Service, Inc. and Standard & Poor's Rating Services have
reconfirmed their respective Aa3 and AA+ ratings of the Fund's 7% Cumulative
Preferred Stock.
8. Common Stock
At December 31, 1996, the Fund had 250,000,000 shares of common stock
authorized with a par value of $0.01 per share.
Common stock transactions were as follows:
Nine Months Ended Year Ended
December 31, 1996 March 31, 1996
--------------------- ------------------
Shares Amount Shares Amount
================================================================================
Shares issued on
reinvestment 394,828 $2,613,867 569,905 $3,623,826
================================================================================
19
<PAGE>
[LOGO]
Notes to Financial Statements
(unaudited)(continued)
================================================================================
9. Capital Loss Carryforward
As of March 31, 1996, the Fund had, for Federal income tax purposes,
capital loss carryforwards of approximately $33,035,000 available to offset
future realized capital gains, if any. To the extent that these carryforward
losses are used to offset capital gains, it is probable that the gains so offset
will not be distributed. This loss expires as follows:
3/31/99 3/31/00 3/31/03 3/31/04
================================================================================
Carryforward Amounts $17,408,000 $ 8,395,000 $ 4,873,000 $ 2,359,000
================================================================================
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.
20
<PAGE>
[LOGO]
Financial Highlights
================================================================================
Contained below is per share operating performance data for a share of
common stock outstanding, total return and ratios to average net assets based on
Common Shares outstanding. This information has been derived from information
provided in the financial statements and market price data for the Fund's
shares.
For a share of common stock outstanding throughout each period:
<TABLE>
<CAPTION>
1996(1) 1996 1995
------- ------- -------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period ........... $ 6.31 $ 5.88 $ 6.76
------- ------- -------
Income From Operations:
Net investment income ........................ 0.68 0.86 0.93
Net realized and unrealized gain (loss) ...... 0.23 0.45 (0.78)
------- ------- -------
Total Income From Operations ................. 0.91 1.31 0.15
------- ------- -------
Distributions:
Dividends declared to 7.00% Cumulative
Preferred Stockholders ..................... (0.14) (0.15) (0.16)
Dividends paid from net investment income .... (0.54) (0.73) (0.87)
Change in accumulated undeclared dividends on
Preferred Stock ............................ 0.04 -- --
------- ------- -------
Total Distributions .......................... (0.64) (0.88) (1.03)
------- ------- -------
Net Asset Value, End of Period ................. $ 6.58 $ 6.31 $ 5.88
======= ======= =======
Market Value, End of Period .................... $ 7.13 $ 7.00 $ 6.63
======= ======= =======
Total Return, Based on Market Value ............ 10.59%+++ 18.35% 6.41%
======= ======= =======
Total Return, Based on Net Asset Value ......... 13.30%+++ 20.01% (0.53)%
======= ======= =======
Net Assets*, End of Period (000's) ............. $96,248 $90,318 $80,309
Ratios to Average Net Assets Based on
Common Shares Outstanding:
Net Investment Income ........................ 10.92%+ 10.48% 15.35%
Interest Expense ............................. 1.47+ 1.47 1.58
Other Expenses ............................... 1.23+ 1.21 1.65
Portfolio Turnover Rate ........................ 63% 87% 79%
</TABLE>
- ----------------------
(1) For the nine months ended December 31, 1996 (unaudited).
* Exclusive of preferred shares outstanding.
+++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
21
<PAGE>
[LOGO]
Financial Highlights (continued)
================================================================================
For a share of common stock outstanding throughout each period:
<TABLE>
<CAPTION>
1994# 1993 1992
------- ------- -------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period ............. $ 6.86 $ 6.39 $ 5.58
------- ------- -------
Income From Operations:
Net investment income .......................... 1.02 1.07 1.08
Net realized and unrealized gain (loss) ........ (0.13) 0.51 0.82
------- ------- -------
Total Income From Operations ................... 0.89 1.58 1.90
------- ------- -------
Underwriting Commissions and Offering Costs on
7.00% Cumulative Preferred Stock ............... -- (0.05) --
------- ------- -------
Distributions:
Dividends declared to 7.00% Cumulative Preferred
Stockholders ................................. (0.11) -- --
Dividends declared to 9.67% Cumulative Preferred
Stockholders ................................. (0.12) (0.23) (0.24)
Dividends paid from net investment income ...... (0.82) (0.82) (0.85)
Change in accumulated undeclared dividends on
Preferred Stock .............................. 0.06 (0.01) --
------- ------- -------
Total Distributions ............................ (0.99) (1.06) (1.09)
------- ------- -------
Net Asset Value, End of Period ................... $ 6.76 $ 6.86 $ 6.39
======= ======= =======
Market Value, End of Period ...................... $ 7.13 $ 7.25 $ 6.63
======= ======= =======
Total Return, Based on Market Value............... 10.02% 24.02% 39.12%
======= ======= =======
Total Return, Based on Net Asset Value............ 10.24% 21.66% 32.26%
======= ======= =======
Net Assets*, End of Period (000's) $87,726 $85,225 $75,818
======= ======= =======
Ratios to Average Net Assets Based on
Common Shares Outstanding:
Net Investment Income .......................... 14.38% 12.89% 14.16%
Interest Expense ............................... 0.92 1.14 2.10
Other Expenses ................................. 1.60 1.99 2.15
Portfolio Turnover Rate .......................... 102% 93% 86%
</TABLE>
- --------------------
# Per share amounts have been calculated using the monthly average shares
method, which more appropriately presents the per share data for the year
ended March 31, 1994, since the use of the undistributed net investment income
method does not accord with results of operations.
* Exclusive of preferred shares outstanding.
22
<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 that are currently
outstanding.
<TABLE>
<CAPTION>
1996(1) 1996 1995 1994 1993 1992
------ ---- ---- ---- ---- ----
<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 --
Asset Coverage Per Share 2,600 2,490 2,439 2,583 2,529 --
Involuntary Liquidating Preference 1,000 1,000 1,000 1,000 1,000 --
Per Share (3)
Average Market Value Per Share (3)(4) 1,000 1,000 1,000 1,000 1,000 --
9.67% Cumulative Preferred Stock (5)
Total amount outstanding (000s) -- -- -- -- -- 28,750
Asset Coverage Per Share -- -- -- -- -- 2,413
Involuntary Liquidating Preference -- -- -- -- -- 1,000
Per Share (3)
Average Market Value Per Share (3)(4) -- -- -- -- -- 1,000
Senior Money Market Notes
Total amount outstanding (000s) -- -- 25,800 25,800 25,800 25,800
Asset Coverage Per Share -- -- 527,555 558,675 546,948 510,240
Involuntary Liquidating Preference -- -- 100,000 100,000 100,000 100,000
Per Share (3)
Average Market Value Per Share (3)(4) -- -- 100,000 100,000 100,000 100,000
PNC Bank Credit Facility
Total amount outstanding (000s) 30,000 30,000 -- -- -- --
Asset Coverage Per Share 521,000 498,000 -- -- -- --
Involuntary Liquidating Preference 100,000 100,000 -- -- -- --
Per Share (3)
Average Market Value Per Share (3)(4) 100,000 100,000 -- -- -- --
</TABLE>
- -----------------
(1) For the nine months ended December 31, 1996.
(2) Redeemable April 15, 2000.
(3) Excludes accrued interest or accumulated undeclared dividends.
(4) See Note 7.
(5) Redeemable April 15, 1993.
23
<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
</TABLE>
- ----------
* Per share of Common Stock.
24
<PAGE>
[LOGO]
Financial Data (unaudited)
================================================================================
For a share of common stock outstanding throughout each period:
<TABLE>
<CAPTION>
Dividend
Record Payable NYSE Net Asset Dividend Reinvestment
Date Date Closing Price Value* Paid Price
================================================================================
<S> <C> <C> <C> <C> <C>
1/24/95 1/31/95 $6.250 $5.58 $0.069 $5.799
2/21/95 2/28/95 6.250 5.78 0.063 5.990
3/24/95 3/31/95 6.625 5.87 0.063 5.874
4/21/95 4/28/95 6.625 5.96 0.063 6.290
5/23/95 5/31/95 6.875 6.10 0.063 6.530
6/23/95 6/30/95 6.625 6.03 0.063 6.290
7/26/95 7/31/95 6.625 6.15 0.060 6.290
8/22/95 8/31/95 6.625 6.16 0.060 6.290
9/26/95 9/30/95 6.625 6.17 0.060 6.294
10/24/95 10/31/95 6.625 6.25 0.060 6.290
11/20/95 11/30/95 6.625 6.22 0.060 6.290
12/26/95 12/31/95 6.500 6.28 0.060 6.175
1/23/96 1/26/96 6.625 6.39 0.060 6.294
2/20/96 2/23/96 7.000 6.52 0.060 6.650
3/26/96 3/29/96 7.000 6.31 0.060 6.650
4/23/96 4/26/96 6.875 6.27 0.060 6.531
5/28/96 5/31/96 6.875 6.33 0.060 6.531
6/25/96 6/28/96 6.750 6.22 0.060 6.413
7/23/96 7/26/96 6.875 6.22 0.060 6.531
8/27/96 8/30/96 6.875 6.22 0.060 6.531
9/24/96 9/27/96 7.125 6.37 0.060 6.769
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
================================================================================
</TABLE>
* As of record date
25
<PAGE>
[LOGO]
Additional Information (unaudited)
================================================================================
On July 10, 1996, the annual meeting of the shareholders of the Fund was
held for the purpose of voting on the following matters:
(1) To approve or disapprove for the Fund the election of seven Directors;
and
(2) To approve or disapprove the selection of KMPG Peat Marwick LLP as the
independent auditors for the current fiscal year of the Fund.
The results of the vote on Proposal 1 were as follows:
<TABLE>
<CAPTION>
Shares Percentage of Shares Percentage of
Directors Voted For Shares Voted Voted Against Shares Voted
================================================================================
<S> <C> <C> <C> <C>
Common Shares
Allan J. Bloostein 12,709,102.88 97.906% 271,813.53 2.094%
Martin Brody 12,738,833.71 98.135% 242,082.70 1.865%
Dwight B. Crane 12,732,946.08 98.090% 247,970.33 1.910%
William R. Hutchinson 12,720,982.45 97.998% 259,933.97 2.002%
Heath B. McLendon 12,744,744.71 98.181% 236,171.70 1.819%
Preferred Shares
Charles F. Barber 29,000.00 100.000% 0.00 0.000%
Allan J. Bloostein 29,000.00 100.000% 0.00 0.000%
Robert A. Frankel 29,000.00 100.000% 0.00 0.000%
William R. Hutchinson 29,000.00 100.000% 0.00 0.000%
Heath B. McLendon 29,000.00 100.000% 0.00 0.000%
================================================================================
</TABLE>
The results of the vote on Proposal 2 were as follows:
<TABLE>
<CAPTION>
Percentage
Shares Percentage of Shares Percentage of Shares of Shares
Voted For Shares Voted Voted Against Shares Voted Abstained* Abstained
================================================================================
<S> <C> <C> <C> <C> <C>
Common Shares
12,713,514.86 97.940% 80,949.70 0.624% 186,451.86 1.436%
Preferred Shares
29,000.00 100.000% 0.00 0.000% 0.00 0.000%
================================================================================
</TABLE>
* There were approximately 792,749 broker non-votes included in the amount
abstaining.
26
<PAGE>
[LOGO]
Dividend Reinvestment Plan
(unaudited)
================================================================================
Under the Fund's Dividend Reinvestment Plan (the "Plan"), a shareholder
whose Common Stock is registered in his own name will have all distributions
reinvested automatically by First Data Investor Services Group, Inc. ("First
Data"), as agent under the Plan, unless the shareholder elects to receive cash.
Distributions with respect to shares registered in the name of a broker-dealer
or other nominee (that is, in "street name") will be reinvested by the broker or
nominee in additional Common Stock under the Plan, but only if the service is
provided by the broker or nominee, and the broker or nominee makes an election
on behalf of the shareholder to participate in the Plan. A shareholder who holds
Common Stock registered in the name of a broker or other nominee may not be able
to transfer the Common Stock to another broker or nominee and continue to
participate in the Plan. Investors who own Common Stock registered in street
name should consult their broker or nominee for details regarding reinvestment.
The number of shares of Common Stock distributed to participants in the
Plan in lieu of a cash dividend is determined in the following manner. Whenever
the market price of the Fund's Common Stock is equal to or exceeds 98% of net
asset value per share, participants will be issued shares of Common Stock valued
at the greater of (i) 98% of net asset value per share or (ii) 95% of the then
current market price. If 98% of net asset value per share of Common Stock at the
time of valuation exceeds the market price of the Common Stock, First Data will
buy shares of the Fund's Common Stock on the open market, on the New York Stock
Exchange, Inc. or elsewhere, 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
27
<PAGE>
Dividend Reinvestment Plan (continued)
(unaudited)
================================================================================
average of prices paid for shares purchased in the open market and the price at
which the Fund issues the remaining shares.
Plan participants are not subject to any charge for reinvesting dividends
or capital gains distributions. Each Plan participant will, however, bear a
proportionate share of brokerage commissions incurred with respect to First
Data's open market purchases of shares of Common Stock in connection with the
reinvestment of dividends or capital gains distributions. For the nine months
ended December 31, 1996, 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 at
market prices shares of its common stock in the open market.
28
<PAGE>
DIRECTORS
Charles F. Barber
Allan J. Bloostein
Martin Brody
Dwight B. Crane
Robert A. Frankel
William R. Hutchinson
Heath B. McLendon
OFFICERS
Heath B. McLendon
Chairman of the Board
and Investment Officer
Jessica Bibliowicz
President
Lewis E. Daidone
Senior Vice President
and Treasurer
John C. Bianchi
Vice President and
Investment Officer
Thomas M. Reynolds
Controller
Christina T. Sydor
Secretary
This report is sent to the shareholders of the
ZENIX Income Fund Inc.
for their information. It is not a Prospectus,
circular or representation intended for use in the
purchase or sale of shares of the Fund or of any
securities mentioned in the report.
FD01066 2/97
