SMITH BARNEY SHEARSON PREMIUM TOTAL RETURN FUND
A SUB-TRUST OF SMITH BARNEY SHEARSON INCOME FUNDS
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held on June 15, 1994
To the Shareholders of Smith Barney Shearson
Premium Total Return Fund:
Notice is hereby given that a special meeting of Shareholders of Smith
Barney Shearson Premium Total Return Fund (the "Fund"), a mutual fund
organized as a sub-trust of Smith Barney Shearson Income Funds (the "Trust"),
will be held at Two World Trade Center, 100th Floor, New York, New York on
June 15, 1994 commencing at 12:00 p.m. for the following purposes:
1. To approve or disapprove a new investment advisory agreement
between the Trust, on behalf of the Fund, and Smith Barney Shearson Strategy
Advisers Inc. ("SBSSA"), containing the same advisory fee as the Fund's
current advisory agreement (Proposal 1).
2. To approve or disapprove a sub-investment advisory agreement
between the Trust, on behalf of the Fund, SBSSA, as adviser, and The Boston
Company Advisors, Inc. ("Boston Advisors"), the Fund's current adviser
(Proposal 2).
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
These items are discussed in greater detail in the attached Proxy
Statement. The close of business on April 18, 1994 has been fixed as the
record date for the determination of shareholders of the Fund entitled to
notice of and to vote at the meeting and any adjournment thereof.
By Order of the Board of Trustees
Christina T. Sydor
May 19, 1994 Secretary
SHAREHOLDERS OF THE FUND WHO DO NOT EXPECT TO ATTEND THE SPECIAL MEETING
ARE REQUESTED TO
COMPLETE, SIGN, DATE AND RETURN THE PROXY CARD IN THE ENCLOSED ENVELOPE,
WHICH NEEDS NO POSTAGE
IF MAILED IN THE CONTINENTAL UNITED STATES. INSTRUCTIONS FOR THE PROPER
EXECUTION OF PROXY CARDS
ARE SET FORTH ON THE FOLLOWING PAGE. IT IS IMPORTANT THAT PROXIES
BE RETURNED PROMPTLY.
INSTRUCTIONS FOR SIGNING PROXY CARDS
The following general rules for signing proxy
cards may be of assistance to you and avoid the time
and expense to the Fund involved in validating your
vote if you fail to sign your proxy card properly.
1. Individual Accounts: Sign your name
exactly as it appears in the registration on the proxy
card.
2. Joint Accounts: Either party may sign, but
the name of the party signing should conform exactly
to the name shown in the registration on the proxy
card.
3. All Other Accounts: The capacity of the
individual signing the proxy card should be indicated
unless it is reflected in the form of registration.
For example:
Registration Valid Signature
Corporate Accounts
(1) ABC Corp.
ABC Corp.
(2) ABC Corp.
John Doe,
Treasurer
(3) ABC Corp.
c/o John Doe,
Treasurer
John Doe
(4) ABC Corp. Profit Sharing
Plan
John Doe, Trustee
Trust Accounts
(1) ABC Trust
Jane B. Doe,
Trustee
(2) Jane B. Doe, Trustee
u/t/d 12/28/78
Jane B. Doe
Custodian or Estate Accounts
(1) John B. Smith, Cust.
f/b/o John B.
Smith, Jr. UGMA
John B. Smith, Jr.
(2) John B. Smith
John B. Smith,
Jr., Executor
SMITH BARNEY SHEARSON PREMIUM TOTAL RETURN FUND
A SUB-TRUST OF SMITH BARNEY SHEARSON INCOME FUNDS
Two World Trade Center
New York, New York 10048
SPECIAL MEETING OF SHAREHOLDERS
To Be Held on June 15, 1994
PROXY STATEMENT
This Proxy Statement is being solicited by the
Board of Trustees (the "Board") of Smith Barney
Shearson Income Funds (the "Trust"), for use at the
special meeting of shareholders (the "Meeting") of its
sub-trust, Smith Barney Shearson Premium Total Return
Fund (the "Fund"), to be held on June 15, 1994, or any
adjournment or adjournments thereof. The Meeting will
be held at Two World Trade Center, 100th Floor, New
York, New York at the time specified in the Notice of
Special Meeting of Shareholders and proxy card that
accompany this Proxy Statement. Proxy solicitations
will be made primarily by mail, but proxy
solicitations also may be made by telephone, telegraph
or personal interviews conducted by officers and
employees of: the Trust; Smith Barney Shearson Inc.
("Smith Barney Shearson"), the distributor of shares
of the Fund; The Boston Company Advisors, Inc.
("Boston Advisors), the current investment adviser and
administrator of the Fund; and/or The Shareholder
Services Group, Inc. ("TSSG"), a subsidiary of First
Data Corporation and the transfer agent of the Fund.
The costs of the proxy solicitation and expenses
incurred in connection with the preparation of this
Proxy Statement and its enclosures will be paid by
Smith Barney Shearson. Smith Barney Shearson also
will reimburse expenses of forwarding solicitation
material to beneficial owners of shares of the Fund.
The Trust currently issues three classes of
shares of beneficial interest ("Shares") in respect of
the Fund, but for purposes of the matters to be
considered at the Meeting, all Shares will be voted as
a single class. Each Share is entitled to one vote
and any fractional Share is entitled to a fractional
vote. If the enclosed proxy is properly executed and
returned in time to be voted at the Meeting, the
Shares represented thereby will be voted in accordance
with the instructions marked thereon. Unless
instructions to the contrary are marked on the proxy,
it will be voted FOR the matters listed in the
accompanying Notice of Special Meeting of
Shareholders. Any shareholder who has given a proxy
has the right to revoke it at any time prior to its
exercise either by attending the Meeting and voting
his or her Shares in person or by submitting a letter
of revocation or a later-dated proxy to the Trust at
the above address prior to the date of the Meeting.
For purposes of determining the presence of a quorum
for transacting business at the Meeting, abstentions
and broker "non-votes" (i.e., proxies from brokers or
nominees indicating that such persons have not
received instructions from the beneficial owner or
other persons entitled to vote Shares on a particular
matter with respect to which the brokers or nominees
do not have discretionary power) will be treated as
Shares that are present but which have not been voted.
For this reason, abstentions and broker "non-votes"
will have the effect of a "no" vote for purposes of
obtaining the requisite approval of the proposals.
In the event that a quorum is not present at the
Meeting, or in the event that a quorum is present but
sufficient votes to approve any of the proposals are
not received, the persons named as proxies may propose
one or more adjournments of the Meeting to permit
further solicitation of proxies. In determining
whether to adjourn the Meeting, the following factors
may be considered: the nature of the proposals that
are the subject of the Meeting, the percentage of
votes actually cast, the percentage of negative votes
actually cast, the nature of any further solicitation
and the information to be provided to shareholders
with respect to the reasons for the solicitation. Any
adjournment will require the affirmative vote of a
majority of those Shares represented at the Meeting in
person or by proxy. A shareholder vote may be taken
on one or more of the proposals in this Proxy
Statement prior to any adjournment if sufficient votes
have been received for approval. Under the Trust's
Master Trust Agreement, a quorum is constituted by the
presence in person or by proxy of the holders of a
majority of the outstanding Shares of the Fund
entitled to vote at the Meeting.
The Board has fixed the close of business on
April 18, 1994 as the record date (the "Record Date")
for the determination of shareholders of the Fund
entitled to notice of and to vote at the Meeting. On
the Record Date, 103,984,652.136 Shares of the Fund
were outstanding. As of the Record Date, to the
knowledge of the Trust and the Board, no single
shareholder or "group" (as that term is used in
Section 13(d) of the Securities Exchange Act of 1934),
beneficially owned more than 5% of the outstanding
Shares of the Fund. As of the Record Date, the
officers and Board members of the Trust beneficially
owned less than 1% of the Shares of the Fund.
As of Record Date, no shares of Smith Barney
Shearson Strategy Advisers Inc. ("SBSSA") or its
ultimate parent corporation, The Travelers Inc.
("Travelers"), were held by Board members who are not
interested persons of the Trust (as that term is used
in the Investment Company Act of 1940, as amended (the
"1940 Act")).
In order that your Shares may be represented at the
Meeting, you are requested to:
- indicate your instructions on the enclosed
proxy card;
- date and sign the proxy card;
- mail the proxy card promptly in the
enclosed envelope, which requires no postage if mailed
in the United States; and
- allow sufficient time for the proxy card to
be received on or before 5:00 p.m., June 14, 1994.
As a business trust formed under the laws of the
Commonwealth of Massachusetts, the Trust is not
required to hold annual shareholder meetings but may
hold special meetings as required or deemed desirable.
As indicated above, the Meeting is being called to
consider new advisory and sub-investment advisory
contracts for the Fund.
The Board recommends affirmative votes on
Proposals 1 and 2.
PROPOSAL 1
TO APPROVE OR DISAPPROVE A NEW INVEST-MENT
ADVISORY AGREEMENT BETWEEN SMITH BARNEY SHEARSON
STRATEGY ADVISERS INC. AND THE TRUST, ON BEHALF OF THE
FUND.
For the reasons described below under the
caption "Evaluation by the Board and Reasons for the
Proposals," the Board has determined, subject to
approval by the shareholders of the Fund, to enter
into a new investment advisory agreement (the "New
Advisory Agreement") between the Fund and SBSSA, an
affiliate of Smith Barney Shearson. The Fund
currently is advised by Boston Advisors under an
agreement dated May 22, 1993 (the "Current Advisory
Agreement"). Boston Advisors and the Trust have
agreed to terminate the Current Advisory Agreement,
waiving any applicable notice provisions, upon the
shareholders' approval of the New Advisory Agreement.
The New Advisory Agreement contains the same advisory
fee found in the Current Advisory Agreement. In
conjunction with this proposal, the Board has
determined, subject to the approval of the
shareholders of the Fund, to enter into a sub-
investment advisory agreement (the "Sub-Advisory
Agreement" and collectively with the New Advisory
Agreement, the "Agreements") between the Fund, SBSSA,
as adviser, and Boston Advisors.
If approved by shareholders, the New Advisory
Agreement will commence on June 16, 1994, and continue
for a two-year period and automatically thereafter for
successive annual periods, provided such continuance
is approved at least annually by (a) a majority of the
Board who are not interested persons of the Trust (as
the term is used in the 1940 Act) and (b) a majority
of the full Board or a majority of the outstanding
voting securities of the Fund, as defined in the 1940
Act.
PROPOSAL 2
TO APPROVE OR DISAPPROVE A SUB-INVESTMENT
ADVISORY AGREEMENT BETWEEN THE BOSTON COMPANY
ADVISORS, INC. AND THE TRUST, ON BEHALF OF THE FUND.
In conjunction with Proposal 1, the Board has
determined, subject to the approval of the
shareholders of the Fund, to enter into a sub-
investment advisory agreement between the Fund, SBSSA,
as adviser, and Boston Advisors, the current
investment adviser to the Fund. Under the proposed
arrangement, SBSSA would provide oversight and
coordination with the other components of the Smith
Barney Shearson group of funds while Boston Advisors
would continue to provide the day-to-day support and
personnel. Pursuant to the Sub-Advisory Agreement,
Boston Advisors would receive a portion of the
advisory fee payable to SBSSA under the New Advisory
Agreement. The aggregate cost to the Fund for
advisory services under the Agreements would be the
same as the fee currently paid to Boston Advisors
under the Current Advisory Agreement.
THE CURRENT ADVISER AND PROPOSED SUB-INVESTMENT
ADVISER
The Fund is presently advised by Boston
Advisors, an adviser registered under the Investment
Advisers Act of 1940, as amended, which also serves as
the Fund's administrator. Boston Advisors is a wholly
owned subsidiary of The Boston Company, Inc., which in
turn is a wholly owned subsidiary of Mellon Bank
Corporation. Boston Advisors and The Boston Company,
Inc. are located at One Boston Place, Boston,
Massachusetts 02108 and Mellon Bank Corporation is
located at Mellon Bank Center, Pittsburgh,
Pennsylvania 15258. The names of the investment
companies for which Boston Advisors currently provides
investment services, the amount of their net assets as
of December 31, 1993, and the annual rate of its fees
for services to those companies are set forth as
Exhibit A to this Proxy Statement. The Current
Advisory Agreement was last approved by shareholders
on December 29, 1992. During the fiscal year ended
July 31, 1993, the Fund paid Boston Advisors
$4,803,717 in investment advisory fees.
An audited balance sheet of Boston Advisors as
of December 31, 1993 is set forth as Exhibit B to this
Proxy Statement. The name, position with Boston
Advisors and principal occupation of each executive
officer and director of Boston Advisors are set forth
in the following table.
Name and Address
Position with
Boston Advisors
Principal
Occupation
Lawrence S. Kash
One Boston Place
Boston MA 02108
Director;
Chairman of
the Board, Chief
Executive Officer
and President
President of
Boston
Advisors;
Executive
Vice
President of
Boston Safe
Deposit and
Trust Company
W. Keith Smith
One Boston Place
Boston, MA 02108
Director
Vice Chairman
of Mellon
Bank
Corporation;
Chairman and
Chief
Executive
Officer of
The Boston
Company, Inc.
Desmond J.
Heathwood
One Boston Place
Boston, MA 02108
Executive Vice
President
Chief
Executive
Officer of
The Boston
Company
Institutional
Investors,
Inc.;
Executive
Vice
President and
Chief
Investment
Officer of
The Boston
Company, Inc.
Vincent T.
Molloy
31 St. James
Avenue
Boston, MA 02116
Executive Vice
President
Executive
Vice
President
of Custody
Administratio
n
and Support
of Boston
Advisors
THE PROPOSED ADVISER
SBSSA is a wholly owned subsidiary of Smith,
Barney Advisers, Inc, which in turn is an indirect
wholly owned subsidiary of Travelers. SBSSA and
Smith, Barney Advisers, Inc. are located at 1345
Avenue of the Americas, New York, New York 10105 and
Travelers is located at 65 East 55th Street, New York,
New York 10022. The names of the investment companies
for which SBSSA currently provides services, the
amounts of their net assets as of February 3, 1994 and
the annual rate of its fees for services to those
companies are set forth as Exhibit C to this Proxy
Statement.
An audited consolidated statement of financial
condition of SBSSA as of December 31, 1993 is set
forth as Exhibit D to this Proxy Statement. The name,
position with SBSSA and principal occupation of each
executive officer and director of SBSSA are set forth
in the following table.
Name and Address
Position with
SBSSA
Principal
Occupation
Heath B. McLendon
Two World Trade
Center
New York, NY 10048
Chairman of the
Board of
Directors
Executive Vice
President
of Smith
Barney
Shearson;
Chairman
of the Smith
Barney
Shearson Group
of
Funds
Richard P. Roelofs
Two World Trade
Center
New York, NY 10048
President and
Director
Managing
Director
of Smith
Barney
Shearson;
Executive
Vice President
of
the Smith
Barney
Shearson Group
of Funds
Stephen J. Treadway
1345 Avenue of the
Americas
New York, NY 10105
Director
Executive Vice
President of
Smith Barney
Shearson;
President
of the Smith
Barney
Shearson Group
of
Funds
Michael J. Day
388 Greenwich Street
New York, NY 10013
Treasurer
Managing
Director of
Smith Barney
Shearson
Christina T. Sydor
1345 Avenue of the
Americas
New York, NY 10105
Secretary
Managing
Director of
Smith Barney
Shearson;
Secretary of
the Smith
Barney
Shearson Group
of Funds
EVALUATION BY THE BOARD AND REASONS FOR THE PROPOSALS
On April 4, 1994, the Board met in person at a
meeting called for the purpose of considering, among
other things, the New Advisory Agreement with SBSSA
and the Sub-Advisory Agreement with Boston Advisors.
Although SBSSA and Boston Advisors jointly recommended
the Trustees' approval of these proposals, the Board
also considered, at that time, continuation of the
Fund's Current Advisory Agreement with Boston Advisors
and various other possible alternatives. The Board
reviewed various materials regarding Smith Barney
Shearson, SBSSA and Boston Advisors which described,
among other matters, their affiliates, senior
personnel, portfolio managers, analysts, economists
and others, methods of operation and financial
conditions.
The Board has determined that if the investment
advisory agreement were moved to SBSSA, the asset
management function could be more easily coordinated
with the marketing and distribution functions of Smith
Barney Shearson. As a result, the interaction between
marketing personnel and financial consultants with the
portfolio managers would be facilitated because the
marketing and advisory functions would be managed, to
a greater extent, within one company. This, in turn,
should strengthen support from the marketing arm of
Smith Barney Shearson and enhance the support and
services received by the Fund's shareholders. The
Board also considered the ability of Smith Barney
Shearson to arrange opportunities for Smith Barney
Shearson financial consultants to meet SBSSA managers
in person, by telephone and otherwise to become
familiar with the management style, philosophy and
investment outlook of the Fund's investment adviser.
At the same time, the Board reviewed the past
performance records of Boston Advisors over relevant
periods of time as well as the background and
experience of the various officers and managers
employed by that company. The Board recognized the
high quality advisory and management services provided
by Boston Advisors to the Fund in the past and
expressed a desire to retain Boston Advisors in an
advisory capacity. Thus, it was determined that the
Fund enter into a sub-investment advisory agreement
under which Boston Advisors would provide the day-to-
day support and personnel while, pursuant to the New
Advisory Agreement, SBSSA would provide the necessary
executive oversight and coordination to ensure
consistency within the Smith Barney Shearson group of
funds.
As a secondary consideration, the Board also
recognized that, currently, most Shares of the Fund
are sold under an arrangement pursuant to which the
Fund's distributor, Smith Barney Shearson, advances
the cost of distribution and seeks to recover that
cost through a combination of contingent deferred
sales charges and distribution fees paid under a plan
of distribution adopted pursuant to Rule 12b-1 under
the 1940 Act. Smith Barney Shearson informed the
Board that this method of distribution, while
preferred by investors, was expensive to the
distributor on a current basis and a distributor would
rarely agree to offer its services under these
circumstances to a fund to which it or its affiliates
did not serve as investment adviser. Prior to July
30, 1993, Shearson Lehman Brothers Inc. served as the
Fund's distributor and Boston Advisors, its affiliate
at the time, served as the Fund's investment adviser.
As of that date, however, the retail brokerage and
investment advisory businesses (other than Lehman
Brothers Global Asset Management Limited) of Shearson
Lehman Brothers Inc. were transferred to Smith Barney
Shearson (known at the time as Smith Barney, Harris
Upham & Co. Incorporated) and Smith Barney Shearson
was selected by the Board to serve as the Fund's
distributor. Smith Barney Shearson is not affiliated
with Boston Advisors.
After carefully evaluating the foregoing
materials and factors, the Trustees of the Trust who
were not interested persons of the Trust approved, and
the Board as a whole approved, subject to shareholder
approval, the New Advisory Agreement with SBSSA
substantially in the form of Exhibit F to this Proxy
Statement and the Sub-Advisory Agreement substantially
in the form of Exhibit E to this Proxy Statement.
PORTFOLIO TRANSACTIONS
Decisions to buy and sell securities for the
Fund are made by the Fund's investment adviser, and
under the proposed Agreements, would be made by the
Fund's sub-investment adviser subject to the
supervision of the Fund's investment adviser and the
overall review of the Board (both the investment
adviser and sub-investment adviser are referred to
collectively herein as the "Adviser"). Although
investment decisions for the Fund are made
independently from those of the other accounts managed
by the Adviser, investments of the type the Fund may
make also may be made by those other accounts. When
the Fund and one or more other accounts managed by the
Adviser are prepared to invest in, or desire to
dispose of, the same security, available investments
or opportunities for sales will be allocated in a
manner believed by the Adviser to be equitable to
each. In some cases, this procedure may adversely
affect the price paid or received by the Fund or the
size of the position obtained or disposed of by the
Fund.
Transactions on U.S. stock exchanges and some
foreign stock exchanges involve the payment of
negotiated brokerage commissions. On exchanges where
commissions are negotiated, the cost of transactions
may vary among different brokers. No stated
commission is generally applicable to securities
traded in U.S. over-the-counter markets, but the
prices of those securities include undisclosed
commissions or mark-ups. The cost of securities
purchased from underwriters includes an underwriting
commission or concession and the prices at which
securities are repurchased from and sold to dealers
include a dealer's mark-up or mark-down.
In selecting brokers or dealers to execute
portfolio transactions on behalf of the Fund, the
Adviser seeks the best overall terms available. In
assessing the best overall terms available for any
transaction, the Adviser will consider the factors it
deems relevant, including the breadth of the market in
the security, the price of the security, the financial
condition and execution capability of the broker or
dealer and the reasonableness of the commission, if
any, for the specific transaction and on a continuing
basis. In addition, the Adviser is authorized, in
selecting brokers or dealers to execute a particular
transaction and in evaluating the best overall terms
available, to consider the brokerage and research
services (as those terms are defined in Section 28(e)
of the Securities and Exchange Act of 1934) provided
to the Fund and/or other accounts over which the
Adviser or its affiliates exercise investment
discretion. The fees under the Fund's investment
advisory agreement are not reduced by reason of the
Fund's or the Adviser's receiving brokerage and
research services. Research and investment services
are those which brokerage houses customarily provide
to institutional investors and include statistical and
economic data and research reports on particular
issues and industries. These services are used by the
Adviser in connection with all of its investment
activities, and some of the services obtained in
connection with the execution of transactions for the
Fund may be used in managing other investment
accounts. Conversely, brokers furnishing these
services may be selected for the execution of
transactions for these other accounts, whose aggregate
assets may exceed those of the Fund, and the services
furnished by the brokers may be used by the Adviser in
providing investment management for the Fund. The
Board periodically will review the commissions paid by
the Fund to determine if the commissions paid over
representative periods of time were reasonable in
relation to the benefits inuring to the Fund. Over-
the-counter purchases and sales by the Fund are
transacted directly with principal market makers
except in those cases in which better prices and
executions may be obtained elsewhere.
To the extent consistent with applicable
provisions of the 1940 Act and the rules and
exemptions adopted by the Securities and Exchange
Commission (the "SEC") under the 1940 Act, subject to
the approval of the Board, transactions for the Fund
may be executed through Smith Barney Shearson and
other affiliated broker-dealers if, in the judgment of
the Fund's Adviser, the use of an affiliated broker-
dealer is likely to result in price and execution at
least as favorable as those of other qualified broker-
dealers. Under rules adopted by the SEC, Smith Barney
Shearson may not directly execute transactions for the
Fund on the floor of any national securities exchange
unless: (i) the Board of Trustees has expressly
authorized Smith Barney Shearson to effect such
transactions; and (ii) Smith Barney Shearson annually
advises the Fund of the aggregate compensation it
earned on such transactions.
The Fund will not purchase any security,
including U.S. government securities, during the
existence of any underwriting or selling group
relating to the security of which Smith Barney
Shearson is a member, except to the extent permitted
by the SEC.
During the fiscal year ended July 31, 1993, the
Fund incurred $1,933,587 in brokerage commissions, of
which $355,027 (representing 18.4% of the total of all
brokerage commissions paid) was paid to Smith Barney
Shearson (or its predecessor, Shearson Lehman Brothers
Inc.). Such commissions were paid with respect to 22%
of the total dollar value of all transactions
involving the payment of brokerage commissions
effected during the year.
PROPOSED AGREEMENTS
A copy of the form of New Advisory Agreement is
set forth as Exhibit F to this Proxy Statement. Under
its terms, SBSSA, subject to the supervision and
approval of the Board, would manage the Fund's
investments in accordance with the investment
objectives and policies stated in the Fund's
Prospectus and the Trust's Statement of Additional
Information. As adviser, SBSSA would supervise the
sub-investment advisory services rendered by Boston
Advisors, determine the asset allocation of the Fund,
evaluate and make final determinations with respect to
investment strategies for the Fund and provide the
Fund with the benefits of research capabilities of the
Smith Barney Shearson organization and provide
executive management for the Fund. SBSSA would receive
a fee that is computed daily and paid monthly at the
annual rate of .55% of the value of the Fund's average
daily net assets, which is the same rate payable under
the Current Advisory Agreement.
Under the terms of the New Advisory Agreement,
SBSSA would bear all expenses in connection with its
performance, including the sub-investment advisory fee
payable to Boston Advisors under the Sub-Advisory
Agreement. Other expenses incurred in the operation
of the Fund would continue to be borne by the Fund,
including: taxes, interest, brokerage fees and
commissions, if any; distribution and shareholder
service fees; fees of the Board members who are not
officers, directors, shareholders or employees of
Smith Barney Shearson, or any of its affiliates; SEC
fees and state blue sky qualification fees; charges of
custodian and transfer and dividend disbursing agents;
certain insurance premiums; outside auditing and
legal expenses; costs of investor services (including
allocable telephone and personnel expenses); costs of
preparation and printing of prospectuses and
statements of additional information for regulatory
purposes and for distribution to shareholders; costs
of preparation and printing of shareholders' reports;
costs incurred in connection with meetings of the
shareholders of the Fund and of the officers or Board
of the Trust; and any extraordinary expenses.
Under the terms of the Sub-Advisory Agreement,
Boston Advisors, subject to the supervision and
approval of the Board and SBSSA as investment adviser,
would continue to make investment decisions for the
Fund, place purchase and sale orders for portfolio
transactions and provide analytical and research
services to the Fund. Pursuant to the Agreement,
SBSSA would pay Boston Advisors a sub-investment
advisory fee of .275 of 1.00% of the value of the
Fund's average daily net assets.
If in any fiscal year the aggregate expenses of
the Fund (including fees pursuant to the New Advisory
Agreement and the Sub-Advisory Agreement but excluding
interest, taxes, brokerage and, if permitted by state
securities commissions, extraordinary expenses) exceed
the expense limitation of any state having
jurisdiction over the Fund, SBSSA will reduce its
advisory fee and Boston Advisors will reduce its sub-
investment advisory fee to the Fund by the proportion
of such excess expense equal to the proportion that
the respective advisory fees bear to the Fund's
aggregate fees for investment advice and
administration. This expense reimbursement, if any,
will be estimated, reconciled and paid on a monthly
basis.
Each Agreement provides that in the absence of
willful misfeasance, bad faith, gross negligence or
reckless disregard for its obligations thereunder, the
investment adviser or sub-investment adviser, as the
case may be, shall not be liable for any act or
omission in the course of or in connection with the
rendering of its services thereunder.
Each Agreement will remain in effect pursuant to
its terms for an initial term of two years from its
date of execution and thereafter with respect to the
Fund for successive periods if and so long as such
continuance is specifically approved annually by (a)
the Trust's Board or (b) a majority vote of the
outstanding voting securities of the Fund, provided
that in either event the continuance also is approved
by a majority of the Board members who are not
"interested persons" (as defined in the 1940 Act) of
any party to the Agreement, by vote cast in person at
a meeting called for the purpose of voting on
approval. Each Agreement is terminable, without
penalty, on 60 days' written notice by the Board or by
a majority vote of outstanding voting securities of
the Fund, or on 90 days' written notice by the
investment adviser in the case of the New Advisory
Agreement and sub-investment adviser in the case of
the Sub-Advisory Agreement. Each Agreement would
terminate automatically in the event of its assignment
(as defined in the 1940 Act).
REQUIRED VOTE
Approval of the Agreements requires the
affirmative vote of a "majority of the outstanding
voting securities" of the Fund. The term "majority of
the outstanding voting securities" of the Fund, as
used in this Proxy Statement and defined in the 1940
Act, means the affirmative vote of the lesser of: (1)
67% of the voting securities of the Fund present at
the Meeting if more than 50% of the outstanding Shares
are present in person or by proxy at the Meeting; or
(2) more than 50% of the outstanding securities of the
Fund.
SUBMISSION OF SHAREHOLDER PROPOSALS
The Trust is not generally required to hold
annual or special shareholders' meetings.
Shareholders wishing to submit proposals for inclusion
in a proxy statement for a subsequent shareholders'
meeting should send their written proposals to the
Secretary of the Trust at the address set forth on the
cover of this proxy statement. Shareholder proposals
for inclusion in the Trust's proxy statement for any
subsequent meeting must be received by the Trust a
reasonable period of time prior to any such meeting.
OTHER MATTERS TO COME BEFORE THE MEETING
The Board does not intend to present any other
business at the Meeting nor is it aware that any
shareholder intends to do so. If, however, any other
matters are properly brought before the Meeting, the
persons named in the accompanying proxy card(s) will
vote thereon in accordance with their judgment.
May 19, 1994
IT IS IMPORTANT THAT PROXIES BE RETURNED
PROMPTLY. SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND
THE MEETING ARE THEREFORE URGED TO COMPLETE, SIGN,
DATE AND RETURN THE PROXY AS SOON AS POSSIBLE IN THE
ENCLOSED POSTAGE PAID ENVELOPE.
EXHIBIT A
Names of Investment Companies Serviced by Boston
Advisors
Fund
Net Assets
as of
12/31/93
Annual Rate
of Fee
Expressed
as a
Percentage
of Average
Daily Net
Assets
The Laurel Funds Trust:
Cash Management Fund
205,000,000
.50%
Managed Income Fund
99,000,00
0
.60%
Government Money Fund
53,000,00
0
.50%
Capital Appreciation
Fund
443,000,000
.75%
Special Growth Fund
118,000,000
1.00%
Int. Term Government
Sec. Fund
23,000,00
0
.65%
Asset Manager's Fund
17,000,00
0
.75%
The Laurel Investment
Series:
Asset Allocation Fund
33,000,00
0
.70%
International Fund
5,000,0
00
.95%
Contrarian Fund
4,000,0
00
1.00%
Equity Income Fund
-
.75%
Short-Term Bond Fund
3,000,0
00
.50%
The Laurel Tax-Free
Municipal Funds:
Tax-Free Money Fund
37,000,00
0
.50%
Mass. Tax-Free Money
Fund
123,000,00
0
.50%
Tax-Free Bond Fund
39,000,00
0
.50%
Mass. Tax-Free Bond
Fund
37,000,00
0
.50%
California Tax-Free
Money Fund
27,000,00
0
.50%
California Tax-Free
Bond Fund
22,000,00
0
.50%
New York Tax-Free
Money Fund
16,000,00
0
.50%
New York Tax-Free
Bond Fund
7,000,00
0
.50%
Smith Barney Shearson
Telecommunications Trust:
Income Fund
71,000,0
00
.75%
Growth Fund
229,000,00
0
.75%
Smith Barney Shearson Income
Funds:
Premium Total Return
Fund
1,509,000,00
0
.55%
Smith Barney Shearson Equity
Funds:
Strategic Investors
Fund
298,000,000
.55%
The USA High Yield Fund N.V.
124,000,000
.21%
The Latin American Bond Fund
N.V. (1)
109,000,000
.20%
*
International Currency
Portfolios N.V.:
Deutsche Mark Portfolio
N.V (1)
2,000,000
.30%
*
Japanese Yen Portfolio
N.V. (1)
2,000,000
.30%
*
US Money Market Fund
N.V. (1)
394,000,000
.30%
*
Offshore Portfolios:
U.S. Government
Securities
Instruments N.V. (1)
20,000,000
.45%
*
U.S. Appreciation Fund
N.V. (1)
13,00,000
.60%
*
Pacific Equity Fund
N.V. (1)
8,000,000
.70%
*
European Equity Fund
N.V. (1)
11,000,000
.70%
*
Global Bond Investments
N.V. (1)
23,000,000
.30%
*
U.S. Money Market
Investments
N.V. (1)
12,000,000
.30%
*
ECU Fixed - Income
Investments
N.V. (1)
2,000,000
.30%
*
Offshore Diversified
Strategic Income
Fund N.V. (1)
214,000,000
.45%
*
Lehman Brothers Series I
Mortgage- Related
Securities Portfolio N.V.
(2)
10,000,000
.25%
TBC Portfolio of Fixed
Income Securities
N.V. (2)
25,000,000
.50%
Atlas Assets:
California Double Municipal
Money
Fund
46,000,00
0
.15%
National Municipal Money
Fund
9,000,000
.15%
California Municipal Bond
Fund
178,000,0
00
.25% up
to
$100
million,
.20% on
excess
National Municipal Bond
Fund
.25% up
to
$100
million,
.20% on
excess
National Insured
Intermediate Municipal
15,000,
000
California Insured
Intermediate
Municipal
23,000,
000
______________________________________
(1) The Boston Company Advisers (Bermuda) Ltd.
(2) The Boston Company Asset Management, Inc.
* A portion of this fee is paid to Lehman Brothers
Global Asset
Management Limited
EXHIBIT B
THE BOSTON COMPANY ADVISORS, INC.
Consolidated Balance Sheet
December 31, 1993
(With Independent Auditors' Report Thereon)
THE BOSTON COMPANY ADVISORS, INC.
Consolidated Balance Sheet
December 31,1993
Assets
Cash $ 65,830
Investments in mutual funds, at lower of aggregate
cost
or market (market value $308,706) 280,874
Fees receivable (note 8) 13,705,819
Other receivables 1,423,778
Due from affiliates, net (note 6) 143,843
Fixed assets, net (note 3) 8,369,293
Net deferred tax asset (note 4) 2,215,704
Total assets $ 26,205,141
Liabilities and Stockholder's Equity
Liabilities:
Accrued compensation $ 2,782,951
Accrued expenses and other liabilities (note 1)
7,009,704
Current tax payable (note 4) 7,331,939
Due to Parent (note 6) 474,556
Total liabilities 17,599,150
Commitments and contingencies (note 7)
Stockholder's equity:
Common stock, par value $1 per share; l,000 shares
authorized, issued and outstanding 1,000
Capital surplus 22,100
Retained earnings 8,582,891
Total stockholder's equity 8,605,991
Total liabilities and stockholder's equity
$ 26,205,141
See accompanying notes to consolidated balance sheet.
THE BOSTON COMPANY ADVISORS, INC.
Notes to Consolidated Balance Sheet
December 31, 1993
(1) Organization
The consolidated balance sheet includes the
accounts of The Boston Company Advisors, Inc. and
subsidiaries (the "Company"). The Company, a
Massachusetts corporation and a wholly owned
subsidiary of The Boston Company, Inc. (the "Parent"),
is an investment advisor registered under the
Investment Advisers Act of 1940. The Company is an
investment advisory and administrative services firm
serving regulated investment companies. The Parent is
a wholly owned subsidiary of Mellon Bank Corporation
("Mellon").
In May 1993, Mellon completed its acquisition of
the Parent and certain subsidiaries from Shearson
Lehman Brothers Inc., which was a wholly owned
subsidiary of the American Express Company. The
acquisition was accounted for as a purchase in
accordance with Accounting Principles Board Opinion
No. 16, "Business Combinations." Retained earnings
includes the results of operations since the
acquisition date.
Restructuring expenses and related reserve
accounts were recorded incident to the acquisition
reflecting management's estimate of the costs to
restructure the Company. These costs relate to various
expenses associated with the acquisition and amounted
to $2,254,000. The restructuring reserve at December
31, 1993, amounted to $2,220,465 and is included in
accrued expenses and other liabilities in the
accompanying consolidated balance sheet.
(2) Summary of Significant Accounting Policies
The accompanying consolidated balance sheet was
prepared in accordance with generally accepted
accounting principles. All material intercompany
transactions and balances have been eliminated in
consolidation. A description of significant accounting
policies follows.
Intercompany Cost Allocation
In addition to specific operating expenses
incurred by the Company and charged directly to
operations, certain management, accounting and other
costs are incurred in common for the Company by Mellon
and its other subsidiaries. The Company is allocated a
share of these costs proportionately based on an
appropriate methodology for each type of expense.
Occupancy, data processing and certain office support
costs are allocated to the Company based on actual
usage.
Management believes the allocation methods used
are reasonable and appropriate in the circumstances;
however, the Company's consolidated balance sheet may
not necessarily be indicative of the financial
condition that would have existed if the Company had
been operated as an unaffiliated entity.
Fixed Assets
Fixed assets are stated at cost, less
accumulated depreciation. Depreciation is computed on
the straight-line method over the estimated useful
lives of the assets which range from 3 to l0 years.
Income Taxes
The Company will participate in a consolidated
federal and a combined state income tax return through
the Company's Parent with the Parent's former owner,
The American Express Company, for the period ended May
21, 1993, the date of the Mellon acquisition. The
Company's results for the period from the acquisition
through December 31, 1993, will be included in the
consolidated Mellon tax return.
Pursuant to a tax-sharing agreement with the
Parent, the current tax liability is determined on a
separate return basis with benefits for net losses and
credits recorded when realized in the consolidated
Mellon tax return. Deferred income taxes are computed
on a separate entity basis.
Fair Value of Financial Instruments
Financial Accounting Standards Board Statement
No. 107 (SFAS No. l07), "Disclosures About Fair Value
of Financial Instruments," requires disclosure of fair
value information about financial instruments, whether
or not recognized in the balance sheet, for which it
is practicable to estimate that value. A financial
instrument is defined as cash, evidence of an
ownership interest and certain contracts to exchange
cash or other financial instruments. Generally, for
financial instruments due within three months of the
reporting date, carrying amount approximates fair
value. Since the Company has less than $150 million in
assets, SFAS No. l07 is not effective until the fiscal
year ended December 31, 1995. Management does not
believe SFAS No. 107 will have a material effect on
the financial statements.
(3) Fixed Assets
Fixed assets at December 31, 1993, were as
follows:
Cost
Accumulat
ed
depreciat
ion
Net
Book
Value
Leasehold
improvement
s
$1,878,9
64
$
179,824
$1,699,1
40
Furniture
2,596,35
6
229,542
2,367,41
4
Equipment
and
workstation
s
5,459,85
0
1,157,111
4,302,73
9
$
9,935,77
0
$1,566,47
7
$8,369,2
93
(4) Income Taxes
Intercompany taxes are remitted to the Parent if
the Parent is required to make payment to Mellon.
At December 31, 1993, the Company has a current
income tax payable to the Parent of $7,331,939.
Deferred income taxes reflect the tax effects of
temporary differences between the financial reporting
basis and tax basis of the Company's assets and
liabilities. Temporary differences resulting in
deferred tax assets consist of nondeductible reserves,
and temporary differences resulting in deferred tax
liabilities consist of book versus tax basis of mutual
fund investments and fixed assets. Included in the
accompanying consolidated balance sheet are the
following deferred tax balances:
Deferred tax assets $ 2,320,078
Valuation allowance for deferred
tax assets
2,320,078
Deferred tax liabilities (l04,374)
Net deferred tax asset $ 2,215,704
The Company believes that it is more likely than
not that the Company will realize the benefits of the
total deferred tax assets and, accordingly, believes
that a valuation allowance with respect to the
realization of the total deferred tax assets is not
necessary. While there are no assurances that this
benefit will be realized, the Company expects that the
deductible amount will be recoverable through future
expectations of taxable income and tax planning
strategies.
(5) Employees' Retirement Plans
The Company participates in a noncontributory
defined benefit pension plan, sponsored by its Parent,
which covers substantially all employees. As a result
of the acquisition by Mellon, the Plan was amended to
conform to the provisions of the Mellon Bank
Retirement Plan effective May 31, 1993. Because the
Company participates in the Mellon plan with other
subsidiaries of its Parent, an analysis setting forth
the plan's funded status at December 31, 1993, cannot
be separately determined for the Company.
Prior to the Mellon acquisition, the Company
participated in a defined contribution retirement
savings plan sponsored by the Parent. As of May 31,
1993, the effective date, all future contributions to
the Parent's plan were prohibited, but all
participants with account balances were granted full
vesting in the plan. After the effective date,
participants in the Plan could invest in the Mellon
Bank Retirement Savings Plan (the "Mellon plan"). The
Mellon plan is a defined contribution retirement
savings plan, sponsored by Mellon, covering
substantially all U.S. employees. Employees become
eligible to participate after one full year of
service. If a participant decides to contribute, a
portion of the contribution is matched by Mellon.
The Company participates in defined benefit
health care plans, sponsored by its Parent, that
provide health care, life insurance and other
post-retirement benefits covering substantially all
retired U.S. employees. The plans include participant
contributions, deductibles, co-insurance provisions
and service-related eligibility requirements. Since
the Company participates in the plans with other
subsidiaries of its Parent, an analysis setting forth
the funded status of the plans at December 31, 1993
cannot be separately determined for the Company.
(6) Related Party Transactions
The Company routinely engages in various
financial transactions with affiliated companies. The
nature of these transactions and their related effect
on the Company's consolidated balance sheet at
December 31, 1993, were as follows:
Cash
Cash reflected on the Company's consolidated
balance sheet of $65,830 at December 31, 1993, is held
on deposit at Boston Safe Deposit and Trust Company,
which is also a wholly owned subsidiary of the Parent.
Generally, the Company advances to its Parent on a
noninterest-bearing basis cash that is not required
for its direct operational needs. These amounts are
reduced over time through the payment of expenses by
the Parent on the Company's behalf and dividend
payments by the Company to the Parent.
Due from Affiliates
Due from affiliates reflected on the balance
sheet of $143,845 represents the net aggregate amounts
due from affiliated companies, other than the Parent,
for cash advances in excess of operational expenses
paid on behalf of the Company.
Due to Parent
Due to Parent reflected in the consolidated
balance sheet of $474,556 represents the aggregate
unsettled balance of various amounts, mainly
operational expenses, paid on behalf of the Company by
the Parent.
(7) Commitments and Contingencies
As of December 31, 1993, the Company is
contingently liable for certain excess expenses
incurred by regulated investment companies serviced
under administration contracts. In the opinion of
management, the accrual that has been established in
the consolidated balance sheet in accrued expenses and
other liabilities is sufficient to meet these
contingent payments.
(8) Significant Contractual Relationships
For the year ended December 31, 1993, the
Company provided administrative services to mutual
funds that are sponsored by Smith Barney Shearson,
Inc. ("SBS") and other sponsors. Accrued fee income
receivables related to funds sponsored by SBS at
December 31, 1993, were approximately $8,879,000,
which represents approximately 65% of total fees
receivable.
Effective January 1, 1994, the Company
formalized an arrangement (the "agreement") with Smith
Barney Shearson, Inc. ("SBS") under which the Company
and SBS will cooperate with regard to the providing of
administrative services to mutual funds sponsored by
SBS (the SBS funds). The agreement provides for SBS to
seek appointment as administrator and for the Company
to become subadministrator for the SBS funds. Although
the agreement may result in a reduction to the level
of fees received by the Company from the SBS funds,
management believes the impact of this reduction is
not material to the financial condition of the
Company
Independent Auditors' Report
To the Board of Directors
The Boston Company Advisors, Inc. and subsidiaries:
We have audited the accompanying consolidated balance
sheet of The Boston Company Advisors, Inc. and
subsidiaries, a wholly-owned subsidiary of The Boston
Company, Inc., as of December 31, 1993. This
consolidated balance sheet is the responsibility of
the Company's management. Our responsibility is to
express an opinion on this consolidated balance sheet
based on our audit.
We conducted our audit in accordance with generally
accepted auditing standards. Those standards require
that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated
balance sheet is free of material misstatement. An
audit of a consolidated balance sheet includes
examining, on a test basis, evidence supporting the
amounts and disclosures in the consolidated balance
sheet. An audit of a consolidated balance sheet also
includes assessing the accounting principles used and
significant estimates made by management, as well as
evaluating the overall consolidated balance sheet
presentation. We believe that our audit of the
consolidated balance sheet provides a reasonable basis
for our opinion.
In our opinion, the consolidated balance sheet
referred to above presents fairly, in all material
respects, the financial position of The Boston Company
Advisors, Inc. and subsidiaries at December 31, 1993,
in conformity with generally accepted accounting
principles.
February 25, 1994
/s/ KPMG Peat Marwick
KPMG Peat Marwick
EXHIBIT C
Names Of Investment Companies Serviced By SBSSA
Fund
Net Assets
as of
2/3/94
Annual Rate of Fee
Expressed as a
Percentage of
Average Daily
Net Assets
Smith Barney
Shearson
Sector Analysis
Fund
$134,000,000
.25%
The Advisors Fund
L.P.
129,000,000
.20% (to be adjusted
up or down by a
maximum of .02%
based on comparative
performance to the
S&P 500, of which
.10% is retained
by adviser and
remainder is
allocated among sub-
investment advisers)
Smith Barney
Shearson
Adjustable Rate
Government Income
Fund
382,000,000
.40% (of which .20%
is paid to BlackRock
Financial Management
as sub-investment
adviser)
EXHIBIT D
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder of
SMITH BARNEY SHEARSON STRATEGY ADVISERS INC.
We have audited the accompanying consolidated
statement of financial condition of Smith Barney
Shearson Strategy Advisers Inc. (a wholly-owned
subsidiary of Smith, Barney Advisers, Inc.) and its
Subsidiary as of December 31, 1993. This consolidated
statement of financial condition is the responsibility
of the Company's management. Our responsibility is to
express an opinion on this consolidated statement of
financial condition based on our audit.
We conducted our audit in accordance with
generally accepted auditing standards. Those
standards require that we plan and perform the audit
to obtain reasonable assurance about whether the
consolidated statement of financial condition is free
of material misstatement. An audit of a consolidated
statement of financial condition includes examining,
on a test basis, evidence supporting the amounts and
disclosures in the consolidated statement of financial
condition. An audit also includes assessing the
accounting principles used and significant estimates
made by management, as well as evaluating the overall
consolidated statement of financial condition
presentation. We believe that our audit of the
consolidated statement of financial condition provides
a reasonable basis for our opinion.
In our opinion, the consolidated statement of
financial condition referred to above presents fairly,
in all material respects, the financial position of
Smith Barney Shearson Strategy Advisers Inc. and its
Subsidiary as of December 31, 1993 in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK
New York, New York
May 13, 1994
SMITH BARNEY SHEARSON STRATEGY ADVISERS INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
December 31, 1993
Assets
Cash
$ 431,920
Investment in affiliated
mutual
fund, at market
value
1,130,748
Investment advisory
contracts,
net of accumulated
amortization of
$14,531
682,969
Other assets
209,246
_________
$2,454,883
Liabilities and Stockholder's
Equity
Note payable to Parent
$697,500
Other liabilities
38,913
Payable to affiliates
75,782
812,195
Stockholder's Equity:
Common Stock $1 par
value;
1,000 shares
authorized,
1 share issued and
outstanding
1
Additional paid-in
capital
6,609,261
Less: Demand Note
Receivable
(5,000,000)
Retained earnings
33,426
1,642,688
$2,454,883
See Notes to Consolidated Statement of Financial
Condition.
SMITH BARNEY SHEARSON STRATEGY ADVISERS INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
December 31, 1993
1. Organization
Smith Barney Shearson Strategy Advisers Inc.
("SBSSA") (formerly Shearson Lehman Investment
Strategy Advisors Inc.), a wholly-owned subsidiary of
Smith, Barney Advisers, Inc. ("SBA"), is a registered
investment adviser with the Securities Exchange
Commission and a registered commodity pool operator
with the Commodity Futures Trading Commission. The
consolidated statement of financial condition includes
the accounts of E.C. Tactical Management S.A., a
wholly-owned subsidiary of SBSSA. Significant
intercompany transactions and accounts have been
eliminated in consolidation.
2. Shearson Acquisition
On July 31, 1993, Smith Barney, Harris Upham &
Co. Incorporated ("SBHU"), together with certain of
its affiliates and The Travelers Inc. (formerly
Primerica Corporation), acquired the domestic retail
brokerage and asset management businesses ("Shearson")
of Shearson Lehman Brothers Holdings Inc. and its
subsidiaries, a subsidiary of American Express
Company. Shearson was combined with the operations of
SBHU and its affiliates and SBHU was renamed Smith
Barney Shearson Inc. ("SBS"). The acquisition
included SBSSA (and its wholly owned subsidiary), as
well as the contracts to manage five of Shearson's
investment company portfolios.
3. Related Party Transactions
SBS provides SBSSA with executive and
administrative services (e.g. accounting, legal,
personnel, facilities, mail and other support
services) and order processing support on a basis
mutually agreed upon. Payable to affiliates is non-
interest bearing.
(Continued)
SMITH BARNEY SHEARSON STRATEGY ADVISERS INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
(Continued)
December 31, 1993
SBSSA, by agreement, serves as investment
adviser to three open-end diversified investment
companies for which SBS acts as the sole distributor
of shares: Sector Analysis Fund, The Advisors Fund
L.P. and Smith Barney Shearson Adjustable Rate
Government Income Fund. In addition, SBSSA acts as an
adviser to Garzarelli Sector Analysis N.V. (a closed-
end diversified investment company) and E.C. Tactical
Allocation Fund, (which is managed by E.C. Tactical
Management S.A.)
Investments in affiliated mutual funds
represents shares of The Advisors Fund L.P. owned by
SBSSA. Such investments are carried at market value.
Smith Barney Shearson Holdings Inc., SBA's
parent ("Parent"), made a capital contribution of
$5,000,000 in the form of a demand note. This note
receivable is reflected as a deduction from
stockholder's equity. The demand note earns interest
at the current applicable federal rate which is
adjusted semi-annually.
4. Income Taxes
Under an income tax allocation arrangement with
the Parent and The Travelers Inc., SBSSA's Federal,
state and local income taxes are provided on a
separate return basis without regard to timing items,
and are subject to the utilization of tax attributes
in The Travelers Inc. consolidated income tax
provision. Under a tax sharing agreement SBSSA remits
taxes to the Parent.
5. Commitments and Contingencies
SBSSA is required to own at least 1% of The
Advisors Fund L.P.'s outstanding shares. At December
31, 1993, SBSSA's ownership interest meets this
requirement.
(Continued)
SMITH BARNEY SHEARSON STRATEGY ADVISERS INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
(Continued)
December 31, 1993
6. Investment Advisory Contracts
Investment advisory contracts represent value
ascribed to the acquired Shearson investment company
advisory contracts purchased by SBSSA (see note 2).
The cost of these contracts is being amortized over
twenty years on a straight line basis.
7. Note Payable
Note payable represents a demand note payable to
the Parent at a rate of LIBOR plus .75%. The note was
issued for the financing of investment advisory
contracts (purchased on July 31, 1993) (see Note 2).
EXHIBIT E
SUB-INVESTMENT ADVISORY AGREEMENT
SMITH BARNEY SHEARSON INCOME FUNDS
(Smith Barney Shearson Premium Total Return Fund)
[June ___, 1994]
The Boston Company Advisors, Inc.
One Boston Place
Boston, Massachusetts 02108
Dear Sirs:
Smith Barney Shearson Income Funds (the
"Company"), a trust organized under the laws of the
Commonwealth of Massachusetts and Smith Barney
Shearson Strategy Advisers Inc. (the "Adviser"), each
confirms its agreement with The Boston Company
Advisors, Inc. (the "Sub-Adviser"), as follows:
1. Investment Description; Appointment
The Company desires to employ its capital
relating to Smith Barney Shearson Premium Total Return
Fund (the "Fund") by investing and reinvesting in
investments of the kind and in accordance with the
investment objective(s), policies and limitations
specified in its Master Trust Agreement, as amended
from time to time (the "Master Trust Agreement"), in
the prospectus relating to the Fund (the "Prospectus")
and the statement of additional information relating
to the Company (the "Statement") filed with the
Securities and Exchange Commission as part of the
Company's Registration Statement on Form N-1A, as
amended from time to time, and in the manner and to
the extent as may from time to time be approved by the
Board of Trustees of the Company (the "Board").
Copies of the Prospectus, the Statement and the Master
Trust Agreement have been or will be submitted to the
Sub-Adviser. The Company agrees to provide copies of
all amendments to the Prospectus, the Statement and
the Master Trust Agreement to the Sub-Adviser on an
on-going basis. The Company employs the Adviser as
the investment adviser to the Fund, and the Company
and the Adviser desire to employ and hereby appoint
the Sub-Adviser to act as the sub-investment adviser
to the Fund. The Sub-Adviser accepts the appointment
and agrees to furnish the services for the
compensation set forth below.
2. Services as Sub-Investment Adviser
Subject to the supervision, direction and
approval of the Board of the Company and the Adviser,
the Sub-Adviser will: (a) manage the Fund's portfolio
in accordance with the Fund's investment objective(s)
and policies as stated in the Master Trust Agreement,
the Prospectus and the Statement; (b) make investment
decisions for the Fund; (c) place purchase and sale
orders for portfolio transactions for the Fund; and
(d) employ professional portfolio managers and
securities analysts who provide research services to
the Fund. In providing those services, the Sub-
Adviser will conduct a continual program of
investment, evaluation and, if appropriate, sale and
reinvestment of the Fund's assets.
3. Brokerage
In selecting brokers or dealers to execute
transactions on behalf of the Fund, the Sub-Adviser
will seek the best overall terms available. In
assessing the best overall terms available for any
transaction, the Sub-Adviser will consider factors it
deems relevant, including, but not limited to, the
breadth of the market in the security, the price of
the security, the financial condition and execution
capability of the broker or dealer and the
reasonableness of the commission, if any, for the
specific transaction and on a continuing basis. In
selecting brokers or dealers to execute a particular
transaction, and in evaluating the best overall terms
available, the Sub-Adviser is authorized to consider
the brokerage and research services (as those terms
are defined in Section 28(e) of the Securities
Exchange Act of 1934), provided to the Fund and/or
other accounts over which the Sub-Adviser or its
affiliates exercise investment discretion.
4. Information Provided to the Company
The Sub-Adviser will keep the Adviser and the
Company informed of developments materially affecting
the Fund, and will, on its own initiative, furnish the
Adviser and the Company from time to time with
whatever information the Sub-Adviser believes is
appropriate for this purpose.
5. Standard of Care
The Sub-Adviser shall exercise its best judgment
in rendering the services listed in paragraphs 2 and 3
above. The Sub-Adviser shall not be liable for any
error of judgment or mistake of law or for any loss
suffered by the Fund and the Adviser in connection
with the matters to which this Agreement relates,
provided that nothing in this Agreement shall be
deemed to protect or purport to protect the Sub-
Adviser against any liability to the Adviser, the
Company or the shareholders of the Fund to which the
Sub-Adviser would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence on
its part in the performance of its duties or by reason
of the Sub-Adviser's reckless disregard of its
obligations and duties under this Agreement.
6. Compensation
In consideration of the services rendered
pursuant to this Agreement, the Adviser will pay the
Sub-Adviser on the first business day of each month a
fee for the previous month at the annual rate of .275
of 1.00% of the Fund's average daily net assets. The
fee for the period from the Effective Date (defined
below) of the Agreement to the end of the month during
which the Effective Date occurs shall be prorated
according to the proportion that such period bears to
the full monthly period. Upon any termination of this
Agreement before the end of a month, the fee for such
part of that month shall be prorated according to the
proportion that such period bears to the full monthly
period and shall be payable upon the date of
termination of this Agreement. For the purpose of
determining fees payable to the Sub-Adviser, the value
of the Fund's net assets shall be computed at the
times and in the manner specified in the Prospectus
and/or the Statement.
7. Expenses
The Sub-Adviser will bear all expenses in
connection with the performance of its services under
this Agreement. The Fund will bear certain other
expenses to be incurred in its operation, including,
but not limited to, investment advisory and
administration fees; fees for necessary professional
and brokerage services; fees for any pricing service;
the costs of regulatory compliance; and costs
associated with maintaining the Company's legal
existence and shareholder relations.
8. Reduction of Fee
If in any fiscal year the aggregate expenses of
the Fund (including fees pursuant to this Agreement
and the Fund's investment advisory agreement, but
excluding interest, taxes, brokerage and extraordinary
expenses) exceed the expense limitation of any state
having jurisdiction over the Fund, the Sub-Adviser
will reduce its fee by the proportion of such excess
expense equal to the proportion that its fee
thereunder bears to the aggregate of fees paid by the
Fund for investment advice and administration in that
year, to the extent required by state law. A fee
reduction pursuant to this paragraph 8, if any, will
be estimated, reconciled and paid on a monthly basis.
9. Services to Other Companies or Accounts
The Company understands that the Sub-Adviser now
acts, will continue to act and may act in the future
as investment adviser to fiduciary and other managed
accounts, and as investment adviser to other
investment companies, and the Company has no objection
to the Sub-Adviser's so acting, provided that whenever
the Fund and one or more other investment companies
advised by the Sub-Adviser have available funds for
investment, investments suitable and appropriate for
each will be allocated in accordance with a formula
believed to be equitable to each company. The Company
recognizes that in some cases this procedure may
adversely affect the size of the position obtainable
or disposable for the Fund. In addition, the Company
understands that the persons employed by the Sub-
Adviser to assist in the performance of the Sub-
Adviser's duties under this Agreement will not devote
their full time to such service and nothing contained
in this Agreement shall be deemed to limit or restrict
the right of the Sub-Adviser or any affiliate of the
Sub-Adviser to engage in and devote time and attention
to other businesses or to render services of whatever
kind or nature.
10. Term of Agreement
This Agreement shall become effective as of
[June ___, 1994] (the "Effective Date") and shall
continue for an initial two-year term and shall
continue thereafter so long as such continuance is
specifically approved at least annually by (i) the
Board of the Company or (ii) a vote of a "majority"
(as that term is defined in the Investment Company Act
of 1940, as amended (the "1940 Act")) of the Fund's
outstanding voting securities, provided that in either
event the continuance is also approved by a majority
of the Board who are not "interested persons" (as
defined in the 1940 Act) of any party to this
Agreement, by vote cast in person at a meeting called
for the purpose of voting on such approval. This
Agreement is terminable, without penalty, on 60 days'
written notice, by the Board of the Company or by vote
of holders of a majority of the Fund's shares, or upon
90 days' written notice, by the Sub-Adviser. This
Agreement will also terminate automatically in the
event of its assignment (as defined in the 1940 Act
and the rules thereunder).
11. Representation by the Company
The Company represents that a copy of the Master
Trust Agreement is on file with the Secretary of The
Commonwealth of Massachusetts and with the Boston City
Clerk.
12. Limitation of Liability
The Company, the Adviser and the Sub-Adviser
agree that the obligations of the Company under this
Agreement shall not be binding upon any of the members
of the Board, shareholders, nominees, officers,
employees or agents, whether past, present or future,
of the Company, individually, but are binding only
upon the assets and property of the Fund and not upon
the assets and property of any other portfolio of the
Company. The execution and delivery of this Agreement
have been authorized by the Board and a majority of
the holders of the Fund's outstanding voting
securities, and signed by an authorized officer of the
Company, acting as such, and neither such
authorization by such members of the Board and
shareholders nor such execution and delivery by such
officer shall be deemed to have been made by any of
them individually or to impose any liability on any of
them personally, but shall bind only the assets and
property of the Fund as provided in the Master Trust
Agreement.
If the foregoing is in accordance with your
understanding, kindly indicate your acceptance of this
Agreement by signing and returning the enclosed copy
of this Agreement.
Very truly yours,
SMITH BARNEY SHEARSON
INCOME FUNDS
By:_________________________
SMITH BARNEY SHEARSON
STRATEGY ADVISERS INC.
By:________________________
Accepted:
THE BOSTON COMPANY ADVISORS, INC.
By:______________________________
EXHIBIT F
ADVISORY AGREEMENT
SMITH BARNEY SHEARSON INCOME FUNDS
(Smith Barney Shearson Premium Total Return Fund)
[June __, 1994]
Smith Barney Shearson Strategy Advisers Inc.
1345 Avenue of the Americas
New York, New York 10105
Dear Sirs:
Smith Barney Shearson Income Funds (the
"Company"), a trust organized under the laws of the
Commonwealth of Massachusetts, confirms its agreement
with Smith Barney Shearson Strategy Advisers Inc. (the
"Adviser"), as follows:
1. Investment Description; Appointment
The Company desires to employ its capital
relating to its Smith Barney Shearson Premium Total
Return Fund (the "Fund") by investing and reinvesting
in investments of the kind and in accordance with the
investment objective(s), policies and limitations
specified in its Master Trust Agreement, as amended
from time to time (the "Master Trust Agreement"), in
the prospectus relating to the Fund (the "Prospectus")
and the statement of additional information relating
to the Company (the "Statement") filed with the
Securities and Exchange Commission as part of the
Company's Registration Statement on Form N-1A, as
amended from time to time, and in the manner and to
the extent as may from time to time be approved by the
Board of Trustees of the Company (the "Board").
Copies of the Prospectus, the Statement and the Master
Trust Agreement have been or will be submitted to the
Adviser. The Company agrees to provide copies of all
amendments to the Prospectus, the Statement and the
Master Trust Agreement to the Adviser on an on-going
basis. The Company desires to employ and hereby
appoints the Adviser to act as the Fund's investment
adviser. The Adviser accepts the appointment and
agrees to furnish the services for the compensation
set forth below.
2. Services as Investment Adviser
Subject to the supervision, direction and
approval of the Board of the Company, the Adviser
will: (a) manage the Fund's portfolio in accordance
with the Fund's investment objective(s) and policies
as stated in the Master Trust Agreement, the
Prospectus and the Statement; (b) make investment
decisions for the Fund; (c) place purchase and sale
orders for portfolio transactions for the Fund; and
(d) employ professional portfolio managers and
securities analysts who provide research services to
the Fund. In providing those services, the Adviser
will conduct a continual program of investment,
evaluation and, if appropriate, sale and reinvestment
of the Fund's assets. The Adviser may, with the
approval of the Board and the shareholders of the Fund
(to the extent required by applicable law), from time
to time, sub-contract with one or more sub-investment
advisers to provide some or all of the services
required under this agreement.
3. Brokerage
In selecting brokers or dealers to execute
transactions on behalf of the Fund, the Adviser will
seek the best overall terms available. In assessing
the best overall terms available for any transaction,
the Adviser will consider factors it deems relevant,
including, but not limited to, the breadth of the
market in the security, the price of the security, the
financial condition and execution capability of the
broker or dealer and the reasonableness of the
commission, if any, for the specific transaction and
on a continuing basis. In selecting brokers or
dealers to execute a particular transaction, and in
evaluating the best overall terms available, the
Adviser is authorized to consider the brokerage and
research services (as those terms are defined in
Section 28(e) of the Securities Exchange Act of 1934),
provided to the Fund and/or other accounts over which
the Adviser or its affiliates exercise investment
discretion.
4. Information Provided to the Company
The Adviser will keep the Company informed of
developments materially affecting the Fund's
portfolio, and will, on its own initiative, furnish
the Company from time to time with whatever
information the Adviser believes is appropriate for
this purpose.
5. Standard of Care
The Adviser shall exercise its best judgment in
rendering the services listed in paragraphs 2 and 3
above. The Adviser shall not be liable for any error
of judgment or mistake of law or for any loss suffered
by the Company in connection with the matters to which
this Agreement relates, provided that nothing in this
Agreement shall be deemed to protect or purport to
protect the Adviser against any liability to the
Company or its shareholders of the Fund to which the
Adviser would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence on
its part in the performance of its duties or by reason
of the Adviser's reckless disregard of its obligations
and duties under this Agreement.
6. Compensation
In consideration of the services rendered
pursuant to this Agreement, the Fund will pay the
Adviser on the first business day of each month a fee
for the previous month at the annual rate of .55 of
1.00% of the Fund's average daily net assets. The fee
for the period from the Effective Date (defined below)
of the Agreement to the end of the month during which
the Effective Date occurs shall be prorated according
to the proportion that such period bears to the full
monthly period. Upon any termination of this
Agreement before the end of a month, the fee for such
part of that month shall be prorated according to the
proportion that such period bears to the full monthly
period and shall be payable upon the date of
termination of this Agreement. For the purpose of
determining fees payable to the Adviser, the value of
the Fund's net assets shall be computed at the times
and in the manner specified in the Prospectus and/or
the Statement.
7. Expenses
The Adviser will bear all expenses in connection
with the performance of its services under this
Agreement and will pay (a) to The Boston Company
Advisors, Inc. ("Boston Advisors"), as sub-investment
adviser to the Fund under the Sub-Investment Advisory
Agreement dated of even date herewith among the
Company, the Adviser and Boston Advisors, as amended
from time to time, and (b) to any additional or
substitute sub-investment adviser or advisers retained
by the Adviser to provide advisory services to the
Fund (together with Boston Advisors, each a "Sub-
Adviser"), the fees required to be paid to each Sub-
Adviser. The Fund will bear certain other expenses to
be incurred in its operation, including, but not
limited to, investment advisory and administration
fees, other than those payable to a Sub-Adviser or any
additional or substitute investment adviser; fees for
necessary professional and brokerage services; fees
for any pricing service; the costs of regulatory
compliance; and costs associated with maintaining the
Company's legal existence and shareholder relations.
8. Reduction of Fee
If in any fiscal year the aggregate expenses of
the Fund (including fees pursuant to this Agreement
and the Fund's sub-investment advisory and
administration agreements, but excluding interest,
taxes, brokerage and extraordinary expenses) exceed
the expense limitation of any state having
jurisdiction over the Fund, the Adviser will reduce
its fee to the Fund by the proportion of such excess
expense equal to the proportion that its fee
thereunder bears to the aggregate of fees paid by the
Fund for investment advice and administration in that
year, to the extent required by state law. A fee
reduction pursuant to this paragraph 8, if any, will
be estimated, reconciled and paid on a monthly basis.
9. Services to Other Companies or Accounts
The Company understands that the Adviser now
acts, will continue to act and may act in the future
as investment adviser to fiduciary and other managed
accounts, and as investment adviser to other
investment companies, and the Company has no objection
to the Adviser's so acting, provided that whenever the
Fund and one or more other investment companies
advised by the Adviser have available funds for
investment, investments suitable and appropriate for
each will be allocated in accordance with a formula
believed to be equitable to each company. The Fund
recognizes that in some cases this procedure may
adversely affect the size of the position obtainable
or disposable for the Fund. In addition, the Fund
understands that the persons employed by the Adviser
to assist in the performance of the Adviser's duties
under this Agreement will not devote their full time
to such service and nothing contained in this
Agreement shall be deemed to limit or restrict the
right of the Adviser or any affiliate of the Adviser
to engage in and devote time and attention to other
businesses or to render services of whatever kind or
nature.
10. Term of Agreement
This Agreement shall become effective [June __,
1994] (the "Effective Date") and shall continue for an
initial two-year term and shall continue thereafter so
long as such continuance is specifically approved at
least annually by (i) the Board of the Company or (ii)
a vote of a "majority" (as that term is defined in the
Investment Company Act of 1940, as amended (the "1940
Act")) of the Fund's outstanding voting securities,
provided that in either event the continuance is also
approved by a majority of the Board who are not
"interested persons" (as defined in the 1940 Act) of
any party to this Agreement, by vote cast in person at
a meeting called for the purpose of voting on such
approval. This Agreement is terminable, without
penalty, on 60 days' written notice, by the Board of
the Company or by vote of holders of a majority of the
Fund's shares, or upon 90 days' written notice, by the
Adviser. This Agreement will also terminate
automatically in the event of its assignment (as
defined in the 1940 Act and the rules thereunder).
11. Representation by the Company
The Company represents that a copy of the Master
Trust Agreement is on file with the Secretary of The
Commonwealth of Massachusetts.
12. Limitation of Liability
The Company and the Adviser agree that the
obligations of the Company under this Agreement shall
not be binding upon any of the members of the Board,
shareholders, nominees, officers, employees or agents,
whether past, present or future, of the Company,
individually, but are binding only upon the assets and
property of the Company, as provided in the Master
Trust Agreement. The execution and delivery of this
Agreement have been authorized by the Board and a
majority of the holders of the Fund's outstanding
voting securities, and signed by an authorized officer
of the Company, acting as such, and neither such
authorization by such members of the Board and
shareholders nor such execution and delivery by such
officer shall be deemed to have been made by any of
them individually or to impose any liability on any of
them personally, but shall bind only the assets and
property of the Company as provided in the Master
Trust Agreement.
If the foregoing is in accordance with your
understanding, kindly indicate your acceptance of this
Agreement by signing and returning the enclosed copy
of this Agreement.
Very truly yours,
SMITH BARNEY SHEARSON
INCOME FUNDS
By:______________________
Name:
Title:
Accepted:
SMITH BARNEY SHEARSON STRATEGY ADVISERS INC.
By:__________________________________
Name:
Title:
2
4
A-3
B-9
C-1
D-5
E-5
F-5
VOTE THIS PROXY CARD TODAY!
YOUR PROMPT RESPONSE WILL SAVE
THE EXPENSE OF ADDITIONAL MAILINGS
(Please Detach at Perforation Before Mailing)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Please indicate your vote by an "X" in the appropriate box below.
This proxy, if properly executed, will be voted in the manner directed by the
undersigned shareholder.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE PROPOSALS.
Please refer to the Proxy Statement for a discussion of the Proposals.
1. To approve a new investment advisory agreement between FOR *
AGAINST * ABSTAIN *
Smith Barney Shearson Income Funds (the"Trust"), on behalf of its sub-
trust, Smith Barney Shearson Premium Total Return Fund (the "Fund"), and Smith
Barney Shearson Strategy Advisers Inc. ("SBSSA"), containing the same advisory
fee as the Fund's current investment advisory agreement.
2. To approve a sub-investment advisory agreement between the FOR *
AGAINST * ABSTAIN *
Trust, on behalf of the Fund, and The Boston Company Advisors, Inc.
VOTE THIS PROXY CARD TODAY!
YOUR PROMPT RESPONSE WILL SAVE
THE EXPENSE OF ADDITIONAL MAILINGS
(Please Detach at Perforation Before Mailing)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SMITH BARNEY SHEARSON PREMIUM TOTAL RETURN FUND PROXY SOLICITED BY
THE BOARD OF TRUSTEES
The undersigned holder of shares of Smith Barney Shearson Premium Total Return
Fund ("the Fund"), a Massachusetts business trust, hereby appoints Heath B.
McLendon, Richard P. Roelofs, Francis J. McNamara, III and Lee D. Augsburger
attorney and proxies for the undersigned with full powers of substitution and
revocation, to represent the undersigned and to vote on behalf of the
undersigned all shares of the Fund that the undersigned is entitled to vote
at the Special Meeting of Shareholders of the Fund to be held at the offices
of the Fund, Two World Trade Center, New York, New York, on June 15, 1994 at
12:00 p.m. and any adjournment or adjournments thereof. The undersigned
hereby acknowledges receipt of the Notice of Special Meeting and Proxy
Statement dated May 19, 1994 and hereby instructs said attorney and proxies to
vote said shares as indicated hereon. In their discretion, the proxies are
authorized to vote upon such other business as may properly come before the
Special Meeting. A majority of the proxies present and acting at the Special
Meeting in person or by substitute (or, if only one shall be so present, then
that one,) shall have and may exercise all the power and authority of said
proxies hereunder. The undersigned hereby revokes any proxy previously given.
PLEASE SIGN,
DATE AND RETURN
PROMPTLY IN THE
ENCLOSED ENVELOPE
NOTE: Please sign exactly as your name appears on this
Proxy. If joint owners, EITHER may sign this Proxy.
When signing as attorney, executor, administrator,
trustee, guardian or corporate officer, please give your
full title.
DATE: _________________________________________
_______________________________________________
_______________________________________________
Signature(s) (Title(s), if applicable)
shared\domestic\client\shearson\boards\inc_eq.\prxycrd.doc
