<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[x]Preliminary Proxy Statement
[ ]Confidential for Use of the Commission Only (as permitted by Rule 14-a-
6(e)(2))
[ ]Definitive Proxy Statement
[ ]Definitive Additional Materials
[ ]Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
SMITH BARNEY INCOME FUNDS
(Name of Registrant as Specified In Charter)
Payment of Filing Fee (Check the appropriate box):
[x]$125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2), or
Item 22(a)(2) of Schedule 14A.
[ ]$500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[ ]Fee computed on table below per Exchange Act Rules 14-a-6(i)(4) and 0-11.
1)Title of each class of securities to which transaction applies:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2)Aggregate number of securities to which transaction applies:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3)Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing
fee is calculated and state how it was determined):
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4)Proposed maximum aggregate value of transaction:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5)Total fee paid:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
[ ] Fee previously paid with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1)Amount Previously Paid:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2)Form, Schedule or Registration Statement No.:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3)Filing Party:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4)Date Filed:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
<PAGE>
PRELIMINARY COPY
July __, 1995
Dear Shareholder:
An Important Notice About Smith Barney Premium Total Return
We would like to inform you of two proposals concerning Smith Barney
Premium Total Return Fund (the Fund). The Board of Trustees of Smith Barney
Income Funds (the Trust) has recently unanimously endorsed these proposals.
The Fund's current adviser is Smith Barney Strategy Advisers Inc. (SBSA),
a wholly owned subsidiary of Smith Barney Mutual Funds Management Inc. The
first proposal calls for the Trust to begin a new investment advisory
agreement for the Fund with SBSA. The Board has also recommended that the
Trust terminate the Fund's current sub-advisory agreement with The Boston
Company Advisors, Inc. (Boston Advisors).
The second proposal calls for the Trust to enter into a new sub-advisory
agreement for the Fund with Boston Partners Asset Management, L.P. (Boston
Partners).
The Board recommended this action in response to the resignation of Harry
J. Rosenbluth, the Fund's portfolio manager. Mr. Rosenbluth resigned from
Boston Advisors in April 1995 and, with other members of Boston Advisors,
formed a new firm, Boston Partners. If the Fund's shareholders approve a new
sub-advisory agreement with Boston Partners, Mr. Rosenbluth will continue as
portfolio manager. The Board believes that this action will provide
continuity of management with professionals who are well suited to address the
Fund's investment policies, which would be beneficial to the overall
performance of the Fund.
We will hold a special meeting of shareholders of the Fund on August __,
1995 to consider these proposals and to transact other Fund business. We
strongly urge you to participate by reviewing, completing and returning your
proxy by August __, 1995 in the postage-paid envelope provided. For more
details about the proposed transaction, please refer to the enclosed proxy
statement.
We thank you for your timely participation and look forward to serving
your investment needs with Smith Barney Mutual Funds. If you have any
questions, please call your Financial Consultant who will be pleased to assist
you.
Sincerely,
Heath B. McLendon
Chairman of the Board
Smith Barney Income Funds
<PAGE>
PRELIMINARY COPY
SMITH BARNEY PREMIUM TOTAL RETURN FUND
A SUB-TRUST OF SMITH BARNEY INCOME FUNDS
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held on [August __, 1995]
To the Shareholders of Smith Barney Premium Total
Return Fund:
Notice is hereby given that a special meeting of shareholders of Smith
Barney Premium Total Return Fund (the "Fund"), a mutual fund organized as a
sub-trust of Smith Barney Income Funds (the "Trust"), will be held at 388
Greenwich Street, 26th Floor, New York, New York on [August __, 1995]
commencing at _____ _.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 Strategy Advisers Inc.
("SBSA") (Proposal 1).
2. To approve or disapprove a sub-investment advisory agreement between
the Trust, on behalf of the Fund, SBSA, as adviser, and Boston Partners Asset
Management, L.P. ("Boston Partners"), as sub-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 [June __, 1995] 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
[July __, 1995] 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.
<PAGE>
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
<PAGE>1
SMITH BARNEY PREMIUM TOTAL RETURN FUND
A SUB-TRUST OF SMITH BARNEY INCOME FUNDS
388 Greenwich Street
New York, New York 10013
SPECIAL MEETING OF SHAREHOLDERS
To Be Held on [August __, 1995]
PROXY STATEMENT
This Proxy Statement is being solicited by the Board of Trustees
(the "Board") of Smith Barney Income Funds (the "Trust"), for use at the
Special Meeting of Shareholders (the "Meeting") of its sub-trust, Smith Barney
Premium Total Return Fund (the "Fund"), to be held on [August __, 1995] or any
adjournment or adjournments thereof. The Meeting will be held at 388
Greenwich Street, 26th 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
Inc. ("Smith Barney"), the distributor of shares of the Fund; and/or The
Shareholder Services Group, Inc. ("TSSG"), a subsidiary of First Data
Corporation and the transfer agent of the Fund. Arrangements may also be
made to have shareholder votes recorded by telephone. The Fund has retained
Applied Mailing Systems, Inc. to assist in the solicitation of proxies,
at an estimated cost in the range of $________ to $________ (depending
on the extent of the services provided). 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 the Fund.
The Trust currently issues four 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
<PAGE>2
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 [June __, 1995] 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,
_________ 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 the Record Date, no shares of Smith Barney Strategy Advisers
Inc. ("SBSA") or its ultimate parent corporation, Travelers Group 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")).
<PAGE>3
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., August __, 1995].
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 INVESTMENT ADVISORY AGREEMENT BETWEEN
SMITH BARNEY STRATEGY ADVISERS INC. AND THE TRUST, ON BEHALF OF THE
FUND.
The Fund currently is advised by SBSA under an agreement dated July
15, 1994 (the "Current Advisory Agreement"). The Boston Company Advisors,
Inc. ("Boston Advisors") currently acts as sub-adviser to the Fund pursuant to
an agreement with the Fund and SBSA dated July 15, 1994 (the "Current Sub-
Advisory Agreement," and together with the Current Advisory Agreement, the
"Current Agreements"). As described in Proposal 2 below, the Board has
unanimously determined to terminate the Current Sub-Advisory Agreement and,
subject to the approval of the shareholders of the Fund, to enter into a new
sub-investment advisory agreement between the Fund, SBSA, as adviser, and
Boston Partners Asset Management, L.P. ("Boston Partners"), as sub-adviser
(the "New Sub-Advisory Agreement").
In conjunction with the termination of Boston Advisors as sub-
adviser and for the reasons described below under the caption "Evaluation by
the Board and Reasons for the Proposals," the Board
<PAGE>4
has unanimously 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 SBSA. The New Advisory Agreement and the New
Sub-Advisory Agreement are referred to herein as the "New Agreements." SBSA
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. Under the New Agreements, the Fund would pay advisory
fees in an amount equal, in the aggregate, to the fees paid under the Current
Agreements. It is contemplated, however, that under the New Advisory
Agreement (1) SBSA will render increased services to the Fund in the areas of
setting overall strategy, security selection and trading and will retain a
higher percentage of the advisory fee paid by the Fund and (2) a sub-advisory
fee will be paid to Boston Partners rather than Boston Advisors. In addition,
the New Advisory Agreement provides for a term different from that of the
Current Advisory Agreement.
Under the Current Advisory Agreement, the Fund pays SBSA a monthly
fee at the annual rate of 0.55 of 1.00% of the Fund's average daily net
assets. In turn, under the Current Sub-Advisory Agreement, SBSA pays Boston
Advisors a monthly fee at the annual rate of 0.275 of 1.00% of the Fund's
average daily net assets. The Fund pays no fee to Boston Advisors directly.
Under the proposed fee arrangements, the Fund would continue to pay SBSA a
monthly fee at the annual rate of 0.55 of 1.00% of the Fund's average daily
net assets, however, SBSA would pay Boston Partners a monthly fee at the
annual rate of 0.10 of 1.00% of the Fund's average daily net assets. The Fund
would not pay any fee directly to Boston Partners. The aggregate cost to the
Fund for advisory services under the New Agreements would be the same as the
fees currently paid under the Current Agreements.
If approved by shareholders, the New Advisory Agreement will
commence upon obtaining shareholder approval 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 of Trustees or a majority of the
outstanding voting securities of the Fund, as defined in the 1940 Act.
<PAGE>5
PROPOSAL 2
TO APPROVE OR DISAPPROVE A SUB-INVESTMENT ADVISORY AGREEMENT BETWEEN
BOSTON PARTNERS ASSET MANAGEMENT, L.P. 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 unanimously determined to
terminate the Current Sub-Advisory Agreement with Boston Advisors and, subject
to the approval of the shareholders of the Fund, to enter into the New Sub-
Advisory Agreement with Boston Partners. Under the proposed arrangement, SBSA
would assume a more active role in the management of the Fund than it
currently provides, as described under Proposal 1 above, and would continue to
provide oversight and coordination with the other components of the Smith
Barney group of funds and assist Boston Partners in providing the day-to-day
support and personnel currently provided by Boston Advisors.
The New Sub-Advisory Agreement is identical to the Current Sub-
Advisory Agreement in all material respects except for (1) the identity of the
sub-adviser being Boston Partners rather than Boston Advisors, (2) the amount
of the sub-advisory fee paid by SBSA and (3) the term of the Agreement. As
described under Proposal 1 above, under the New Sub-Advisory Agreement, SBSA
would pay Boston Partners a monthly fee at the annual rate of 0.10 of 1.00% of
the Fund's average daily net assets. The Fund will not pay any fee directly
to Boston Partners.
If approved by shareholders, the New Sub-Advisory Agreement will
commence upon obtaining shareholder approval 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 of Trustees or a majority of the
outstanding voting securities of the Fund, as defined in the 1940 Act. During
the period from the termination of the Current Sub-Advisory Agreement
(expected to be on or about August 14, 1995) until shareholder approval is
obtained from the New Sub-Advisory Agreement, Boston Partners will render
services to the Fund under an interim agreement that is identical to the New
Sub-Advisory Agreement, except that it may remain in place only for a period
of 120 days.
<PAGE>6
THE CURRENT INVESTMENT ADVISER
SBSA is a wholly owned subsidiary of Smith Barney Mutual Funds
Management Inc. ("SBMFM"). SBMFM is a wholly owned subsidiary of Smith Barney
Holdings Inc. ("Holdings") which in turn is a wholly owned subsidiary of
Travelers. SBMFM serves as the Fund's administrator and Smith Barney serves
as the Fund's distributor. SBSA, SBMFM, Smith Barney and Travelers are
located at 388 Greenwich Street, New York, New York 10013.
For the Fund's fiscal year ended July 31, 1994, the aggregate amount
of advisory fees paid to SBSA by the Fund was $8,506,930, of which $_________
was paid to Boston Advisors by SBSA. If the proposed fee structure had been
in effect during the last fiscal year, SBSA would have retained aggregate
advisory fees equal to $__________ (__% more than the actual advisory fees
retained).
In addition, for the Fund's fiscal year ended July 31, 1994, the
Fund paid (1) administrative fees to SBMFM in the aggregate amount of
$3,093,429, of which sub-administrative fees in the amount of $_________ were
paid to Boston Advisors by SBMFM, and (2) service and distribution fees to
Smith Barney in the aggregate amount of $11,322,934.
<PAGE>7
The name, address, position with SBSA and principal occupation of
each executive officer and director of SBSA are set forth in the following
table.
<TABLE>
<CAPTION>
Name and Address* Position with SBSA Principal Occupation
- ----------------- ------------------ --------------------
<S> <C> <C>
Heath B. McLendon** Chairman of the Board of Managing Director of Smith Barney; Chairman of the
Directors and President funds of the Smith Barney Group of Funds
Lewis E. Daidone** Director Managing Director of Smith Barney; Senior Vice
President and Treasurer of the funds of the Smith
Barney Group of Funds
Michael J. Day Treasurer Managing Director
of Smith Barney
Christina T. Sydor** Secretary Managing Director of Smith Barney; Secretary of
the funds of the Smith Barney Group of Funds
</TABLE>
______________________
* The business address of each person listed above is 388 Greenwich Street,
New York, New York 10013.
** Also an officer of the Fund.
<PAGE>8
THE PROPOSED NEW SUB-INVESTMENT ADVISER
Boston Partners is a limited partnership for which Boston Partners,
Inc. (the "General Partner") serves as the general partner. All of the
outstanding shares of the General Partner are owned by Mr. Desmond J.
Heathwood. Boston Partners and the General Partner are located at One
Financial Center, 43rd Floor, Boston, Massachusetts 02111.
The name, address, position with Boston Partners and principal
occupation of the General Partner, the executive officers of the General
Partner and the key investment advisers of Boston Partners are set forth in
the following table.
<TABLE>
<CAPTION>
Position with Boston Principal
Name and Address Partners Occupation
---------------- -------------------- ----------
<S> <C> <C>
Boston Partners, Inc. General Partner General Partner of
One Financial Center Boston Partners
43rd Floor
Boston, MA 02111
Desmond J. Heathwood Chief Investment Officer President of the
One Financial Center General Partner
43rd Floor
Boston, MA 02111
William J. Kelly Chief Financial Officer Treasurer of the
One Financial Center General Partner
43rd Floor
Boston, MA 02111
Wayne J. Archambo Portfolio Manager Member of the
One Financial Center Investment Committee
43rd Floor of Boston Partners
Boston, MA 02111
William W. Carter, Jr. Portfolio Manager Member of the
333 South Grand Avenue Investment Committee
Suite 1840 of Boston Partners
Los Angeles, CA 90071
Mark E. Donovan Portfolio Manager Member of the
One Financial Center Investment Committee
43rd Floor of Boston Partners
Boston, MA 02111
</TABLE>
<PAGE>9
<TABLE>
Position with Boston Principal
Name and Address Partners Occupation
---------------- -------------------- ----------
<S> <C> <C>
Harry J. Rosenbluth Portfolio Manager Member of the
300 Drakes Landing Road Investment Committee
Suite 270 of Boston Partners
Greenbrae, CA 94904
Wayne S. Sharp Portfolio Manager Member of the
333 South Grand Avenue Investment Committee
Suite 1840 of Boston Partners
Los Angeles, CA 90071
</TABLE>
EVALUATION BY THE BOARD AND REASONS FOR THE
PROPOSALS
In April 1995, the Board was informed that fourteen members of the
professional staff of Boston Advisors, including the Fund's former Portfolio
Manager and Investment Officer, Harry Rosenbluth, resigned from Boston
Advisors and formed a new investment management firm, Boston Partners. In
light of these events and as soon thereafter as practicable, the Board held a
meeting via telephone conference on April 28, 1995 to discuss the status of
the Fund's management. At that time, the Board was informed that, on the next
business day, several executive personnel of SBSA would meet with Boston
Advisors in Boston to discuss the future management of the Fund and that, in
the interim, SBSA would closely supervise all portfolio transactions made by
Boston Advisors on behalf of the Fund. Shortly thereafter at a Board meeting
held on May 9, 1995, SBSA reported its findings to the Board for its
consideration. In accordance with their duties on behalf of the Fund's
investment adviser and at the behest of the Board, several executive personnel
of SBSA also visited the facilities of Boston Partners in both Boston and San
Francisco in order to inspect and evaluate its operations. SBSA
representatives informed the Board that Boston Partners was fully operational
and equipped to assume certain investment advisory functions for the Fund.
On June 15, 1995, the Board met in person at a meeting called for
the purpose of considering, among other things, (1) the termination of the
Current Advisory Agreement and the approval of the New Advisory Agreement with
SBSA, (2) termination of the Current Sub-Advisory Agreement with Boston
Advisors and (3) approval of the New Sub-Advisory Agreement with Boston
Partners. Although SBSA recommended that the Board approve these proposals,
the Board also considered various other possible alternatives, including (1)
continuation of the Current Sub-Advisory Agreement with Boston Advisors, (2)
termination of the Current Sub-Advisory
<PAGE>10
Agreement and approval of SBSA's sole management of the Fund and (3)
solicitation of interest by other possible sub-advisers. The Board received
and reviewed materials or discussed various matters regarding one or more of
SBSA, Boston Advisors and Boston Partners, including their personnel,
portfolio managers, analysts, economists and others, methods of operation,
past performance and profitability. After reviewing different options, the
Board has determined that the termination of the Current Agreements and the
approval of the New Agreements are appropriate courses of action at this time
in order to provide the Fund with management by investment professionals who
are well suited to address the Fund's needs with respect to its particular
investment strategies.
The Board considered, among other factors, SBSA's ability to make
available senior personnel known to the Board to work with Boston Partners in
areas relating to the Fund's unique overall investment strategy, including
stock, bond and option markets outlook, risk analysis, management of the Fund
in light of its dividend payout rate and desire for relative net asset value
stability, security selection and trading. The Board further considered the
favorable past performance of Mr. Rosenbluth and other Boston Partners'
personnel in managing the Fund's assets during their employment with Boston
Advisors. Accordingly, the Board determined that the most efficient course of
action is to enter into a New Sub-Advisory Agreement with Boston Partners,
pursuant to which Mr. Rosenbluth would resume advising the Fund, in order to
provide investment management which should be beneficial to the overall
performance of the Fund.
The Board considered the fact that, although the aggregate cost to
the Fund for advisory services under the proposed New Agreements would be the
same as the fees paid under the Current Agreements, SBSA would be retaining a
greater portion of its advisory fee. The Board determined that the additional
fees retained by SBSA would compensate SBSA for assuming a more active role in
the investment management of the Fund. The Board further determined that
SBSA's additional participation in the Fund's management would be desirable in
light of the fact that Boston Partners is a newly organized entity with no
experience in the application of mutual fund management support systems,
although its officers and portfolio managers individually have experience
investing mutual fund assets. Although such individuals' portfolio management
experience was attractive to the Board, the Board expects SBSA to compensate
for Boston Partners' lack of tangible experience as an institution in the area
of mutual fund management. The Board considered that SBSA personnel who are
executive officers of the Fund would be expected to assist Mr. Rosenbluth and
other Boston Partners' personnel in determining and evaluating specific
investment strategies, economic conditions and general trends in
<PAGE>11
the markets. The Board further considered that SBSA personnel may be
contacted more often to provide financial data and other economic and
statistical information. The Board concluded that the Sub-Advisory Agreement
with Boston Partners and the increased involvement of SBSA should provide
investment management which will be beneficial to the Fund's performance,
while not affecting the investment advisory fee currently charged to the Fund.
After a meeting of the full Board, and a meeting of the non-
interested Trustees with their counsel, at which the Trustees carefully
evaluated the foregoing, the Trustees of the Trust who were not interested
persons of the Trust approved, and the Board as a whole, approved (i) the
termination of the Current Agreements, (ii) subject to shareholder approval,
the New Advisory Agreement with SBSA substantially in the form of Exhibit A to
this Proxy Statement, and (iii) subject to shareholder approval, the New Sub-
Advisory Agreement substantially in the form of Exhibit B to this Proxy
Statement.
BROKERAGE COMMISSIONS
During the fiscal year ended July 31, 1994, the Fund incurred
$1,767,577 in brokerage commissions, of which $280,686 (representing 15.88% of
the total of all brokerage commissions paid) was paid to Smith Barney. Such
commissions were paid with respect to 14.92% of the total dollar value of all
transactions involving the payment of brokerage commissions effected during
the year.
CURRENT AND PROPOSED AGREEMENTS
Current Agreements
Current Advisory Agreement with SBSA
SBSA currently serves as investment adviser to the Fund pursuant to
an advisory agreement dated July 15, 1994 between the Trust, on behalf of the
Fund, and SBSA. The Current Advisory Agreement was last submitted to a vote
of shareholders of the Fund on July 15, 1994 in connection with terminating
the then existing investment advisory agreement with Boston Advisors and
approving the Current Advisory Agreement with SBSA (at the same time the
Current Sub-Advisory Agreement with Boston Advisors was approved). Under its
terms, SBSA, subject to the supervision of the Trust's Board of Trustees,
manages 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, SBSA supervises the sub-investment
advisory services currently rendered by Boston Advisors, evaluates and makes
final
<PAGE>12
determinations with respect to investment strategies for the Fund and provides
the Fund with the benefits of research capabilities of the Smith Barney
organization and provides executive management for the Fund. SBSA receives a
fee that is computed daily and paid monthly at the annual rate of 0.55 of
1.00% of the value of the Fund's average daily net assets.
Under the terms of the Current Advisory Agreement, SBSA bears all
expenses in connection with its performance, including the sub-investment
advisory fee payable to Boston Advisors under the Current Sub-Advisory
Agreement. Other expenses incurred in the operation of the Fund are 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, 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.
Current Sub-Advisory Agreement with Boston Advisors
Boston Advisors currently serves as sub-investment adviser to the
Fund pursuant to a sub-advisory agreement dated July 15, 1994 between the
Trust, on behalf of the Fund, and SBSA, as adviser. The Current Sub-Advisory
Agreement was last submitted to a vote of shareholders of the Fund on July
15, 1994 in connection with terminating the then existing investment advisory
agreement with Boston Advisors and approving the Current Advisory Agreement
with SBSA and the Current Sub-Advisory Agreement with Boston Advisors.
Under the terms of the Current Sub-Advisory Agreement, Boston
Advisors, subject to the supervision of the Board and SBSA as investment
adviser, makes investment decisions for the Fund, places purchase and sale
orders for portfolio transactions and provides analytical and research
services to the Fund. Pursuant to the Agreement, SBSA pays Boston Advisors a
sub-investment advisory fee of 0.275 of 1.00% of the value of the Fund's
average daily net assets.
<PAGE>13
Pursuant to a letter dated June 15, 1995, the Board has notified
Boston Advisors of its decision to terminate the Current Sub-Advisory
Agreement, effective August 14, 1995.
General Provisions
If in any fiscal year the aggregate expenses of the Fund (including
fees pursuant to the Current Advisory Agreement and the Current 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, SBSA will reduce its advisory
fee and Boston Advisors will reduce its sub-investment advisory fee to the
Fund by the proportion of such excess 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, is 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 annual 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 the
outstanding voting securities of the Fund or on 90 days' written notice by
SBSA in the case of the Current Advisory Agreement and Boston Advisors in the
case of the Current Sub-Advisory Agreement. Each Agreement would terminate
automatically in the event of its assignment (as defined in the 1940 Act).
Proposed New Agreements
New Advisory Agreement with SBSA
<PAGE>14
The New Advisory Agreement contains the same advisory fee as the
Current Advisory Agreement and is identical in all other material respects
other than that it provides for a term different from that of the Current
Advisory Agreement. It is contemplated that under the New Advisory Agreement
(1) SBSA will render increased services to the Fund as described above and
will retain a higher percentage of the advisory fee paid by the Fund and (2) a
sub-advisory fee will be paid to Boston Partners rather than Boston Advisors.
New Sub-Advisory Agreement with Boston Partners
The New Sub-Advisory Agreement is identical to the Current Sub-
Advisory Agreement in all material respects except for (1) the identity of the
sub-adviser being Boston Partners rather than Boston Advisors, (2) the amount
of the sub-advisory fee paid by SBSA to Boston Partners and (3) the term of
the Agreement. Under the New Sub-Advisory Agreement, SBSA would pay Boston
Partners a monthly fee at the annual rate of 0.10 of 1.00% of the Fund's
average daily net assets, rather than the 0.275 of 1.00% rate paid to Boston
Advisors under the Current Sub-Advisory Agreement. The Fund will not pay any
fee directly to Boston Partners.
As mentioned above, the Current Sub-Advisory Agreement will
terminate as of August 14, 1995. If shareholder approval of the New Sub-
Advisory Agreement is not obtained prior to that date, Boston Partners will
act as sub-adviser to the Fund pursuant to an interim agreement which will be
substantially identical to the form of sub-investment advisory agreement
attached as Exhibit B to this Proxy Statement, other than its term. Boston
Partners will serve as sub-investment adviser pursuant to this interim
agreement for 120 days or until such earlier time as shareholder approval of
the New Sub-Advisory Agreement is received.
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.
<PAGE>15
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.
ANNUAL REPORT
The Fund will furnish, without charge, a copy of its most recent
Annual Report dated July 31, 1994 and its most recent Semi-Annual Report dated
January 31, 1995, upon request to the Fund at 388 Greenwich Street, New York,
New York 10013, (800) 224-7523, or by contacting a Smith Barney Financial
Consultant.
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.
[July __, 1995]
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.
<PAGE>A-1
EXHIBIT A
FORM OF
ADVISORY AGREEMENT
SMITH BARNEY INCOME FUNDS
(Smith Barney Premium Total Return Fund)
___________, 1995
Smith Barney Strategy Advisers Inc.
388 Greenwich Street
New York, New York 10013
Dear Sirs:
Smith Barney Income Funds (the "Company"), a trust organized under
the laws of the Commonwealth of Massachusetts, on behalf of Smith Barney
Premium Total Return Fund (the "Fund"), confirms its agreement with Smith
Barney Strategy Advisers Inc. (the "Adviser"), as follows:
1. Investment Description; Appointment
The Company desires to employ its capital relating to 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.
<PAGE>A-2
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
<PAGE>A-3
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 the 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 0.55 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 to any sub-
investment adviser or advisers retained by the Adviser to provide advisory
services to the Fund (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 sub-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
<PAGE>A-4
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 ___________, 1995 (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).
<PAGE>A-5
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 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, are 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 INCOME FUNDS
on behalf of SMITH BARNEY PREMIUM
TOTAL RETURN FUND
By:
Name:
Title:
Accepted:
SMITH BARNEY STRATEGY ADVISERS INC.
Name:
Title:
<PAGE>B-1
EXHIBIT B
FORM OF
SUB-INVESTMENT ADVISORY AGREEMENT
SMITH BARNEY INCOME FUNDS
(Smith Barney Premium Total Return Fund)
__________, 1995
Boston Partners Asset Management, L.P.
One Financial Center
43rd Floor
Boston, Massachusetts 02111
Dear Sirs:
Smith Barney Income Funds (the "Company"), a trust organized under
the laws of the Commonwealth of Massachusetts, on behalf of Smith Barney
Premium Total Return Fund (the "Fund"), and Smith Barney Strategy Advisers
Inc. (the "Adviser"), each confirms its agreement with Boston Partners Asset
Management, L.P. (the "Sub-Adviser"), as follows:
1. Investment Description; Appointment
The Company desires to employ its capital relating to 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
<PAGE>B-2
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
<PAGE>B-3
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 0.10 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
<PAGE>B-4
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 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 _________, 1995 (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).
<PAGE>B-5
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.
<PAGE>B-6
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 INCOME FUNDS
on behalf of SMITH BARNEY PREMIUM
TOTAL RETURN FUND
By:
Name:
Title:
SMITH BARNEY STRATEGY ADVISERS INC.
By:
Name:
Title:
Accepted:
BOSTON PARTNERS ASSET MANAGEMENT, L.P.
By: BOSTON PARTNERS, INC.,
General Partner
By:
Name:
Title:
<PAGE>
PRELIMINARY COPY
VOTE THIS VOTING INSTRUCTION CARD TODAY!
YOUR PROMPT RESPONSE WILL SAVE
THE EXPENSE OF ADDITIONAL MAILINGS
(Please Detach at Perforation Before Mailing)
..............................................................................
............................................
SMITH BARNEY PREMIUM TOTAL RETURN FUND
(A SUB-TRUST OF SMITH BARNEY INCOME FUNDS)
PROXY SOLICITED BY THE BOARD OF TRUSTEES
The undersigned holder of shares of Smith Barney Premium Total Return Fund
(the "Fund"), hereby appoints Heath B. McLendon, Christina T. Sydor and Robert
A. Vegliante, attorneys 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, 388 Greenwich Street, New York, New York, on
August , 1995 at .m. and any adjournment or adjournments thereof.
The undersigned hereby acknowledges receipt of the Notice of Special
Meeting/Proxy Statement dated June , 1995 and hereby instructs said
attorneys and proxies to vote said shares as indicated herein. 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 voting 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 of 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)
<PAGE>
PRELIMINARY COPY
VOTE THIS VOTING INSTRUCTION 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 boxes 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 PROPOSAL.
1. To approve or disapprove a new Investment Advisory Agreement between
Smith Barney Income Funds, on behalf of Smith Barney Premium Total Fund,
and Smith Barney Strategy Advisers Inc.
___FOR ___AGAINST ___ABSTAIN
2. To approve or disapprove a new Sub-Investment Advisory Agreement between
Smith Barney Income Funds, on behalf of Smith Barney Premium Total Fund,
Smith Barney Strategy Advisers Inc., as adviser, and Boston Partners
Asset Management, L.P., as sub-adviser.
___FOR ___AGAINST ___ABSTAIN
