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
[ ] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
Smith Barney Income Funds
Name of Registrant as Specified in its Charter)
David Barnett
Name of Person Filing Proxy Statement
Payment of Filing Fee (Check appropriate box):
[X] No longer applicable
[ ] $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 14a-
6(i)(4) and 0-11.
(1) Title of each class of securities to which the
transaction applies:
(2) Aggregate number of securities to which transactions
applies:
(3) Per unit price or other underlying value of transaction
computed
pursuant to Exchange Act Rule 0-11:1
(4) Proposed maximum aggregate value of transaction:
[ ] 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:
1. Set forth the amount on which the filing fee is calculated and
state how it
was determined.
Dear Shareholder:
I am writing to ask for your vote on an important matter
that will affect your investment in the Smith Barney Utilities
Fund (the "Fund").
On February 27, 1998, the Board of Trustees of the Fund
voted in favor of certain changes to the Fund's investment
objectives and investment policies. We ask that you read the
attached proxy statement carefully and send us your vote regarding
these proposed changes before a special shareholders' meeting
scheduled to be held on May 7, 1998.
These proposed changes are in response to fundamental
changes occurring in the utilities industry which have made it
increasingly more difficult for the Fund to meet its current
investment objective. The utilities industry's new landscape
involves increased consolidation and competition which has created
significant and uncharacteristic volatility for utilities stocks.
The increased volatility in this sector could lead the Fund to
experience increased volatility. In addition, market forces,
regulatory changes and political pressures are forcing utility
management teams to use their cash flow to design new business
strategies causing a decline in dividend growth.
If these recommendations are approved by shareholders, the
Fund's primary investment objective of income and secondary
objective of capital appreciation would be modified so that income
and capital appreciation receive equal consideration. The Board
of Trustees also approved changing the Fund's investment policies
so that the Fund would seek to achieve its objective by investing
approximately 60% of its assets in equity securities and
approximately 40% of its assets in fixed-income securities. The
Fund would no longer be required to invest in equity and debt
securities of companies in the utilities industries. In addition,
up to 25% of the Fund's assets could be invested in high yield
securities.
In addition to recommending these changes to the Fund's
investment objective and investment policies, the Fund's Board of
Trustees has also recommended changing the Fund's name to the
Smith Barney Balanced Fund. This new name will better reflect the
Fund's new investment style if the proposed changes are approved
by shareholders.
We ask that you review the attached proxy statement. If you
do not plan to attend the meeting, we ask that you complete, sign,
date and return the proxy as soon as possible in the enclosed
postage-paid envelope. Thank you in advance for your attention
and vote with regard to this important proposal.
Sincerely,
Heath B. McLendon
Chairman
SMITH BARNEY INCOME FUNDS
388 Greenwich Street, New York, New York 10013
_____________________________
NOTICE OF MEETING OF SHAREHOLDERS OF
SMITH BARNEY UTILITIES FUND
To Be Held On May 7, 1998
________________________
To Shareholders:
A meeting of Shareholders of the Smith Barney Utilities Fund (the
"Fund"), a series of Smith Barney Income Funds (the "Trust") will be held on
May 7, 1998 at 2:00 p.m. at 388 Greenwich Street, New York, New York, 22nd
Floor, for the following purposes:
(1) To approve or disapprove changes to the investment objective and
certain investment policies of the Fund; and
(2) To transact such other business as may properly come before the
meeting or any adjournment thereof.
Shareholders of record at the close of business on March 16, 1998 will
be entitled to vote at the meeting.
Please mark, date and sign the enclosed proxy and return it in the
prepaid envelope enclosed for your convenience to insure that your shares are
represented. The prompt return of your proxy will save the expense of further
mailings. If you attend the meeting you may revoke your proxy and vote your
shares in person if you wish.
By Order of the Trustees
New York, New York Christina T. Sydor
March 16, 1998 Secretary
_______________________________________
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. SHAREHOLDERS ARE
URGED TO MARK, DATE, SIGN AND RETURN THE PROXY IN THE ENCLOSED PREPAID
ENVELOPE.
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.
3. All Other Accounts: The capacity of the
individual signing the proxy 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
(2) Estate of John B. Smith John B. Smith,
Executor
PROXY STATEMENT
SMITH BARNEY INCOME FUNDS on behalf of
Smith Barney Utilities Fund
388 Greenwich Street
New York, New York 10013
______________________
SPECIAL MEETING OF SHAREHOLDERS
MAY 7, 1998
___________________________
This proxy statement is furnished in connection with the solicitation by
the Board of Trustees (the "Trustees") of Smith Barney Income Funds (the
"Trust") on behalf of its series, Smith Barney Utilities Fund (the "Fund") of
proxies to be voted at a Special Meeting of Shareholders, and all adjournments
thereof (the "Meeting") of the Fund, to be held at the offices of the Trust,
388 Greenwich Street, New York, New York 10013 on the 22nd Floor, May 7, 1998,
at 2:00 p.m. The approximate mailing date of this proxy statement and
accompanying form of proxy is March 18, 1998.
The primary purpose of the Meeting is to permit the Fund's shareholders
to consider changes to the investment objective and investment policies of the
Fund, as further discussed in this proxy statement. Changes that are under
consideration here are the ones for which the Investment Company Act of 1940,
as amended, (the "1940 Act") would require shareholder approval. The Trustees
have fixed the close of business on March 16, 1998, as the record date (the
"Record Date") for the determination of holders of shares of the Fund entitled
to vote at the Meeting (the "Shares"). Shareholders of the Fund (the
"Shareholders") on the Record Date will be entitled to one vote per share with
respect to each proposal submitted to the Shareholders, with no Share having
cumulative voting rights.
There are no persons who, to the knowledge of the Trust, owned
beneficially more than 5% of the Fund's outstanding Shares as of the Record
Date. As of the Record Date, the officers and Trustees of the Trust
beneficially owned less than 1% of the outstanding Shares of the Fund.
Voting
With respect to Proposal 1, the proposed changes to the Fund's
investment policies will be implemented if the Proposal receives the
affirmative vote of a "majority of the outstanding voting securities", which
is defined under the 1940 Act as the lesser of (i) 67% or more of the voting
securities of the Fund entitled to vote thereon present in person or by proxy
at the Meeting, if the holders of more than 50% of the outstanding voting
securities entitled to vote thereon are present in person or represented by
proxy, or (ii) more than 50% of the outstanding voting securities of the Fund
entitled to vote thereon. If an insufficient number of votes are received to
approve the proposal, the Fund's current investment objective and policies
will continue to be applied by management.
THE TRUSTEES RECOMMEND THAT YOU CAST YOUR VOTE FOR APPROVAL OF THE
PROPOSED CHANGES TO THE FUND'S INVESTMENT OBJECTIVE AND INVESTMENT POLICIES.
With respect to Proposal 1, all Shares of the Fund will vote together as
a single class. All properly executed proxies received prior to the Meeting
will be voted at the Meeting in accordance with the instructions marked
thereon. Each Share is entitled to one vote for the proposal and any
fractional share is entitled to a proportionate fractional vote. On the
Record Date the Fund had _____________ shares of voting securities.
Proxies received prior to the Meeting on which no vote is indicated will
be voted "for" the proposal. For purposes of determining the presence of a
quorum for transacting business at the Meeting, abstentions and broker "non-
votes" (that is, 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. The Shares represented by a
proxy that represent a broker non-vote or an abstention will have the same
effect as Shares voted "against" the proposal. A majority of the outstanding
Shares entitled to vote on the proposal must be present in person or by proxy
to have a quorum to conduct business at the Meeting.
Shareholders who execute proxies may revoke them at any time before they
are voted by filing with the Trust a written notice of revocation, by
delivering a duly executed proxy bearing a later date or by attending the
Meeting and voting in person.
In the event that a quorum is not present at the Meeting or in the event
a quorum is present at the Meeting but sufficient votes to approve the
proposal 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 proposal that is the subject of the Meeting,
the percentage of votes actually cast, the nature of any further solicitation
and the information to be provided to shareholders.
PROPOSAL 1
TO APPROVE CHANGES TO THE FUND'S INVESTMENT OBJECTIVE AND INVESTMENT
POLICIES
Summary of Proposal
Currently, the Fund's primary investment objective is to seek current
income by investing in equity and debt securities of utilities companies;
long-term capital appreciation is a secondary objective. Stocks of utilities
companies have traditionally paid relatively high dividends which have tended
to grow over the years. Because of changes in the utilities industry
discussed below, this may no longer be the case. Management has, therefore,
considered whether the present requirement that at least 65% of the Fund's
assets be invested in debt and equities securities of utility companies
continues to be in the best interests of shareholders. The Fund's investment
adviser, Mutual Management Corp. ("MMC" or alternatively "Management"),
formerly known as Smith Barney Mutual Funds Management Inc., concluded that
the interests of shareholders would be better served by broadening the
category of securities in which the Fund may invest and modifying its
investment objective.
Based upon this recommendation from MMC, the Board of Trustees voted in
favor of, subject to approval by vote of shareholders, the following:
1) Changing the Fund's investment objective so that income and capital
appreciation receive equal consideration; and
2) Changing the Fund's investment policies by imposing a target asset
allocation of approximately 60% in equity securities and approximately 40% in
fixed-income securities while no longer requiring the Fund to invest in equity
and debt securities of companies in the utilities industries.
If the foregoing changes are approved by Shareholders, the Board of
Trustees has voted to implement these additional changes which do not require
Shareholder consideration.
A) Increasing the portion of the Fund's assets invested in high yield
securities from a maximum of 10% to a maximum of 25%.
B) Changing the name of the Fund to the Smith Barney Balanced Fund
("Balanced Fund").
If approved by the Shareholders, it is anticipated that these changes
would become effective on or about May 15, 1998.
Comparison Between Utilities Fund and Proposed Balanced Fund
Set forth below is a chart comparing the Fund's existing investment
objective and primary investment policies to the proposed changes:
Utilities Fund
Balanced Fund
Investment Objective
Primary investment objective:
current income; secondary
objective: capital appreciation
Income and capital
appreciation
Primary Investments
65% of Fund assets in equity and
debt securities of companies in
the utilities industry, defined
as those companies that are
principally engaged (i.e., 50%
of their assets, gross income or
net profits result from utility
operations or the company is
regulated as a utility by a
governmental agency) in the
production and sale of electric
and gas energy and companies in
the communications field
Target allocation of 60% in
equity securities and 40% in
fixed-income securities; may
invest a minimum of 50%, and
a maximum of 70% in equity
securities and a minimum of
30%, and a maximum of 50%,
in fixed-income securities;
no requirement to invest in
equity and debt securities
of companies in the utility
industry.
High Yield
Securities
Up to 10% of the Fund's assets
may be invested in high yield
securities
Up to 25% of the Balanced
Fund's assets may be
invested in high yield
securities
Foreign Equity and
Debt Securities
The Fund may purchase foreign
securities or American
Depository Receipts.
No Change
Futures and Related
Options
The Fund may use financial
futures, options on futures and
options on securities and
indices.
No Change
Proposed Changes in the Investment Selection Process
Pursuant to the Board's proposal, the Fund would no longer be required
to invest in equity and debt securities in the utility industry. Instead, the
Fund's equity investments would consist of primarily mid-and large-cap
companies that exhibit growth and income characteristics. In selecting
securities for the Fund, MMC will evaluate factors favorable to achieving
capital appreciation including specific financial characteristics of the
issuer such as historical earnings growth, sales growth, profitability and
return on equity. The Fund will consider equity securities to include common
stocks, preferred stocks, convertible securities and warrants. When investing
in convertible securities, MMC will look to the conversion feature and treat
the securities as "equity securities."
The Fund's fixed-income investments would include a variety of income-
producing securities, such as U.S. government obligations, mortgage-backed
securities, asset-backed securities and corporate debt obligations, including
those of foreign issuers. The fixed-income management strategies would be
driven by the shape of the yield curve and yield spread analysis. The average
maturity of these investments will average between 15 and 20 years. Average
duration will vary between 8 and 10 years. Under the Board's proposal, up to
a maximum of 25% of the Fund's total assets may be invested in fixed-income
securities rated lower than Baa by Moody's Investor Services, Inc. or BBB by
Standard & Poor's Ratings Group.
Reasons for the Proposal
The Board of Trustees has determined that the proposed changes in the
investment objective and policies of the Fund would be in the best interests
of shareholders. During the course of several meetings MMC and the Board of
Trustees discussed the fundamental changes occurring in the public utilities
sector and their impact on utilities stocks. At a February 4, 1998, Board
meeting, MMC outlined how recent legislative and regulatory changes have
increased competition in the utilities industry, introducing a degree of
uncertainty to companies in this sector which had traditionally been quite
stable as a result of their protected monopoly status. As utilities companies
have begun to respond to this deregulation, the performance of their stocks
has become more volatile. Moreover, market forces, regulatory changes and
political pressures are causing utility management teams to use their cash
flow to design new business strategies and focus on managing their businesses
for total return. This will result in a decline in dividend growth for the
utility industry. MMC informed the Board that these developments could make
it increasingly difficult for a fund solely investing in utilities stocks to
deliver consistent and growing income in the future.
At the conclusion of the February 4, 1998, Board meeting, MMC informed
the Board that based on these fundamental changes to the utilities sector, it
was in the process of developing a proposal to: 1) modify the Fund's
investment objective so that income and capital appreciation would receive
equal consideration and 2) broaden the Fund's investment policies to provide
the Fund with the ability to invest in other market sectors. MMC stated that
it would report back to the Board once it had finalized its proposal and had
determined precisely how the structure of the Fund should be changed.
At a Board of Trustees meeting held on February 27, 1998, MMC formally
proposed changing the Fund's investment objective such that income and capital
appreciation would receive equal consideration. To achieve this objective,
Management recommended imposing a target asset allocation of 60% of its total
assets in equity securities and 40% of its total assets in fixed-income
securities, without any requirement that the Fund purchase companies engaged
in the utility industry. The Fund would have the additional flexibility to
invest a minimum of 50%, and a maximum of 70%, of its total assets in equity
securities and a minimum of 30%, and a maximum of 50% of its total assets in
fixed-income securities. MMC also recommended that the fixed-income portion of
the Fund be modified to allow up to 25% of the Fund's assets to be invested in
high yield securities.
Management believes that by allowing the Fund to purchase securities
outside the utility industries it can offer Shareholders a fund that provides
access to many more investment opportunities and which is more diversified.
Consequently, a Shareholder's investment in the Fund would become less
dependent upon the success of one sector. The Fund would not be prevented from
participating in the utilities sector, rather the Fund's focus would be
broadened to include investment opportunities in other industries. MMC noted
that the proposed target asset allocation would not represent a dramatic
change from the Fund's historic allocation between equity and fixed-income
securities. Allowing the Fund to have the flexibility to invest within 10%
plus or minus the target asset allocation would enhance MMC's ability to
react more quickly to market changes. MMC informed the Board that increasing
the high yield portion to a maximum of 25% would increase the Fund's exposure
to what are commonly referred to as "junk bonds." Management advised the
Board that although these securities are more speculative with respect to the
issuer's capacity to pay interest and repay principal, they offer shareholders
a greater potential for realizing current income. Management believes that
the broadening of the Fund's investment focus would therefore necessitate a
balancing of the Fund's investment objective so that individual securities can
be evaluated for purposes of income and capital appreciation.
Based on MMC's review of the utilities industry and a belief that
Shareholders would be better served by a fund offering greater
diversification, the Board unanimously approved and recommended that the
proposed changes to the Fund's investment objective and investment policies be
submitted for Shareholder approval. The Board also unanimously approved,
subject to shareholders approving the above modifications, changing the Fund's
name to the Smith Barney Balanced Fund. MMC has advised that if the proposals
are approved by Shareholders, it would be required to restructure the Fund
and divest many holdings in the utility industries. This restructuring of the
Fund would likely result in the realization of short- and long-term capital
gains for shareholders. However, the Board of Trustees has determined that
the long-term result of changing the Fund's investment objectives and polices
outweighs the tax consequences of restructuring the Fund.
The Trustees unanimously recommend that you vote "FOR" the
proposed investment objective and investment policy changes.
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 Fund at the address set
forth on the cover of this proxy statement. Proposals must be received at a
reasonable time prior to the date of a meeting of Shareholders to be
considered for inclusion in the materials for a Fund's meeting Timely
submission of a proposal doe not however, necessarily mean that such proposal
will be included.
SHAREHOLDERS' REQUEST FOR SPECIAL MEETING
Shareholders holding at least 10% of the Fund's outstanding voting
securities (as defined in the 1940 Act) may require the calling of a meeting
of shareholders for the purpose of voting on the removal of any Board member
of the Fund. Meetings of shareholders for any other purpose also shall be
called by the Trustees when requested in writing by shareholders holding at
least 10% of the shares outstanding or, if the Trustees shall fail to call or
give notice of any meeting of shareholders for a period of 30 days after such
application, shareholders holding at least 10% of the shares outstanding may
call and give notice of such meeting.
OTHER MATTERS TO COME BEFORE THE MEETING
The Trustees do not intend to present any other business at the meeting.
THE FUND WILL FURNISH, WITHOUT CHARGE, A COPY OF ITS MOST RECENT ANNUAL
REPORT (AND THE MOST RECENT SEMI-ANNUAL REPORT SUCCEEDING THE ANNUAL REPORT)
TO A SHAREHOLDER OF THE FUND UPON REQUEST. ANY SUCH REQUEST SHOULD BE
DIRECTED TO THE TRUST BY CALLING 1-800-451-2010 OR BY WRITING TO THE TRUST AT
388 GREENWICH STREET, NEW YORK, NEW YORK 10013.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. SHAREHOLDERS WHO DO
NOT EXPECT TO ATTEND THE MEETING ARE THEREFORE URGES TO COMPLETE, SIGN, DATE
AND RETURN EACH PROXY AS SOON AS POSSIBLE IN THE ENCLOSED POSTAGE PAID
ENVELOPE.
FORM OF PROXY CARD
PLEASE VOTE THIS PROXY CARD TODAY!
YOUR PROMPT RESPONSE WILL SAVE THE EXPENSE OF ADDITIONAL MAILINGS.
NOTE: YOUR PROXY IS NOT VALID UNLESS IT IS SIGNED BELOW.
Please fold and detach card at perforation before mailing.
SMITH BARNEY INCOME FUNDS - SMITH BARNEY UTILITIES FUND (the "Fund")
MEETING: MAY 7, 1998 AT 2:00 PM
PROXY SOLICITED BY THE BOARD OF DIRECTORS
The undersigned holder of shares of the Fund referenced above hereby
appoints Heath B. McLendon, Christina T. Sydor and David A. Barnett
attorneys 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, at the date and time indicated
above and at any ad
Date: 1998
PLEASE SIGN IN BOX BELOW
Please sign exactly as your name appears on this Proxy. If joint owners,
EITHER may sign the Proxy. When signing as attorney, executor,
administrator, trustee, guardian or corporate officer, please give your
full title.
PLEASE VOTE THIS PROXY CARD TODAY!
YOUR PROMPT RESPONSE WILL SAVE THE EXPENSE OF ADDITIONAL MAILINGS.
NOTE: YOUR PROXY IS NOT VALID UNLESS IT IS SIGNED ON THE REVERSE SIDE.
Please vote by filling in the boxes below.
Please fold and detach card at perforation before mailing.
FOR AGAINST ABSTAIN
To approve or disapprove changes to the investment objective and certain
investment policies of the Fund; and
To transact such other business as may properly come before the meeting or any
adjournment thereof
