SMITH BARNEY INCOME FUNDS
on behalf of the
Smith Barney Premium Total Return Fund
Supplement dated April 21, 1999
to Prospectus dated April 29, 1998
At a meeting of the Board of Trustees of Smith Barney Income
Funds (the "Trust") held on April 15, 1999, the Trustees approved
an interim sub-advisory contract and subject to shareholder
approval, a new Sub-Advisory Agreement ("Agreement"), subject to
shareholder approval, with Salomon Brothers Asset Management
Inc. ("SaBAM"), on behalf of Smith Barney Premium Total Return
Fund (the "Fund"). SaBAM is an affiliate of SSBC Fund Management
Inc. ("SSBC"), the Fund's adviser. The Trustees also approved
the termination of the current sub-advisory agreement with Boston
Partners Asset Management LP ("Boston Partners"). The interim
sub-advisory agreement will commence on April 26 and will
terminate on the later of 120 days or upon shareholder approval
of the Agreement. If the 120 days expires without shareholder
approval of the Agreement, SSBC would manage the Fund without the
assistance of a sub-adviser until the Board determines that
additional action is appropriate. Both the interim sub-advisory
agreement and the Agreement obligate the sub-adviser to provide
investment advisory services. The interim agreement is identical
to the current sub-advisory agreement with Boston Partners in all
material respects. There are no material changes in its terms and
conditions and no change in fees. The Agreement would provide for
fees to be paid by the adviser to the sub-adviser at a rate to be
agreed upon from time to time but in no instance to exceed the
fees currently being paid to the adviser.
Ross Margolies, a Managing Director of SaBAM and senior portfolio
manager for all SaBAM U.S. equity, convertibles and arbitrage
portfolios will serve as the Fund's portfolio manager under both
the interim agreement and the Agreement if approved by
shareholders. Mr. Margolies has over 18 years of investment
management experience and has been with SaBAM since 1992. SaBAM
employs a team approach utilizing its investment resources and
currently manages $27.6 billion in separate accounts, mutual
funds, partnerships and variable annuities.
At the meeting the Trustees also approved certain changes to the
non-fundamental investment policies of the Fund. Those changes
would increase up to 35% the amount of assets the Fund may invest
in (a) medium or low rated securities or unrated securities (b)
interest-paying debt securities, such as obligations issued or
guaranteed as to principal and interest by the U.S. government
and (c) other fixed income securities. In addition, the Trustees
approved the use of futures contracts and options on futures
contracts as set forth below.
The Fund may enter into transactions in futures contracts and
options on futures only (i) for bona fide hedging purposes (as
defined in Commodities Futures Trading Commission regulations),
or (ii) for non-hedging purposes, provided the aggregate initial
margin and premiums on such non-hedging positions do not exceed
5% of the liquidation value of the Fund's assets.
Futures contracts provide for the future sale by one party and
purchase by another party of a specified amount of a specific
security at a specified future time and at a specified price.
The primary purpose of entering into a futures contract by the
Fund is to protect the Fund from fluctuations in the value of
securities without actually buying or selling the securities.
The Fund may enter into futures contracts and options on futures
to seek higher investment returns when a futures contract is
priced more attractively than stocks comprising a benchmark
index, to facilitate trading or to reduce transactions costs.
The Fund will only enter into futures contracts and options on
futures contracts that are traded on a domestic exchange or board
of trade. Assets committed to futures contracts will be
segregated to the extent required by law.
Among the several risks accompanying the utilization of futures
contracts and options on futures contracts are the following:
First, the successful use of futures and options is dependent
upon the ability of the adviser to predict correctly movements in
the stock market or in the direction of interest rates. These
predictions involve skills and techniques that may be different
from those involved in the management of investments in
securities. If the prices of the underlying commodities move in
an unanticipated manner, the Fund may lose the expected benefit
of these futures or options transactions and may incur losses.
Second, positions in futures contracts and options on futures
contracts may be closed out only by entering into offsetting
transactions on the exchange where the position was entered into
(or through a linked exchange), and as a result of daily price
fluctuation limits there can be no assurance the offsetting
transaction could be entered into at an advantageous price at a
particular time. Consequently, the Fund may realize a loss on a
futures contract or option that is not offset by an increase in
the value of its portfolio securities being hedged or the Fund
may not be able to close a futures or options position without
incurring a loss in the event of adverse price movements.
The above information supplements and to the extent inconsistent
therewith replaces the information set forth in the Prospectus.
FD 01638
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