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:
[XX] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c)
or Section 240.14a-12
SMITH BARNEY INCOME FUNDS
(Name of Registrant as Specified In Its Charter)
GORDON E. SWARTZ
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No Fee Required
[ ] 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 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:
4) Proposed maximum aggregate value of transaction:
Set forth the amount on which the filing fee is calculated and
state how it was determined.
[ ] 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:
October ,1999
Dear Valued Convertible Fund Shareholder:
The Board of Trustees of the Smith Barney Income Funds has voted to recommend
to shareholders of the Smith Barney Convertible Fund ("Fund") the
appointment of Salomon Brothers Asset Management ("SaBAM") as sub-advisor
to the Fund.
A shareholder meeting regarding the proposed change in the Fund's sub-advisor
is scheduled to take place on or about November 22, 1999. Within the
next several days, you will be receiving proxy materials regarding this
issue. I ask that you review these materials carefully and, if you do not
plan to attend the shareholder meeting, please complete the proxy card and
return it as soon as possible in the postage-paid envelope.
PLEASE REMEMBER...YOUR VOTE IS EXTREMELY IMPORTANT!
We believe that the appointment of SaBAM as the Fund's sub-advisor will benefit
existing and future investors. With over $1.3 billion in convertible assets (as
of August 31, 1999) under management and a talented portfolio management team
led by Daniel J. Berkery and Ross S. Margolies, SaBAM offers what
has historically been a successful combination of both experience and expertise.
The Fund will continue to be managed to achieve its stated objective of current
income and capital appreciation. Daniel Berkery, Ross Margolies and their
portfolio management team bring to the management of the Fund both equity
expertise as well as fixed income market knowledge. It is our view
that the characteristics of the convertible market have changed over time as
evidenced by the fact that it is now primarily comprised of two sectors,
technology and telecommunications with more than
half of the issues in this market rated below investment grade. Additional
resources are required to analyze these types of securities. We believe that
SaBAM with specific expertise in these areas, exceptional resources and analyst
strength will provide those additional resources needed to analyze
investment opportunities in today's convertible bond market.
This means that you and your Salomon Smith Barney Financial Consultant should
have the confidence that risk and reward will be balanced to provide you
with an investment that may help you achieve your future financial goals
And while no guarantees can be given, I think you will agree with me that this
proposed Fund change bodes well for its future. To give you an indication
of how the Fund has performed over the long-term; I have provided
historical performance information on the Convertible Fund.
Thank you in advance for your attention and vote with regard to this important
proposal.
Sincerely,
Heath B. McLendon
Chairman
Convertible Fund
Historical Performance
Average Annual Total Returns* (as of September 30, 1999)
(Excluding the effects of sales charges)
Inception
1-Year
5-Years
10-Years
Since
Inception
Class A
11/6/92
Class B
9/16/85
Class L
6/15/98
* Average annual total return assumes the reinvestment of income dividends and
capital gain distributions at net asset value and the deduction of all fund
expenses. Average annual total returns including the effects of maximum sales
charges also assume the deduction of the current applicable maximum front-end
sales charges for Class A and L shares and contingent deferred sales charges
(CDSC) for Class B and L shares. These charges may be greater or less than the
maximum sales charges that were in effect at the beginning of each period shown
and calculations using the maximum sales charges in effect at such time would
have resulted in lower or higher average annual total returns, as the case may
be. For Class A shares, the maximum front-end sales charge is 5.0% for equity
funds, 4.5% for taxable fixed-income funds and 4.0% for municipal funds. One
and five-year returns for Class B shares reflect a maximum CDSC of up to
5.0% and 1.0%, respectively. For Class L shares, the front-end sales charge
is 1.0% In addition, one-year returns for Class L shares reflect a CDSC of 1.0%.
Average Annual Total Returns (as of September 30, 1999)
(Including the effects of maximum sales charges)
Inception
1-Year
5-Years
10-Years
Since
Inception
Class A
11/6/92
Class B
9/16/85
Class L
6/15/98
SMITH BARNEY CONVERTIBLE FUND
388 Greenwich Street
New York, New York 10013
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
Please take notice that a Special Meeting of shareholders ("Special
Meeting") of Smith Barney Convertible Fund (the "Fund") (a series of Smith
Barney Income Funds, the "Trust") will be held at the offices of SSB Citi Fund
Management LLC., ("SSB Citi"), 388 Greenwich Street, Conference Room __, New
York, New York 10013, on November 22, 1999, at 2 p.m., Eastern time, for the
following purpose:
(1) To approve or disapprove a sub-investment advisory agreement among the
Fund, SSB Citi and Salomon Brothers Asset Management Inc.
The appointed proxies, in their discretion, will vote on any other business as
may properly come before the Special Meeting or any adjournments thereof.
Holders of record of shares of the Fund at the close of business on September
30, 1999 are entitled to
notice of and to vote at the Special Meeting and at any adjournments thereof.
In the event that the necessary quorum to transact business or the vote
required to approve or reject any proposal is not obtained at the Special
Meeting, the persons named as proxies may propose one or more adjournments
of the Special Meeting in accordance with applicable law, to permit further
solicitation of proxies. Any such adjournment will require the affirmative
vote of the holders of a majority of the Fund's shares present in person or
by proxy at the Special Meeting. The persons named as proxies will vote in
favor of such adjournment those proxies which they are entitled to vote in
favor and will vote against any such adjournment those proxies to be voted
against that proposal.
By order of Board of Trustees,
Christina T. Sydor
Secretary
October __, 1999
SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE SPECIAL MEETING ARE REQUESTED TO
COMPLETE, SIGN, DATE AND RETURN THE PROXY CARD IN THE ENCLOSED ENVELOPE, WHICH
NEEDS NO POSTAGE IF MAILED IN THE CONTINENTAL UNITED STATES. INSTRUCTIONS FOR
THE PROPER EXECUTION OF PROXY CARDS ARE SET FORTH ON THE FOLLOWING
PAGE. IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY.
INSTRUCTIONS FOR SIGNING PROXY CARDS
The following general rules for signing proxy cards may be of assistance to you
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
Custodial 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 Jr.,
Executor
SMITH BARNEY CONVERTIBLE FUND
388 Greenwich Street
New York, New York 10013
PROXY STATEMENT
FOR THE SPECIAL MEETING OF SHAREHOLDERS
To Be Held On November 22, 1999
General
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Trustees (the "Board") of Smith Barney Convertible
Fund (the "Fund") (a series of Smith Barney Income Funds, the "Trust")
for use at the Special Meeting of shareholders of the Fund, to be held at the
offices of SSB Citi Fund Management LLC. ( formerly known as SSBC Fund
Management Corp), 388 Greenwich Street, Conference Room ___, New York, New York
10013, on November 22, 1999 at 2:00.p.m., Eastern time, and at any and all
adjournments thereof (the "Special Meeting").
This Proxy Statement, the Notice of Special Meeting and proxy card are first
being mailed to shareholders on or about October 26, 1999 or as soon as
practicable thereafter. Any proxy may be revoked at any time prior to exercise
thereof by giving written notice to the Secretary of the Trust
at the address indicated above or by voting in person at the Special Meeting.
All properly executed proxies received in time for the Special Meeting will be
voted as specified in the proxy or, if no specification is made,
in favor of the proposal referred to in the 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; Salomon Smith Barney Inc.
("Salomon Smith Barney") a dealer of shares of the Fund; SSB Citi Fund
Management LLC., ("SSB Citi" or the "Manager"), the investment adviser of
the Fund, and/or First Data Investor Services Group, Inc. ("First Data"),
transfer agent of the Fund. Such representatives and employees will not
receive additional compensation for solicitation activities. Salomon Smith
Barney has retained the services of First Data to assist in the
solicitation of proxies. The aggregate cost of solicitation of the
shareholders of the Fund is expected to be approximately $_____.
The costs of the proxy solicitation and expenses incurred in connection
with the preparation of this Proxy Statement and its enclosures will be
borne by the Fund. The Fund also will reimburse expenses of forwarding
solicitation materials to beneficial owners of shares of the Fund.If the
Fund records votes by telephone, it will use procedures designed
to authenticate shareholders' identities, to allow shareholders to
authorize the voting of their shares in accordance with their instructions,
and to confirm that their instructions have been properly recorded. Proxies
voted by telephone may be revoked at any time before they are voted in the same
manner that proxies voted by mail may be revoked.The presence at the Special
Meeting, in person or by proxy, of the holders of a majority of the
outstanding shares of the Fund entitled to vote shall be necessary and
sufficient to constitute a quorum for the transaction of business at the
Special Meeting. In the event that the necessary quorum to transact
business or the vote required to approve or reject any proposal is not
obtained at the Special Meeting, the persons named as proxies may propose
one or more adjournments of the Special Meeting in accordance with
applicable law to permit further solicitation of proxies.In determining
whether to adjourn the Special Meeting, the following factors may be
considered: the nature of the proposal that is the subject of the Special
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 such adjournment will require the affirmative vote
of a majority of the Fund's shares present in person or by proxy at the
Special Meeting. The persons named as proxies will vote in favor of such
adjournment those proxies which they are entitled to vote in favor of the
proposal and will vote against any such adjournment those proxies to be voted
against the proposal. For purposes of determining the presence of a quorum for
transacting business at the Special Meeting, abstentions and
broker "non-votes" will be treated as shares that are present but which
have not been voted. Broker non-votes are proxies received from brokers or
nominees when the broker or nominee has neither received instructions from
the beneficial owner or other persons entitled to vote nor has discretionary
power to vote on a particular matter. Accordingly, shareholders are urged
to forward their voting instructions promptly.
There is only one proposal in this Proxy Statement (the "Proposal"), and the
Fund does not anticipate that any other proposals will be presented. However,
should additional proposals be properly presented, a shareholder vote may be
taken on one or more proposals prior to any adjournment if sufficient votes
have been received for approval. The Proposal requires the affirmative vote
of a "majority of the outstanding voting securities"
of the Fund. The term "majority of the outstanding voting securities" as
defined in the Investment Company Act of 1940, as amended (the "1940 Act"), and
as used in this Proxy Statement, 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 of the Fund are present in person or
by proxy or (2) more than 50% of the outstanding shares of the Fund.
Abstentions and broker non-votes will have the effect of a "no" vote for the
Proposal, which requires the approval of a specified percentage of the
outstanding shares of the Fund, if such vote is determined on the basis of
obtaining the affirmative vote of more than 50% of the outstanding shares
of the Fund. Abstentions and broker non-votes will not constitute "yes" or
"no" votes, and will be disregarded in determining the voting securities
"present" if such vote is determined on the basis of the affirmative vote of
67% of the voting securities of the Fund present at the Special Meeting.
The Board of the Trust has fixed the close of business on September 30, 1999 as
the record date (the "Record Date") for the determination of shareholders of
the Fund entitled to notice of and to vote at the Special Meeting. Each
share is entitled to one vote and any fractional share is entitled
to a fractional vote at the Special Meeting.
As of the close of business on the Record Date, 9,390,817.313 shares of the
Fund were issued and outstanding. As of the Record Date, to the best
knowledge of the Board and the Fund, the following table shows the
beneficial owners of more than 5% of the outstanding shares of the Fund.
Title of Class
Name and Address
of Beneficial
Owner
Amount and Nature of
Beneficial Ownership
Percent of Class
Class L
Joe Trautwein
Bonnie Trautwein
Rt 1 Box 494
Fort Gay, WV 25514
7,973.665
25.36%
Class L
Harold Egon
Gottschalk Jr.
and Barbara
Gottschalk
Community Property
11603 Osage Trail
Lakeside, CA 92040
3,628.507
11.54%
Class L
Raymond J. Trudeau
SSB IRA Custodian
112 Plummer Hill
Road Belmont, NH
03220
3,092.741
9.84%
Class L
Alfred L. Curry
SSB IRA Rollover
Custodian
6832 Trapper Way
Midland, GA 31828
2,247.369
7.15%
Class L
Harold A. Savage,
Jr.
SSB IRA Custodian
2100 Ludwick Drive
Maryville, In
37803
1,837.932
5.85%
Class L
Wilmer L. Keiser
Betty L. Keiser
TTEEs
The Keiser Family
Trust UAD 4/1/97
13060 Metcalf,
Apt. #303 Overland
Park, KS 66213
1,688.782
5.37%
Class O
John J. Madden and
Deborah A. Madden
JTWROS
4107 Golden Grove
Road Greenwood, IN
46143
3,685.609
10.43%
Title of Class
Name and Address
of Beneficial
Owner
Amount and Nature of
Beneficial Ownership
Percent of Class
Class O
John J. Zygowicz
and Linda Lee
Zygowicz Trustees
FBO Zygowicz
Family Trust UAD
6/17/97 841
Morning Sun Drive
Encinitas, CA
92024
3,242.083
9.18%
Class O
Kathryn Jeanne La Reau
Smith Barney
Inc. Spousal Cust.
U/A/A 2/13/79
1813 S. Pebble
Beach Rd. Sun City
Center, FL 33573
2,598.703
7.36%
Class O
Joseph H. Siemer
Smith Barney Inc.
IRA Custodian
8752 Carousel Park
Circle B105
Cincinnati, OH 45251
2,448.300
6.93%
Class O
Edgar L. Makowski
SSB IRA Rollover
Custodian 1900
East Girard Pl.
Unit 408
Englewood, CO 80110
1,981.929
5.61%
Class O
John R. Payzant &
Carolyn R. Payzant
Trustees FBO John
R. Payzant &
Carolyn R. Payzant
U/A/D 7/19/88
P.O.Box 277
Hampton, NH 03843
1,838.424
5.20%
Class O
Michigan Floral
Assoc. Attn:
Rodney Crittenden
5815 Executive
Drive Suite B
P.O. Box 24065
Lansing, MI 48909
1,808.556
5.12%
Class O
Keith M. Lehrer
SSB IRA Custodian
20801 Nordhoff
Street
Chatsworth, CA 91311
1,806.177
5.11%
Title of Class
Name and Address
of Beneficial
Owner
Amount and Nature of
Beneficial Ownership
Percent of Class
Class Y
Smith Barney
Concert Series
Inc.
Balanced Portfolio
PNC Bank, NA
Attn: Beverly
Timson
200 Stevens Drive
Suite 440
Lester, PA 19113
3,513,757.694*
55.35%
Class Y
Smith Barney
Concert Series Inc.
Select Balanced
Portfolio
PNC Bank, NA
Attn: Beverly Timson
200 Stevens Drive
Suite 440
Lester, PA 19113
1,196,266.222*
18.84%
Class Y
Smith Barney
Concert Series Inc.
Conservative Portfolio
PNC Bank, NA
Attn: Beverly Timson
200 Stevens Drive
Suite 440
Lester, PA 19113
965,214.376*
15.20%
Class Y
Smith Barney
Concert Series Inc.
Select Conservative
Portfolio
PNC Bank, NA
Attn: Beverly Timson
200 Stevens Drive
Suite 440
Lester, PA 19113
361,383.500*
5.69%
_________________________________________
* The Fund believes that these entities are not the beneficial owners of
shares held of record by them
As of the Record Date, the officers and Board members of the Trust
beneficially owned less than 1% of the shares of the Fund.
The Fund provides periodic reports to all of its shareholders which highlight
relevant information, including investment results and a review of portfolio
changes. You may receive an additional copy of the most recent annual report
for the Fund and a copy of any more recent semiannual report, without charge,
by calling the Fund at (800) 451-2010 or by writing to the Fund, 388 Greenwich
Street, New York, New York 10013.
PROPOSAL: APPROVAL OF A
SUB-INVESTMENT ADVISORY AGREEMENT AMONG
THE FUND, SSB Citi AND SALOMON BROTHERS ASSET MANAGEMENT INC.
Introduction
The Board of Trustees of the Trust is proposing that shareholders approve a Sub-
Investment Advisory Agreement (the "Sub-Advisory Agreement") to be entered into
among the Trust (on behalf of the Fund), SSB Citi and Salomon Brothers Asset
Management Inc. ("SaBAM"), an affiliate of SSB Citi. SSB Citi, located at 388
Greenwich Street, New York, New York 10013, serves as the current investment
adviser to the Fund. SaBAM is registered as an investment adviser with the
Securities and Exchange Commission under the Investment Advisers Act of 1940,
as amended, and is headquartered in New York
At a meeting of the Board of Trustees of the Trust held on September 17, 1999,
the Trustees approved the Sub-Advisory Agreement subject to shareholder
approval. A form of Sub-Advisory Agreement
is attached as Exhibit A. The Sub-Advisory Agreement provides that SaBAM's fee
will be paid by SSB Citi in an amount agreed to from time to time by the
parties, but not to exceed the fee paid to SSB
Citi under its investment advisory agreement with the Fund.
Board Consideration and Recommendation
The Board of Trustees of the Trust has determined that it is advantageous to
have SaBAM as sub-advisor to the Fund. In reaching this conclusion, the Board
took into account both SSB Citi and SaBAM's view that the characteristics
of the convertible market have changed over time. Specifically, the Board
was advised that since the convertible market currently has more than 50% of
its issues rated below investment grade, additional resources are now
required to analyze these types of securities. In this regard, it was
informed that SaBAM had built a dedicated convertible bond team of five
persons which manages approximately $1.3 billion invested in convertible
bonds and has access to a twenty-two-person
team of equity analysts. That convertible team also works closely with SaBAM's
Fixed Income team of ten investment grade and eight non-investment grade
professionals in order to assess the fixed income value of a convertible
security. The Board was further informed that a growing share of the
convertible market is now comprised of two sectors, technology and
telecommunications and that the Fund would benefit from SaBAM's specific
expertise in those sectors. During the course of their deliberations,
the Trustees (including the non-interested Trustees) considered the
following additional factors, among others,
in approving SaBAM as sub-advisor: (i) the nature, quality and extent of
services that SaBAM would provide to the Fund; (ii) the quality of investment
personnel of SaBAM; (iii) the financial resources and management style of
SaBAM; (iv) the investment record of SaBAM in managing similar convertible
assets; (v) the experience of SaBAM in the area of fixed-income and equity
investments and (vi) other information to assure that SaBAM could furnish high
quality services to the Fund. The non-interested Trustees also met separately
to review the information provided by SSB Citi and SaBAM representatives and
were assisted in this review by their independent legal counsel.
After the consideration of the foregoing factors, the Trustees (including the
non-interested Trustees) approved the Sub-Advisory Agreement for the Fund.
Description of Salomon Brothers Asset Management Inc.
SaBAM provides discretionary and non-discretionary portfolio management
services to a wide variety of individual and institutional accounts,
including, but not limited to, banks or thrift institutions, retirement
plans, pension and profit-sharing trusts, estates, charitable organizations,
corporations, and other business entities, registered investment companies
and unregistered domestic and offshore funds. As of June 30, 1999, SaBAM
had $30.6 billion in assets under management including approximately $1.3
billion in convertible securities. SaBAM was organized as a Delaware
corporation in 1987 and its principal business address is
7 World Trade Center, New York, New York 10048. SaBAM is an
indirect wholly owned subsidiary of Salomon Smith Barney Holdings Inc.
("SSBH"), which is also located at 7 World Trade Center, New York, New York
10048. SSBH is a wholly owned subsidiary of Citigroup Inc., which is
located at 1 Citicorp Center, 153 East 53rd Street, New York, New York 10028.
The names, titles and principal occupations of the current directors and
executive officers of SaBAM are set forth below. Except as indicated, the
business address of each individual is 7 World Trade Center, New York, New York
10048.
Ross S. Margolies ? The principal occupation of Mr. Margolies is to serve as a
Managing Director and Chief Investment Officer of the Equity Group of SaBAM
Peter J. Wilby ? The principal occupation of Mr. Wilby is to serve as a
Managing Director and Chief Investment Officer of the Fixed Income Group of
SaBAM.
Heath B. McLendon ? The principal occupation of Mr. McLendon is to serve as
Chairman or Co-Chairman of investment companies managed by affiliates of
Citigroup Inc.; Managing Director of SaBAM; Director and Chairman of SSB Citi;
and Director of The Travelers Investment Management Company.
Virgil H. Cumming ---- The principal occupation of Mr. Cumming is to serve as a
Managing Director of SSB Citi and Chief Investment Officer and Director of
SaBAM.
Wendy Murdock ---- The principal occupation of Ms. Murdock is to serve as
Executive Vice President of SSB Citi and Chief Operating Officer for Retail
Asset Management and Director of SaBAM
Marcus A. Peckman ? The principal occupation of Mr. Peckman is to serve as a
Director and Chief Financial Officer of SaBAM.
Mark I. Kleinman----- The principal occupation of Mr. Kleinman is to serve as
Treasurer of SaBAM.
Carol Epstein ----- The principal occupation of Ms. Epstein is to serve as
Secretary of SaBAM.
Jeffrey S. Scott ? The principal occupation of Mr. Scott is to serve as Chief
Compliance Officer of SaBAM.
Michael F. Rosenbaum ? The principal occupation of Mr. Rosenbaum is to serve as
Chief Legal Officer of SaBAM, Salomon Brothers Asset Management Limited and
Salomon Brothers Asset Management Asia Pacific Limited; Managing Director of
Salomon Smith Barney; Corporate Secretary of The Travelers Investment
Management Company.
With the exception of Heath B. McLendon, no other officers or Trustees of the
Trust are officers, directors or employees of SaBAM.
Description of Portfolio Management Team
SaBAM has designated Mr. Berkery and Mr. Margolies as co-portfolio managers for
managing the Fund. A team of investment professionals currently assists them
in the management of other accounts holding convertible securities.
If the shareholders approve the Sub-Advisory Agreement, Mr. Berkery, Mr.
Margolies and their team will manage the Fund in accordance with the Fund's
investment objective. The following provides a brief summary of the
business experience and educational background of the SaBAM investment
professionals.
Daniel J. Berkery, CFA (8 years of experience). Mr. Berkery is a Director of
SaBAM. He joined SaBAM in June 1991 and is portfolio manager for convertible
portfolios. He is also a former equity analyst
covering the telecommunications, utilities, and technology industries. Mr.
Berkery is a Chartered Financial Analyst and received a BA in History from
Harvard University
Ross S. Margolies (18 years of experience). Mr. Margolies is a Managing
Director and a member of SaBAM's Investment Policy Committee.
He joined SaBAM in June 1992 and is the senior portfolio manager for all
SaBAM equity, convertible and arbitrage portfolios. He is also portfolio
manager of the Salomon Brothers Capital Fund. Prior to 1992, Mr. Margolies
was a high yield bond analyst for non-cyclical consumer products at Lehman
Brothers and a senior credit analyst for an $8 billion high yield portfolio
at Prudential Capital Corp. Mr. Margolies received a BA in economics
from Johns Hopkins University and an MBA in Finance from New York University.
Ajay Dravid (17 years of experience). Mr. Dravid is a Director of SaBAM. He
joined SaBAM in January 1996 and is portfolio manager of SaBAM's capital
structure and arbitrage portfolios and is a quantitative analyst for SaBAM's
convertible portfolios. Prior to 1996, Mr. Dravid performed asset
allocation research and developed models for trading, risk management and
valuation for Salomon Brothers Inc. He also was an Assistant Professor at The
Wharton School of the University of Pennsylvania teaching options and futures
courses. Mr. Dravid received an MA in Physics from the University of Stony
Brook, an MBA in Finance from the University of Rochester, and a Ph.D in
Finance from Stanford University..
Matthew Herenstein (7 years of experience). Mr.Herenstein is an analyst for
convertible portfolios. He joined SaBAM in February of 1998. Prior to 1998 he
was a corporate and restructuring attorney with O'Sullivan Graev & Karabell,
LLP. He received a BA in Economics from Columbia University and a JD from
New York University School of Law.
Ken Lee (4 years of experience) Mr. Lee is an equity analyst for capital
structure arbitrage portfolios and convertible portfolios. He joined SaBAM in
June of 1998. Prior to 1998, he worked as an equity research analyst at Brown
Brothers Harriman focusing on technology and financial services firms.
Mary Davis (3 years of experience). Ms. Davis is an analyst responsible for
covering convertible portfolios. She joined SaBAM in August of 1999. Prior
to 1999, she worked as an equity analyst and trader for Brandywine Asset
Management. Ms. Davis received a BA in biology from LaSalle University.
The Sub-Advisory Agreement
The Sub-Advisory Agreement will be dated as of the date of its approval by the
shareholders. The Sub-Advisory Agreement will be in effect for an initial two-
year term ending on the second anniversary of its approval, and may continue
thereafter from year to year only if specifically approved at least annually by
the Board of Trustees or by the vote of "a majority of the outstanding
voting securities" (as defined in the 1940 Act) of the Fund, and, in either
event, the vote of a majority of the non-interested Trustees, cast in person at
a meeting called for such purpose.
Investment Management Policies and Strategies to be utilized by SaBAM
Strategies
At the Board's Meeting on September 17, 1999, Dan Berkery and Ross Margolies
described in detail the strategies and techniques SaBAM would utilize to
seek to achieve the Fund's investment objective of current income and capital
appreciation by investing in convertible securities and in a
combination of nonconvertible fixed income securities and warrants or call
options that together represent convertible securities. In general, these
strategies and techniques would focus on purchasing convertibles in the
following situations: (i) if the common stock price is very attractive
and an opportunity exists to gain additional income from owning the
convertible; (ii) the common stock price is attractive and an opportunity
exists to use the convertible to reduce downside risk and (iii)
the convertible bond is undervalued on a fixed income basis and the equity
upside potential is an inexpensive option. To accomplish these goals,
SaBAM intends to utilize a diversified group of strategies that seek to
take advantage of market inefficiencies in the convertible bond market.
They also advised the Board that they will maintain industry diversification
by staying within the investment restriction that limits total Fund assets
in one industry to 25 %.
Changes in Certain Fund Policies
In connection with its decision to appoint SaBAM as the sub-investment adviser
to the Fund, and on SaBAM's recommendation, the Trustees approved certain
changes to non-fundamental investment policies of the Fund. While these changes
became effective immediately, they will be implemented if the Sub-Advisory
Agreement is approved by shareholders of the Fund (the "Additional
Changes").These Additional Changes include the (i) elimination of credit
restrictions in the portfolio; (ii) increasing the limit of foreign securities
to 25% of the value of the Fund's portfolio from 10%; and (iii) increasing the
limit of warrants to 10% of the Fund for listed warrants and 5% for non-listed
warrants from, respectively, 5% and 2%.The following generally describes
investments in convertible securities and the above-mentioned investment
techniques to be utilized by SaBAM with related risks.
Convertible Securities. Convertible securities are fixed-income securities
that may be converted at either a stated price or stated rate into
underlying shares of common stock. Convertible securities have general
characteristics similar to both fixed-income and equity securities.
Although to a lesser extent than with
fixed-income securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely,
tends to increase as interest rates decline. In addition, because of the
conversion feature, the market value of convertible securities tends to vary
with fluctuations in the market value of the underlying common stocks and,
therefore, also will react to variations in the general market for equity
securities. A unique feature of convertible securities is that as the market
price of the underlying common stock declines, convertible securities tend to
trade increasingly on a yield basis, and thus may not experience market
value declines to the same extent as the underlying common stock. When the
market price of the underlying common stock increases, the prices of the
convertible securities tend to rise as a reflection of the value of the
underlying common stock. While no securities investments are without
risk, investments in convertible securities generally entail less risk than
investments in common stock of the same issuer.As fixed-income securities,
convertible securities are investments that provide for a stable stream of
income with generally higher yields than common stocks. Of course, like all
fixed-income securities, there can be no assurance of current income
because the issuers of the convertible securities may default on their
obligations. A convertible security, in addition to providing fixed
income, offers the potential for capital appreciation through the conversion
feature, which enables the holder to benefit from increases in the market price
of the underlying common stock. There can be no assurance of capital
appreciation, however, because securities prices fluctuate.
Lower Rated Securities. Investments in lower rated and comparable unrated
securities involve greater risk than higher rated securities. Securities which
are rated BBB by Standard & Poor's Rating Service ("S&P") or Baa by Moody's
Investors Service, Inc. ("Moody's") are generally regarded as having adequate
capacity to pay interest and repay principal, but may have some
speculative characteristics. Securities rated below Baa by Moody's or BBB by
S&P may have speculative characteristics, including the possibility of default
or bankruptcy of the issuers of such securities, market price volatility based
upon interest rate sensitivity, questionable creditworthiness and
relative illiquidity of the secondary trading market. Because high yield bonds
have been found to be more sensitive to adverse economic changes or individual
corporate developments and less sensitive to interest rate changes than higher-
rated investments, an economic downturn could disrupt the market for
high yield bonds and adversely affect the value of those outstanding bonds and
the ability of issuers to repay principal and interest. In addition, in a
declining interest rate market, issuers of high yield bonds may exercise
redemption or call provisions, which may force the Fund, to the extent it
owns such securities, to replace those securities with lower yielding
securities. This could result in a decreased return.
Foreign Securities. As discussed, until such time as
the shareholders of the Fund approve a sub-advisory agreement with SaBAM, the
fund will voluntarily limit its investments in foreign securities, American
Depository Receipts ("ADRs"), American Depository Bonds ("ADBs") and
American Depository Notes ("ADNs") to 10% of its assets. ADRs,
ADBs and ADNs are U.S. dollar-denominated instruments issued generally by
domestic banks and representing the deposit with the bank of a security of
a foreign issuer. They are publicly traded on exchanges or over the counter
in the United States. Investing in the securities of foreign companies
involves special risks and considerations not typically associated with
investing in U.S. companies. These risks include differences in accounting,
auditing and financial reporting standards, generally higher commission
rates on foreign portfolio transactions, the possibility of expropriation
or confiscatory taxation, adverse changes in investment or exchange control
regulations, political instability which could affect U.S. investments in
foreign countries and potential restrictions on the flow of international
capital. Additionally, dividends or interest payable on foreign securities,
and in some cases capital gains, may be subject to foreign withholding or
other foreign taxes. Foreign securities often trade with less frequency
and volume than domestic securities
and therefore may exhibit greater price volatility. Changes in foreign
exchange rates will affect the value of those securities which are
denominated or quoted in currencies other than U.S. dollars.
Many of the foreign securities held by the Fund will not be registered
with, nor will the issuers thereof be subject to the reporting requirements
of, the SEC. Accordingly, there may be less publicly available information
about the securities and the foreign company or government issuing them
than is available about a domestic company or government entity.
Moreover, individual foreign economies may differ favourably or
unfavourably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payment positions.
Warrants. The Fund is currently permitted to invest in warrants,
which entitles it to buy common stock at a specified date and price.
Because a warrant does not carry with it the right to dividends or voting
rights with respect to the securities the warrant holder is entitled to
purchase, and because a warrant does not represent any rights to the assets
of the issuer, a warrant may be considered more speculative than certain
other types of investments. In addition, the value of a warrant does not
necessarily change with the value of the underlying security and a warrant
ceases to have value if it is not exercised prior to its expiration date.
Pending shareholder approval of SaBAM as sub-advisor, the permissible amount of
investment in warrants, valued at the lower of cost or market, has been
increased to 10% of the value of the Fund's net assets for listed warrants and
5% of the Fund's net asset value in non-listed warrants. Warrants acquired by
the Fund in units or attached to securities may be deemed to be without value.
Certain Tax Implications.
In connection with the implementation of these strategies,
SaBAM intends to sell certain portfolio securities held by the Fund.
Some of these securities may have appreciated in value and therefore a sale
may generate capital gains, which would be distributed to shareholders.
The majority of such gains, however, are currently expected to be in the
form of long-term capital gains. Such distributions would be taxable to
the shareholders who receive them. Distributed net short-term capital gains
are taxable to recipient shareholders as ordinary income and long-term
capital gains are taxable as capital gains. Despite these potential tax
consequences, however, SSB Citi and SaBAM believe that the new investment
strategies will be beneficial to the Fund and its shareholders.
Other Information
CFBDS, Inc., located at 20 Milk Street, Boston, Massachusetts 02109-5408,
serves as the Fund's principal underwriter pursuant to a written agreement
dated October 8, 1998. Prior to the merger of Travelers Group Inc. and
Citicorp Inc. on October 8, 1998, Salomon Smith Barney served as principal
underwriter to the Fund. For the fiscal year ended July 31, 1999, the Fund
did not pay commissions to Salomon Smith Barney, an "affiliated broker" of
the Fund as defined in Schedule 14A of the Securities Exchange of 1934.
Required Vote
Approval of the Sub-Advisory Agreement requires the affirmative vote of a
"majority of the outstanding voting securities," as defined above, of the
Fund. The Trustees of the Trust, including the non-interested Trustees,
recommend that the shareholders of the Fund vote in favor of this Proposal.
ADDITIONAL INFORMATION
Proposals of Shareholders
The Fund does not hold regular shareholder meetings. Shareholders wishing to
submit proposals for inclusion in a proxy statement for a shareholder meeting
subsequent to the Special Meeting, if any, should send their written proposals
to the Secretary of the Trust at the address set forth on the cover of this
Proxy Statement. Proposals must be received within a reasonable time
before the solicitation of proxies for such meeting. The timely submission
of a proposal does not guarantee its inclusion.
Shareholders' Request For Special Meeting
Shareholders holding at least 10% of the Trust'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 Trust. Meetings of shareholders for any
other purpose also shall be called by the Board members when requested in
writing by shareholders holding at least 10% of such outstanding shares of the
Trust or Fund, as applicable, or, if the Board members 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 such outstanding shares
may call and give notice of such meeting.
Other Matters To Come Before The Special Meeting
The Fund does not intend to present any other business at the Special Meeting,
nor is it aware that any shareholder intends to do so. If, however, any other
matters are properly brought before the Special Meeting, the persons named in
the accompanying proxy card will vote thereon in accordance with their judgment.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. SHAREHOLDERS WHO DO NOT
EXPECT TO ATTEND THE SPECIAL MEETING ARE THEREFORE URGED TO COMPLETE, SIGN,
DATE AND RETURN THE PROXY CARD AS SOON AS POSSIBLE IN THE ENCLOSED POSTAGE-PAID
ENVELOPE.
By order of the Board of Trustees,
Christina T. Sydor
Secretar
EXHIBIT A
FORM OF
SUB-INVESTMENT ADVISORY AGREEMENT
SMITH BARNEY INCOME FUNDS
(Smith Barney Convertible Fund)
, 1999
Dear Sirs:
Smith Barney Income Funds (the "Company"), a trust organized under the laws of
the Commonwealth of Massachusetts, on behalf of Smith Barney Convertible Fund
(the "Fund"), and SSB CITI Fund Management LLC (the "Adviser") each confirms
its agreement with Salomon Brothers Asset Management Inc.
(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 Fund (the "Statement") filed with the
Securities and Exchange Commission as part of the Company's Registration
Statement on Form N-1A, as amended from time to time, and in the manner and
to the extent as may from time to time be approved by the Board of Trustees of
the Company (the "Board"). Copies of the Prospectus, the Statement and the
Master Trust Agreement have been or will be submitted to the Sub-Adviser. The
Company agrees to provide copies of all amendments to the
Prospectus, the Statement and the Master Trust Agreement to the Sub-Adviser on
an on-going basis. The Company employs the Adviser as the investment adviser
to the Fund, and the Company and the Adviser desire to employ and hereby
appoint the Sub-Adviser to act as the sub-investment adviser to the Fund.
The Sub-Adviser accepts the appointment and agrees to furnish the services for
the compensation set forth below.
2. Services as Sub-Investment Adviser
Subject to the supervision, direction and approval of the Board of the Company
and the Adviser, the Sub-Adviser will: (a) manage the Fund's portfolio in
accordance with the Fund's investment objective(s) and policies as stated in
the Master Trust Agreement, the Prospectus and the Statement;
(b) make investment decisions for the Fund; (c) place purchase and sale orders
for portfolio transactions for the Fund; and (d) employ professional portfolio
managers and securities analysts who provide research services to the Fund. In
providing those services, the Sub-Adviser will conduct a continual program of
investment, evaluation and, if appropriate, sale and reinvestment of the Fund's
assets.
3. Brokerage
In selecting brokers or dealers to execute transactions on behalf of the Fund,
the Sub-Adviser will seek the best overall terms available. In assessing the
best overall terms available for any transaction, the Sub-Adviser will consider
factors it deems relevant, including, but not limited to,
the breadth of the market in the security, the price of the security, the
financial condition and execution capability of the broker or dealer and the
reasonableness of the commission, if any, for the specific transaction and on a
continuing basis. In selecting brokers or dealers to execute a particular
transaction, and in evaluating the best overall terms available, the
Sub-Adviser is authorized to consider the brokerage and research services
(as those terms are defined in Section 28(e) of the Securities Exchange Act
of 1934) provided to the Fund and/or other accounts over which the
Sub-Adviser or its affiliates exercise investment discretion.
4. Information Provided to the Company
The Sub-Adviser will keep the Adviser and the Company informed of developments
materially affecting the Fund and will, on its own initiative, furnish the
Adviser and the Company from time to time with whatever information the Sub-
Adviser believes is appropriate for this purpose.
5. Standard of Care
The Sub-Adviser shall exercise its best judgment in rendering the services
listed in paragraphs 2 and 3 above. The Sub-Adviser shall not be liable
for any error of judgment or mistake of law or for any loss suffered by the
Fund and the Adviser in connection with the matters to which this Agreement
relates, provided that nothing in this Agreement shall be deemed to protect or
purport to protect the Sub-Adviser against any liability to the Adviser, the
Company or the shareholders of the Fund to which the Sub-Adviser would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or by reason of the Sub-
Adviser's reckless disregard of its obligations and duties under this Agreement.
6. Compensation
In consideration of the services rendered pursuant to this Agreement, the
Adviser will pay the Sub-Adviser on the first business day of each month a fee
for the previous month at an annual rate based on the Fund's average daily net
assets in an amount agreed to from time to time by the parties to this
Agreement, but not to exceed the fee paid to the Adviser under its investment
advisory agreement with the Fund. 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 any 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 fees payable to the Adviser 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 limitations of any state having jurisdiction over the Fund,
the Sub-Adviser will reduce its fee by the proportion of such excess expense
equal to the proportion that its fee thereunder bears to the aggregate of fees
paid by the Fund for investment advice and administration in that year, to the
extent required by state law. A fee reduction pursuant to this
paragraph 8, if any, will be estimated, reconciled and paid on a monthly basis.
9. Services to Other Companies or Accounts
The Company understands that the Sub-Adviser now acts, will continue to
act and may act in the future as investment adviser to fiduciary and other
managed accounts, and as investment adviser to other investment companies, and
the Company has no objection to the Sub-Adviser's so acting, provided
that whenever the Fund and one or more other investment companies advised by
the Sub-Adviser have available funds for investment, investments suitable and
appropriate for each will be allocated in accordance with a formula believed to
be equitable to each company. The Company recognizes that in
some cases this procedure may adversely affect the size of the position
obtainable 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 __________, 1999 (the "Effective
Date") and shall continue for an initial two-year term and shall continue
thereafter so long as such continuance is specifically approved at least
annually by (i) the Board of the Company or (ii) a vote of a "majority"
(as that term is defined in the Investment Company Act of 1940, as amended
(the "1940 Act")) of the Fund's outstanding voting securities, provided
that in either event the continuance is also approved by a majority of the
Board who are not "interested persons" (as defined in the 1940 Act) of any
party to this Agreement, by vote cast in person at a meeting called for the
purpose of voting on such approval.
This Agreement is terminable, without penalty, on 60 days' written notice, by
the Board of the Company or by vote of holders of a majority of the Fund's
shares, or upon 90 days' written notice, by the Sub-Adviser. This Agreement
will also terminate automatically in the event of its assignment (as defined
in the 1940 Act and the rules thereunder).
11. Representation by the Company
The Company represents that a copy of the Master Trust Agreement is on file
with the Secretary of The Commonwealth of Massachusetts and with the
Boston City Clerk.
12. Limitation of Liability
The Company, the Adviser and the Sub-Adviser agree that the obligations of the
Company under this Agreement shall not be binding upon any of the members
of the Board, shareholders, nominees, officers, employees or agents, whether
past, present or future, of the Company, individually, but are binding only
upon the assets and property of the Fund and not upon the assets and
property of any other portfolio of the Company. The execution and delivery
of this Agreement have been authorized by the Board and a majority of the
holders of the Fund's outstanding voting securities, and signed by an
authorized officer of the Company, acting as such, and neither such
authorization by such members of the Board and shareholders nor such
execution and delivery by such officer shall
be deemed to have been made by any of them individually or to impose any
liability on any of them personally, but shall bind only the assets and
property of the Fund as provided in the Master Trust Agreement.
If the foregoing is in accordance with your understanding, kindly indicate your
acceptance of this Agreement by signing and returning the enclosed copy of this
Agreement.
Very truly yours,
SMITH BARNEY INCOME FUNDS
on behalf of its
Convertible Fund
By:
Name: Heath B. McLendon
Title: Chairman of the Board
SSB CITI FUND MANAGEMENT LLC
By:
Name:
Title:
Accepted:
SALOMON BROTHERS ASSET
MANAGEMENT INC.
By:
Name:
Title:
FORM OF PROXY CARD
SMITH BARNEY CONVERTIBLE FUND
PROXY SOLICITED BY THE BOARD OF TRUSTEES
Special Meeting of Shareholders to be held on November 22, 1999 at 2p.m.
The undersigned holder of shares of the Fund referenced above hereby appoints
Heath B. McLendon, Christina T. Sydor, and Gordon Swartz, 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 adjournments thereof. The undersigned
hereby acknowledges receipt of the enclosed Notice of Special Meeting and Proxy
Statement and hereby instructs said attorneys and proxies to vote said
shares as indicated herein. In their discretion, the proxies are
authorized to vote on such other business as may properly come before the
Special Meeting. A majority of the proxies present and acting at the
Special Meeting in person or by substitute (or, if only one shall be so
present, then that one) shall have and
may exercise all of the power and authority of said proxies
hereunder. The undersigned hereby revokes any proxy previously given.
Date: _______________________________ 1999
PLEASE SIGN IN BOX BELOW
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:
______________________________________
Signature(s) Title(s), if applicable
NOTE YOUR PROXY IS NOT VALID UNLESS IT IS SIGNED ON THE REVERSE SIDE
Please vote by filling in the appropriate box below
1. To approve or disapprove a sub-investment advisory agreement among the
Fund, SSB CITI Fund Management LLC and Salomon Brothers Asset Management Inc.
For Against Abstain
0 0 0
2. To transact such other business as may properly come before the meeting or
any adjournment thereof.
