SALOMON BROTHERS VARIABLE SERIES FUNDS INC, N-30D, 1998-09-17

SALOMON BROTHERS VARIABLE SERIES FUNDS INC
N-30D, 1998-09-17

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<PAGE>

SALOMON BROTHERS
Variable Series Funds Inc

Semi-
Annual
Report
1998
June 30, 1998

. INVESTORS FUND

. CAPITAL FUND

. TOTAL RETURN FUND

. HIGH YIELD BOND FUND

. STRATEGIC BOND FUND
<PAGE>

[LOGO] THE SALOMON BROTHERS VARIABLE SERIES FUNDS INC
Our Message to You

DEAR SHAREHOLDERS:
We are pleased to provide you with the semi-annual report for the
Salomon Brothers Variable Series Funds Inc for the period ended June 30,
1998.

MARKET OVERVIEW
As the American economy appeared to fare well and domestic demand
remained strong, the stock market continued its upward climb during the
first half of 1998 with a return of 17.75%, as measured by the S&P 500
Index. Investor concern over events in Asia and their possible affects on
the U.S., however, continued to result in substantial stock market
volatility. With approximately 45% of manufactured goods in the U.S. being
exported, the collapse of local demand in Asia has decreased factory
output and triggered loss of jobs. Asia comprises 30% of U.S. trade, hence
concern that price competition from overseas and rising labor costs at
home will squeeze profits, slow investments and ultimately weaken the
broader U.S. economy. Large cap growth stocks overshadowed value stocks
by 822 basis points for the period, as measured by the Russell 1000
Growth and Value Indices. Small and mid capitalization stocks lagged the
larger issues, with the Russell 2000 returning 4.93% and the Russell
MidCap Index at 9.14%.

The U.S. bond market, meanwhile, is strengthening, with Treasuries
yielding some 100 basis points lower than a year ago. This lower interest
rate environment is attracting investors from around the world, as
corporations and municipalities are issuing debt at record rates. High
yield bonds, supported by strong mutual fund contributions and increased
demand for new issues, were also affected by investor concern over
deteriorating fundamentals in southeast Asia, Japan and Russia. As a
result, the high yield market became volatile as investors looked to higher
quality issues for assurance. Despite increased volatility later in the
period, the high yield market outperformed the U.S. investment grade
market for the first half of the year as measured by the Salomon Brothers
High Yield Market Index, with a return of 5.14%, versus the Salomon
Brothers Broad Investment Grade Index, with a return of 3.97%.

In the global fixed income arena, Asian emerging market debt yield
spreads widened in early April as political uncertainty surfaced in
Indonesia amid attempts to implement International Monetary Fund
economic reform recommendations. Meanwhile, Japan's economic and
banking system problems became more prominent and led to a weakening
of the Japanese yen. This, in turn, spurred speculation of a Chinese
currency devaluation. In a move to protect their currency, the Chinese
monetary authorities raised interest rates, contributing to a slowing of
their economy. Russia endured a crisis of confidence as overnight interest
rates rose to a high of 150% in an effort to fund liabilities. As Russian and
Indonesian debt sold off, a significant widening of emerging markets
occurred, which subsequently resulted in a spread widening in both the

1
<PAGE>

investment grade and high yield corporate markets around the world. The
Salomon Brothers World Government Bond Index (unhedged) returned 2.78%
for the period, with emerging markets, as measured by the JP Morgan
Emerging Markets Index Plus, lagging behind with a 6-month return of -1.08%.

We anticipate a slowdown to moderate economic growth in the U.S. over
the next six to nine months, influenced by the Asian crisis as well as
possible dampening of corporate earnings from currency translation
affects. We expect GDP to slow from its recent torrid clip over the coming
months. We also expect a lower interest rate environment to prevail,
likely to be influenced by both international economic events and
continuing strong domestic demand. Pressure on commodity prices should
help keep inflation in check, with the Asian crisis aiding this trend
through containment of the prices of "tradable" goods. Although prices of
many service sector items have begun to accelerate, they are being offset
by stable or falling prices in areas such as food, gasoline and furniture.
Meanwhile, domestic demand remains strong.

We believe the U.S. stock market is likely to remain trendless near term,
with market appreciation being capped until earnings projections are
brought down closer to those of the first half of the year. In our view,
growth forecasts remain overly optimistic, and thus we remain cautious
until the market begins to discount growth rates. For the long term, we
remain bullish.

The global bond markets will continue to be influenced by international
economic events, with volatility continuing across sectors. With new
issues continuing to flood the market, some of the newer high yield issues
are displaying weaker underlying credit fundamentals. We believe,
however, that the telecommunications and commodity sectors continue to
present attractive high yield opportunities. In the non-U.S. markets, we
favor the Deutschemark over both the yen, believing a true reversal is
unlikely, and the U.S. dollar. Improving growth prospects, external
surpluses and a likely tightening by the Bundesbank later in the year
continue to make European currencies relatively attractive. In the
emerging bond markets, Latin America and selected Eastern European and
African markets are exhibiting relatively strong credit fundamentals,
while Asia remains an area of extreme weakness.

INVESTORS FUND
The Investors Fund's primary objective is long-term growth of capital. Current
income is a secondary objective. The Fund seeks to achieve its objectives
primarily through investments in common stocks of well-known companies.

The Fund commenced operation on February 17, 1998. From inception through June
30, 1998, the Fund posted a total return of 7.30%, versus 11.48% for the S&P 500
Index. Underperformance was due to value stocks being out of favor.

2
<PAGE>

In the months ahead, we will continue to focus on quality companies with
strong fundamentals and the potential for appreciation. We have added to
positions in the consumer staple and cyclical sectors, believing earnings
will remain strong in these areas. Although the outlook for the technology
sector appears unfavorable for the short-term, we are adding to this
sector in anticipation of a swift and steep recovery in the months ahead.

CAPITAL FUND
The objective of the Capital Fund is to seek capital appreciation through
investments primarily in common stock, or securities convertible into
common stocks, which are believed to have above-average price
appreciation potential and which may also involve above-average risk.
Current income is an incidental consideration.

The Fund commenced operation on February 17, 1998. From inception
through June 30, 1998, the Fund outperformed the Russell 3000 Index with
a return of 9.70% versus 9.49%, respectively. During the first month and a
half of operation, the Fund outpaced the index due to strong performance
in mid capitalization holdings. During the second quarter, however, the
Fund performed even with the benchmark, resulting in an overall modest
gain over the benchmark since inception.

The Fund remains well-diversified throughout the capitalization range.
Over the coming months, we will continue to focus on stock selection,
looking for the best opportunities in the broad equity market. We will be
actively seeking opportunities for the Fund in the technology sector, based
on the belief that recent volatility in this sector will present attractive
opportunities in the coming months.

TOTAL RETURN FUND
The Total Return Fund seeks to obtain above-average income, compared to
a portfolio entirely invested in equity securities. As a secondary
objective, the Fund seeks to take advantage of opportunities for growth of
capital and income. The Fund seeks to achieve its objectives primarily
through investments in a broad variety of securities, including equity
securities, fixed income securities and short-term obligations.

The Fund commenced operation on February 17, 1998. For the period since
inception through June 30, 1998, the Fund posted a return of 2.60% versus
5.66% for the benchmark of 50% S&P 500 Index and 50% Salomon Brothers
Broad Investment Grade Bond Index. Underperformance can be attributed to
emphasis on value stocks, which were out of favor during the period, as
well as the Fund's lower allocation to the equity market.

3
<PAGE>

As high valuations and price earnings ratios continue, the Fund will
continue to hold a conservative equity allocation of around 45%. We have
emphasized consumer stocks in recent months as capital goods have come
under pressure, and continue to seek undervalued securities with the long-term
view for preservation of capital. At June 30, 1998, the Fund had a 1% allocation
to convertible securities and an investment grade bond allocation of 44%.
Provided the outlook remains favorable, high yield bonds will be added to the
Fund as assets under management increase.

HIGH YIELD BOND FUND
The primary objective of the High Yield Bond Fund is to maximize current
income, with capital appreciation as a secondary objective. The Fund
seeks to achieve its objectives by investing primarily in a diversified
portfolio of high yield fixed income securities rated in the medium or
lower rating categories or those securities determined by the manager to
be of comparable quality.

The Fund commenced operation on May 1, 1998. Performance for the period
from inception through June 30, 1998 was 0.80% for the Fund versus 0.49%
for the Salomon Brothers High Yield Market Index.
As investor concern continues over global events, we expect volatility in
the high yield markets. In the months ahead, we will continue to focus on
prudent industry and sector allocations in an effort to add value, while
emphasizing higher quality credits.

STRATEGIC BOND FUND
The primary objective of the Strategic Bond Fund is to seek a high level of
current income, with capital appreciation as a secondary objective. The
Fund seeks to achieve its objectives by investing in a globally diverse
portfolio and through allocations to segments of the fixed income market
that the manager believes will best contribute to achievement of the
Fund's investment objectives. Tactical allocations may include U.S. and
non-U.S. investment grade, high yield and emerging markets debt
securities.

The Fund commenced operation on February 17, 1998. Through June 30,
1998, the Fund posted a return of 1.90%, versus 2.69% for the Lehman
Brothers Aggregate Bond Index. Underperformance can be attributed to the
Fund's holdings in the high yield sectors, which were affected by global
events and a flight to quality.

In the months ahead, we will continue to emphasize credit quality in the
high yield sector as many new issues coming to market carry weaker
underlying fundamentals, and continue to seek opportunities to upgrade

4
<PAGE>

credit quality. As assets under management increase, the Fund will
allocate to the emerging debt markets, provided relative value
opportunities are strong.

In closing, we thank you for your participation in the Salomon Brothers
Variable Series Fund Inc. We look forward to serving you in the months
ahead as we look forward to helping you achieve your investment goals.

Cordially,

/s/ Heath B. McLendon

Heath B. McLendon
Chairman and President

NOTES TO PERFORMANCE
The Salomon Brothers Broad Investment Grade Index and Lehman Brothers
Aggregate Bond Index are valued at month end only. As a result, while
total return calculations used for comparison for the Total Return and
Strategic Bond Funds are for the period February 17, 1998 through June
30, 1998, the Index returns are for the period March 1, 1998 through June
30, 1998. Sources for index returns are Frank Russell Company and
Salomon Brothers Inc.

Average annual total returns are based on changes in net asset value and
assume the reinvestment of all dividends. Past performance does not
guarantee future results. Investment return and principal value fluctuate
so that an investor's shares, when redeemed, may be worth more or less
than their original cost.
5
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6
<PAGE>

PORTFOLIO OF INVESTMENTS
June 30, 1998 (unaudited)

SALOMON BROTHERS VARIABLE INVESTORS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
<C> <S> <C>

- -------------------------------------------------------------------------------
COMMON STOCK -- 88.8%
BASIC INDUSTRIES -- 8.8%
1,800 Cytec Industries Inc. (a)............................... $ 79,650
900 IMC Global Inc. ........................................ 27,113
1,200 Martin Marietta Materials, Inc. ........................ 54,000
1,300 OM Group, Inc. ......................................... 53,625
800 Unifi Inc. ............................................. 27,400
500 Union Camp Corp. ....................................... 24,812
300 Vulcan Materials Co. ................................... 32,006
----------
298,606
----------
CAPITAL GOODS -- 4.2%
700 AlliedSignal Inc. ...................................... 31,062
400 Cooper Industries, Inc. ................................ 21,975
800 Chicago Bridge & Iron................................... 12,400
1,200 Tyco International Ltd. ................................ 75,600
----------
141,037
----------
CONSUMER CYCLICALS -- 10.7%
400 Avon Products Inc. ..................................... 31,000
1,200 Champion Enterprises, Inc. (a).......................... 35,100
1,000 Costco Companies Inc. (a)............................... 63,063
800 Federated Department Stores, Inc. (a)................... 43,050
600 Lear Corp. (a).......................................... 30,787
700 Sears, Roebuck & Co. ................................... 42,744
900 Sherwin-Williams Co. ................................... 29,813
1,400 Tower Automotive Inc. (a)............................... 60,025
1,100 U.S. Industries Inc. ................................... 27,225
----------
362,807
----------
CONSUMER NON-CYCLICALS -- 13.9%
400 Cablevision Systems, Class A Shares (a)................. 33,400
3,600 Food Lion Inc., Class A Shares.......................... 38,250
300 Loews Corp. ............................................ 26,137
1,700 News Corp Ltd. ADR...................................... 48,025
1,800 Philip Morris Cos. Inc. ................................ 70,875
1,300 RJR Nabisco Holdings Corp. ............................. 30,875
Tele-Communications, Liberty Media Group, Class A Shares
1,000 (a)..................................................... 38,812
Tele-Communications, TCI Ventures Group, Class A Shares
2,900 (a)..................................................... 58,181
1,500 Tyson Foods Inc., Class A Shares........................ 32,531
1,600 Viacom Inc., Class B Shares (a)......................... 93,200
----------
470,286
----------
ENERGY -- 7.9%
200 Amerada Hess Corp. (a).................................. 10,863
700 Mobil Corp. ............................................ 53,637
800 Royal Dutch Petroleum Co. .............................. 43,850
400 Schlumberger Ltd. ...................................... 27,325
1,600 Suncor Energy Inc. ..................................... 55,600
1,300 Talisman Energy Inc. (a)................................ 37,862
600 Total SA - ADR.......................................... 39,225
----------
268,362
----------
</TABLE>

See notes to financial statements.

7
<PAGE>

PORTFOLIO OF INVESTMENTS
(unaudited)(continued)

SALOMON BROTHERS VARIABLE INVESTORS FUND (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
<C> <S> <C>

- -------------------------------------------------------------------------------
FINANCIAL SERVICES -- 13.2%
400 American Express Co. .................................... $ 45,600
300 Associates First Capital Corp. .......................... 23,063
1,500 Bank of New York......................................... 91,031
100 BankAmerica Corp. ....................................... 8,645
1,000 BankBoston Corp. ........................................ 55,625
500 Dime Bancorp Inc. ....................................... 14,969
1,200 Federal Home Loan Mortgage Corp. ........................ 56,475
1,000 Nationwide Financial Services, Inc., Class A Shares...... 51,000
800 Provident Cos., Inc. .................................... 27,600
1,100 SunAmerica Inc. ......................................... 63,181
400 Waddell & Reed Financial, Class A Shares................. 9,575
----------
446,764
----------
HEALTH CARE -- 7.8%
900 Abbott Laboratories, Inc. ............................... 36,788
800 American Home Products Corp. ............................ 41,400
2,300 HEALTHSOUTH Corp. (a).................................... 61,381
500 Johnson & Johnson........................................ 36,875
500 Warner-Lambert Co. ...................................... 34,687
700 Wellpoint Health Networks, Inc. (a)...................... 51,800
----------
262,931
----------
REAL ESTATE INVESTMENT TRUST -- 4.8%
1,000 Arden Realty, Inc. ...................................... 25,875
700 Brandywine Realty Trust.................................. 15,662
900 Crescent Real Estate Equities Co. ....................... 30,262
1,000 Glenborough Realty Trust Inc. ........................... 26,375
600 Mills Corp. ............................................. 14,400
700 Patriot American Hospitality, Inc. ...................... 16,231
700 Starwood Hotels & Resorts Trust.......................... 33,819
----------
162,624
----------
TECHNOLOGY -- 9.7%
300 ADC Telecommunications Inc. (a).......................... 10,959
500 Applied Materials Inc. (a)............................... 14,750
300 ASM Lithography Holding N.V. (a)......................... 8,719
1,200 Aspect Telecommunications Corp. (a)...................... 32,850
1,000 Cognizant Corp. ......................................... 67,647
400 Intel Corp. ............................................. 29,650
500 International Business Machines Corp. ................... 57,406
500 Plantronics Inc. (a)..................................... 25,750
500 Quantum Corp. (a)........................................ 10,375
1,200 Seagate Technology Inc. (a).............................. 28,575
700 Texas Instruments Inc.................................... 40,819
----------
327,500
----------
TELECOMMUNICATIONS & UTILITIES -- 4.6%
1,000 Bell Atlantic Corp....................................... 45,625
1,100 Frontier Corp............................................ 34,650
1,000 The Williams Cos., Inc................................... 33,750
900 Worldcom Inc. (a)........................................ 43,594
----------
157,619
----------
</TABLE>

See notes to financial statements.
8
<PAGE>

PORTFOLIO OF INVESTMENTS
(unaudited)(continued)

SALOMON BROTHERS VARIABLE INVESTORS FUND (concluded)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
<C> <S> <C>

- --------------------------------------------------------------------------------
TRANSPORTATION -- 3.2%
500 Canadian National Railway Co. ........................... $ 26,563
2,200 Canadian Pacific Ltd. ................................... 62,425
400 Union Pacific Corp. ..................................... 17,650
----------
106,638
----------
TOTAL COMMON STOCK
(Cost -- $2,851,415)..................................... 3,005,174
----------
CONVERTIBLE PREFERRED STOCKS -- 1.4%
CAPITAL GOODS -- 0.7%
600 Sealed Air Corp. ........................................ 25,200
----------
TRANSPORTATION -- 0.7%
500 Union Pacific Capital Trust, 6.250%...................... 23,438
----------
TOTAL CONVERTIBLE PREFERRED STOCKS
(Cost -- $59,144)........................................ 48,638
----------
<CAPTION>
PRINCIPAL
AMOUNT
---------
<C> <S> <C>
REPURCHASE AGREEMENT -- 9.8%
$330,000 J.P. Morgan Securities Inc., 5.480% due 7/1/98; Proceeds
at maturity -- $330,050;
(Fully collateralized by U.S. Treasury Notes, 8.500% due
11/15/00;
Market value -- $337,158) (Cost -- $330,000)............ 330,000
----------
TOTAL INVESTMENTS -- 100%
(Cost -- $3,240,559*).................................... $3,383,812
==========
</TABLE>

(a) Non-income producing security.
* Aggregate cost for Federal income tax purposes is substantially the same.
ADR - American Depository Receipt.

See notes to financial statements.

9
<PAGE>

PORTFOLIO OF INVESTMENTS
(unaudited)(continued)

SALOMON BROTHERS VARIABLE CAPITAL FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
<C> <S> <C>

- ------------------------------------------------------------------------------
COMMON STOCK -- 81.4%
BASIC INDUSTRIES -- 7.0%
1,000 Cytec Industries Inc. (a)............................... $ 44,250
1,700 Geon Co. ............................................... 38,994
600 Martin Marietta Materials, Inc. ........................ 27,000
1,200 OM Group, Inc. ......................................... 49,500
200 Vulcan Materials Co. ................................... 21,338
----------
181,082
----------
CAPITAL GOODS -- 0.6%
400 Sealed Air Corp. (a).................................... 14,700
----------
CONSUMER CYCLICALS -- 9.2%
1,000 Champion Enterprises Inc. (a)........................... 29,250
1,100 Costco Companies, Inc. (a).............................. 69,369
800 Dura Automotive Systems, Inc. (a)....................... 25,700
600 Federated Department Stores, Inc. (a)................... 32,287
1,800 Gerber Childrenswear Inc. (a)........................... 27,787
800 Star Buffet Inc. (a).................................... 6,600
1,100 Tower Automotive Inc. (a)............................... 47,163
----------
238,156
----------
CONSUMER NON-CYCLICALS -- 27.5%
1,000 Aurora Foods Inc. (a)................................... 21,125
500 Cablevision Systems, Class A Shares (a)................. 41,750
800 Emmis Broadcasting Corp., Class A Shares (a)............ 38,250
2,100 Food Lion Inc., Class A Shares.......................... 22,313
7,600 Food Lion Inc., Class B Shares.......................... 76,475
2,100 Hormel Foods Corp. ..................................... 72,581
2,500 John B. Sanfillippo & Son Inc. (a)...................... 12,187
300 Loews Corp. ............................................ 26,137
900 Michael Foods Inc. ..................................... 26,437
1,300 News Corp Ltd. ADR...................................... 36,725
1,900 Phillip Morris Cos. Inc. ............................... 74,813
4,000 RJR Nabisco Holdings Corp. ............................. 95,000
Tele-Communications, TCI Ventures Group, Class A Shares
1,800 (a)..................................................... 36,112
2,000 Tyson Foods Inc., Class A Shares........................ 43,375
2,800 U.S. Satellite Broadcasting Co. (a)..................... 32,725
1,000 Viacom Inc., Class B Shares (a)......................... 58,250
----------
714,255
----------
ENERGY -- 3.0%
200 Amerada Hess Corp. ..................................... 10,863
1,300 Halter Marine Group, Inc. (a)........................... 19,581
1,100 Nuevo Energy Co. (a).................................... 35,337
1,700 Paradigm Geophysical Ltd (a)............................ 11,953
----------
77,734
----------
FINANCIAL SERVICES -- 7.5%
900 Bank of New York........................................ 54,619
400 BankBoston Corp. ....................................... 22,250
600 Fleet Financial Group Inc. ............................. 50,100
800 Mercantile Bankshares Corp. ............................ 27,850
900 Provident Co., Inc. .................................... 31,050
400 Waddell & Reed Financial, Class A Shares................ 9,575
----------
195,444
----------
</TABLE>

See notes to financial statements.

10
<PAGE>

PORTFOLIO OF INVESTMENTS
(unaudited)(continued)

SALOMON BROTHERS VARIABLE CAPITAL FUND (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
<C> <S> <C>

- -------------------------------------------------------------------------------
HEALTH CARE -- 3.4%
900 Centocor Inc. (a)....................................... $ 32,625
1,700 Cobichem Inc. (a)....................................... 11,794
600 Wellpoint Health Networks, Inc. (a)..................... 44,400
----------
88,819
----------
REAL ESTATE INVESTMENT TRUST -- 0.3%
300 Glenborough Realty Trust Inc. .......................... 7,913
----------
TECHNOLOGY -- 14.9%
600 ADC Telecommunications Inc. (a)......................... 21,919
1,000 Applied Materials Inc. (a).............................. 29,500
500 Applied Micro Circuits Corp. (a)........................ 12,937
1,500 Aspect Telecommunications Corp. (a)..................... 41,062
1,400 Cabletron Systems (a)................................... 18,812
2,200 Integrated Process Equipment Corp. (a).................. 24,750
300 International Business Machines Corp. .................. 34,444
500 LSI Logic Corp. (a)..................................... 11,531
1,900 Plantronics Inc. (a).................................... 97,850
2,700 Seagate Technology Inc. (a)............................. 64,294
500 Texas Instruments Inc. ................................. 29,156
----------
386,255
----------
TELECOMMUNICATIONS & UTILITIES -- 7.1%
1,100 Frontier Corp. ......................................... 34,650
600 NTL Incorporated (a).................................... 32,100
Rogers Cantel Mobile Communications Inc., Class B Shares
3,500 (a)..................................................... 43,750
1,500 The Williams Cos., Inc. ................................ 50,625
500 Worldcom Inc. (a)....................................... 24,219
----------
185,344
----------
TRANSPORTATION -- 0.9%
500 Union Pacific Corp. .................................... 22,063
----------
TOTAL COMMON STOCK
(Cost -- $2,023,604).................................... 2,111,765
----------
CONVERTIBLE PREFERRED STOCK -- 3.6%
CONSUMER CYCLICALS -- 3.6%
1,800 Hollinger International, 9.750%......................... 28,238
1,500 BTI Capital Trust, 6.500%............................... 64,500
----------
TOTAL CONVERTIBLE PREFERRED STOCK
(Cost -- $101,008)...................................... 92,738
----------
PREFERRED STOCK -- 0.4%
CONSUMER CYCLICALS -- 0.4%
1,800 Hollinger Inc. (Cost -- $10,456)....................... 11,750
----------
</TABLE>

See notes to financial statements.
11
<PAGE>

PORTFOLIO OF INVESTMENTS
(unaudited)(continued)

SALOMON BROTHERS VARIABLE CAPITAL FUND (concluded)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY VALUE
<C> <S> <C>

- ---------------------------------------------------------------------------------
CONVERTIBLE CORPORATE BONDS -- 5.4%
CONSUMER CYCLICALS -- 5.4%
$100,000 Fine Host Corp., 5.000% due 11/1/04...................... $ 80,000
50,000 Hollinger Inc., zero coupon due 10/5/13.................. 20,750
175,000 Sunbeam Corp., zero coupon due 3/25/18................... 40,250
----------
TOTAL CONVERTIBLE CORPORATE BONDS
(Cost -- $131,248)....................................... 141,000
----------
<CAPTION>
CONTRACTS
<C> <S> <C>

--------
<CAPTION>
PURCHASED OPTIONS -- 0.1%
<C> <S> <C>
NASDAQ 100 Index Put (expiring July 1998, excercise price
100 $110) (a)................................................ 650
S&P 500 Index Put (expiring July 1998, excercise price
200 $122) (a)................................................ 625
----------
TOTAL PURCHASED OPTIONS
(Cost -- $3,584)......................................... 1,275
----------
<CAPTION>
PRINCIPAL
AMOUNT
---------
<C> <S> <C>

REPURCHASE AGREEMENT -- 9.1%
$235,000 J.P. Morgan Securities Inc., 5.480% due 7/1/98; Proceeds
at maturity -- $235,036;
(Fully collateralized by U.S. Treasury Notes, 5.875% due
11/15/99;
Market value -- $240,380) (Cost -- $235,000)............ 235,000
----------
TOTAL INVESTMENTS -- 100%
(Cost -- $2,504,900*).................................... $2,593,528
==========
</TABLE>

(a) Non-income producing security.
* Aggregate cost for Federal income tax purposes is substantially the same.
ADR - American Depository Receipt.

See notes to financial statements.

12
<PAGE>

PORTFOLIO OF INVESTMENTS
(unaudited)(continued)

SALOMON BROTHERS VARIABLE TOTAL RETURN FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
<C> <S> <C>

- --------------------------------------------------------------------------------
COMMON STOCK -- 44.8%
BASIC INDUSTRIES -- 3.7%
1,200 Geon Co. ................................................. $ 27,525
300 Vulcan Materials Co. ..................................... 32,006
400 Weyerhaeuser Co. ......................................... 18,475
----------
78,006
----------
CAPITAL GOODS -- 2.4%
500 Cooper Industries Inc. ................................... 27,469
600 Stone & Webster Inc. ..................................... 23,775
----------
51,244
----------
CONSUMER CYCLICALS -- 4.8%
500 Avon Products Inc. ....................................... 38,750
600 Chrysler Corp. ........................................... 33,825
500 Sears, Roebuck & Co. ..................................... 30,531
----------
103,106
----------
CONSUMER NON-CYCLICALS -- 3.3%
1,000 Hormel Foods Corp. ....................................... 34,563
300 Ralston-Purina Group...................................... 35,044
----------
69,607
----------
ENERGY -- 6.2%
400 Amerada Hess Corp. ....................................... 21,725
600 Amoco Corp. .............................................. 24,975
500 Exxon Corp. .............................................. 35,656
300 Schlumberger Ltd. ........................................ 20,494
800 Suncor Energy, Inc. ...................................... 27,800
----------
130,650
----------
FINANCIAL SERVICES -- 5.7%
300 Allstate Corp. ........................................... 27,469
600 CIGNA Corp. .............................................. 41,400
300 Fleet Financial Group Inc. ............................... 25,050
450 Marsh & McLennan Cos., Inc. .............................. 27,197
----------
121,116
----------
HEALTH CARE -- 4.3%
900 American Home Products Corp. ............................. 46,575
900 Bausch & Lomb Inc. ....................................... 45,113
----------
91,688
----------
REAL ESTATE INVESTMENT TRUST -- 5.5%
900 Arden Realty, Inc. ....................................... 23,288
900 Crescent Real Estate Equities Co. ........................ 30,263
900 Excel Realty Trust Inc. .................................. 25,931
800 Glenborough Realty Trust Inc. ............................ 21,100
500 JDN Realty Corp. ......................................... 15,938
----------
116,520
----------
</TABLE>

See notes to financial statements.
13
<PAGE>

PORTFOLIO OF INVESTMENTS
(unaudited)(continued)

SALOMON BROTHERS VARIABLE TOTAL RETURN FUND (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
<C> <S> <C>

- ------------------------------------------------------------------------------
TELECOMMUNICATION & UTILITIES -- 6.1%
900 BCE Inc. .............................................. $ 38,419
800 Bell Atlantic Corp. ................................... 36,500
800 Edison International................................... 23,650
800 SBC Communications Inc. ............................... 32,000
----------
130,569
----------
TRANSPORTATION -- 2.8%
700 Canadian National Railway Co. ......................... 37,188
500 Union Pacific Corp. ................................... 22,062
----------
59,250
----------
TOTAL COMMON STOCK
(Cost -- $941,681)..................................... 951,756
----------
CONVERTIBLE PREFERRED STOCK -- 1.4%
CONSUMER CYCLICAL -- 0.3%
400 BTI Capital Trust, 6.500%.............................. 6,125
----------
TRANSPORTATION -- 1.1%
500 Union Pacific Capital Trust, 6.250%.................... 23,437
----------
TOTAL CONVERTIBLE PREFERRED STOCK
(Cost -- $44,650)...................................... 29,562
----------
<CAPTION>
PRINCIPAL
AMOUNT
---------
<C> <S> <C>
CORPORATE BONDS -- 6.5%
BASIC INDUSTRIES -- 0.7%
$ 15,000 Raytheon Co., 5.950% due 3/15/01....................... 15,000
----------
CONSUMER CYCLICALS -- 0.8%
15,000 Sears Roebuck Acceptance Corp., 7.000% due 6/15/07..... 15,675
----------
ENERGY -- 0.7%
15,000 Norsk Hydro ASA, 6.700% due 1/15/18.................... 15,056
----------
FINANCIAL SERVICES -- 2.1%
Banc One Auto Grantor Trust, Series 1997-B, Class A,
24,782 6.290% due 7/20/04..................................... 24,927
20,000 Contimortgage Home Equity Loan Trust,
Series 1998 - 2, Class A3, 6.130% due 3/15/13.......... 20,037
----------
44,964
----------
MEDIA -- 1.5%
15,000 A.H. Belo Corp., 7.250% due 9/15/27.................... 15,900
15,000 GTE Corp., 6.940% due 4/15/28.......................... 15,412
----------
31,312
----------
MANUFACTURING -- 0.7%
15,000 Dana Corp., 6.500% due 3/15/20......................... 15,131
----------
TOTAL CORPORATE BONDS
(Cost -- $135,969)..................................... 137,138
----------
</TABLE>

See notes to financial statements.

14
<PAGE>

PORTFOLIO OF INVESTMENTS
(unaudited)(continued)

SALOMON BROTHERS VARIABLE TOTAL RETURN FUND (concluded)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY VALUE
<C> <S> <C>

- --------------------------------------------------------------------------------
U.S. TREASURY NOTES AND BONDS -- 37.8%
$100,000 U.S. Treasury Bond, 5.625% due 5/15/08................... $ 101,390
95,000 U.S. Treasury Bond, 6.125% due 11/15/27.................. 101,852
395,000 U.S. Treasury Notes, 5.375% due 1/31/00.................. 394,174
100,000 U.S. Treasury Notes, 6.125% due 12/31/01................. 101,806
100,000 U.S. Treasury Notes, 6.125% due 8/15/07.................. 104,064
----------
TOTAL U.S. TREASURY NOTES AND BONDS
(Cost -- $799,503)....................................... 803,286
----------
REPURCHASE AGREEMENT -- 9.5%
202,000 J.P. Morgan Securities Inc., 5.480% due 7/1/98; Proceeds
at maturity -- $202,031;
(Fully collateralized by U.S. Treasury Notes, 5.875% due
2/28/99;
Market value -- $206,040) (Cost -- $202,000)............ 202,000
----------
TOTAL INVESTMENTS -- 100%
(Cost -- $2,123,803*).................................... $2,123,742
==========
</TABLE>

* Aggregate cost for Federal income tax purposes is substantially the same.

See notes to financial statements.
15
<PAGE>

PORTFOLIO OF INVESTMENTS
(unaudited)(continued)

SALOMON BROTHERS VARIABLE HIGH YIELD BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY VALUE
<C> <S> <C>

- -------------------------------------------------------------------------------
CORPORATE BONDS -- 82.3%
BASIC INDUSTRIES -- 11.8%
$125,000 Glencore Nickel Property, 9.000% due 12/1/14........... $ 121,563
125,000 Indesco International Inc., 9.750% due 4/15/08......... 123,437
125,000 Millar Western Forest, 9.875% due 5/15/08.............. 122,812
125,000 P&L Coal Holdings Corp., 9.625% due 5/15/08............ 128,750
125,000 Texas Petrochemical Corp., 11.125% due 7/1/06.......... 137,344
----------
633,906
----------
CONSUMER CYCLICALS -- 4.8%
125,000 Cole National Group Inc., 8.625% due 8/15/07........... 126,250
125,000 Synthetic Industries Inc., 9.250% due 2/15/07.......... 129,375
----------
255,625
----------
CONSUMER NON-CYCLICALS -- 18.9%
125,000 American Safety Razor Co., 9.875% due 8/1/05........... 134,844
125,000 Aurora Foods Inc., 8.750% due 7/1/08................... 126,719
Fisher Scientific International Inc., 9.000% due
125,000 2/1/08................................................. 124,375
125,000 Horseshoe Gaming LLC, 9.375% due 6/15/07............... 132,188
125,000 Moll Industries, 10.500% due 7/1/08.................... 127,187
150,000 Revlon Worldwide, Series B, zero coupon due 3/15/01.... 116,438
125,000 Vencor Inc., 9.875% due 5/1/05......................... 123,125
125,000 Windy Hill Pet Food Co., 9.750% due 5/15/07............ 132,500
----------
1,017,376
----------
ENERGY -- 6.8%
125,000 Dailey International Inc., 9.500% due 2/15/08.......... 123,125
125,000 Transamerican Energy Corp., 11.500% due 6/15/02........ 118,750
125,000 Trico Marine Services, 8.500% due 8/1/05............... 122,500
----------
364,375
----------
HOUSING RELATED -- 4.7%
125,000 CB Richard Ellis Service, 8.875% due 6/1/06............ 123,750
125,000 Nortek, 9.125% due 9/1/07.............................. 127,813
----------
251,563
----------
MANUFACTURING -- 11.9%
125,000 BE Aerospace, 8.000% due 3/1/08........................ 125,000
125,000 High Voltage Engineering, 10.500% due 8/15/04.......... 129,688
125,000 Jordan Industries Inc., 10.375% due 8/1/07............. 127,500
125,000 Motors & Gears Inc., 10.750% due 11/15/06.............. 134,688
125,000 Polymer Group., 8.750% due 3/1/08...................... 125,313
----------
642,189
----------
MEDIA & TELECOMMUNICATIONS -- 14.1%
125,000 Adelphia Communications, 9.875% due 3/1/07............. 135,313
250,000 Century Communications, zero coupon due 1/15/08........ 113,437
125,000 Hollinger International Publishing, 9.250% due 2/1/06.. 130,625
125,000 Intermedia Communications, 8.600% due 6/1/08........... 126,562
Nextel Communications, zero coupon until 2/15/03,
200,000 9.950% thereafter, due 2/15/08......................... 128,000
United International Holdings Inc., zero coupon until
200,000 2/15/03, 10.750% thereafter, due 2/15/08............... 123,500
----------
757,437
----------
</TABLE>

See notes to financial statements.

16
<PAGE>

PORTFOLIO OF INVESTMENTS
(unaudited)(continued)

SALOMON BROTHERS VARIABLE HIGH YIELD BOND FUND (concluded)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY VALUE
<C> <S> <C>

- --------------------------------------------------------------------------------
SERVICES & OTHER -- 4.7%
$125,000 Iron Mountain Inc., 8.750% due 9/30/09................... $ 127,812
125,000 Les Inc., 9.250% due 6/1/08.............................. 127,500
----------
255,312
----------
TECHNOLOGY -- 2.3%
125,000 Unisys Corp., 7.875% due 4/1/08.......................... 125,468
----------
TRANSPORTATION -- 2.3%
125,000 Enterprises Shipholding Inc., 8.875% due 5/1/08.......... 122,968
----------
TOTAL CORPORATE BONDS
(Cost -- $4,434,880)..................................... 4,426,219
----------
REPURCHASE AGREEMENTS -- 17.7%
477,000 J.P. Morgan Securities Inc., 5.480% due 7/1/98; Proceeds
at maturity -- $477,073;
(Fully collateralized by U.S. Treasury Notes, 5.875% due
11/15/99;
Market value -- $486,200)............................... 477,000
476,000 Merrill Lynch, Pierce, Fenner & Smith Inc., 5.650% due
7/1/98;
Proceeds at maturity -- $476,075; (Fully collateralized
by
U.S. Treasury Notes, 8.750% due 8/15/00; Market value --
$487,831).............................................. 476,000
----------
TOTAL REPURCHASE AGREEMENTS
(Cost -- $953,000)....................................... 953,000
----------
TOTAL INVESTMENTS -- 100%
(Cost -- $5,387,880*).................................... $5,379,219
==========
</TABLE>

* Aggregate cost for Federal income tax purposes is substantially the same.

See notes to financial statements.

17
<PAGE>

PORTFOLIO OF INVESTMENTS
(unaudited)(continued)

SALOMON BROTHERS VARIABLE STRATEGIC BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY VALUE
<C> <S> <C>

- -------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCIES & OBLIGATIONS -- 25.7%
Federal National Mortgage Association, 6.500%, 30 year
$1,500,000 (a)(b)................................................ $1,486,798
Federal National Mortgage Association, 7.500%, 30 year
100,000 (a)(b)................................................ 102,609
20,000 U.S. Treasury Notes, 3.375% due 1/15/07............... 19,871
250,000 U.S. Treasury Notes, 5.500% due 2/15/08............... 249,795
10,000 U.S. Treasury Notes, 6.125% due 11/15/27.............. 10,721
----------
TOTAL U.S. GOVERNMENT AGENCIES & OBLIGATIONS
(Cost -- $1,863,711).................................. 1,869,794
----------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 1.3%
First Union Residential Securitization, Series 1998-A,
24,949 Class B2, 7.000% due 8/25/28.......................... 24,543
PNC Mortgage Securities, Series 1998-4, Class 3B3,
24,981 6.750% due 5/25/28.................................... 24,263
PNC Mortgage Securities, Series 1998-4, Class CB3,
24,986 6.838% due 5/25/28.................................... 24,393
PNC Mortgage Securities, Series 1998-5, Class CB3,
25,000 6.734% due 7/25/28.................................... 24,219
----------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost -- $97,426)..................................... 97,418
----------
COMMERCIAL MORTGAGE-BACKED SECURITIES -- 0.4%
DLJ Commercial Mortgage Corp., Series 1998-CG1, 0.709%
600,000 due 5/10/23 (Cost -- $29,768)......................... 29,820
----------
CORPORATE BONDS -- 27.5%
BASIC INDUSTRIES -- 3.7%
125,000 AEI Holdings Company Inc., 10.000% due 11/15/07 (c)... 123,750
125,000 PCI Chemicals Inc., 9.250% due 10/15/07 (c)........... 121,875
25,000 Praxair Inc., 6.150% due 4/15/03 (c).................. 25,000
----------
270,625
----------
CONSUMER CYCLICALS -- 0.4%
25,000 Staples Inc., 7.125% due 8/15/07 (c).................. 25,969
----------
DATA TECHNOLOGY & INFORMATION SERVICES -- 1.7%
125,000 Unisys Corp., 7.875% due 4/1/08 (c)................... 125,469
----------
ENERGY -- 4.6%
125,000 Clark R & M Inc., 8.875% due 11/15/07 (c)............. 125,937
50,000 Norsk Hydro ASA, 6.700% due 11/15/18 (c).............. 50,188
25,000 Occidental Petroleum Corp., 9.250% due 8/1/19 (c)..... 31,594
125,000 Parker Drilling Co., 9.750% due 11/15/06 (c).......... 128,125
----------
335,844
----------
FINANCIAL SERVICES -- 1.1%
25,000 Bank One Corp., 7.600% due 5/1/07 (c)................. 27,375
25,000 First Data Corp., 6.375% due 12/15/07 (c)............. 25,281
Merrill Lynch, Pierce, Fenner & Smith Inc., 6.000% due
25,000 2/12/03 (c)........................................... 24,969
----------
77,625
----------
HOUSING RELATED -- 1.7%
125,000 Forest City Enterprises, 8.500% due 3/15/08 (c)....... 125,469
----------
</TABLE>

See notes to financial statements.

18
<PAGE>

PORTFOLIO OF INVESTMENTS
(unaudited)(continued)

SALOMON BROTHERS VARIABLE STRATEGIC BOND FUND (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY VALUE
<C> <S> <C>

- -------------------------------------------------------------------------------
MANUFACTURING -- 5.6%
Axiohm Transaction Solution Inc., 9.750% due
$ 125,000 10/1/07 (c)....................................... $ 126,250
25,000 Dana Corp., 6.500% due 3/15/08 (c)................ 25,219
High Voltage Engineering, 10.500% due 8/15/04
125,000 (c)............................................... 129,688
Navistar International Corp., 8.000% due 2/1/08
125,000 (c)............................................... 125,937
----------
407,094
----------
MEDIA -- 3.5%
Granite Broadcasting Corp., 8.875% due 5/15/08
125,000 (c)............................................... 126,250
Hollinger International Publishing Inc., 9.250%
125,000 due 3/15/07 (c)................................... 131,250
----------
257,500
----------
SERVICES & OTHER -- 3.4%
125,000 La Petite Academy, Inc., 10.000% due 5/15/08 (c).. 126,562
125,000 Sitel Corp., 9.250% due 3/15/06 (c)............... 121,250
----------
247,812
----------
TELECOMMUNICATION & UTILITIES -- 0.4%
25,000 GTE Corp., 6.940% due 4/15/28 (c)................. 25,687
----------
TRANSPORTATION -- 1.4%
100,000 Atlantic Express, 10.750% due 2/1/04 (c).......... 106,750
----------
TOTAL CORPORATE BONDS
(Cost -- $2,015,003).............................. 2,005,844
----------
SOVEREIGN BONDS (D) -- 6.3%
AUSTRALIA -- 0.1%
New South Wales Treasury Corp., 7.375% due
10,000 2/21/07........................................... 6,757
----------
CANADA -- 0.2%
20,000 Government of Canada, 6.500% due 9/1/98........... 13,628
----------
DENMARK -- 1.3%
670,000 Kingdom of Denmark, 6.000% due 2/15/99............ 98,478
----------
GERMANY -- 1.4%
20,000 Deutschland Republic, 6.000% due 1/5/06........... 11,978
140,000 Treuhandanstalt, 7.375% due 12/2/02............... 86,707
----------
98,685
----------
GREECE -- 0.2%
5,200,000 Hellenic Republic, 11.000% due 2/25/00............ 17,168
----------
ITALY -- 0.7%
Buoni Ordinari Del Tesoro, zero coupon due
90,000,000 7/15/98........................................... 50,505
----------
LUXEMBOURG -- 0.3%
3,000,000 Yen European Investment Bank, 4.250% due 7/16/98...... 21,670
----------
NETHERLANDS -- 0.7%
90,000 Government of Netherlands, 9.000% due 1/15/01..... 49,243
----------
NEW ZEALAND -- 0.1%
20,000 Government of New Zealand, 6.500% due 2/15/00..... 10,280
----------
</TABLE>

See notes to financial statements.

19
<PAGE>

PORTFOLIO OF INVESTMENTS
(unaudited)(concluded)

SALOMON BROTHERS VARIABLE STRATEGIC BOND FUND (concluded)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY VALUE
<C> <S> <C>

- ---------------------------------------------------------------------------------
SWEDEN -- 0.4%
200,000 Kingdom of Sweden, 11.000% due 1/21/99.................. $ 25,972
----------
UNITED KINGDOM -- 0.9%
60,000 British Telecommunications PLC, 7.000% due 5/23/07...... 63,750
----------
TOTAL SOVEREIGN BONDS
(Cost -- $464,089)...................................... 456,136
----------
REPURCHASE AGREEMENTS -- 38.8%
$1,416,000 J.P. Morgan Securities Inc., 5.480% due 7/1/98; Proceeds
at maturity -- $1,416,216;
(Fully collateralized by U.S. Treasury Notes, 5.875%
due 11/15/99;
Market value -- $1,445,310)............................ 1,416,000
1,416,000 Merrill Lynch, Pierce, Fenner & Smith Inc., 5.650% due
7/1/98; Proceeds at maturity -- $1,416,222;
(Fully collateralized by U.S. Treasury Notes, 8.750%
due 8/15/00;
Market value -- $1,447,050)............................ 1,416,000
----------
TOTAL REPURCHASE AGREEMENTS
(Cost -- $2,832,000).................................... 2,832,000
----------
TOTAL INVESTMENTS -- 100%
(Cost -- $7,301,997*)................................... $7,291,012
==========
</TABLE>

(a) Mortgage dollar roll (See Note 10).
(b) Security is issued on a to-be-announced ("TBA") basis (See Note 9).
(c) All or part of the security is segregated as collateral for mortgage dollar
rolls.
(d) Principal denominated in local currency unless otherwise indicated.
* Aggregate cost for Federal income tax purposes is substantially the same.
Yen - Japanese Yen.

See notes to financial statements.
20
<PAGE>

STATEMENTS OF ASSETS AND LIABILITIES
June 30, 1998 (unaudited)

<TABLE>
<CAPTION>
INVESTORS CAPITAL TOTAL RETURN HIGH YIELD STRATEGIC
FUND FUND FUND BOND FUND BOND FUND
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments, at cost............ $2,910,559 $2,269,900 $1,921,803 $4,434,880 $4,469,997
Repurchase agreements, at cost.. 330,000 235,000 202,000 953,000 2,832,000
---------- ---------- ---------- ---------- ----------
Investments, at value........... $3,053,812 $2,358,528 $1,921,742 $4,426,219 $4,459,012
Repurchase agreements, at
value.......................... 330,000 235,000 202,000 953,000 2,832,000
Cash (including foreign
currency)...................... 67 967 290 438 61,232
Deferred organization expense... 28,957 28,957 28,957 -- 28,957
Receivable from investment
manager........................ 13,783 14,315 14,294 3,743 4,955
Dividends and interest
receivable..................... 3,549 3,866 19,980 88,252 66,749
Receivable for open forward
foreign currency contracts..... -- -- -- -- 5,379
Receivable for securities sold.. 43,785 963 -- -- --
---------- ---------- ---------- ---------- ----------
TOTAL ASSETS.................... 3,473,953 2,642,596 2,187,263 5,471,652 7,458,284
---------- ---------- ---------- ---------- ----------
LIABILITIES:
Payable for securities
purchased...................... 10,662 85,233 -- 125,000 1,618,440
Payable for open forward foreign
currency contracts............. -- -- -- -- 4,332
Accrued expenses................ 17,561 16,753 15,147 11,546 19,657
---------- ---------- ---------- ---------- ----------
TOTAL LIABILITIES............... 28,223 101,986 15,147 136,546 1,642,429
---------- ---------- ---------- ---------- ----------
TOTAL NET ASSETS................ $3,445,730 $2,540,610 $2,172,116 $5,335,106 $5,815,855
========== ========== ========== ========== ==========
NET ASSETS:
Par value of shares of capital
stock.......................... $ 321 $ 232 $ 212 $ 529 $ 571
Capital paid in excess of par
value.......................... 3,274,750 2,337,986 2,151,411 5,294,185 5,720,810
Undistributed net investment
income......................... 8,011 7,568 21,324 49,531 107,782
Accumulated net realized gain
(loss) from investments,
options and foreign currencies.. 19,395 106,196 (770) (478) 58,206
Net unrealized appreciation
(depreciation) of investments
and foreign currencies......... 143,253 88,628 (61) (8,661) (71,514)
---------- ---------- ---------- ---------- ----------
TOTAL NET ASSETS................ $3,445,730 $2,540,610 $2,172,116 $5,335,106 $5,815,855
========== ========== ========== ========== ==========
SHARES OUTSTANDING.............. 321,101 231,673 211,762 529,294 570,873
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, PER SHARE...... $ 10.73 $ 10.97 $ 10.26 $ 10.08 $ 10.19
---------- ---------- ---------- ---------- ----------
</TABLE>

See notes to financial statements.
21
<PAGE>

STATEMENTS OF OPERATIONS
For the Period Ended June 30, 1998 (unaudited)

<TABLE>
<CAPTION>
INVESTORS CAPITAL TOTAL RETURN HIGH YIELD STRATEGIC BOND
FUND(A) FUND(A) FUND(A) BOND FUND(B) FUND(A)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest................ $ 4,931 $ 6,527 $ 15,504 $ 57,938 $126,656
Dividends............... 11,502 8,976 10,882 -- --
-------- -------- -------- -------- --------
TOTAL INVESTMENT
INCOME................. 16,433 15,503 26,386 57,938 126,656
EXPENSES:
Audit and legal......... 10,535 10,535 10,535 6,225 10,535
Management fees (Note
2)..................... 5,896 6,745 4,049 6,305 14,156
Custody fees............ 2,835 3,200 954 623 1,071
Shareholder
communications......... 2,402 2,107 1,601 2,863 5,057
Amortization of deferred
organization expenses.. 2,293 2,293 2,293 -- 2,293
Trustees' fees.......... 1,903 1,903 1,903 896 1,902
Shareholder and system
servicing fees......... 764 763 764 376 763
Administration fees
(Note 2)............... 421 397 253 420 944
Other................... 1,052 1,052 1,053 747 1,264
-------- -------- -------- -------- --------
TOTAL EXPENSES.......... 28,101 28,995 23,405 18,455 37,985
Less: Management fee
waiver and expense
reimbursement
(Note 2)............... (19,679) (21,060) (18,343) (10,048) (19,111)
-------- -------- -------- -------- --------
NET EXPENSES............ 8,422 7,935 5,062 8,407 18,874
-------- -------- -------- -------- --------
NET INVESTMENT INCOME... 8,011 7,568 21,324 49,531 107,782
-------- -------- -------- -------- --------
REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS, OPTIONS
AND FOREIGN CURRENCIES
(NOTES 3, 6 AND 7):
Realized Gain (Loss)
from:
Security transactions
(excluding short-term
securities)............ 19,395 116,526 (770) (478) 4,499
Options purchased....... -- (10,418) -- -- --
Options written......... -- 88 -- -- --
Foreign currency
transactions........... -- -- -- -- 53,707
-------- -------- -------- -------- --------
NET REALIZED GAIN
(LOSS)................. 19,395 106,196 (770) (478) 58,206
-------- -------- -------- -------- --------
CHANGE IN NET UNREALIZED
APPRECIATION
(DEPRECIATION)......... 143,253 88,628 (61) (8,661) (71,514)
-------- -------- -------- -------- --------
NET GAIN (LOSS) ON
INVESTMENTS, OPTIONS
AND FOREIGN
CURRENCIES............. 162,648 194,824 (831) (9,139) (13,308)
-------- -------- -------- -------- --------
INCREASE IN NET ASSETS
FROM OPERATIONS........ $170,659 $202,392 $ 20,493 $ 40,392 $ 94,474
======== ======== ======== ======== ========
</TABLE>

(a) For the period from February 17, 1998 (commencement of operations) to June
30, 1998.
(b) For the period from May 1, 1998 (commencement of operations) to June 30,
1998.

See notes to financial statements.

22
<PAGE>

STATEMENTS OF CHANGES IN NET ASSETS

For the Period Ended June 30, 1998 (unaudited)

(a) For the period from February 17, 1998 (commencement of operations) to June
30, 1998.
(b) For the period from May 1, 1998 (commencement of operations) to June 30,
1998.

See notes to financial statements.

23
<PAGE>

STATEMENT OF CASH FLOWS
For the Period Ended June 30, 1998 (unaudited)

<TABLE>
<CAPTION>
STRATEGIC BOND
FUND(A)
- ------------------------------------------------------------------------------
<S> <C>
INCREASE IN CASH:
CASH FLOWS USED BY OPERATING ACTIVITIES:
Purchases of long-term portfolio investments................... $(9,858,925)
Proceeds from disposition of long-term portfolio investments
and principal paydowns........................................ 7,010,976
Net sale of short-term portfolio investments................... (2,832,000)
-----------
(5,679,949)
Net investment income.......................................... 107,782
Amortization of net premium/discount on investments............ 891
Amortization of organization expenses.......................... 2,293
Net change in receivables/payables related to operations....... (91,166)
-----------
NET CASH FLOWS USED BY OPERATING ACTIVITIES.................... (5,660,149)
-----------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Net proceeds from sale of shares............................... 5,721,697
Cost of shares reacquired...................................... (326)
-----------
NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES................ 5,721,371
-----------
NET INCREASE IN CASH........................................... 61,222
Cash at beginning of period.................................... 10
-----------
CASH AT END OF PERIOD.......................................... $ 61,232
===========
</TABLE>

(a) For the period from February 17, 1998 (commencement of operations) through
June 30, 1998.

See notes to financial statements.

24
<PAGE>

NOTES TO FINANCIAL STATEMENTS
(unaudited)

1. SIGNIFICANT ACCOUNTING POLICIES

Salomon Brothers Variable Series Funds Inc ("Fund"), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended ("1940 Act"),
as an open-end management investment company. The Fund is offered exclusively
for use with certain variable annuity and variable life insurance contracts of-
fered through the separate accounts of various life insurance companies and
qualified pension and retirement plans. Not all portfolios are offered through
each variable insurance contract. The Fund consists of seven separate invest-
ment portfolios (each a "Portfolio" and collectively, "Portfolios"): Salomon
Brothers Variable Investors Fund ("Investors Fund"), Salomon Brothers Variable
Capital Fund ("Capital Fund"), Salomon Brothers Variable Total Return Fund
("Total Return Fund"), Salomon Brothers Variable High Yield Bond Fund ("High
Yield Bond Fund"), Salomon Brothers Variable Strategic Bond Fund ("Strategic
Bond Fund"), Salomon Brothers Variable U.S. Government Income Fund ("U.S. Gov-
ernment Fund"), and Salomon Brothers Variable Asia Growth Fund ("Asia Growth
Fund"). The U.S. Government Fund and Asia Growth Fund have not yet commenced
operations. Each of the Portfolios, except Capital Fund is classified as a di-
versified Fund under the 1940 Act.

The significant accounting policies consistently followed by the Fund are: (a)
security transactions are accounted for on trade date; (b) securities traded on
national securities markets are valued at the closing prices on such markets;
securities for which no sales price was reported and U.S. government and agency
obligations are valued at the mean between bid and ask prices; (c) securities
maturing within 60 days are valued at cost plus accreted discount, or minus am-
ortized premium, which approximates market value; (d) dividend income is re-
corded on the ex-dividend date; foreign dividend income is recorded on the ex-
dividend date or as soon as practical after the Fund determines the existence
of a dividend declaration after exercising reasonable due diligence; (e) inter-
est income, adjusted for accretion of original issue discount, is recorded on
the accrual basis; (f) gains or losses on the sale of securities are calculated
by using the specific identification method; (g) dividends and distributions to
shareholders are recorded on the ex-dividend date; (h) the accounting records
are maintained in U.S. dollars. All assets and liabilities denominated in for-
eign currencies are translated into U.S. dollars based on the rate of exchange
of such currencies against U.S. dollars on the date of valuation. Purchases and
sales of securities, and income and expenses are translated at the rate of ex-
change quoted on the respective date that such transactions are recorded. Dif-
ferences between income and expense amounts recorded and collected or paid are
adjusted when reported by the custodian bank; and (i) estimates and assumptions
are required to be made regarding assets, liabilities and changes in net assets
resulting from operations when financial statements are prepared. Changes in
the economic environment, financial markets and any other parameters used in
determining these estimates could cause actual results to differ.

Organization expenses amounting to $125,000 were incurred with the organization
of the Fund. These costs have been allocated appropriately to and capitalized
by the Investors Fund, Capital Fund, Total Return Fund and Strategic Bond Fund.
These costs are being amortized ratably over a five year period from commence-
ment of operations.

2. MANAGEMENT AGREEMENT AND TRANSACTIONS WITH AFFILIATED PERSONS

Salomon Brothers Asset Management Inc ("SBAM"), a wholly owned subsidiary of
Salomon Brothers Holding Company Inc., which is in turn wholly owned by Salomon
Smith Barney Holdings, Inc. ("SBH"), which is wholly owned by Travelers Group
Inc., acts as investment manager to the Fund. Under the investment management
contract, each Portfolio pays an investment management fee calculated at the
annual rate of its average daily net assets as follows:

<TABLE>
<CAPTION>
PORTFOLIO ANNUAL RATE
- --------------------------------------------------------------------------------
<S> <C>
Investors Fund...................................................... 0.70%
Capital Fund........................................................ 0.85%
Total Return Fund................................................... 0.80%
High Yield Bond Fund................................................ 0.75%
Strategic Bond Fund................................................. 0.75%
- --------------------------------------------------------------------------------
</TABLE>

25
<PAGE>

NOTES TO FINANCIAL STATEMENTS
(unaudited)(continued)

These fees are calculated daily and paid monthly. For the period ended June 30,
1998 SBAM waived all of the management fees payable by each Portfolio and reim-
bursed expenses for each Portfolio as follows: $13,783 for the Investors Fund,
$14,315 for the Capital Fund, $14,294 for the Total Return Fund, $3,743 for the
High Yield Bond Fund and $4,955 for the Strategic Bond Fund.

SBAM also acts as administrator to the Fund. As compensation for its services
each Portfolio pays SBAM a fee calculated at an annual rate of 0.05% of each
Portfolio's average daily net assets. This fee is calculated daily and paid
monthly. SBAM has delegated its responsibilities as administrator to Mutual
Management Corp. ("MMC"), an affiliate of SBAM, pursuant to a Sub-Administra-
tion Agreement between SBAM and MMC.

Salomon Brothers Inc ("SBI"), a subsidiary of SBH, acts as distributor of the
Fund shares and primary broker for its portfolio agency transactions. For the
six months ended June 30, 1998, SBI and Smith Barney, Inc. received brokerage
commissions of $162 and $294, respectively.

3. INVESTMENTS

During the period ended June 30, 1998, the aggregate cost of purchases and pro-
ceeds from sales of investments (including maturities, but excluding short-term
securities) were as follows:

<TABLE>
<CAPTION>
PURCHASES SALES
- --------------------------------------------------------------------------------
<S> <C> <C>
Investors Fund........................................... $ 3,418,769 $ 527,604
Capital Fund............................................. 3,404,139 1,255,592
Total Return Fund........................................ 2,024,730 101,192
High Yield Bond Fund..................................... 4,636,358 204,688
Strategic Bond Fund...................................... 11,477,365 7,010,976
- --------------------------------------------------------------------------------
</TABLE>

At June 30, 1998, the aggregate gross unrealized appreciation and depreciation
of investments for Federal income tax purposes were substantially as follows:

<TABLE>
<CAPTION>
GROSS GROSS NET UNREALIZED
UNREALIZED UNREALIZED APPRECIATION
APPRECIATION DEPRECIATION (DEPRECIATION)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Investors Fund......................... $222,564 $ (79,311) $143,253
Capital Fund........................... 191,876 (103,248) 88,628
Total Return Fund...................... 47,592 (47,653) (61)
High Yield Bond Fund................... 17,130 (25,791) (8,661)
Strategic Bond Fund.................... 18,983 (29,968) (10,985)
- --------------------------------------------------------------------------------
</TABLE>

4. REPURCHASE AGREEMENTS

The Fund purchases (and its custodian takes possession of) U.S. government se-
curities from banks and securities dealers subject to agreements to resell the
securities to the seller at a future date (generally, the next business day) at
an agreed-upon higher repurchase price. The Fund requires maintenance of the
market value of the collateral in amounts at least equal to the repurchase
price.

26
<PAGE>

NOTES TO FINANCIAL STATEMENTS
(unaudited)(continued)

5. REVERSE REPURCHASE AGREEMENTS

The Total Return Bond Fund, High Yield Bond Fund and Strategic Bond Fund may
enter into reverse repurchase agreements.

A reverse repurchase agreement involves a sale by the Portfolio of securities
that it holds with an agreement by the Portfolio to repurchase the same securi-
ties at an agreed upon price and date. A reverse repurchase agreement involves
risk that the market value of the securities sold by the Portfolio may decline
below the repurchase price of the securities. The Portfolio will establish a
segregated account with its custodian, in which the Portfolio will maintain
cash, U.S. government securities or other liquid high-grade debt obligations
with respect to the reverse repurchase agreements.

At June 30, 1998, the Portfolios had no open reverse repurchase agreements.

6. FORWARD FOREIGN CURRENCY CONTRACTS

At June 30, 1998, the Strategic Bond Fund had open forward currency contracts
as described below. The Strategic Bond Fund bears the market risk that arises
from changes in foreign currency exchange rates. The unrealized gain (loss) on
the contracts reflected in the accompanying financial statements were as fol-
lows:

<TABLE>
<CAPTION>
LOCAL MARKET SETTLEMENT UNREALIZED
FOREIGN CURRENCY CURRENCY VALUE DATE GAIN (LOSS)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TO BUY:
German Mark.................. 172,479 $95,609 8/12/98 $(1,617)
German Mark.................. 176,847 98,030 8/12/98 (1,970)
- -------------------------------------------------------------------------------
(3,587)
- -------------------------------------------------------------------------------
TO SELL:
Canadian Dollar.............. 20,191 13,770 8/12/98 320
Danish Krone................. 417,948 60,754 8/12/98 1,240
German Mark.................. 141,843 78,627 8/12/98 1,373
Italian Lira................. 89,118,668 50,041 8/12/98 960
Japanese Yen................. 2,566,608 18,584 8/12/98 1,039
New Zealand Dollar........... 20,000 10,346 8/12/98 447
- -------------------------------------------------------------------------------
5,379
- -------------------------------------------------------------------------------
CROSS FORWARDS**
<CAPTION>
MARKET VALUE
TO SELL: -------------------------
Greek Drachma German Mark
------------- -----------
<S> <C> <C> <C> <C>
Greek Drachma vs. German
Mark........................ 17,375 16,630 (745)
- -------------------------------------------------------------------------------
TOTAL NET UNREALIZED GAIN ON
OPEN FORWARD FOREIGN
CURRENCY CONTRACTS.......... $ 1,047
- -------------------------------------------------------------------------------
** Local currency on Cross Forwards

Sell Buy
---------- -------
Sell Greek Drachma vs. German
Mark........................ 5,334,000 30,000
</TABLE>

27
<PAGE>

NOTES TO FINANCIAL STATEMENTS
(unaudited)(continued)

7. OPTIONS CONTRACTS

Each of the portfolios may from time to time enter into options contracts. Pre-
miums paid when put or call options are purchased by the Portfolio, represent
investments, which are marked-to-market daily. When a purchased option expires,
the Portfolio will realize a loss in the amount of the premium paid. When the
Portfolio enters into a closing sales transaction, the Portfolio will realize a
gain or loss depending on whether the proceeds from the closing sales transac-
tion are greater or less than the premium paid for the option. When the Portfo-
lio exercises a put option, it will realize a gain or loss from the sale of the
underlying security and the proceeds from such sale will be decreased by the
premium originally paid. When the Portfolio exercises a call option, the cost
of the security which the Portfolio purchases upon exercise will be increased
by the premium originally paid.

At June 30, 1998, the Capital Fund had 300 contracts purchased of put options.

When a Portfolio writes a call or put option, an amount equal to the premium
received by the Portfolio is recorded as a liability, the value of which is
marked-to-market daily. When a written option expires, the Portfolio realizes a
gain equal to the amount of the premium received. When the Portfolio enters
into a closing purchase transaction, the Portfolio realizes a gain or loss de-
pending upon whether the cost of the closing transaction is greater or less
than the premium originally received, without regard to any unrealized gain or
loss on the underlying security, and the liability related to such option is
eliminated. When a written call option is exercised the cost of the security
sold will be decreased by the premium originally received. When a written put
option is exercised, the amount of the premium originally received will reduce
the cost of the security which the Fund purchased upon exercise. When written
index options are exercised, settlement is made in cash.

The risk associated with purchasing options is limited to the premium origi-
nally paid. The Portfolio enters into options for hedging purposes. The risk in
writing a covered call option is that the Portfolio gives up the opportunity to
participate in any increase in the price of the underlying security beyond the
exercise price. The risk in writing a put option is that the Fund is exposed to
the risk of loss if the market price of the underlying security declines.

The following written call option transactions occurred during the period ended
June 30, 1998 in the Capital Fund:

<TABLE>
<CAPTION>
NUMBER OF
CONTRACTS PREMIUMS
--------- --------
<S> <C> <C>
Options written, outstanding at February 17, 1998........... -- $ 0
Options written during the period ended June 30, 1998....... 3 150
Options canceled in closing purchase transactions........... 3 (150)
--- -----
Options written, outstanding at June 30, 1998............... 0 $ 0
=== =====
</TABLE>

8. SECURITIES TRADED ON A WHEN ISSUED BASIS

Each of the Portfolios may from time to time purchase securities on a when-is-
sued basis.

In a when-issued transaction, the Portfolio commits to purchasing securities
for which specific information is not yet known at the time of the trade. Secu-
rities purchased on a when-issued basis, are not settled until they are deliv-
ered to the Portfolio. Beginning on the date the Portfolio enters into the
when-issued transaction, the custodian maintains cash, U.S. government securi-
ties or other high grade debt obligations in a segregated account equal in
value to the purchase price of the when-issued security. These transactions are
subject to market fluctuations and their current value is determined in the
same manner as for other securities.

At June 30, 1998, there were no when-issued securities held by the Portfolios.

28
<PAGE>

NOTES TO FINANCIAL STATEMENTS
(unaudited)(continued)

9. SECURITIES TRADED ON A TO-BE-ANNOUNCED BASIS

Each of the portfolios may trade securities on a "to-be-announced" ("TBA") ba-
sis.

In a TBA transaction, the Fund commits to purchasing or selling securities for
which specific information is not yet known at the time of the trade, particu-
larly the face amount and maturity date in GNMA transactions. Securities pur-
chased on a TBA basis are not settled until they are delivered to the Fund,
normally 15 to 45 days later. These transactions are subject to market fluctua-
tions and their current value is determined in the same manner as for other
securities.

As of June 30, 1998, the Strategic Bond Fund held two TBA securities with a to-
tal cost of $1,590,438.

10. MORTGAGE DOLLAR ROLL TRANSACTIONS

The Strategic Bond Fund may enter into mortgage "dollar rolls" in which a
Portfolio sells mortgage-backed securities for delivery in the current month
and simultaneously contracts to repurchase substantially similar (same type,
coupon and maturity) securities on a specific future date. The Portfolio is
compensated by a fee paid by the counterparty. Dollar rolls are accounted for
as financing arrangements; the fee is accrued into interest income ratably over
the term of the dollar roll and any gain or loss on the roll is deferred until
disposition of the rolled security. The average daily balance of dollar rolls
outstanding during the period ended June 30, 1998 was approximately $1,532,000.

11. LENDING OF SECURITIES

Each of the Portfolios may lend its securities to brokers, dealers and other
financial organizations.

The Portfolio has an agreement with its custodian whereby the custodian may
lend securities owned by the Portfolio to brokers, dealers and other financial
organizations. Fees earned by the Portfolio on securities lending are recorded
in interest income. Loans of securities by the Portfolio are collateralized by
cash, U.S. government securities or high quality money market instruments that
are maintained at all times in an amount at least equal to the current market
value of the loaned securities, plus a margin which may vary depending on the
type of securities loaned. The custodian establishes and maintains the collat-
eral in a segregated account. The Portfolio maintains exposure for the risk of
any losses in the investment of amounts received as collateral.

At June 30, 1998, the Portfolios had no securities on loan.

12. LOAN PARTICIPATIONS

The Total Return Bond Fund, High Yield Bond Fund and Strategic Bond Fund may
invest in loans arranged through private negotiation between one or more finan-
cial institutions. The Portfolios' investment in any such loan may be in the
form of a participation in or an assignment of the loan.

In connection with purchasing participations, the Portfolio generally will have
no right to enforce compliance by the borrower with the terms of the loan
agreement relating to the loan, nor any rights of set-off against the borrower,
and the Portfolio may not benefit directly from any collateral supporting the
loan in which it has purchased the participation. As a result, the Portfolio
will assume the credit risk of both the borrower and the lender that is selling
the participation. In the event of the insolvency of the lender selling the
participation, the Portfolio may be treated as a general creditor of the lender
and may benefit from any set-off between the lender and the borrower.

At June 30, 1998, the Fund had no investments in loan participations.

29
<PAGE>

NOTES TO FINANCIAL STATEMENTS
(unaudited) (concluded)

13. CAPITAL STOCK

At June 30, 1998, the Fund had 10,000,000,000 shares of capital stock autho-
rized with a par value of $0.01 per share. Each share represents an equal pro-
portionate interest and has an equal entitlement to any dividends and distribu-
tions made by the Portfolio.

Transactions in shares of each Portfolio were as follows:

<TABLE>
<CAPTION>
PERIOD ENDED
JUNE 30, 1998
- --------------------------------------------------------------------------------
<S> <C>
INVESTORS FUND*
Shares sold..................................................... 325,794
Shares issued on reinvestment................................... --
Shares redeemed................................................. (4,694)
-------
Net increase.................................................... 321,100
=======
CAPITAL FUND*
Shares sold..................................................... 231,696
Shares issued on reinvestment................................... --
Shares redeemed................................................. (24)
-------
Net increase.................................................... 231,672
=======
TOTAL RETURN BOND FUND*
Shares sold..................................................... 205,239
Shares issued on reinvestment................................... --
Shares redeemed................................................. (3,474)
-------
Net increase.................................................... 201,765
=======
HIGH YIELD BOND FUND**
Shares sold..................................................... 529,297
Shares issued on reinvestment................................... --
Shares redeemed................................................. (3)
-------
Net increase.................................................... 529,294
=======
STRATEGIC BOND FUND*
Shares sold..................................................... 570,904
Shares issued on reinvestment................................... --
Shares redeemed................................................. (32)
-------
Net increase.................................................... 570,872
=======
</TABLE>

* For the period February 17, 1998 (commencement of operations) through June
30, 1998.
** For the period May 1, 1998 (commencement of operations) through June 30,
1998.

30
<PAGE>

FINANCIAL HIGHLIGHTS
FOR A SHARE OF CAPITAL STOCK OUTSTANDING:

<TABLE>
<CAPTION>
INVESTORS CAPITAL TOTAL RETURN HIGH YIELD STRATEGIC BOND
FUND(1)(2) FUND(1) FUND(1) BOND FUND(3) FUND(1)
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $10.00 $10.00 $10.00 $10.00 $10.00
------ ------ ------ ------ ------
Income (loss) from
operations:
Net investment income
(4)................... 0.04 0.04 0.27 0.10 0.21
Net realized and
unrealized gain
(loss)................ 0.69 0.93 (0.01) (0.02) (0.02)
------ ------ ------ ------ ------
Total income (loss)
from operations....... 0.73 0.97 0.26 0.08 0.19
------ ------ ------ ------ ------
Less distributions from:
Net investment income.. -- -- -- -- --
Net realized gains..... -- -- -- -- --
------ ------ ------ ------ ------
Total distributions.... -- -- -- -- --
------ ------ ------ ------ ------
Net asset value, end of
period................. $10.73 $10.97 $10.26 $10.08 $10.19
====== ====== ====== ====== ======
Total return++.......... 7.30% 9.70% 2.60% 0.80% 1.90%
Net assets, end of
period (000s).......... $3,446 $2,541 $2,172 $5,335 $5,816
Ratios to average net
assets (4)+:
Expenses............... 1.00% 1.00% 1.00% 1.00% 1.00%
Net investment income.. 0.95% 0.95% 4.21% 5.89% 5.71%
Portfolio turnover
rate................... 24% 61% 8% 5% 194%
Average commissions per
share paid on equity
security transactions.. $0.05 $0.05 $0.05 -- --
</TABLE>

(1) For the period from February 17, 1998 (commencement of operations) through
June 30, 1998 (unaudited).
(2) Per share amounts have been calculated using the daily average shares meth-
od, rather than the undistributed net investment income method, because it
more accurately reflects the per share data for the period.
(3) For the period from May 1, 1998 (commencement of operations) through June
30, 1998 (unaudited).
(4) SBAM has waived all of its management fees for the period ended June 30,
1998 and reimbursed expenses for the Portfolios as follows: $13,783 for the
Investors Fund, $14,315 for the Capital Fund, $14,294 for the Total Return
Fund, $3,743 for the High Yield Bond Fund and $4,955 for the Strategic Bond
Fund. If such fees were not waived or expenses reimbursed, the per share
decrease in net investment income and the actual expense ratios would have
been as follows:
<TABLE>
<CAPTION>
EXPENSE RATIOS
PER SHARE DECREASES WITHOUT FEE
IN NET INVESTMENT WAIVERS AND
INCOME REIMBURSEMENT+
------------------- --------------
<S> <C> <C>
Investors Fund............................ $0.09 3.34%
Capital Fund.............................. 0.11 3.65
Total Return Fund......................... 0.23 4.62
High Yield Bond Fund...................... 0.02 2.20
Strategic Bond Fund....................... 0.04 2.01
</TABLE>

++Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized

31
<PAGE>

[This page intentionally left blank]

32
<PAGE>

Salomon Brothers Variable Series Funds Inc

Investment Manager
Salomon Brothers Asset Management Inc
7 World Trade Center
New York, New York 10048
Custodian
PNC Bank, N.A.
17th and Chestnut Streets
Philadelphia, Pennsylvania 19103
Legal Counsel
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Independent Accountants
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036

DIRECTORS
Charles F. Barber
Consultant; formerly Chairman; ASARCO Incorporated
Carol L. Colman
President, Colman Consulting Co., Inc.
Daniel P. Cronin
Vice President-General Counsel,
Pfizer International Inc.
Heath B. McLendon
Chairman and President;
Managing Director, Smith Barney Inc.
President and Director, Mutual Management Corp.;
Chairman, Smith Barney Strategy Advisors Inc. and
Travelers Investment Advisers, Inc.

OFFICERS
Heath B. McLendon
Chairman and President
Lewis E. Daidone
Executive Vice President and Treasurer
Richard E. Dahlberg
Executive Vice President
Giampaolo G. Guarnieri
Executive Vice President
Ross S. Margolies
Executive Vice President
Beth A. Semmel
Executive Vice President
Allan R. White, III
Executive Vice President
Peter J. Wilby
Executive Vice President
Pamela P. Milunovich
Vice President
Alan Mandel
Controller
Anthony Pace
Assistant Controller
Noel B. Daugherty
Secretary

<PAGE>

==========================
[LOGO] Salomon Brothers
=======================
Asset Management
SEVEN WORLD TRADE CENTER .NEW YORK, NEW YORK 10048