FILE NO. 33
10830
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________________
FORM N-1A
__________________________________________________
POST-EFFECTIVE AMENDMENT NO. 7
To The
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF
1933 and
THE INVESTMENT COMPANY ACT OF 1940
____________________________________________
__ __ __
SMITH BARNEY VARIABLE ACCOUNT FUNDS
(Exact name of Registrant as specified in
Charter)
388 Greenwich Street, New York, New York
10013 (Address of principal executive
offices)
(212) 816-6474
(Registrant's telephone number)
Christina T. Sydor
388 Greenwich Street, New York, New York
10013 (22nd Floor)
(Name and address of agent for service)
_______________________________________________
__ _
To Register Additional Securities under Reg.
270.24e2
CALCULATION OF REGISTRATION FEE
Title of
Share
Proposed Proposed
securities
Amount
Maximum maximum Amount
of
being
being
offering
aggregate
registration
registered
registered
price per share
offering*
fee
Reserve Account 22,723
$13.43
$290,000 $100
Portfolio
U.S. Government 39,900
$14.49
$290,000 $100
High Quality
Securities Portfolio
The fee for the shares to be registered by this
filing has been computed on the basis of the market
value per
share in effect on December 14, 1995.
*Calculation of the proposed maximum offering price
has been made pursuant to Rule 24e-2.
During its fiscal year ended December 31, 1994, the
Reserve Account Portfolio redeemed 57,220 shares
of beneficial interest. During its current fiscal
year, the Portfolio used
56,090 shares it redeemed during its fiscal year
ended December 31, 1994, for a reduction pursuant to
Rule 24f2(c). The Reserve Account Portfolio
currently is registering 22,723 shares, which is
equal to the remaining 1,130 shares redeemed during
its fiscal year ended December 31, 1994, plus
21,593 shares. During its current fiscal year, the
Reserve Account Portfolio filed no other
posteffective amendments for the purpose of reduction
pursuant to Rule 24e-2(a). During its fiscal year
ended December 31, 1994, the U.S. Government High
Quality Securities Portfolio redeemed 65,723 shares
of beneficial interest. During its current fiscal
year, the Portfolio used 45,837 shares it redeemed
during its fiscal year ended December 31, 1994, for
a reduction pursuant to Rule 24f-2(c). The U.S.
Government High Quality Securities Portfolio,
currently is registering 39,900 shares which is
equal to the remaining 19,886 shares redeemed during
its fiscal year ended December 31, 1994, plus 20,014
shares. During its current fiscal year, the U.S.
Government High Quality Securities Portfolio filed
no other post effective amendments for the purpose
of reduction pursuant to Rule 24e-2(a).
Rule 24f-2 (1) Declaration:
Registrant's has filed its Rule 24f-2 Notice on
February 28, 1995 for its most recent fiscal year
ended December 31, 1994.
It is proposed that this Post-Effective Amendment
will become effective immediately upon filing
pursuant to paragraph (b) of Rule 485.
CROSS REFERENCE SHEET
(as required by Rule 495(a))
Part A
of Form N-1A Prospectus Caption
1. Cover Page cover page
2. Synopsis not applicable
3. Condensed Financial
Information
"Financial Highlights"
4. General Description of Registrant "Shares
of the Fund"
cover page
"Investment Objectives"
"The Fund's Investment Program"
"Additional Information"
5. Management of the
Fund
"Management"
6. Capital Stock and Other Securities
"Shares
of
the Fund"
"Redemption of Shares"
cover page
"Dividends, Automatic Reinvestment and
Taxes" 7. Purchase of Securities Being Offered
cover page "Management"
"Valuation of Shares"
"The Fund's Investment Program"
8. Redemption or
Repurchase
"Redemption of Shares"
9. Pending Legal
Proceedings
not applicable
Part B of Statement of
Additional
Form N-1A Information Caption
10. Cover Page cover page
11. Table of Contents "Table of Contents"
12.General Information and History "The Fund"
13.Investment Objectives and Policies
"Investment
Policies"
"Investment Restrictions"
14. Management of the Fund "Trustees and
Officers"
15.Control Persons and Principal
Holders of Securities See Prospectus - "Shares
of
the Fund"
"Voting Rights"
"Trustees and Officers"
16.Investment Advisory and Other Services See
Prospectus - "Management"
"Trustees and
Officers"
"Custodian"
"Independent Auditors"
"Management Agreements"
17. Brokerage Allocation and
Other
Practices See Prospectus -
"Management"
18. Capital Stock and
Other
Securities See Prospectus -
"Shares
of the Fund"
See Prospectus - "Dividends,
Automatic Reinvestment and Taxes"
"Investment Policies"
"Voting Rights"
19. Purchase,
Redemption
and
Pricing of
Securities Being Offered See Prospectus
"The
Fund's
Investment Program"
See Prospectus - "Valuation
of Shares"
"Redemption of Shares"
"Financial Statements"
20. Tax Status
See
Prospectus - "Dividends,
Automatic Reinvesment and Taxes"
21. Underwriters
See
Prospectus - "Management"
22. Calculation of
Performance
Data See Prospectus
- -
"Performance"
"Performance Information"
23. Financial
Statements
"Financial Statements"
Part C of
Form N-1A
Information required to be included in Part C is
set forth under the appropriate item, so numbered
in Part C of this Post-Effective Amendment to
the
Registration Statement.
SMITH BARNEY VARIABLE ACCOUNT FUNDS
388 Greenwich Street
New York, New York
10013
(212) 723-9218
Smith Barney Variable Account Funds, (the
"Fund") the investment underlying certain variable
annuity and variable life insurance contracts, is
an investment company offering a choice of three
different Portfolios. Each Portfolio is
separately managed to achieve its own investment
objective.
The Income and Growth Portfolio
seeks current income and long-term growth
of income and capital. It invests
primarily, but not exclusively, in common
stocks.
The U.S. Government/High Quality Securities
Portfolio seeks high current
income and security of principal from a portfolio
consisting primarily of U.S. Government Obligations and
other high quality fixed income securities.
The Reserve Account Portfolio seeks current income
from a portfolio of money market instruments and other
high quality fixed income obligations
with limited
maturities and employs an
immunization strategy to minimize the
risk of loss of account value.
Shares of the Fund are offered only to
insurance company
separate accounts (the "Separate Accounts") which
fund certain variable annuity and variable life
insurance contracts (the "Contracts"). The Separate
Accounts invest in shares of one or more of the
Portfolios in accordance with allocation
instructions received from Contract owners. Such
allocation rights are further described in the
accompanying Contract Prospectus.
This Prospectus sets forth concisely
certain information about the Fund and the
Portfolios, including service
fees and expenses, that prospective investors will
find helpful in making an investment decision.
Investors
are encouraged to read this Prospectus carefully and
retain it for future reference.
Additional information about the Fund is
contained in a Statement of Additional Information
dated April 28, 1995, that is available upon request
and without charge by calling or writing the Fund at
the telephone number or address set forth
above or by contacting a Smith
Barney Financial Consultant. The Statement of
Additional Information has been filed with the
Securities and Exchange Commission (the "SEC") and is
incorporated by reference into this Prospectus in its
entirety.
This Prospectus should be read in conjunction
with the prospectus for the Contracts.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is April 28, 1995.
The Fund is intended to provide a suitable
investment
for variable annuity and variable life insurance
contracts (the "Contracts") and shares of the
Portfolios are offered only for purchase by insurance
company
separate accounts as an investment for Contracts,
as described in the accompanying Contract
prospectus.
Each of the Portfolios has an investment
objective similar to an existing Smith Barney mutual
fund. The Income and Growth Portfolio is most similar
to Smith Barney Funds' Income
and Growth Portfolio, the U.S. Government/High
Quality Securities Portfolio is most similar to Smith
Barney Funds' U.S.
Government Securities Portfolio and the Reserve
Account Portfolio is most similar to Smith Barney
Funds'
Income Return Account Portfolio; and the same
experienced
professionals who manage the Smith Barney Funds'
Portfolios also manage the corresponding Portfolios of
the Fund.
Shares of each Portfolio are offered to
Separate Accounts at their net asset value, without a
sales charge, next determined after receipt of an
order by an insurance
company. The offering of shares of a Portfolio
may be suspended from time to time and the Fund
reserves the right to reject any specific purchase
order.
VALUATION OF SHARES
The net asset value of each Portfolio's
shares is determined as of the close of regular
trading on the New York Stock Exchange ("NYSE"),
which is currently 4:00 P.M. New York City time on
each day that the NYSE is open, by dividing the
Portfolio's net assets by the number of its shares
outstanding. Securities that are listed or traded on a
national securities exchange are valued at the last
sale on the principal exchange on which they are
listed and securities trading on the NASDAQ System
are valued at the last sale reported as of the close
of the NYSE. If no last sale is reported, the
foregoing securities and over-thecounter securities
other than those traded on the NASDAQ System, are
valued at the mean between the last reported bid and
asked prices. Fixed income obligations are valued at
the mean of bid and asked prices based on market
quotations for those securities or if no quotations are
available, then for securities of similar type, yield
and maturity. Shortterm investments that have a
maturity of more than 60 days are valued at prices
based on
market quotations for securities of similar type,
yield and maturity. Short-term investments that have
a maturity of 60 days or less are stated at cost,
which approximates value. The value of other
investments of the Fund, if any, including restricted
securities, will be determined in good faith at fair
value under procedures established by and under
the general supervision of the Trustees.
INVESTMENT OBJECTIVES
The Fund consists of three investment
portfolios, the "Income and Growth Portfolio", the
"U.S. Government/High Quality Securities Portfolio"
and the "Reserve Account Portfolio." The Income and
Growth Portfolio seeks current income and long-term
growth of income and capital by investing
primarily, but not exclusively, in common stocks. The
U.S. Government/High Quality Securities Portfolio seeks
high current income and security of principal by
investing primarily in obligations of the U.S.
Government, its agencies or its
instrumentalities and other high quality fixed income
securities. The Reserve Account Portfolio seeks
current income from a portfolio of money market
instruments and other high quality fixed income
obligations with
limited maturities and employs an "immunization
strategy" (see below) to minimize the risk of
loss of account value. Of course, no assurance can be
given that a Portfolio's objective will be achieved.
THE FUND'S INVESTMENT PROGRAM
The Income and Growth Portfolio invests
primarily in common stocks offering a current return
from dividends and will also normally include some
interestpaying fixed income securities (such as U.S.
Government securities, investment grade bonds and
debentures) and high quality money market instruments
(such as commercial paper and repurchase agreements
collateralized by U.S. Government securities with
broker/dealers or other financial institutions,
including the Fund's Custodian); and this Portfolio
may also purchase preferred stocks and convertible
securities. Temporary defensive investments or a
higher percentage of fixed income securities may be
made when deemed advisable. In the selection of
common
stock investments, emphasis is generally placed on
issues with established dividend records as well as
potential for price appreciation. From time to
time, however, a portion of the assets may be invested
in nondividend paying stocks. The Portfolio may make
investments in foreign securities though management
currently intends to limit such investments to 5% of
the Portfolio's assets and an additional 10% of its
assets may be invested in American Depositary Receipts
("ADR"s) representing shares in foreign securities
that are traded in United States securities markets.
The value of an ADR closely reflects the value of the
foreign security and any fluctuation in the price of
the foreign security will affect the Portfolio's share
price. (See "Additional Information," page 7.)
The U.S. Government/High Quality Securities
Portfolio (the "Government/High Quality Portfolio")
invests primarily in a combination of (i) securities
of the U.S. Government, its agencies or its
instrumentalities and (ii) other high quality fixed
income securities (including corporate bonds) rated
within the two highest categories by either Standard &
Poor's Corporation ("S&P") (AAA, AA) or Moody's
Investors Service, Inc. ("Moody's") (Aaa, Aa) or if
unrated, are determined to be of comparable quality
by the Manager. Except when the Portfolio is in a
temporary defensive investment position, at least 65%
of the Portfolio's total assets will be invested in
these securities, including the securities held
subject to
repurchase agreements.
The Fund is subject to diversification
requirements promulgated by the U.S. Treasury
Department which, among other things, currently limit
each Portfolio to investing no more than 55% of its
total assets in any one investment. See "Dividends,
Distributions and Taxes." It is anticipated that a
substantial portion of the Portfolio's investments
will consist of GNMA Certificates,
which are mortgage-backed securities representing part
ownership of a pool of mortgage loans on which timely
payment of interest and principal is guaranteed by
the U.S. Government. As a hedge against changes
in interest rates, the Government/High Quality
Portfolio may enter into agreements with dealers in
GNMA Certificates whereby the Portfolio agrees to
purchase or sell an agreed-upon principal amount of
GNMA Certificates at a specified price on a certain
date; provided, however, that settlement occurs
within 120 days of the trade date. For more
detailed information, see "Additional Information" on
page
7. The balance of the investments of the
Government/High Quality Portfolio will be fixed
income securities of private issuers and money market
instruments, including certificates of deposit,
bankers'
acceptances, and commercial paper rated A-1 or A-2 by
S&P or Prime-1 or Prime2 by Moody's.
The Reserve Account Portfolio invests in high
grade fixed income
obligations (including money market instruments)
with a maximum maturity of seven years. Such
obligations include U.S. Government Obligations;
commercial paper rated A-1 or A-2 by S&P or Prime-1
or Prime-2 by Moody's; high quality corporate notes
and bonds, including floating rate issues, rated
within the two highest
categories by S&P or Moody's or, if not rated, of
comparable
quality as determined by the Manager; bankers'
acceptances; certificates of deposit (see "Additional
Information"); and securities backed by letters of
credit. Normally, a portion of the Portfolio will
consist of investments that mature in two to seven
years; however, it is expected there will be occasions
when as much as all of the Portfolio will be
invested in money market instruments. This
portfolio composition is intended to achieve a higher
level of income than would otherwise be available from
an exclusively shortterm portfolio with substantially
less risk than that of a conventional bond or note
portfolio. While minor day-to-day price fluctuations
are unavoidable, measured over a threemonth period, it
is believed that the Portfolio's immunization
strategy will produce sufficient income accrual during
adverse market conditions to offset any potential loss
in the Portfolio security value.
None of the Portfolios will engage in the
trading of securities for the purpose of realizing
shortterm profits; however, each Portfolio will
adjust its portfolio as
considered advisable in view of prevailing or
anticipated market conditions and the Portfolio's
investment objective. Investors should realize that
shares of each Portfolio will fluctuate with the
market value of the securities in the Portfolio.
Each Portfolio may seek to increase its
net
investment income by lending its securities to
brokers, dealers and other financial institutions
provided such loans are callable at any time and are
continuously secured by cash or U.S. Government
Obligations equal to no less than the market value,
determined daily, of
the securities loaned. Management will limit such
lending to not more than one-third of the value of a
Portfolio's total assets. The Portfolio
will continue to be entitled to the interest
payable on the loaned security and, in
addition, will receive interest on the amount of the
loan, less finders, administrative and custodial
fees. In the event of the bankruptcy of the
other party to the transaction, a Portfolio
could experience delays in recovering
the securities loaned. To the extent that, in the
meantime, the value of the securities may have
increased, the Portfolio could experience a loss.
In all cases, the Manager must find the
creditworthiness of the other party to the
transaction to be satisfactory under guidelines
approved by the Trustees. See the Statement of
Additional Information for further information on
lending of securities.
The investment objective and policies of
each Portfolio are non-fundamental and, as such, may
be modified by the Trustees of the Fund provided
such modification is not prohibited by the investment
restrictions (which are set forth in the Statement
of Additional Information)
or applicable law, and any such change will first be
disclosed in the then current Prospectus.
DIVIDENDS, AUTOMATIC REINVESTMENT AND TAXES
Each Portfolio of the Fund intends to qualify
as a "regulated investment company" under the
Internal Revenue Code (the "Code") and to
declare and
make annual distributions of substantially all of
its taxable income and net taxable capital gains to
its shareowners (i.e. the Separate Accounts). Such
distributions are automatically invested in
additional shares of the Portfolio at net asset
value and are includable in gross income of the
Separate Accounts holding such shares. See the
accompanying Contract Prospectus for information
regarding the federal income tax treatment of
distributions to the Separate Accounts and to
holders of the Contracts.
Each Portfolio of the Fund is subject to
asset diversification regulations promulgated by the
U.S. Treasury Department under the Code. The
regulations generally provide that, as of the end
of each calendar quarter or within 30 days
thereafter, no more than 55% of the total assets of
the Portfolio may be represented by any one
investment, no more than 70% by any two investments,
no more than 80% by any three investments, and no more
than 90% by any four investments. For this purpose
all securities of the same issuer are considered a
single investment.
If a Portfolio should fail to comply with these
regulations, Contracts invested in that Portfolio
would not be treated as annuity, endowment or life
insurance contracts under the Code.
REDEMPTION OF SHARES
The redemption price of the shares of each
Portfolio will be the net asset value next determined
after receipt by the Fund of a redemption order
from a Separate Account, which may be more or
less than the
price paid for the shares. The Fund will
ordinarily make payment within one business day,
though redemption proceeds must be remitted to a
Separate Account on or before the seventh day
following receipt of proper tender, except on a day on
which the NYSE is closed or as permitted by the
Securities and Exchange Commission in extraordinary
circumstances. Payment to the Contract owner is
described in the accompanying Contract Prospectus.
PERFORMANCE
From time to time the Fund may include a
Portfolio's total return, average annual total return,
yield and current distribution return in
advertisements and/or other types of sales
literature. These figures are based on historical
earnings and are not intended to indicate
future performance. In addition, these figures will
not reflect the deduction of the charges that are
imposed on the Contracts by the Separate Account
(see Contract Prospectus) which, if reflected, would
reduce the performance quoted. Total return is
computed for a specified period of time assuming
reinvestment of all income dividends and capital
gains distributions at net asset value on the ex-
dividend dates at prices calculated as stated in
this Prospectus, then dividing the value of the
investment at the end of the period so calculated by
the initial amount invested and subtracting 100%.
The standard average annual total return, as
prescribed by the Securities and Exchange Commission
("SEC"), is derived from this total return, which
provides the ending redeemable value. Such standard
total return information may also be accompanied
with nonstandard total return information over
different periods of time by means of aggregate,
average, year-by-year, or other types of total return
figures. The yield of a Portfolio refers to the net
investment income earned by investments in the
Portfolio over a thirty-day period. This net
investment income is then annualized, i.e., the
amount of income earned by the
investments during that thirty-day period is assumed
to be earned each 30-day period for twelve
periods and is
expressed as a percentage of the investments. The
yield quotation is calculated according to a formula
prescribed by the SEC to facilitate comparison with
yields quoted by other investment companies. The
Fund calculates current
distribution return for the Income and Growth
Portfolio by dividing the distributions from
investment income declared during the most recent
twelve months by the net asset value on the last day
of the period for which current distribution return
is presented. The Fund calculates
current
distribution return for the U.S. Government
Securities Portfolio by annualizing the most
recent quarterly distribution from investment income
and dividing by the net asset value on the last day
of the period for which current distribution return
is presented. The Fund calculates current
distribution return for the Reserve Portfolio by
annualizing the most recent monthly distribution
and dividing by the net asset value on the last
day of the period for which current distribution
return is presented. A Portfolio's current
distribution return may vary from time to time
depending on market conditions, the composition of
its investment portfolio and operating expenses.
These factors and possible differences in the
methods used in calculating current distribution
return, and the charges that are imposed on the
Contracts by the Separate Account, should be
considered when comparing the Portfolio's current
distribution return to yields published for other
investment companies and other investment vehicles.
MANAGEMENT
The Trustees are responsible for the
direction and supervision of the Fund's business and
operations. The Fund employs Smith Barney Mutual
Funds Management Inc. (the "Manager"), formerly known
as Smith, Barney Advisers, Inc., a wholly-owned
subsidiary of Smith Barney Holdings Inc.
("Holdings"), to manage the day to day operations of
each Portfolio pursuant to a management agreement
entered into by the Fund on behalf of each Portfolio.
Holdings is also the parent company of Smith Barney
Inc. ("Smith Barney").
The Manager provides each Portfolio with
advice
and assistance with respect to the acquisition,
holding or disposal of securities and
recommendations with respect to other aspects of the
business and affairs of each Portfolio and furnishes
each Portfolio with bookkeeping, accounting and
administrative services, office space and equipment,
and the services of the officers and employees of the
Fund.
By
written agreement the Research and other
departments and staff of Smith Barney will
furnish the Manager with information, advice and
assistance and will be available for consultation on
the Fund's Portfolios, thus Smith Barney may also be
considered an investment adviser to the Fund. Smith
Barney services are paid for by the Manager; there
is no charge to the Fund for such services. For
the services provided by the Manager, the Fund pays
the Manager a fee calculated at the annual rate of
0.60% paid monthly of the average daily net assets
of the Income and Growth Portfolio and a fee
calculated at the annual rate of 0.45% paid
monthly of the average daily net assets of each of
the Government/High Quality Portfolio and the
Reserve Account Portfolio. The Manager has agreed to
waive its fee to the extent
that the aggregate expenses of any Portfolio
exclusive of taxes, brokerage, interest and
extraordinary
expenses, such as litigation and indemnification
expenses, exceed 1% of the average daily net assets
for any fiscal year of the Portfolio. The 1%
voluntary expense limitation shall be in effect
until
it is terminated by notice to shareowners and
by supplement to the then current Prospectus.
For the
Fund's last fiscal year the management fee was
0.60% of the Income and Growth Portfolio's average
net assets, 0.45% of the U.S Government/High
Quality Portfolio's average net assets and 0.45% of
the Reserve Account Portfolio's average net assets;
and total expenses were 0.75%, 0.76% and 0.86%,
respectively.
Smith Barney distributes shares of the
Fund as principal underwriter. In addition,
brokerage is allocated to Smith Barney, provided
that, in the judgment of the Trustees
of the
Fund, the commission, fee or other
remuneration received or to be received by Smith
Barney (or any broker/dealer affiliate of Smith
Barney that is also a member of a securities
exchange) is reasonable and fair compared to the
commission, fee or other remuneration received by
other brokers in connection with comparable
transactions involving similar securities being
purchased or sold on a securities exchange during the
same or comparable period of time. The Fund normally
expects to allocate to Smith Barney between 50% and
60% of the Income and Growth Portfolio's transactions
to be executed for such account on an agency basis.
In all trades to be directed to Smith Barney, the
Fund has been assured that its orders will be
accorded priority over those received from Smith
Barney for its own account or for any of its
directors, officers or employees. It may be
expected that the preponderance of transactions in
the Government/High Quality Portfolio and the
Reserve Account
Portfolio will be
principal
transactions, and the Fund will not deal with Smith
Barney in any transaction in which Smith Barney acts
as principal.
Ayako Weissman is responsible for management
of the Income and Growth Portfolio and Patrick
Sheehan is
responsible for management of the U.S.
Government/High Quality Securities Portfolio and
the Reserve Account Portfolio, including making all
investment decisions. Ms.
Weissman is Managing Director of Smith Barney and has
been involved in equity investing for Smith Barney for
over seven years and currently manages over $250
million in assets. Mr. Sheehan is Managing Director
of Smith Barney and Vice President of the Fund
and of other investment companies associated with
Smith Barney. Prior to joining Smith Barney in
January 1992, Mr. Sheehan was a portfolio manager
of various fixed-income investment companies of Value
Line Inc. from June 1990 through January 1992. From
January 1989 through May 1990 Mr. Sheehan was a Senior
Vice President of Seamans' Bank for Savings in charge
of assets & liability management.
The Manager was incorporated on March 12, 1968
under the laws of Delaware. As of March 31, 1995 the
Manager had aggregate assets under the management of
approximately $54 billion.
The
Manager, Smith Barney and Holdings are each
located at 388 Greenwich Street, New York, NY
10013. The
term "Smith Barney" in the title of the Fund
has been adopted by permission of Smith Barney and is
subject to the right of Smith Barney to elect that
the Fund stop using the term in any form or
combination of its name.
SHARES OF THE FUND
The Fund, an open-end, diversified,
managed
investment company, is organized as a
"Massachusetts business trust" pursuant to the
Declaration of Trust dated December 18, 1986.
The
Trustees have authorized the
issuance of three series of shares, each representing
shares in one of three separate Portfolio's - the
Income and Growth Portfolio, the U.S.
Government/High Quality Securities Portfolio and
the Reserve Account Portfolio. The Trustees
also have the power to create additional series of
shares. The assets of each Portfolio will be
segregated and separately managed. Each share of a
Portfolio represents an equal proportionate
interest in that Portfolio with each other share
of the same Portfolio and is entitled to such
dividends and distributions out of the net
income of that Portfolio as are declared in the
discretion of the Trustees. Shareowners are entitled
to one vote for each share held and will vote by
individual Portfolio except to the extent required
by the Act. As a trust, the Fund is not required to
hold annual
shareowner meetings, although special
meetings may be called for the Fund as a whole,
or a specific Portfolio, for purposes such as
electing or
removing Trustees, changing fundamental
policies
or
approving a management contract. Shareowners
may, in
accordance with the Declaration of Trust, cause a
meeting of shareowners to be held for the purpose
of voting on the removal of Trustees. In accordance
with current law and as
explained further in the accompanying Contract
Prospectus,
the Separate Account will vote its shares in
accordance with instructions received from
policyowners.
ADDITIONAL INFORMATION
GNMA Securities. Government National
Mortgage Association ("GNMA"), an agency of the
United States Government, guarantees the timely
payment of
monthly
installments of principal and interest on modified
passthrough Certificates, whether or not such
amounts are collected by
the
issuer of these Certificates on the
underlying mortgages. In the opinion of an
Assistant Attorney General of the United States,
this guarantee is
backed by the full faith and credit of the United
States. Scheduled
payments of
principal and interest are made each
month to holders of GNMA Certificates (such as
the
Government/High Quality Portfolio). The average
life of
GNMA Certificates varies with the maturities of
the
underlying mortgages (with maximum maturities of 30
years) but is likely to be substantially less than
the original maturity of the mortgage pools underlying
the securities as
a result of prepayments, refinancing of such
mortgages
or
foreclosure. Unscheduled prepayments of mortgages
are
passed through to the holders of GNMA Certificates
at par with the regular monthly payments of principal
and interest, which have the effect of reducing
future payment on such Certificates.
GNMA Certificates have historically involved no
credit risk; however, due to fluctuations in interest
rates, the market value of such securities will vary
during the period of a shareholder's investment in the
Government/High Quality Portfolio. Prepayments and
scheduled payments of principal will be reinvested
by the Fund in then available GNMA Certificates
which may bear interest at a rate lower
or
higher than the Certificate from which the
payment was received.
As with other debt securities, the price of GNMA
Certificates is likely to decrease in times of
rising
interest rates; however, in periods of falling
interest rates the potential for prepayment may
reduce the general upward price increase of GNMA
Certificates that might otherwise occur.
Other U.S. Government Obligations. In
addition to GNMA Securities and direct obligations of
the U.S. Treasury (such as Treasury Bills, Notes and
Bonds), U.S. Government Obligations in which the
Fund may invest include: (1) obligations of, or
issued by, Banks for Cooperatives, Federal
Land Banks, Federal Intermediate Credit Banks,
Federal Home Loan Banks, the Federal Home Loan Bank
Board,
any wholly-owned Government corporation so
designated in Section
9101 (3) of Title 31, or the Student Loan Marketing
Association; (2) other securities fully guaranteed
as to principal and interest by the United States of
America; (3) other obligations of, or issued by, or
fully guaranteed as to principal and interest by the
Federal National Mortgage Association or any agency
of the United States; and
(4) obligations currently or previously sold by the
Federal Home Loan Mortgage Corporation.
Bank Obligations. Obligations purchased from
U.S. banks or other financial institutions that are
members of the Federal Reserve System or the Federal
Deposit Insurance Corporation ("FDIC") (including
obligations of foreign branches of such members)
if either: (a) the principal amount of the
obligation is
insured in full by the FDIC, or (b) the issuer of
such obligation has capital, surplus and undivided
profits in excess of $100 million or total assets of
$1 billion (as reported in its most recently
published financial statements prior to the date of
investment ). These obligations include:
Bankers' Acceptance: A short-term credit
instrument evidencing the obligation of a bank to
pay a draft drawn upon it by a customer.
This instrument
reflects the obligation not only of the drawer
but also of the bank to pay the face amount of the
instrument upon maturity.
Certificate of Deposit: A certificate
evidencing the obligation of a bank to repay funds
deposited with it earning a specified rate of
interest over a given period.
Foreign Securities. Such securities
involve considerations that are not ordinarily
associated with investing in domestic securities
including currency exchange control laws, the
possibility of expropriation, seizure, or
nationalization of foreign assets, less liquidity and
more volatility in foreign securities markets and the
impact of political, social or diplomatic
developments or the adoption of other foreign
government restrictions that might adversely
affect the payment of principal, interest or
dividends on the securities. Similar
considerations may apply to obligations of foreign
branches of U.S. banks and to American Depositary
Receipts.
Repurchase Agreements. A repurchase agreement
arises when the Fund purchases a security for a
Portfolio and simultaneously agrees to resell it to
the vendor at an agreed-upon future date, normally
on the next business day. The resale price is
greater than the purchase price, which reflects an
agreedupon rate of return for the period the
Portfolio holds the security and which is not related
to the coupon rate on the purchased security. The
Fund requires
continual maintenance of the market value of the
collateral in amounts at least equal to the resale
price, thus risk is limited to the ability of the
seller to pay the agreed-upon amount on the
delivery date; however, if the seller
defaults, realization upon the collateral by the Fund
may be delayed or limited or the Portfolio might
incur a loss if the value of the collateral
securing
the repurchase
agreement declines and might incur disposition
costs in connection with liquidating the collateral.
A Portfolio will only enter into repurchase
agreements with
broker/dealers or other financial institutions
which are deemed creditworthy by the Manager under
guidelines approved by the Trustees. It is the policy
of the Fund not to invest in repurchase agreements
that do not mature within seven days if any such
investment together with any other illiquid assets
held by the Portfolio
amount to more than 10% of that Portfolio's
total assets. Delayed Delivery. A delayed
delivery
transaction involves the purchase of securities at an
agreed-upon price on a specified future date. At
the time the Fund enters into a binding
obligation to purchase securities on a delayed
delivery basis the Portfolio will establish with the
Custodian a segregated account with assets of a
dollar amount sufficient to make payment for the
securities to be purchased. The
value of the securities on the delivery date may be
more or less than their purchase price. Securities
purchased on a delayed delivery basis do not generally
earn interest until their scheduled delivery date.
Part B
April 28, 1995
SMITH BARNEY VARIABLE ACCOUNT FUNDS
388 Greenwich Street New
York, New York 10013
STATEMENT OF ADDITIONAL
INFORMATION
Shares of the Smith Barney
Variable
Account Funds (the "Fund") are
offered with a choice of three
Portfolios:
The Income and Growth Portfolio
seeks current income and long-term
growth of income and capital.
This Portfolio
invests primarily, but not
exclusively, in common stocks.
The U.S. Government/High
Quality Securities Portfolio seeks
high current income and security
of
principal from a portfolio consisting
primarily of U.S. Government Obligations
and other high quality fixed income
securities.
The Reserve Account Portfolio
seeks current income from a
portfolio of money market
instruments and
other high
quality fixed income obligations.
This Statement of Additional Information is
not a Prospectus. It is intended to provide more
detailed
information about the Fund as well as matters
already discussed in the Prospectus and therefore
should be read in conjunction with the April 28, 1995
Prospectus which may be obtained from the Fund or
your
Smith Barney Financial
Consultant. Shares of the Fund may only be
purchased by insurance company separate accounts.
TABLE OF CONTENTS
Page
Reference In:
Statement
of
Additiona
l
Information Trustees and Officers 2 - 3
Investment Policies 4 -
6
Investment Restrictions 6 -
7
Performance Information 7 -
8
Determination of Net Asset 9
Value
Redemption of Shares 9
Custodian 9
Independent Auditors 9
The Fund 9 -
10
Management Agreements 10 - 12
Voting Rights 12
Financing Statements 12
Appendix-Ratings of Debt 13 - 14
Obligations
TRUSTEES AND OFFICERS
*JESSICA BIBLIOWICZ, President and Trustee
Executive Vice President of Smith Barney Inc.
("Smith Barney"); President of forty investment
companies associated with Smith Barney and
Director of twelve investment companies associated
with Smith Barney; prior to January, 1994, Director
of Sales and
Marketing for Prudential Mutual Funds; prior to
September 1991, Assistant Portfolio Manager for
Shearson Lehman Brothers; 35.
RALPH D. CREASMAN, Trustee
Retired, 4 Moss Hammock Lane, The Landings, Skidaway
Island, Savannah, Georgia 31411. Director of
ten
investment companies associated with Smith Barney.
Formerly Chairman, President and Chief Executive
Officer of Lionel D. Edie & Co., Inc. (investment
counselors), Chairman of Edie International S.A.
and President and Director of Edie Ready Assets
Trust,
Fundamerica of Japan, Edie Special Growth Fund and
Edie Capital Fund; 73.
JOSEPH H. FLEISS, Trustee
Retired, 3849 Torrey Pines Blvd., Sarasota, Florida
34238. Director of ten investment companies
associated with Smith Barney. Formerly Senior Vice
President of
Citibank, Manager of Citibank's Bond Investment
Portfolio and Money Management Desk and a Director of
Citicorp Securities Co., Inc; 77.
DONALD R. FOLEY, Trustee
Retired, 3668 Freshwater Drive, Jupiter, Florida
33477.
Director of ten investment companies associated with
Smith Barney. Formerly Vice President of Edwin
Bird Wilson, Incorporated (advertising); 72.
PAUL HARDIN, Trustee
Chancellor of the University of North Carolina at
Chapel Hill, University of North Carolina, 103 S.
Building, Chapel
Hill, North Carolina 27599; Director of twelve
investment companies associated with Smith Barney;
and a Director of The Summit Bancorporation; 63.
FRANCIS P. MARTIN, Trustee
Practicing physician, 2000 North Village Avenue,
Rockville Centre, New York 11570. Director of ten
investment companies associated with Smith Barney.
Formerly President of the Nassau Physicians' Fund, Inc.;
70.
*HEATH B. MCLENDON, Chairman of the Board and
Chief Executive Officer
Managing Director of Smith Barney; Director of forty
one investment companies associated with Smith Barney;
President of Smtih Barney Mutual Funds Management Inc.
("SBMFM or the "Manager"); Chairman of Smith Barney
Strategy Advisers Inc., prior to July 1993, Senior
Executive Vice President of Shearson Lehman
Brothers, Inc., Vice Chairman of Shearson Asset
Management; 61.
RODERICK C. RASMUSSEN, Trustee
Investment Counselor, 81 Mountain Road, Verona, New
Jersey 07044. Director of ten investment companies
associated with Smith Barney. Formerly Vice
President of Dresdner and Company Inc. (investment
counselors); 70.
JOHN P. TOOLAN, Trustee
Retired, 13 Chadwell Place, Morristown, New Jersey
07960. Director of ten investment companies associated
with Smith Barney. Formerly, Director and Chairman of
the Smith Barney Trust Company, Director of Smith
Barney Holdings Inc. and the Manager and Senior
Executive Vice President, Director and Member of the
Executive Committee of Smith Barney;
64. C. RICHARD YOUNGDAHL, Trustee
Retired, 339 River Drive, Tequesta, Florida 33469.
Director of ten investment companies associated with
Smith Barney and a Member of the Board of Directors of
D. W. Rich & Company, Inc. Formerly Chairman of the
Board of Pensions Lutheran Church in America, Chairman
of the Board and Chief Executive Officer of Aubrey G.
Lanston & Co. (dealers in U.S. Government
securities) and President of the Association of Primary
Dealers in U.S. Government Securities; 79.
*LEWIS E. DAIDONE, Senior Vice President and Treasurer
Managing Director of Smith Barney, Senior Vice President
and Treasurer of forty-one investment companies
associated with Smith Barney, and Director and Senior
Vice President
of the Manager; 37.
*BRUCE D. SARGENT, Vice President and Investment Officer
Managing Director of Smith Barney, Vice President
and Director of the Manager, Director and Vice President
of four investment companies associated with Smith
Barney;51.
*PATRICK SHEEHAN, Vice President
Managing Director of Smith Barney and Vice President of
two investment companies associated with Smith Barney.
Prior to January 1992, Portfolio Manager of Value Line
Inc., Senior Vice President of Seaman's Bank for
Savings, Assistant Vice President of Capital Markets of
Federal Home Loan Board of New York and Vice
President and Treasurer of Poughkeepsie Savings Bank;
47.
*AYAKO WEISSMAN, Vice President and Investment Officer
Managing Director of Smith Barney and Vice President of
the
Manager; Vice President of three investment
companies
associated with Smith Barney; 38.
*THOMAS M. REYNOLDS, Controller and Assistant Secretary
Director of Smith Barney and Controller of ten
investment companies associated with Smith Barney.
Prior to September 1991, Assistant Treasurer of Aquila
Management Corporation and its associated investment
companies; 35.
*CHRISTINA T. SYDOR, Secretary
Managing Director of Smith Barney and Secretary of forty
one investment companies associated with Smith Barney;
Secretary and General Counsel of the Manager; 44.
On April 10, 1995, Trustees and officers owned in
the aggregate less than 1% of the outstanding securities
of the Fund.
___________________
*Designates "interested persons" as defined in
the Investment Company Act of 1940 whose business
address is 388 Greenwich Street, New York, New York
10013. Such persons are not separately compensated for
their services as
Fund officers or Trustees.
The following table shows the compensation paid by the
Fund to each incumbent director during the Fund's
last fiscal year. None of the officers of the
Fund received any compensation from the Fund for such
period. Officers and interested directors of the Fund
are compensated by Smith Barney.
COMPENSATION TABLE
Total
Pension or Compensation
Numbers of Retirement from
Fund Funds for
AggregateBenefits Accrued and Fund Which
Director Compensation as part of Complex
Serves Within
Name of Personfrom Fund Fund Expenses Paid to
DirectorsFund Complex
Jessica Bibliowicz* $0 $0
$0
12
Ralph D. Creasman5,104 0 51,500 10
Joseph H. Fleiss5,104 0 50,900 10
Donald R. Foley 5,104 0 51,500 10
Paul Hardin 2,702 0 27,800
12**
Heath B. McLendon* 0 0 0 41
Francis P. Martin 5,104 0 51,500 10
Roderick C. Rasmussen 5,104 0
51,500
10
John P. Toolan 5,104 0 51,500 10
C. Richard Youngdahl 5,104 0
51,500
10
*Designates an "interested Trustee."
**Reflects the compensation paid to Mr. Hardin and
the number of funds within the Fund Complex for which Mr.
Hardin serves as a Trustee as of the date of this
Statement of Additional Information. For the fiscal year
ended December 31, 1994, Mr. Hardin served as a director
of 25 funds within the Fund complex and was paid $96,400.
INVESTMENT POLICIES
The Fund effects portfolio transactions
with a view towards attaining the investment
objective of each Portfolio and is not
limited to a predetermined rate of portfolio
turnover. A high portfolio turnover results
in correspondingly greater transaction costs.
See "Management" in the Prospectus.
The Fund has no present intention to
enter into reverse repurchase agreements even
though it is permitted to do so on behalf of
the Reserve Account Portfolio and the U.S.
Government/High Quality Securities Portfolio.
The Fund does not currently intend to commit to
such agreements more than 5% of the net assets
of either of these two Portfolios, although
the fundamental policies of the Reserve Account
Portfolio, permit it to invest up to 1/3 of its
net assets in reverse repurchase agreements, and
this right is reserved. Each of these
Portfolios may enter into reverse repurchase
agreements with broker/dealers and other
financial institutions. Such agreements involve
the sale of Portfolio securities with an
agreement to repurchase the securities at an
agreed-upon price, date and interest
payment and have the
characteristics of borrowing. Since the
proceeds of borrowings under reverse repurchase
agreements are invested, this would introduce
the speculative factor known as
"leverage." The securities
purchased with the funds obtained from
the
agreement and securities collateralizing
the
agreement will have maturity dates no later
than the repayment date. Generally the effect
of such a transaction is that the Fund can
recover all or most of the cash invested
in the portfolio securities involved during
the term of the reverse repurchase agreement,
while in many cases it will be able to keep
some of the interest income associated
with those securities. Such
transactions are only advantageous if
the
Portfolio has an opportunity to earn a
greater rate of interest on the cash derived
from the transaction than the interest cost
of obtaining
that cash. Opportunities to realize earnings from
the use of the proceeds equal to or greater than
the interest required to be paid may not always be
available, and the Fund intends to use the reverse
repurchase technique only when the Manager
believes it will be advantageous to the Portfolio.
The use of reverse repurchase agreements may
exaggerate any interim increase or decrease in the
value of the participating Portfolio's assets.
The Fund's custodian bank will maintain a
segregated account for the Portfolio with
securities having a value equal to or greater than
such commitments.
Each Portfolio may seek to increase its net
investment income by lending its securities
provided such loans are callable at any time and
are continuously secured by cash or U.S.
Government obligations equal to no less than the
market value, determined daily, of the securities
loaned. The Portfolio will receive amounts equal
to dividends or interest on the securities loaned.
It will also earn income for having made the loan
because cash collateral pursuant to these loans
will be invested in short-term money market
instruments. In connection with lending of
securities the Fund may pay reasonable finders,
administrative and custodial fees. Management
will limit such lending to not more than one-third
of the value of a Portfolio's total assets. Where
voting or consent rights with respect to loaned
securities pass to the borrower, management will
follow the policy of calling the loan, in whole or
in part as may be appropriate, to permit the
exercise of such voting or consent rights if the
issues involved have a material effect on the
Portfolio's investment in the securities loaned.
Apart from lending its securities and
acquiring debt securities of a type customarily
purchased by financial institutions, none of the
Portfolios will make loans to other persons.
The Fund's Declaration of Trust permits the
Trustees to establish additional Portfolios of the
Fund from time to time. The investment
objectives, policies and restrictions applicable
to additional Portfolios would be established by
the Trustees at the time such Portfolios were
established and may differ from those set forth in
the Prospectus and this Statement of Additional
Information.
Additional Policies - Income and Growth Portfolio.
Although the Portfolio may, as described
below, sell short "against the box," buy or sell
puts or calls and borrow money, it has no
intention of doing so in the foreseeable future.
Similarly, although the Portfolio may invest in
foreign securities and lend money or assets, as
described in investment restriction 9 on page 6,
the Portfolio does not currently intend to commit
more than 5% of its assets to investments in
foreign securities and an additional 10% of its
assets in American Depositary Receipts
representing shares in foreign securities which
are traded in United States securities markets,
nor does it intend to engage in loans other than
short-term loans. If in seeking to achieve its
investment objectives the Fund believes
opportunities warrant its investment in foreign
securities, management would give appropriate
consideration, in its judgment, to risks that may
be associated with foreign investments, including
currency exchange control regulations and costs,
the possibility of expropriation, seizure, or
nationalization of foreign deposits, less
liquidity and volume and more volatility in
foreign securities markets and the impact of
political, social, economic or diplomatic
developments or the adoption of other foreign
government restrictions that might adversely
affect the payment of principal and interest on
securities in the Portfolio. If it should become
necessary, the Fund might encounter greater
difficulties in invoking legal processes abroad
than would be case in the United States. In
addition, there may be less publicly available
information about a non-U.S. company, and non-U.S.
companies are not generally subject to uniform
accounting and financial reporting standards,
practices and requirements comparable to those
applicable to U.S. companies. Furthermore, some
of these securities may be subject to foreign
brokerage and withholding taxes.
While the Portfolio is permitted to invest in
warrants (including 2% or less of the Portfolio's
total net assets in warrants that are not listed
on the New York Stock Exchange or American Stock
Exchange), the Portfolio has no intention of doing
so in the foreseeable future. For purposes of
computing the foregoing percentage, warrants
acquired by the Portfolio in units or attached to
securities will be deemed to be without value.
In addition, although the Income and Growth
Portfolio may buy or sell covered put and covered
call options up to 15% of its net assets, provided
such options are listed on a national securities
exchange, the Portfolio does not currently intend
to commit more than 5% of its assets to be
invested in or subject to put and call options. A
"call option" gives a holder the right to purchase
a specific stock at a specified price referred to
as the "exercise price," within a specific period
of time (usually 3, 6, or 9 months). A "put
option" gives a holder the right to sell a
specific stock at a specified price within a
specified time period. The initial purchaser of a
call option pays the "writer" a premium, which is
paid at the time of purchase and is retained by
the writer whether or not such option is
exercised. Put and call options are currently
traded on The Chicago Board Options Exchange and
several other national exchanges. Institutions,
such as the Fund, that sell (or "write") call
options against securities held in their
investment portfolios retain the premium. If the
writer determines not to deliver the stock prior
to the option's being exercised, the writer may
purchase in the secondary market an identical
option for the same stock with the same price and
expiration date in fulfillment of the obligation.
In the event the option is exercised the writer
must deliver the underlying stock to fulfill the
option obligation. The brokerage commissions
associated with the buying and selling of call
options are normally proportionately higher than
those associated with general securities
transactions.
The Portfolio may invest in investment grade
bonds, i.e. U.S. Government obligations or bonds
rated Aaa, Aa, A and Baa by Moody's Investors
Service, Inc. ("Moody's") or AAA, AA, A and BBB
by Standard & Poor's ("S&P").
INVESTMENT RESTRICTIONS
The Fund has adopted the following
restrictions and fundamental policies that cannot
be changed without approval by a "vote of a
majority of the outstanding voting securities" of
each Portfolio affected by the change as defined
in the Investment Company Act of 1940 (the "Act")
and Rule 18f-2 thereunder (see "Voting").
Without the approval of a majority of its
outstanding voting securities, the Income and
Growth Portfolio may not:
1. With respect to 75% of its assets, invest
more than 5% of the value of its total assets in
any one issuer, except securities of the U.S.
Government, its agencies or its instrumentalities;
2. Invest more than 25% of the value of its total
assets in any one industry, except that securities
of the U.S. Government,
its agencies and
instrumentalities are not considered an industry
for purposes of this limitation; 3. Purchase
securities on margin; 4. Make short sales of
securities or maintain a short position unless at
all times when a short position is open, the
Portfolio owns or has the right to obtain, at no
added cost, securities identical to those sold
short; 5. Borrow money, except as a temporary
measure for extraordinary or emergency purposes,
and then not in excess of the lesser of 10% of its
total assets taken at cost or 5% of the value of
its total assets; or mortgage or pledge any of its
assets,. except to secure such borrowings; 6. Act
as an underwriter of securities except to the
extent the Fund may be deemed to be an underwriter
in connection with the sale of portfolio holdings;
7. Invest in real estate (the purchase by the
Portfolio of securities for which there is an
established market of companies engaged in real
estate activities or investments shall not be
deemed to be prohibited by this fundamental
investment limitation); 8. Purchase or sell
commodities; and 9. Make loans, except the
Portfolio will purchase debt obligations, may
enter into repurchase agreements and may lend its
securities.
Without the approval of a majority of its
outstanding voting securities the U.S.
Government/High Quality Securities Portfolio may
not:
1. With respect to 75% of its assets, invest
more than 5% of the value of its total assets in
any one issuer, except securities of the U.S.
Government, its agencies or instrumentalities; 2.
Invest more than 25% of the value of its total
assets in any one industry, except that securities
of the U.S.
Government, its agencies and
instrumentalities are not considered an industry
for purposes of this limitation; 3. Purchase
securities on margin; 4. Sell securities short
(provided however the Portfolio may sell short if
it maintains a segregated account of cash or U.S.
Government obligations with the Custodian, so that
the amount deposited in it plus the collateral
deposited with the broker equals the current
market value of the securities sold short and is
not less than the market value of the securities
at the time they were sold short); 5. Borrow
money, except from banks for temporary purposes
and then in amounts not in excess of 5% of the
value of its assets at the time of such borrowing;
or mortgage, pledge or hypothecate any assets
except in connection with any such borrowing and
in amounts not in excess of 7 1/2% of the value of
the Fund's assets at the time of such borrowing.
(This borrowing provision is not for investment
leverage, but solely to facilitate management of
the Portfolio by enabling it to meet redemption
requests where the liquidation of portfolio
securities is deemed to be disadvantageous or
inconvenient.) Borrowings may take the form of a
sale of portfolio securities accompanied by a
simultaneous agreement as to their repurchase; 6.
Act as an underwriter of securities except to the
extent the Fund may be deemed to be an underwriter
in connection with the sale of portfolio holdings;
7. Invest in real estate (the Portfolio, however,
will purchase mortgage-related securities); 8.
Purchase or sell commodities; and 9. Make loans,
except the Portfolio will purchase debt
obligations, may enter into repurchase agreements
and may lend its securities.
Without the approval of a majority of its
outstanding voting securities the Reserve Account
Portfolio may not:
1. With respect to 75% of its assets, invest
more than 5% of its assets in the securities of
any one issuer, except securities of the U.S.
Government, its agencies or instrumentalities; 2.
Invest more than 2 5% of the value of its total
assets in any one industry, except that securities
of the U.S.
Government, its agencies and
instrumentalities are not considered an industry
for purposes of this limitation; 3. Purchase
securities on margin; 4. Sell securities short;
5. Borrow money except from banks for temporary
purposes in an amount up to 10% of the value of
its total assets and may mortgage or pledge its
assets in an amount up to 10% of the value of its
total assets only to secure such borrowings. The
Portfolio will borrow money only to accommodate
requests for the redemption of shares while
effecting an orderly liquidation of portfolio
securities or to clear securities transactions and
not for leveraging purposes. This restriction
shall not be deemed to prohibit the Portfolio from
entering into reverse repurchase agreements so
long as not more than 33 1/3% of the Portfolio's
total assets are subject to such agreements; 6.
Act as an underwriter of securities except to the
extent the Fund may be deemed to be an underwriter
in connection with the sale of portfolio holdings;
7. Invest in commodities; and 9. Make loans,
except the Portfolio will purchase debt
obligations, may enter into repurchase agreements
and may lend its securities.
The restrictions below are non-fundamental
and may be changed by the Trustees without
shareholder approval or ratification. Each of the
Portfolios may not:
1. Invest more than 5% of its total assets
in issuers with less than three years of
continuous operation (including that of
predecessors) or so-called "unseasoned" equity
securities that are not either admitted for
trading on a national stock exchange or regularly
quoted in the over-the-counter market (this
restriction, however, would not apply to a newly
created agency or instrumentality of the U.S.
Government); 2. Purchase more than 10% of any
class of the outstanding securities, or any class
of voting securities, of any issuer; 3. Invest in
or hold securities of an issuer if those officers
and Trustees of the Fund, its Manager, or Smith
Barney owning beneficially more than 1/2 of 1% of
the securities of such issuer together own more
than 5% of the securities of such issuer; 4.
Purchase securities of another investment company
except as part of a merger, consolidation or
acquisition or as permitted by Section l2(d)(l) of
the Investment Company Act of 1940; 5. Have more
than 15% of its net assets at any time invested in
or subject to puts, calls or combinations thereof
and may not purchase, sell or write options that
are not listed on a national securities exchange;
6. Invest in
interests in oil or gas or other
mineral exploration or development programs; and
7. The U.S. Government/High Quality Securities
Portfolio and the Reserve Account Portfolio each
may not purchase common stocks, preferred stocks,
warrants or other equity securities.
The foregoing percentage restrictions apply
at the time an investment is made; a subsequent
increase or decrease in percentage may result from
changes in values or net assets.
PERFORMANCE INFORMATION
From time to time the Fund may advertise a
Portfolio's total return, average annual total
return, yield and current distribution return in
advertisements and other types of sales
literature. These figures are based on historical
earnings and are not intended to indicate future
performance. In addition, these figures will not
reflect the deduction of the charges that are
imposed on the Contracts by the Separate Account
(see Contract prospectus) which, if reflected,
would reduce the performance quoted. The total
return shows what an investment in the Portfolio
would have earned over a specified period of time
(one, five or ten years) assuming that all
distributions and dividends by the Portfolio were
invested on the reinvestment dates during the
period less all recurring fees.
Each Portfolio's total return and average
annual total return for the one and five year
periods, and since each Portfolio's inception date
is shown below.
Portfolio Total
Returns as of 12/31/94
1 year 5 year
Since Inception
Income and Growth Portfolio (3.12)%
54.17% 58.30%
U.S. Gov't/High Quality (0.35) 37.33 41.46
Securities Portfolio
Reserve Account Portfolio1.99 33.96 38.33
Portfolio Average Annual
Total Returns as of 12/31/94
1 year 5 year
Since Inception
Income and Growth Portfolio (3.12%)
8.13% 8.79%
U.S. Gov't/High Quality (0.35) 6.55 6.61
Securities Portfolio
Reserve Account Portfolio1.99 6.02 6.18
Each Portfolio's yield is computed by
dividing the net investment income per share
earned during a specified thirty day period by the
net asset value per share on the last day of such
period and annualizing the result. For purposes
of
the yield calculation, interest income is
determined based on a yield to maturity percentage
for each long-term fixed income obligation in the
portfolio; income on short-term obligations is
based on current payment rate.
The Fund calculates current distribution
return for each Portfolio by dividing the
distributions from investment income declared
during the most recent twelve months by the net
asset value on the last day of the period for
which current distribution return is presented.
From time to time, the Fund may include its
current distribution return in information
furnished to present or prospective shareowners.
A Portfolio's current distribution return may
vary from time to time depending on market
conditions, the composition of its investment
portfolio and operating expenses. These factors
and possible differences in the methods used in
calculating current distribution return, and the
charges that are imposed on the Contracts by the
Separate Account, should be considered when
comparing a Portfolio's current distribution
return to yields published for other investment
companies and other investment vehicles. Current
distribution return should also be
considered relative to changes in the
value of the
Portfolio's shares and to the risks
associated with the Portfolio's investment
objective and policies. For example, in
comparing current distribution returns with
those offered by Certificate of Deposit
("CDs"), it should be noted that CDs are
insured (up to $100,000) and offered a fixed
rate of return. Returns of the Reserve Account
Portfolio may from time to time be
compared with returns of money market
funds measured by Donoghue's Money Fund Report,
a widely distributed publication on money market
funds.
Performance information may be useful
in evaluating a Portfolio and for a providing a
basis for comparison with other financial
alternatives. Since the performance of each
Portfolio changes in response to fluctuations
in market conditions, interest rate and
Portfolio expenses, no
performance quotation should be considered
a representation as to the Portfolio's
performance for any future period.
DETERMINATION OF NET ASSET VALUE
The net asset value of each Portfolio's share
will be determined on any day that the New York
Stock Exchange is open. The New York Stock
Exchange is closed on the following holidays: New
Year's Day, Washington's Birthday, Good Friday,
Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
REDEMPTION OF SHARES
Redemption payments shall be made wholly in
cash unless the Trustees believe that economic
conditions exist that would make such a practice
detrimental to the best interests of the Fund and
its remaining shareowners. If a redemption is
paid in portfolio securities, such securities will
be valued in accordance with the procedures
described under "Valuation of Shares" in the
Prospectus and a shareholder would incur brokerage
expenses if these securities were then converted
to cash.
CUSTODIAN
Portfolio securities and cash owned by the
Fund are held in the custody of PNC Bank, National
Association, 17th and Chestnut Streets,
Philadelphia, Pennsylvania 19103 (foreign
securities, if any, will be held in the custody of
The Chase Manhattan Bank, N.A.).
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, 345 Park Avenue, New
York, New York 10154, have been selected as
independent auditors for the Fund for its fiscal
year ending December 31, 1995 to audit and report
on the financial statements of the Fund and to
perform required reviews of certain filings with
the Commission.
THE FUND
Pursuant to the Declaration of Trust, the
Trustees have authorized the issuance of three
series of shares, each representing shares in one
of three separate Portfolios - the Income and
Growth Portfolio, the U.S. Government/High Quality
Securities Portfolio and the Reserve Account
Portfolio. Pursuant to such authority, the
Trustees may also authorize the creation of
additional series of shares and additional classes
of shares within any series (which would be used
to distinguish among the rights of different
categories of shareholders, as might be required
by future regulations or other unforeseen
circumstances). The investment objectives,
policies and restrictions applicable to additional
Portfolios would be established by the Trustees at
the time such Portfolios were established and may
differ from those set forth in the Prospectus and
this Statement of Additional Information. In the
event of liquidation or dissolution of a Portfolio
or of the Fund, shares of a Portfolio are entitled
to receive the assets belonging to that Portfolio
and a proportionate distribution, based on the
relative net assets of the respective Portfolios,
of any general assets not belonging to any
particular Portfolio that are available for
distribution.
The Declaration of Trust may be amended only
by a "majority shareholder vote" as defined
therein, except for certain amendments that may be
made by the Trustees. The Declaration of Trust
and the By-Laws of the Fund are designed to make
the Fund similar in most respects to a
Massachusetts business corporation. The principal
distinction between the two forms relates to
shareowner liability described below. Under
Massachusetts law, shareowners of a business trust
may, under certain circumstances, be held
personally liable as partners for the obligations
of the trust, which is not the case with a
corporation. The Declaration of Trust of the Fund
provides that shareowners shall not be subject to
any personal liability for the acts or obligations
of the Fund and that every written obligation,
contract, instrument or undertaking made by the
Fund shall contain a provision to the effect that
the shareowners are not personally liable
thereunder.
Special counsel for the Fund are of the
opinion that no personal liability will attach to
the shareowner under any undertaking containing
such provision when adequate notice of such
provision is given, except possibly in a few
jurisdictions. With respect to all types of
claims in the latter jurisdictions and with
respect to tort claims, contract claims where the
provision referred to is omitted from the
undertaking, claims for taxes and certain
statutory liabilities in other jurisdictions, a
shareowner may be held personally liable to the
extent that claims are not satisfied by the Fund;
however, upon payment of any such liability the
shareowner will be entitled to reimbursement from
the general assets of the Fund. The trustees
intend to conduct the operations of the Fund, with
the advice of counsel, in such a way so as to
avoid, as far as possible, ultimate liability of
the shareowners for liabilities of the Fund.
The Declaration of Trust further provides
that no trustee, officer or employee of the Fund
is liable to the Fund or to a shareowner, except
as such liability may arise from his or its own
bad faith, willful misfeasance, gross negligence,
or reckless disregard of his or its duties, nor is
any Trustee, officer or employee personally liable
to any third persons in connection with the
affairs of the Fund. It also provides that all
third persons shall look solely to the Fund
property or the property of the appropriate
Portfolio of the Fund for satisfaction of claims
arising in connection with the affairs of the Fund
or a particular Portfolio, respectively. With the
exceptions stated, the Declaration of Trust
provides that a Trustee, officer or employee is
entitled to be indemnified against all liability
in connection with the affairs of the Fund.
The Fund shall continue without limitation of
time subject to the provisions in the Declaration
of Trust concerning termination of the trust or
any
of the series of the trust by action of the
shareowners or by action of the Trustees upon
notice to the shareowners.
The term "Smith Barney" in the title of the
Fund has been adopted by permission of Smith
Barney and is subject to the right of Smith Barney
to elect that the Fund stop using the term in any
form or combination of its name.
MANAGEMENT AGREEMENTS
The Trustees are responsible for the
direction and supervision of the Fund's business
and operations. Smith Barney Mutual Funds
Management Inc. (the"Manager") manages the day to
day operations of Portfolio pursuant to a
management agreement entered into by the Fund on
behalf of each Portfolio.
The Manager provides each Portfolio with
advice and assistance with respect to the
acquisition, holding or disposal of securities and
recommendations with respect to other aspects of
the business and affairs of each Portfolio and
furnishes each Portfolio with bookkeeping,
accounting and administrative services, office
space and equipment, and the services of the
officers and employees of the Fund. By written
agreement Smith Barney's Research and other
departments and staff will furnish the Manager
with information, advice and assistance and will
be available for consultation on the Fund's
Portfolios, thus Smith Barney may also be
considered an investment adviser to the Fund.
Smith Barney's services are paid for by the
Manager; there is no charge to the Fund for such
services. For the services provided by the
Manager, the Fund pays the Manager monthly fees
equal to 1/12 of .60% of the average daily net
assets of the Income and Growth Portfolio and 1/12
of .45% of the average daily net assets of the
U.S.
Government/High Quality Portfolio and the
Reserve Account Portfolio. The Manager has agreed
to waive its fee to the extent that the aggregate
expenses of any Portfolio exclusive of taxes,
brokerage, interest and extraordinary expenses,
such as litigation and indemnification expenses,
exceed 1% of the average daily net assets for any
fiscal year of the Portfolio. The 1% voluntary
expense limitation shall be in effect until it is
terminated by notice to shareowners and
by
supplement to the then current prospectus.
For the years 1992, 1993 and 1994 the
management fee for the Income and Growth Portfolio
was $149,436, $172,583 and $176,531, respectively;
for the years 1992, 1993 and 1994 the management
fee for U.S. Government/High Quality Portfolio was
$18,115, $24,973 and $23,445 respectively, and for
the years 1992, 1993 and 1994 the management fee
for the Reserve Account Portfolio was $3,335,
$10,894 and $10,556, respectively.
The Management Agreement for each of the
Fund's Portfolios provides that all other expenses
not specifically assumed by the Manager under the
Management Agreement on behalf of the Portfolio
are borne by the Fund. Expenses payable by the
Fund include, but are not limited to, all charges
of custodians (including sums as custodian and
sums for keeping books and for rendering other
services to the Fund) and shareowner servicing
agents, expenses of preparing and printing its
prospectuses, proxy material, reports and notices
sent to shareowners, all expenses of shareowners'
and Trustees' meetings, filing fees and expenses
relating to the registration statements), fees of
auditors and legal counsel, out-of-pocket expenses
of Trustees and fees of Trustees who are not
"interested persons" as defined in the Act,
interest, taxes and governmental fees, fees and
commissions of every kind, expenses of issue,
repurchase or redemption of shares, insurance
expense, association membership dues, all other
costs incident to the Fund's existence and
extraordinary expenses such as litigation and
indemnification expenses. Direct expenses of each
Portfolio of the Fund, including but not limited
to the respective management fees, are charged to
that Portfolio, and general trust expenses are
allocated among the Portfolios on the basis of
relative net assets. No sales or promotion
expenses are incurred by the Fund, but expenses
incurred in complying with laws regulating the
issue or sale of the Fund's shares, which are paid
by the Fund, are not deemed sales or promotion
expenses.
Smith Barney distributes shares of the Fund
as principal underwriter. In addition, brokerage
is allocated to Smith Barney, provided that, in
the judgment of the Trustees of the Fund, the
commission, fee or other remuneration received or
to be received by Smith Barney (or any
broker/dealer affiliate of Smith Barney that is
also a member of a securities exchange) is
reasonable and fair compared to the commission,
fee or other remuneration received by other
brokers in connection with comparable transactions
involving similar securities being purchased or
sold on a securities exchange during the same or
comparable period of time. The Fund
normally
expects to allocate to Smith Barney between
50% and 60% of the Income and Growth
Portfolio's transactions to be executed for
such account on an agency basis. In all
trades to
be directed to Smith Barney, the Fund has
been assured that its orders will be
accorded priority over those received from
Smith Barney for its own account of for any
of its directors, officers or employees. It
may be expected that the preponderance of
transactions in the Government/High
Quality
Portfolio and the Reserve Account Portfolio
will
be principal transactions, and the Fund will
not deal with Smith Barney in any transaction
in which Smith Barney acts as principal.
During fiscal year 1994 the total amount
of commissionable transactions was
$27,552,189, $6,920,472 (25.12%) of which was
directed to Smith Barney and executed by
unaffiliated brokers and $20,631,717
(74.88%) of which was directed to other
brokers. Shown below are the total brokerage
fees paid by the Fund for each of the past
three years on behalf of the Income and
Growth Portfolio,
the portion paid to Smith Barney and the
portion paid to other brokers for the
execution of orders allocated in consideration
of research and statistical services or
solely for their ability to execute the order.
Commissions
To
Others
For
Execution
and
For Execution
Only Research and
Statistical Total To Smith Barney To
Others
Services
1992 $56,655 $20,931 36.9%
$ -0- -0-% $35,724 63.1%
1993 $68,901 $21,054 30.6%
$ -0- -0-% $47,847 69.4%
1994 $41,480 $11,730 28.2%
$ -0- -0-% $29,750 71.8%
The Board of Directors of the Fund has adopted
certain policies and procedures incorporating
the standard of Rule l7e-l issued by the
Securities and Exchange Commission under
the Act which
requires that the commissions paid to Smith
Barney must be "reasonable and fair
compared to the commission, fee or other
remuneration
received or to be received by other brokers
in connection with comparable transactions
involving similar securities during a
comparable period of time." The Rule and
the policy and procedures also contain
review requirements and require the
Manager to furnish reports to the Board
of Directors and to maintain records in
connection
with such reviews.
VOTING RIGHTS
The Trustees themselves have the power
to alter the number and the terms of office of the
trustees, and they may at any time lengthen their
own terms or make their terms of unlimited
duration (subject to certain removal procedures)
and appoint their own successors, provided that in
accordance with the Act always at least a
majority, but in most instances, at least
two-thirds of the Trustees have been elected by
the shareowners of the Fund. Shares do not have
cumulative voting rights and therefore the owners
of more than 50% of the outstanding shares of the
Fund may elect all of the Trustees irrespective of
the votes of other shareowners. Shares of the
Fund entitle their owners to one vote per share;
however, on any matter submitted to a vote of the
shareowners, all shares then entitled to vote will
be voted by individual Portfolio unless otherwise
required by the Investment Company Act of 1940 (in
which case all shares will be voted in the
aggregate). For example, a change in investment
policy for a Portfolio would be voted upon only by
shareowners of the Portfolio involved.
Additionally, approval of each Portfolio's
management agreement is a matter to be determined
separately by that Portfolio. Approval of a
proposal by the shareowners of one Portfolio is
effective as to that Portfolio whether or not
enough votes are received from the shareowners of
the other Portfolio to approve the proposal as to
that Portfolio. As of April 10, 1995, Nationwide
Life Insurance Co. owned 2,047,002 (100%) of the
outstanding shares of the Income and Growth
Portfolio, 372,388. (100%) of the outstanding
shares of the U.S. Government/High Quality
Securities Portfolio, and 184,986. (100%) of the
outstanding shares of the Reserve Account
Portfolio.
FINANCIAL STATEMENTS
The following financial information is hereby
incorporated by reference to the Fund's December
31, 1994 Annual Report to Shareholders a copy of
which is furnished with this Statement of
Additional Information:
Independent Auditors' Report
Statements of Assets and
Liabilities dated December 31, 1994
Schedules of Investments dated
December 31, 1994
Statements of Operations for the
year ended December 31, 1994
Statements of Changes in Net Assets
for
the years ended December 31, 1994 and 1993
Notes to Financial Statements
Financial Highlights
APPENDIX - RATINGS OF FIXED INCOME
OBLIGATIONS
BOND (AND NOTE) RATINGS
Moody's Investor Service, Inc.
Aaa - Bonds that are rated "Aaa" are judged
to be of the best quality. They carry the
smallest degree of investment risk and are
generally referred to as "gilt edge". Interest
payments are protected by a large or by an
exceptionally stable margin and principal is
secure. While the various protective elements are
likely to change, such changes as can be
visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa - Bonds that are rated "Aa" are judged to
be of high quality by all standards. Together
with the "Aaa" group they comprise what are
generally known as high grade bonds. They are
rated lower than the best bonds because margins of
protection may not be as large in "Aaa" securities
or fluctuation of protective elements may be of
greater amplitude or there may be other elements
present that make the long-term risks appear
somewhat larger than in "Aaa" securities.
A - Bonds that are rated "A" possess many
favorable investment attributes and are to be
considered as upper medium grade obligations.
Factors giving security to principal and interest
are considered adequate but elements may be
present that suggest a susceptibility to
impairment sometime in the future.
Baa - Bonds that are rated "Baa" are
considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured.
Interest payments and principal security appear
adequate for the present but certain protective
elements may be lacking or may be
characteristically unreliable over any great
length of time. Such bonds lack outstanding
investment characteristics and in fact have
speculative characteristics as well.
Standard & Poor's Corporation
AAA - Debt rated "AAA" has the highest rating
unsigned by Standard & Poor's. Capacity to pay
interest and repay principal is extremely strong.
AA - Debt rated "AA" has a very strong
capacity to pay interest and repay principal and
differs from the highest rated issues only in
small degree.
A - Debt rated "A" has a strong capacity to
pay interest and repay principal although it is
somewhat more susceptible to the adverse effects
of
changes in circumstances and economic
conditions than debt in higher rated categories.
BBB - Debt rated "BBB" is regarded as having
an adequate capacity to pay interest and repay
principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions
or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay
principal for debt in this category than in higher
rated categories.
COMMERCIAL PAPER RATINGS
Moody's Investors Services, Inc.
Issuers rated "Prime-1" (or
related
supporting institutions) have a superior
capacity for
repayment of short-term promissory
obligations. Prime-1 repayment capacity
will normally be evidenced by the
following characteristics: leading market
positions in well established industries;
high rates of return on
funds employed; conservative
capitalization
structures with moderate reliance on debt
and ample asset protection; broad margins in
earnings coverage of fixed financial
charges and high internal cash generation;
wellestablished access to a range of
financial markets and assured sources of
alternate liquidity.
Issuers rated "Prime-2 (or related
supporting institutions) have a strong
capacity for repayment of short-term
promissory obligations. This will normally
be evidenced by many of the
characteristics cited above but to a
lesser degree. Earnings trends and
coverage ratios, while sound, will be more
subject to variation. Capitalization
characteristics, while still
appropriate, may be more
affected by external conditions. Ample
alternate liquidity is
maintained.
Standard & Poor's Corporation
A-1 - This designation indicates that
the degree of safety regarding timely
payment is either overwhelming or very
strong. Those issues determined to possess
overwhelming safety characteristics will be
denoted with a plus (+) sign designation.
A-2 - Capacity for timely payment on
issues with this designation is strong.
However, the relative degree of safety is
not as high as for issues designated A-1.
THE THREE (3) GRAPHS IN THIS DOCUMENT CAME FROM
SBHU7X29.PRE - MDGSMITH BARNEY VARIABLE
ACCOUNT FUNDS
SEMI-ANNUAL REPORT
June 30, 1995
This report is authorized for distribution to
shareholders and to others
only
when accompanied or preceded by a current prospectus of the
Fund.
SMITH BARNEY VARIABLE ACCOUNT FUNDS
INCOME AND GROWTH PORTFOLIO
Historical
Performance
Net Asset
Value
Period Ended Beginning End of Income Capital Total
of Period Period Dividend Gain
Returns(1)
s Distributi
ons
6/30/95 $13.05 $14.35 $0.00 $0.00
9.96%
12/31/94 14.93 13.05 0.39 1.02
(3.12)
12/31/93 14.36 14.93 0.58 1.45
18.61
12/31/92 13.76 14.36 0.50 0.48
11.48
12/31/91 10.93 13.76 0.58 0.00
31.34
12/31/90 12.66 10.93 0.66 0.00
(8.37)
Inception* to 12.50 12.66 0.18 0.00
2.68
12/31/89
Total $2.89 $2.95
It is the Fund's policy to distribute dividends and
capital gains, if any, annually.
Average Annual Total Return
Six Months Ended 6/30/95(1)(2) 9.96%
Year Ended 6/30/95(1) 10.84
Five Years Ended 6/30/95(1) 11.12 Inception* to
6/30/95(1) 9.77
Cumulative Total Return 74.07
(Inception* to 6/30/95)(1)
(1)Assumes reinvestment of all dividends and capital gain distributions at net
asset value and does not reflect expenses associated with the subaccount such
as administrative fees, account charges and surrender charges which, if
reflected, would reduce the performance shown.
(2)Represents total return for the period from January 1, 1995 through June 30,
1995, not annualized.
* The inception date for the Income and Growth Portfolio is July
20, 1989.
SMITH BARNEY VARIABLE ACCOUNT FUNDS
INCOME AND GROWTH PORTFOLIO
Historical
Performance
Growth of $10,000 Invested in Shares
of
the Income and Growth Portfolio vs.
S&P 500 Index (unaudited)
July 1989 - June 1995
Hypothetical illustration of $10,000 invested on July 20,
1989,
assuming reinvestment of dividends and capital gains at
net
asset value through June 30, 1995. The S&P 500 is an index
of
widely held common stocks listed on the New York and
American
Stock Exchanges and the over-the-counter markets. Figures
for
the S&P 500 Index include reinvestment of dividends. The
index
is unmanaged and is not subject to the same management
and
trading expenses of a mutual fund.
All figures represent past performance and are not a
guarantee
of future results. Investment returns and principal value
will
fluctuate, and redemption value may be more or less than
the
original cost. No adjustment has been made for shareholder
tax
liability on dividends or capital gains.
SMITH BARNEY VARIABLE ACCOUNT FUNDS
U.S. GOVERNMENT/HIGH QUALITY SECURITIES PORTFOLIO
Historical
Performance
Net Asset
Value
Period Ended Beginning End of Income Capital
Total
of Period Period Dividends Gain
Returns
Distributio
(1) ns
6/30/95 $12.46 $13.82 $0.00 $0.00
10.91%
12/31/94 13.35 12.46 0.84 0.00
(0.35)
12/31/93 13.44 13.35 0.87 0.02
5.91
12/31/92 13.45 13.44 0.89 0.05
6.91
12/31/91 12.74 13.45 0.87 0.02
12.58
12/31/90 12.54 12.74 0.82 0.00
8.11
Inception* 12.50 12.54 0.34 0.00
3.01
to 12/31/89
Total $4.63 $0.09
It is the Fund's policy to distribute dividends
and capital gains, if any, annually.
Average Annual Total Return
Six Months Ended 6/30/95(1)(2) 10.91%
Year Ended 6/30/95(1)
11.95
Five Years Ended 6/30/95(1)
8.13
Inception* to 6/30/95(1)
7.91
Cumulative Total Return
56.90
(Inception* to 6/30/95)(1)
(1) Assumes reinvestment of all dividends and capital
gain
distributions at net asset value and does not reflect
expenses associated with the subaccount such as
administrative fees, account charges and surrender
charges which, if reflected, would reduce the
performance shown.
(2) Represents total return for the period from
January
1,
1995 through June 30, 1995, not annualized.
* The inception date for the U.S. Government/High
Quality
Securities Portfolio is July 31, 1989.
SMITH BARNEY VARIABLE ACCOUNT FUNDS
U.S. GOVERNMENT/HIGH QUALITY SECURITIES PORTFOLIO
Historical
Performance
Growth of $10,000 Invested in Shares of
U.S. Government/High Quality Securities
Portfolio vs. Lehman Brothers GNMA
Mutual Fund Index
(unaudited)
2
July 1989 - June 1995
Hypothetical illustration of $10,000 invested on July
31,
1989, assuming reinvestment of dividends and capital
gains
at
net asset value through June 30, 1995. The Lehman Brothers
GNMA
Mutual Fund Index is composed of 15-year and 30-year fixed-
rate
securities backed by mortgage pools of the Government
National
Mortgage Association. The index is unmanaged and is
not
subject to the same management and trading expenses of a
mutual
fund.
All figures represent past performance and are not a
guarantee
of future results. Investment returns and principal value
will
fluctuate, and redemption value may be more or less
than the
original cost. No adjustment has been made for
shareholder tax
liability on dividends or capital gains.
SMITH BARNEY VARIABLE ACCOUNT FUNDS
RESERVE ACCOUNT PORTFOLIO
Historical
Performance
Net Asset
Value
Period Ended Beginning End of Income Capital
Total
of Period Period Dividen Gain
Returns(1) ds
Distributi
ons
6/30/95 $12.39 $13.08 $0.00 $0.00
5.57%
12/31/94 12.75 12.39 0.58 0.03
1.99
12/31/93 12.86 12.75 0.69 0.01
4.59
12/31/92 13.08 12.86 0.78 0.07
4.82
12/31/91 12.66 13.08 0.90 0.03
10.64
12/31/90 12.55 12.66 0.93 0.00
8.30
Inception* to 12.50 12.55 0.36 0.00
3.26
12/31/89
Total $4.24 $0.14
It is the Fund's policy to distribute dividends and
capital gains, if any, annually.
Average Annual Total Return
Six Months Ended 6/30/95(1)(2) 5.57%
Year Ended 6/30/95(1)
7.33
Five Years Ended 6/30/95(1)
6.52
Inception* to 6/30/95(1)
6.61
Cumulative Total Return
46.03
(Inception* to 6/30/95)(1)
(1) Assumes reinvestment of all dividends and capital
gain
distributions at net asset value and does not reflect
expenses associated with the subaccount such as
administrative fees, account charges, and surrender
charges which, if reflected, would reduce the
performance shown.
(2) Represents total return for the period from
January 1,
1995 through June 30, 1995, not annualized.
*The inception date for shares of the Reserve Account
Portfolio
is August 2, 1989.
SMITH BARNEY VARIABLE ACCOUNT FUNDS
RESERVE ACCOUNT PORTFOLIO
Historical
Performance
Growth of $10,000 Invested in Shares of
the Reserve Account Portfolio vs. Salomon
Brothers 1-Year Treasury Index
(unaudited)
August 1989 - June 1995
3
Hypothetical illustration of $10,000 invested on
August 2,
1989, assuming reinvestment of dividends and capital
gains
at
net asset value through June 30, 1995. The Salomon
Brothers
1-
Year Treasury Index is composed of one 1-year United
States
Treasury Bond ("Bond") which is used to track the Bond's
return
until its maturity. The index is unmanaged and is not
subject to the same management and trading expenses of a
mutual fund.
All figures represent past performance and are not a
guarantee
of future results. Investment returns and principal value
will
fluctuate, and redemption value may be more or less than
the
original cost. No adjustment has been made for shareholder
tax
liability on dividends or capital gains.
SMITH BARNEY VARIABLE ACCOUNT FUNDS
INCOME AND GROWTH
PORTFOLIO
Schedules of
Investments June
30, 1995
(unaudited)
SHARES
VALUE
COMMON STOCKS - 90.2%
Aerospace Manufacturing - 5.0%
30,000 AAR Corp.
$536,250
11,000 Daimler-Benz Aktieng ADS
507,375
5,000 United Technologies Corp.
390,625
1,434,250
Aluminum - 1.4%
8,000 Reynolds Metal Co.
414,000
Broadcast Media - 2.0%
14,014 Times Mirror Co.
334,584
12,306 Cox Communications Inc.
238,429
573,013
Chemicals - 7.5%
10,000 Air Products and Chemicals
557,500
8,000 Dow Chemical Co.
575,000
40,000 Lawter International Inc.
480,000
6,000 Monsanto Co.
540,750
2,153,250 Conglomerates - 3.1%
20,000 Alexander & Baldwin Inc.
445,000
10,000 Tenneco Inc.
460,000
905,000
Data Processing: Office Equipment - 6.2%
10,000 International Business Machines Corp.
960,000
4,000 Xerox Corp.
469,000
25,000 MacNeal Schwendler Corp.
350,000
1,779,000 Electric Utilities - 5.1%
20,000 Peco Energy Co. .
552,500
20,000 Pinnacle West Capital
490,000
10,000 Houston Industries Inc.
421,250
1,463,750 Electrical Equipment - 6.7%
14,000 General Electric Co.
789,250
10,000 Emerson Electric Co.
715,000
10,000 Honeywell Industries Inc.
431,250
1,935,500
See Notes to Financial Statements.
Energy Oil Integrated: International - 8.7%
10,000 Chevron Corp.
$466,250
11,000 Mobil Corp.
1,056,000
10,000 Texaco Inc.
656,250
10,000 Philips Petroleum Co.
333,750
2,512,250 Financial Services - 8.0%
27,000 Commonwealth Bank of Australia
535,661
10,000 Chase Manhattan Bank
470,000
10,000 First Interstate Bancorp.
802,500
10,000 Household International Inc.
495,000
2,303,161 Insurance Multi-line - 5.2%
10,000 Lincoln National Corp.
437,500
10,000 Marsh & McLennan Co.
811,250
10,000 Provident Life and Insurance Co. of America
232,500
1,481,250
Machinery - Diversified - 3.0%
5,000 Deere & Co. 428,125
30,000 Gorman-Rupp Co.
435,000
863,125 Mining - 2.0%
15,000 Cleveland Cliffs Inc. 577,500
Oil Well Equipment & Services - 2.5%
20,000 Dresser Industries Inc. 445,000
20,000 TransCanada Pipelines Ltd. 267,500
712,500
Paper Products - 4.7%
8,000 International Paper Co. 686,000
15,000 Westvaco Corp. 663,750
1,349,750
Photography - 3.8%
18,000 Eastman Kodak Co. 1,091,250
See Notes to Financial Statements.
Pollution Control - 2.7%
15,000 Clarcor Inc. $343,125
15,000 WMX Technologies Inc. 425,625
768,750
Retail - General Merchandising - 3.3%
5,000 Avon Inc. 335,000
10,000 Sears Roebuck & Co. 598,750
933,750
Telephone - 2.5%
12,000 BCE Inc. 385,500
10,000 GTE Inc. 341,250
726,750
Transportation - Railroad - 3.6%
20,000 Arnold Industries Inc. 350,000
20,000 Illinois Central Corp. 690,000
1,040,000
Miscellaneous - 3.2%
20,000 Armorall Products Corp.
345,000
7,000 Crescent Real Estate Equities Inc. 223,125
10,000 Seagram Co. Ltd. 346,250
914,375
TOTAL COMMON STOCKS (Cost - $22,643,700) 25,932,174
PREFERRED STOCKS - 5.4%
Airlines - 0.1%
200 Delta Airlines Corp. 11,700
Broadcast Media - 0.5%
5,986 Times Mirror Co., Series B 142,916
Health Care - 0.7%
8,500 FHP International Corp. 201,875
Metals and Mining - 1.2%
10,000 Freeport McMoran Copper & Gold "B" 356,250
See Notes to Financial Statements.
Telephone - 2.9%
20,000 LCI International Exchange $835,000
TOTAL PREFERRED STOCKS (Cost - $1,272,005)
1,547,741
FACE
AMOUNT
CONVERTIBLE DEBENTURES - 2.6%
Energy - 1.2%
$400,000 Oryx Energy, 7.500% due 5/15/14 352,500
Furniture - 1.4%
400,000 Pier 1 Imports, 6.875% due 4/1/02 400,500
TOTAL CONVERTIBLE DEBENTURES (Cost - $993,500)
752,500 REPURCHASE AGREEMENT - 1.8%
527,000 Goldman Sachs, 5.947% due 07/03/95; Proceeds
at
maturity -
$527,261; (Fully collateralized by U.S. Treasury
Notes, 6.625%
due 3/31/97; Market value - $537,540 (Cost
$527,000) 527,000
TOTAL INVESTMENTS - 100%
(Cost - $25,436,205+)
$28,759,415
See Notes to Financial Statements.
SMITH BARNEY VARIABLE ACCOUNT
FUNDS U.S. GOVERNMENT / HIGH QUALITY
SECURITIES
PORTFOLIO
Schedules of Investments
(continued) June 30,
1995
(unaudited)
FACE COUPON
AMOUNT RATE
MATURITY*
VALUE
U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS - 86.8%
$400,000 Federal Home Loan Bank 6.850% 2/25/97 $404,956
500,000 Federal National Mortgage Assoc. 6.270
4/01/99
496,495
494,943 GNMA Certificates I 7.000 7/15/24 487,825
470,599 GNMA Certificates I 7.500 2/15/24 473,978
186,953 GNMA Certificates I 8.000 6/15/17 191,684
341,850 GNMA Certificates I 8.500 3/15/20 355,415
343,649 GNMA Certificates I 9.000 10/15/19 361,368
70,314 GNMA Certificates I 10.000 3/15/20
76,686
700,000 U.S. Treasury Bond 7.250 5/15/16
743,659
500,000 U.S. Treasury Note 6.500 4/30/99 508,880
250,000 U.S. Treasury Note 7.250 5/15/04
267,143
TOTAL U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS (Cost - $4,102,401)
4,368,089
CORPORATE NOTES - 9.0%
200,000 Mobil Corp. 6.500 12/17/96
200,750
250,000 Shell Oil Corp. 6.950 12/15/98
255,000
TOTAL CORPORATE NOTES
(Cost - $464,472)
455,750
REPURCHASE AGREEMENT - 4.2%
211,000Goldman Sachs, 5.947% due 7/03/95;
Proceeds at maturity -
$211,105; (Fully collateralized by U.S. Treasury
Notes, 6.625%
due 3/31/97; Market value - $215,318) (Cost
$211,000) 211,000
TOTAL INVESTMENTS - 100%
(Cost - $4,777,873+)
$5,034,839
See Notes to Financial Statements.
SMITH BARNEY VARIABLE ACCOUNT
FUNDS RESERVE ACCOUNT PORTFOLIO
Schedules of Investments
(continued) June 30,
1995
(unaudited)
FACE COUPON
AMOUNT RATE MATURITY* VALUE
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 80.6%
$250,000 Federal Farm Credit Bank 4.090% 2/05/96$
247,560
250,000 Federal Home Loan Bank Notes 8.250
11/25/96
257,593
500,000 Federal National Mortgage Assoc. 7.010
3/21/97
503,520
400,000 U.S. Treasury Note 6.000 6/30/96 401,096
500,000 U.S. Treasury Note 6.380 1/15/99
506,980
TOTAL U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS (Cost - $1,869,641) 1,916,749
CORPORATE NOTES - 16.8%
100,000 Assoc. Corp. N.A. 6.125 2/01/98 99,875
100,000 Mobil Corp. 6.500 12/17/96
100,375
100,000 Shell Oil 6.000 1/15/97
99,875
100,000 Union Pacific 6.480 2/01/97
100,500
TOTAL CORPORATE NOTES
(Cost - $396,030)
400,625
REPURCHASE AGREEMENT - 2.6%
61,000 Goldman Sachs, 5.947% due 7/03/95; Proceeds at
maturity -
$61,030; (Fully collateralized by U.S. Treasury
Notes, 6.625%
due 3/31/97; Market value - $62,248) (Cost
$61,000) 61,000
TOTAL INVESTMENTS - 100%
(Cost - $2,326,671+) $
2,378,374
* Date shown represents the last in the range of
maturity dates of mortgage obligations only.
+ Aggregate cost for Federal income tax purposes is
substantially the same.
See Notes to Financial Statements.
SMITH BARNEY VARIABLE ACCOUNT FUNDS
Statements of Assets and
Liabilities
June 30, 1995
(unaudited)
U.S. Government/
Income and High Quality
Reserve
Account
Growth PortfolioSecurities Portfolio
Portfolio
ASSETS:
Investments, at value (Cost - $25,436,205,
$4,777,873 and $2,326,671, respectively) $28,759,415 $5,034,839
$2,378,374
Cash 653
699 640
Dividends and interest receivable 73,304 0 38,871
Receivable for securities sold 0 45,555 0
Other assets 287 43 38
Total Assets 28,833,659 5,081,136
2,417,923
LIABILITIES:
Management fees payable 15,353 1,874 850
Accrued expenses and other liabilities 39,453 13,678 9,063
Total Liabilities 54,806 15,552 9,913
Total Net Assets $28,778,853 $5,065,584
$2,408,010
NET ASSETS:
Par value of shares of beneficial interest $ 2,006 $ 366 $
184
Capital paid in excess of par value 25,391,964 4,687,149
2,287,116
Undistributed net investment income 393,552 161,317 60,411
Accumulated net realized gain (loss) on investments (331,879) (40,214)
8,596
Net unrealized appreciation of investments 3,323,210 256,966 51,703
Total Net Assets $28,778,853 $5,065,584
$2,408,010
Shares of beneficial interest outstanding (unlimited
shares authorized of $.001 par value) 2,006,12 366,453 184,069
Net asset value and redemption price per share $14.35 $13.82 $13.08
SMITH BARNEY VARIABLE ACCOUNT FUNDS
Statements of Operations
For the Six Months Ended June 30, 1995
(unaudited)
U.S. Government/
Income and High Quality Reserve
Account
Growth PortfolioSecurities Portfolio
Portfolio
INVESTMENT INCOME:
Interest $88,957 $181,374 $70,294
Dividends 411,482 0 0
Total Investment Income 500,439 181,374
70,294
EXPENSES
Management fees (Note 2) 83,462 10,967
5,203
Audit and legal 8,337 2,232
1,490
Trustees' fees 6,943 1,886
1,142
Custody 2,778 990
248
Shareholder and system servicing fees 2,819 0
2,351
Registration fees 51 148
0
Other 2,628
3,848
1,042
Total Expenses 107,018 20,071
11,476
Net Investment Income 393,421 161,303
58,818
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized gain (loss) from security transactions
(excluding short-term securities):
Proceeds from sales 3,431,435 0
246,796
Cost of securities sold 3,776,037 0
238,203
Net realized gain (loss) (344,602) 0 8,593
Change in unrealized appreciation
of investments:
Beginning of period 707,156 (89,870)
(6,341)
End of period 3,323,210 256,966
51,703
Increase in net unrealized appreciation 2,616,054 346,836
58,044
Net Gain on Investments 2,271,452 346,836
66,637
Increase in Net Assets from Operations $2,664,873 $ 508,139
$125,455
SMITH BARNEY VARIABLE ACCOUNT FUNDS
Statements of Changes in Net Assets
For the Six Months Ended June 30, 1995 (unaudited) and the Year Ended
December 31,1994
Income U.S. Reserve
and Governm
Account
Growth ent/Hig
Portfol
Portfol h io
io Quality
Securit
ies
Portfol
io
1995 1994 1995 1994 1995 1994
OPERATIONS:
Net investment income $ $ $ $ $
$
393,421 733,994 161,303 306,260 58,818
115,212
Net realized gain (loss) from (344,60 1,965,7 -- (40,196
8,593 5,899
security transactions 2) 08 )
Increase (decrease) in 2,616,0 (3,655, 346,836 (287,51 58,044
(72,787
unrealized appreciation 54 274) 5) )
Increase (Decrease) in Net 2,664,8 (955,57 508,139 (21,451
125,455 48,324
Assets From Operations 73 2) )
DISTRIBUTION TO SHAREHOLDERS
FROM:
Net investment income 0 (736,00 0 (307,38 0
(114,404) 9) 2)
Net realized gain 0 (1,953, 0 0 0
(5,906)
255)
Decrease in Net Assets From 0 (2,689, 0 (307,38 0
(120,30
Distributions to Shareholders 259) 9) 8)
FUND SHARE TRANSACTIONS*:
Net proceeds from sales 181,094 965,156 217,012 281,249
317,912 597,365
Net asset value of shares 2,689,2 0 307,389 0
120,308
issued on reinvestment of -- 59
dividends and distributions
Cost of shares reacquired (1,551, (3,163, (498,24 (870,65
(562,92
(733,45
094) 452) 8) 5) 1) 7)
Increase (Decrease) in Net (1,370, 490,963 (281,23 (282,01 (245,00
(15,784 Assets From Fund Share 000) 6) 7) 9)
)
Transactions
Increase (Decrease) in Net 1,294,8 (3,153, 226,903 (610,85
(119,55 (87,768
Assets 73 868) 7) 4) )
NET ASSETS:
Beginning of period 27,483, 30,637, 4,838,6 5,449,5 2,527,5
2,615,3
980 848 81 38 64 32
End of period (1) $28,778 $27,483 $5,065, $4,838, $2,408,
$2,527,
,853 ,980 584 681 010 564
(1) Includes undistributed net $393,55 $131 $161,31 $14 $60,411
$1,593
investment income of: 2 7
______________
*Shares issued and redeemed:
Sold 13,025 64,366 16,559 21,167 24,619
46,380
Issued on reinvestment of 0 207,025 -- 24,670
9,710
dividends and distributions
Redeemed (113,40 (216,39 (38,558 (65,723 (44,489
(57,220
4) 7) ) ) ) )
Net Increase (Decrease) (100,37 54,994 (21,999 (19,886
(19,870
(1,130)
9) ) ) )
SMITH BARNEY VARIABLE ACCOUNT FUNDS
Notes to Financial Statements
June 30, 1995
(unaudited)
(1) Significant Accounting Policies
Smith Barney Variable Account Funds ("Fund")
is registered under the Investment Company Act of
1940, as amended, as a diversified, open-
end management
investment company. The Fund is sold exclusively
for use with Variable Annuity Contracts, except
for the investments made by Smith Barney
Mutual Funds Management, Inc. ("SBMFM"), The
Fund
consists of three separate investment portfolios
("Portfolios"): Income
and Growth Portfolio, U.S. Government/High
Quality Securities Portfolio and Reserve Account
Portfolio.
The significant accounting policies
consistently
followed by the Fund are: (a) securities
transactions are accounted for on trade date; (b)
securities traded on national securities markets are
valued at closing prices on such markets; securities
for which no sales prices are reported are valued at
the mean between the closing bid and asked prices;
short-term investments that have a maturity of more
than 60 days are valued at prices based on market
quotations for securities of
similar type, yield and maturity; short-
term
investments that have a maturity of 60 days or less
are valued at cost plus accreted discount, or
minus amortized premium, as applicable; (c)
dividend income is recorded on the ex-dividend date
and interest income is recorded on the accrual
basis; (d) the specific identification method is
used in calculating gains or losses on the sale
of securities; (e) management fees
and direct expenses are charged to each
Portfolio; general fund expenses are allocated on
the basis of relative net assets; (f) dividends
and distributions to shareholders are recorded on
the exdividend date; and (g) each Portfolio
intends to comply with the
requirements of the Internal Revenue Code, as
amended, applicable to regulated investment
companies and to distribute all of its
taxable income to its
shareholders; therefore, no provision for
Federal income tax has been made.
(2) Management Agreement and Payments to Affiliated
Persons
SBMFM acts as investment manager to the Fund.
The
Income and Growth, U.S. Government/High
Quality
Securities and Reserve Account Portfolios pay
SBMFM a management fee calculated at an annual rate
of 0.60%, 0.45%, and 0.45%, respectively,
on average
daily net
assets. This fee is calculated daily and paid
monthly. Smith Barney Inc. ("SB"), a subsidiary of
Smith Barney Holdings Inc., acts as Distributor of
Fund shares and primary broker for its portfolio
transactions. For the six months ended June 30,
1995, SB was paid brokerage commissions of $2,800.
All officers and three trustees of the Fund are
employees of SB.
SMITH BARNEY VARIABLE ACCOUNT FUNDS
Notes to Financial Statements (continued)
June 30, 1995
(unaudited)
(3) Investment Transactions
During the six months ended June 30, 1995,
the aggregate cost of purchases and proceeds from
sales (including maturities, but excluding
short term
securities) of investments were as follows:
Purchases Sales
Proceeds Income and Growth Portfolio
$5,409,223 $3,431,435
Reserve Account Portfolio 1,196,702
246,796
At June 30, 1995, the net unrealized appreciation
of investments for Federal income tax purposes
consisted of the following:
Income U.S. Gov't/
and High Quality
Reserve Growth Securities
Account
Portfolio Portfolio
Portfolio
Gross unrealized appreciation$4,005,551 $266,938
$51,703 Gross unrealized depreciation (682,341)
(9,972)
Net unrealized appreciation$3,323,210 $256,966
$51,703
At December 31, 1994, the U.S. Government High Quality
Portfolio had net capital loss carryovers of $40,214
available to offset future capital gains
through December 31, 2002. To
the extent that these carryover
losses are used to offset capital gains, it is probable
that the gains so offset will not be distributed.
(4) Repurchase Agreements
The Fund purchases (and its custodian takes
possession of) U.S. Government securities
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 daily maintenance of
the market value of the collateral in amounts
at least equal to the repurchase price.
SMITH BARNEY VARIABLE ACCOUNT FUNDS
Financial Highlights
(for a share of beneficial interest in each portfolio outstanding throughout
each period):
Inco Distr
Ratio
me ibuti s
to
From ons
Avera
Inve ge
stme
Net
nt
Asset
Oper s
atio
ns
Pe Net Net Net Tota Divid Distri Total Net Tota Net
Expen
Net
Por
ri Asset Inve Realiz l ends bution Distri Ass l Ass
ses(1
Inve
tfo
od Value stme ed and Inco from s From bution et Retu ets
)
stme
lio
En , nt Unreal me Net Net s Val rn End
nt
Tur
de Begin Inco ized (Los Inves Realiz ue, of
Inco
nov
d ning me Gain s) tment ed End Per
me
er
of (Loss) From Incom Gains of iod
Rat
Perio on Inve e Per (00
e
d Invest stme iod 0's
ment nt )
Oper
atio
ns
IN
CO
ME
AN
D
GR
OW
TH
PO
RT
FO
LI
O
19 $13.0 $0.2 $1.10 $1.3 $0.00 $0.00 $0.00 $14 9.96 $28
0.77% 2.83
13.
95 5 0 0 .35 %(3) ,77
(4) %(4)
18%
(2 9
)
19 14.93 0.39 (0.86) (0.4 (0.39 (1.02) (1.41) 13. (3.1 27,
2.49
40.
94 7) ) 05 2) 484
0.75
41
19 14.36 0.57 2.02 2.59 (0.57 (1.45) (2.02) 14. 18.6 30,
0.75 3.59
70.
93 ) 93 1 638
39
19 13.76 0.49 1.09 1.58 (0.50 (0.48) (0.98) 14. 11.4 26,
0.84 3.43
57.
92 ) 36 8 501
49
19 10.93 0.59 2.82 3.41 (0.58 0.00 (0.58) 13. 31.3 23,
0.61 4.61
31.
91 ) 76 4 764
86
U.
S.
GO
VE
RN
ME
NT
/H
IG
H
QU
AL
IT
Y
SE
CU
RI
TI
ES
PO
RT
FO
LI
O
19 12.46 0.44 0.92 1.36 0.00 0.00 0.00 13. 10.9 5,0
0.82( 6.62
0.0
95 2 1(3) 66 4 ) (4)
0
(2
)
19 13.35 0.84 (0.89) (0.0 (0.84 0.00 (0.84) 12. (0.3 4,8
0.76 5.87
36.
94 5) ) 46 5) 38
33
19 13.44 0.88 (0.08) 0.80 (0.87 (0.02) (0.89) 13. 5.91 5,4
0.74 6.09
4.0
93 ) 35 50
6
19 13.45 0.88 0.05 0.93 (0.89 (0.05) (0.94) 13. 6.91 5,5
0.93 6.34
11.
92 ) 44 16
10
19 12.74 0.93 0.67 1.60 (0.87 (0.02) (0.89) 13. 12.5 4,8
0.67 7.05
12.
91 ) 45 8 83
42
RE
SE
RV
E
AC
CO
UN
T
PO
RT
FO
LI
O
19 12.39 0.32 0.37 0.69 0.00 0.00 0.00 13. 5.57 2,4
0.99( 5.09
32.
95 08 (3) 08
4) (4) 13
(2
)
19 12.75 0.59 (0.34) 0.25 (0.58 (0.03) (0.61) 12. 1.99 2,5
0.86 4.77
81.
94 ) 39 28
28
19 12.86 0.69 (0.10) 0.59 (0.69 (0.01) (0.70) 12. 4.59 2,6
0.98 4.90
0.0
93 ) 75 15
0
19 13.08 0.78 (0.15) 0.63 (0.78 (0.07) (0.85) 12. 4.82 2,9
1.01 5.41
18.
92 ) 86 74
41
19 12.66 0.86 0.48 1.34 (0.89 (0.03) (0.92) 13. 10.6 3,1
0.65 6.61
23.
91 ) 08 4 32
90
(1) The Manager waived all or a portion of its fees as follows: $0.03 per
share (0.24% of average net assets) in 1991 with respect to the Income
and Growth Portfolio: $0.02 per share (0.10%) in 1992 and $0.04
per share (0.35%) in 1991 with respect to the U.S. Government/High
Quality Securities Portfolio; and $0.01 per share (0.05%) in 1993, $0.03
per share (0.34%) in 1992 and $0.6 per share (0.45%) in 1991 with
respect to the Reserve Account Portfolio, subject to a Voluntary waiver
of the fee to the extent that the aggregate expense of any Portfolio
exceed 1% of the average daily net assets
for any year.
(2) For the six months ended June 30, 1995 (unaudited).
(3) Not annualized as it may not be representative of the total return
for
the year.
(4) Annualized.
SMITH BARNEY VARIABLE ACCOUNT FUNDS
ANNUAL REPORT December 31, 1994
This report is authorized for distribution to shareholders and to others
only when accompanied or preceded by a current prospectus of the
Fund. February 27, 1995
Dear Contractowner:
We are pleased to present the 1994 Annual Report for
the Smith Barney Variable Account Funds. In the
chart following this letter, you will find the
total return for each of the Account's
underlying investment options as of December
31, 1994 based on the
percentage change in unit values.
Market Review
Beginning in February of 1994, the Federal
Reserve Board began a shift away from a
monetary policy intended to stimulate economic
growth, to a more neutral stance. The Fed
implemented its new policy direction by
raising the federal funds rate -- the rate
banks charge each other for overnight loans six
times throughout the year. The rate began the year
at 3.0%, and by the end of December, it stood at
5.5%.
The Fed's objective in raising short-term
interest rates was to moderate the rate of
economic growth in order to preempt future
inflation. The rate hikes had another effect,
however, and that was to cause heavy selling in
both the bond and stock markets. The sell off in
stocks occurred in spite of extremely strong
corporate earnings, creating a stalemate in
the
equity markets. While earnings helped push
stock prices higher at times during the past year,
interest rate worries largely overwhelmed
corporate-profit
growth.
Rapidly rising interest rates also caused
a substantial decline in bond prices. In fact,
1994
has been characterized as the worst year for
bonds since record keeping began in 1927. By
December 31, the yield on the benchmark 30-year
Treasury bond had risen to 7.88%, compared
with 6.35% at
the start of the year. The rise in short-
term rates was even more striking. The yield on
the two-year Treasury note, for example, rose from
4.23% to 7.69% by December.
In early February of 1995, the Fed raised the
federal funds rate for the seventh time in a year
by one-half
percentage point. Although the robust growth
that closed out 1994 has yet to translate
into higher prices, the Fed views recent
economic indicators as pointing toward rising
wages, and consequently, price increases. The
Fed's goal is to contain such increases and keep
inflation subdued which may require
additional rate hikes in 1995. We are
cautiously optimistic that the capital markets
in 1995 will provide more attractive returns.
The Income and Growth Portfolio
The Income and Growth Portfolio produced a
negative total return of 3.12% for the year ended
December 31, 1994 compared to 1.31% for the
Standard & Poor's 500 Index during the same
period. Our strategy for coping with last
year's difficult market environment was careful
stock selection. We continued
to rely on fundamental research
and
typically employed a bottom-up approach to
identify attractive stocks where valuations had
come down, but intrinsic worth remained strong.
We also kept our focus on larger-
capitalization companies whose dividend yields are
higher than
the average.
The Portfolio holds a number of retail stocks in
the consumer cyclical sector which we
believe
have depressed valuations because of the
market's
perception that consumer spending will slow down
next year. In our view, some individual retail
stocks will buck that trend. Sears, Roebuck &
Co, for instance, has refocused itself, improved
its merchandising and lowered its costs. By
doing so it also increased its prospects for
earnings growth as it faces competition from
discount retailers and traditional department
stores.
Eastman Kodak also fits the description of a
high quality company that suffers from overly
pessimistic investor views. We think Kodak is
attractive because management is
committed to reorganizing
and
streamlining the company's massive bureaucracy
to combat foreign competition.
We also like insurance companies such as
Lincoln National and Marsh & McLennon. They
are currently undervalued because it does not
appear that current prices reflect any
improvement in earnings. We see this as an
excellent buying opportunity because, as the bond
market stabilizes, the negative balance-sheet
impact of lower bond prices will subside.
We also maintained our positions in
multinational companies which stand to benefit
from an improving economic outlook overseas.
Avon Products Inc. is an example of a true
global company which is benefitting from highly
diversified exposure worldwide and is well
positioned to profit from heavy consumer demand
in developing countries.
The U.S. Government/High Quality Securities
Portfolio
For the year ended December 31, 1994, the total
return for the U.S. Government/High Quality
Securities
Portfolio was a negative 0.35%. The
Portfolio
outperformed the Lehman Brothers GNMA Mutual
Fund Index which produced a total return of
negative 1.50% for the same period. According to
Lipper Analytical Services, the Portfolio also
outperformed the average Ginnie Mae fund, which
returned a negative 2.49%
for
the year.
In the mortgage-backed market, the current coupon
rate for securities issued by the Government
National Mortgage Association (Ginnie Mae)
began the year yielding
6.68% and climbed to a yield of 8.89% by year
end. Also, with interest rates rising, homeowners
were less inclined to refinance their existing
mortgages, and prepayments declined rapidly.
This drop in prepayments had the effect of
lengthening the average duration of mortgage-
backed securities. Duration is a measure of a
bond's volatility when interest rates move up
or down. The longer the duration, the more
sensitive the bond is to interest rate changes.
Shortly after the first increase in the federal
funds rate in February, we sold longer-term
Treasury securities in order to reduce the
Portfolio's duration. The GNMA Index began
the year with a duration of 3.2 years, but as
prepayments slowed, its duration lengthened. In
December, the Portfolio was positioned
defensively with a duration of 2.6 years.
Maintaining this duration while the index
lengthened to 5.5 years was the source of our
excess performance relative to the index. In
November, we increased our duration to 4.9 years,
where it now stands.
The Reserve Account Portfolio
For the year ended December 31, 1994, the total
return of the Reserve Account Portfolio was 1.99%
compared to 2.63% for the Salomon Brothers 1-Year
Treasury Index during the same period.
The Reserve Account Portfolio seeks to
achieve positive quarterly total returns,
along with the highest current income consistent
with those returns, through the use of a
computergenerated model. Last year's difficult
market environment provided a strong test for our
model, and it performed relatively well. We
avoided any negative quarters, experiencing our
only negative months in February and September.
With interest rates rising early in 1994, the
computer model recommended a shortening of the
Portfolio's duration. The Portfolio's duration
was 1.2 years in January and, by midyear, it was
as short as 0.8 years.
By November the duration was back up to 1.3 years.
We thank you for your participation in the
Smith Barney Variable Account Funds and pledge
our best efforts on your behalf in the coming
year.
Sincerely yours,
/s/ Stephen Treadway
Stephen Treadway
Chairman and Chief Executive Officer
January 31, 1995
Separate Account Investment Options Total Return
U.S. Gov't/
Income and High Quality
Reserve
Growth Securities
Account
1994 Total Return* (4.36)% (1.72)%
0.67%
*Total return performance based on the percentage
change in unit value reflects the separate
account
level charges which relate to mortality and expense
risks for the contract, but does not reflect
the
annual contract maintenance charge or contingent
deferred sales charge. Deduction of these amounts
would reduce the stated total returns.
Past
performance is no guarantee of future results.
SMITH BARNEY VARIABLE ACCOUNT FUNDS INCOME AND
GROWTH PORTFOLIO
Historical
Performance
Net Asset
Value
Year Ended Beginning End of Income Capital
Total
December 31, of Year Year Dividend Gain
Returns(1) s
Distributio ns
1994 $14.93 $13.05 $0.39 $1.02
(3.12)%
1993 14.36 14.93 0.58 1.45
18.61
1992 13.76 14.36 0.50 0.48
11.48
1991 10.93 13.76 0.58 0
31.34
1990 12.66 10.93 0.66 0
(8.37)
7/20/89* to 12.50 12.66 0.18 0
2.68
12/31/89
Total $2.89 $2.95
It is the Fund's policy to distribute
dividends and capital gains, if any, annually.
Average Annual Total Return
Year Ended 12/31/94(1)
(3.12)%
7/20/89* to 12/31/94(1)
8.79
Cumulative Total Return
58.30
(7/20/89* to 12/31/94)
(1) Assumes reinvestment of all dividends and
capital gain distributions at net asset value
and
does not reflect a deduction of the contingent deferred
sales charge ("CDSC").
* Inception.
SMITH BARNEY VARIABLE ACCOUNT FUNDS
U.S. GOVERNMENT/HIGH QUALITY SECURITIES PORTFOLIO
Historical
Performance
Net Asset
Value
Year Ended Beginning End of Income Capital
Total
December 31, of Year Year Dividend Gain
Returns(1) s
Distributio ns
1994 $13.35 $12.46 $0.84 $0.00
(0.35)%
1993 13.44 13.35 0.87 0.02
5.91
1992 13.45 13.44 0.89 0.05
6.91
1991 12.74 13.45 0.87 0.02
12.58
1990 12.54 12.74 0.82 0
8.11
7/31/89* to 12.50 12.54 0.34 0
3.01
12/31/89
Total $4.63 $0.09
It is the Fund's policy to distribute
dividends and capital gains, if any, annually.
Average Annual Total Return
Year Ended 12/31/94(1)
(0.35)%
7/31/89* to 12/31/94(1)
6.61
Cumulative Total Return
41.46
(7/31/89* to 12/31/94)
(1) Assumes reinvestment of all dividends
and capital gain distributions at net asset value
and
does not reflect a deduction of the
contingent deferred sales charge ("CDSC").
* Inception.
SMITH BARNEY VARIABLE ACCOUNT FUNDS
RESERVE ACCOUNT PORTFOLIO
Historical
Performance
Net Asset
Value
Year Ended Beginning End of Income Capital
Total
December 31, of Year Year Dividend Gain
Returns(1)
s Distributio
ns
1994 $12.75 $12.39 $0.58 $0.03
1.99%
1993 12.86 12.75 0.69 0.01
4.59
1992 13.08 12.86 0.78 0.07
4.82
1991 12.66 13.08 0.90 0.03
10.64
1990 12.55 12.66 0.93 0
8.30
8/02/89* to 12.50 12.55 0.36 0
3.26
12/31/89
Total $4.24 $0.14
It is the Fund's policy to distribute dividends
and capital gains, if any, annually.
Average Annual Total Return
Year Ended 12/31/94(1) 1.99%
8/02/89* to 12/31/94(1) 6.18
Cumulative Total Return 38.33
(8/02/89* to 12/31/94)
(1) Assumes reinvestment of all dividends and
capital gain distributions at net asset value and
does not reflect a deduction of the contingent
deferred sales charge ("CDSC").
* Inception.
SMITH BARNEY VARIABLE ACCOUNT FUNDS
Schedules of Investments - December
31, 1994 INCOME AND GROWTH PORTFOLIO
SHARES
VALUE
COMMON STOCKS - 83.9%
Aerospace Manufacturing - 4.2%
20,000 AAR Corp.
$
267,500
11,000 Daimler Benz Aktieng ADR
541,750
5,000 United Technologies Corp.
314,375
1,123,625
Aluminum - 1.5%
8,000 Reynolds Metal Co.
392,000
Broadcast Media - 2.4%
20,000 Times Mirror Co.
627,500
Chemicals - 8.5%
10,000 Air Products and Chemicals Inc.
446,250
8,000 Dow Chemical Co.
538,000
10,000 First Mississippi Corp.
250,000
40,000 Lawter International Inc.
485,000
15,000 Raychem Corp.
534,375
2,253,625
Conglomerates - 3.3%
20,000 Alexander & Baldwin Inc.
445,000
10,000 Tenneco Inc.
425,000
870,000
Data Processing - 4.3%
10,000 International Business Machines
Corp.
735,000
4,000 Xerox Corp.
396,000
1,131,000
Electric Utilities - 2.6%
20,000 Peco Energy Co. .
490,000
10,000 Pinnacle West Capital Corp.
197,500
687,500 Electrical Equipment - 3.1%
10,000 General Electric Co.
510,000
2,000 Matsushita Electric Industrial ADR
326,000
836,000
Energy - 7.4%
10,000 Chevron Corp.
446,250
11,000 Mobil Corp.
926,750
10,000 Texaco Inc.
598,750
1,971,750 Financial Services - 1.9%
27,000 Commonwealth Bank of Australia $
499,689
Hotels/Motels - 2.5%
10,000 Hilton Hotels Corp.
673,750
Insurance Multiline - 4.3%
10,000 Lincoln National Corp.
350,000
10,000 Marsh & McLennan Co.
792,500
1,142,500 Machinery - 5.0%
5,000 Deere & Co.
331,250
30,000 Gorman-Rupp Co.
536,250
10,000 Parker-Hannifin Corp.
455,000
1,322,500
Major Manufacturing - 2.5%
10,000 First Interstate Bancorp.
676,250
Mining - 2.1%
15,000 Cleveland Cliffs Inc.
555,000
Oil Well Equipment & Services - 3.9%
20,000 Dresser Industries Inc.
377,500
20,000 TransCanada Pipelines Ltd.
242,500
20,000 YPF Sociedad Anonima ADR
427,500
1,047,500
Paper Products - 4.5%
8,000 International Paper Co.
603,000
15,000 Westvaco Corp.
588,750
1,191,750
Photography - 3.2%
18,000 Eastman Kodak Co.
859,500
Pollution Control - 2.7%
15,000 Clarcor Inc.
318,750
15,000 WMX Technologies Inc.
393,750
712,500
Retail - 5.8%
10,000 Brown Group Inc.
320,000
Retail - 5.8% (continued)
5,000 Avon Inc. $
298,750
10,000 Sears Roebuck & Co.
460,000
15,000 Toys R Us Inc.
457,500
1,536,250
Telephone - 1.5%
12,000 BCE Inc.
385,500
Transportation - 5.2%
20,000 Arnold Industries Inc.
415,000
20,000 Illinois Central Corp.
615,000
20,000 Southern Pacific Lines Rail Corp.
362,500
1,392,500
Miscellaneous - 1.5%
20,000 Armorall Products Corp.
415,000
TOTAL COMMON STOCKS (Cost $21,370,053)
22,303,189
PREFERRED STOCKS - 3.9%
Metals and Mining - 1.3%
10,000 Freeport McMoran Copper & Gold "B"
Pfd.
337,500
Telephone - 2.6%
20,000 LCI International CV. Pfd.
695,000
TOTAL PREFERRED STOCKS (Cost $912,480)
1,032,500
FACE
AMOUNTVALUE
CONVERTIBLE DEBENTURES - 2.4%
Energy - 1.0%
$400,000 Oryx Energy, 7.50% due 5/15/14
275,500
Furniture - 1.4%
$400,000 Pier 1 Imports, 6.875% due 4/1/02
372,000
TOTAL CONVERTIBLE DEBENTURES (Cost
$993,500) 647,500
REPURCHASE AGREEMENT - 9.8%
$2,597,000 Chemical Securities Inc., 5.75% due 1/3/95,
proceeds at
maturity - $2,598,658 (Fully collateralized by U.S.
Treasury Notes 6.50% due 9/30/96; Market
value $2,649,107) (Cost - $2,597,000)
$ 2,597,000
TOTAL INVESTMENTS - 100%
(Cost - $25,873,033+) $
26,580,189
SMITH BARNEY VARIABLE ACCOUNT FUNDS
Schedules of Investments - December 31, 1994
U.S. GOVERNMENT / HIGH QUALITY SECURITIES PORTFOLIO
FACE COUPON
AMOUNT RATE MATURITY**
VALUE
U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS - 85.9%
$400,000 Federal Home Loan Bank 6.85% 2/25/97 $391,800
500,000 Federal National Mortg. Assoc.
6.27
4/01/99463,880
500,000 U.S. Treasury Note 6.50 4/30/99 475,390
250,000 U.S. Treasury Note 7.25 5/15/04 240,145
700,000 U.S. Treasury Bond 7.25 5/15/16 647,892
497,841 GNMA Certificates I 7.00 7/15/24 447,743
509,446 GNMA Certificates I 7.50 2/15/24 473,622
192,139 GNMA Certificates I 8.00 6/15/17 184,093
358,590 GNMA Certificates I 8.50 4/15/21 353,097
370,707 GNMA Certificates I 9.00 1/15/22 374,759
77,929 GNMA Certificates I 10.00 3/15/20
82,142
TOTAL U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS (Cost - $4,196,772)
4,134,563
CORPORATE NOTES AND BONDS - 9.1%
200,000 Mobil Corp. 6.50 12/17/96 195,250
250,000 Shell Oil Corp. 6.95 12/15/98
241,562
TOTAL CORPORATE NOTES AND BONDS
(Cost - $464,473)
436,812
REPURCHASE AGREEMENT - 5.0%
243,000Chemical Securities Inc., 5.75% due
1/03/95; proceeds at maturity -
$243,155 (Fully collateralized by U.S.
Treasury Notes 6.50%
due 9/30/96; Market value - $247,876) (Cost -
$243,000)
243,000
TOTAL INVESTMENTS - 100% (Cost - $4,904,245+)
$ 4,814,375
SMITH BARNEY VARIABLE ACCOUNT FUNDS
Schedules of Investments - December 31, 1994
RESERVE ACCOUNT PORTFOLIO
FACE COUPON
AMOUNT RATE MATURITY**
VALUE
U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS - 58.0%
$250,000 Federal Farm Credit Bank 4.09% 2/05/96$ 241,428
250,000 Federal Home Loan Bank Notes
8.25
11/25/96251,390
250,000 Student Loan Marketing Assoc.
Discount Notes 5.28 2/03/95 249,707
750,000 U.S. Treasury Note 6.38 1/15/99
712,335
TOTAL U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS (Cost - $1,457,578)
1,454,860
CORPORATE NOTES AND BONDS - 7.9%
100,000 General Electric 5.85 2/15/95 100,000
100,000 Mobil Corp. 6.50 12/17/96
97,625
TOTAL CORPORATE NOTES AND BONDS
(Cost - $201,248)
197,625 SHORT-TERM INVESTMENTS - 34.1%
250,000 U.S. Treasury Bills. 5.54* 3/23/95
246,968 611,000 Repurchase Agreement - Chemical Securities
Inc.,
5.75% due 1/03/95, proceeds at maturity
$611,390 (Fully collateralized by U.S. Treasury
Notes 6.50%
due 9/30/96; Market value $623,259)
611,000
TOTAL SHORT-TERM INVESTMENTS
(Cost $857,968)
857,968
TOTAL INVESTMENTS - 100% (Cost $2,516,794+)
$
2,510,453
* Annualized yield on date of purchase for short-term
investments.
**Date shown represents the last in range of maturity dates
of mortgage certificates owned.
+ Aggregate cost for Federal income tax purposes is
substantially
the same.
SMITH BARNEY VARIABLE ACCOUNT
FUNDS Statements of Assets and
Liabilities
December 31, 1994
U.S. Government/
Income and High Quality Reserve
Account
Growth PortfolioSecurities Portfolio
Portfolio ASSETS:
Investments, at value (Cost - $25,873,033,
$4,904,245 and $2,516,794, respectively)$26,580,189 $4,814,375
$2,510,453
Cash 741
770
213
Dividends and interest receivable 67,337 46,801
36,419
Receivable for securities sold 921,032 -
- -
Other assets 287 43
38
Total Assets 27,569,586 4,861,989 2,547,123
LIABILITIES:
Payable for Fund shares reacquired 22,116 203
90
Management fees payable 28,365 3,700
1,924
Accrued expenses and other liabilities 35,125 19,405
17,545
Total Liabilities 85,606 23,308
19,559
Total Net Assets $27,483,980 $4,838,681
$2,527,564
NET ASSETS:
Par value of shares of beneficial interest$ 2,106 $ 388 $
204
Capital paid in excess of par value 26,761,864 4,968,363
2,532,105
Undistributed net investment income 131 14
1,593
Undistributed net realized gain (accumulated net loss) 12,723
(40,214)
3
Unrealized appreciation (depreciation) of investments 707,156
(89,870)
(6,341)
Total Net Assets $27,483,980 $4,838,681
$2,527,564
Shares of beneficial interest outstanding (unlimited
shares authorized of $.001 par value) 2,106,507 388,452
203,939
Net asset value and redemption price per share $13.05 $12.46
$12.39
SMITH BARNEY VARIABLE ACCOUNT FUNDS
Statements of Operations
For the year ended December 31, 1994
U.S. Government/
Income and High Quality Reserve
Account
Growth PortfolioSecurities Portfolio
Portfolio
INVESTMENT INCOME:
Interest $112,430 $345,985
$135,981
Dividends (net of foreign taxes of $20,048) 841,912 - -
Total Income 954,342 345,985 135,981
EXPENSES
Management fees (Note 2) 176,531 23,445 10,556
Audit and legal fees 16,812 4,501 3,004
Directors' fees 14,001 3,803 2,303
Custodian fees 5,603 1,997 500
Shareholder and system servicing fees 2,000 2,099 2,303
Registration fees 101 299 -
Other 5,300 3,581 2,103
Total Expenses 220,348 39,725 20,769
Total Net Investment Income 733,994 306,260 115,212
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized gain (loss) from security transactions
(excluding short-term securities):
Proceeds from sales 16,040,809 1,496,406 356,914
Cost of securities sold 14,075,101 1,536,602 351,015
Net realized gain (loss) 1,965,708 (40,196) 5,899
Change in unrealized appreciation
of investments:
Beginning of year 4,362,430 197,645 66,446
End of year 707,156 (89,870) (6,341)
Change in net unrealized appreciation (depreciation) (3,655,274)
(287,515)
(72,787)
Net Loss on Investments (1,689,566) (327,711)
(66,888)
Increase (Decrease) in Net Assets Resulting from Operations $(955,572)
$(21,451)
$
48,324
SMITH BARNEY VARIABLE ACCOUNT FUNDS
Statements of Changes in Net Assets
For the years ended December 31, 1994 and December 31, 1993
Income U.S.
Reserve
and Governme
Account
Growth nt High
Portfoli
Portfoli Quality o
o Securiti
es
Portfoli
o
1994 1993 1994 1993 1994 1993
OPERATIONS:
Net investment income $ $ $ $ $ $
733,994 1,036,45 306,260 337,916 115,212 134,183
5
Net realized gain (loss) from 1,965,70 2,619,99 (40,196)
5,664 5,899
1,367
security transactions 8 2
Increase (decrease) in unrealized (3,655,2 1,176,16 (287,515 (29,007)
(72,787)
(9,745)
appreciation 74) 1 )
Increase (Decrease) in Net Assets (955,572 4,832,60 (21,451) 314,573
48,324
125,805
Resulting from Operations ) 8
DISTRIBUTION TO SHAREHOLDERS
FROM:
Net investment income (736,004 (1,040,0 (307,389 (334,744
(114,402
(133,620
) 57) ) ) ) )
Net realized gain (1,953,2 (2,626,8 - (5,816) (5,906)
(2,606)
55) 00)
Decrease in Net Assets from (2,689,2 (3,666,8 (307,389 (340,560
(120,308
(136,226
Distributions to Shareholders 59) 57) ) ) ) )
FUND SHARE TRANSACTIONS*:
Net proceeds from sales 965,156 1,206,25 281,249 290,441
597,365
86,148
7
Net asset value of shares issued 2,689,25 3,666,85 307,389 340,561
120,308
136,226
on reinvestment of dividends and 9 7
distributions
Cost of shares reacquired (3,163,4 (1,902,0 (870,655 (671,700
(733,457 (570,662
52) 36) ) ) ) )
Increase (Decrease) in Net Assets 490,963 2,971,07 (282,017 (40,698)
(15,784)
(348,288
from Fund Share Transactions 8 ) )
Increase (Decrease) in Net Assets (3,153,8 4,136,82 (610,857 (66,685)
(87,768) (358,709
68)
9 ) )
NET ASSETS:
Beginning of year 30,637,8 26,501,0 5,449,53 5,516,22
2,615,33
2,974,04
48 19 8 3 2 1
End of year $27,483, $30,637, $4,838,6 $ $ $
980 848 81 5,449,53 2,527,56 2,615,33
8 4 2
Undistributed net investment $131 $2,141 $14 $1,143
$ 1,593
$783
income
______________
* Shares issued and redeemed:
Sold 64,366 78,124 21,167 20,876
46,380
6,523
Issued on reinvestment of 207,025 247,783 24,670 25,491
9,710
10,676
dividends and distributions
Redeemed (216,397 (119,920 (65,723) (48,406)
(57,220)
(43,397)
) )
Net Increase (Decrease) 54,994 205,987 (19,886) (2,039)
(1,130) (26,198)
SMITH BARNEY VARIABLE ACCOUNT FUNDS
Notes to Financial Statements December
31, 1994
(1) Significant Accounting Policies
Smith Barney Variable Account Funds ("Fund")
is
registered under the Investment Company Act of 1940,
as amended, as
a
diversified, open-end management
investment company. The Fund is sold exclusively
for use with Variable Annuity Contracts, except
for the investments made by
Smith Barney Mutual Funds
Management, Inc. ("SBMFM"), formerly known as
Smith Barney Advisers and Smith Barney Inc. ("SB").
The Fund consists of
three separate investment portfolios
("Portfolios"): Income and Growth Portfolio,
U.S. Government/High Quality Securities Portfolio and
Reserve Account Portfolio.
The significant accounting policies
consistently
followed by the Fund are: (a) securities
transactions are accounted for on trade date; (b)
securities traded on national securities markets
are valued at closing prices on such markets;
securities for which no sales prices are reported
are valued at the mean between the closing bid and
asked prices; short-term investments that have a
maturity of more than 60 days are valued at prices
based on market quotations for securities of
similar type, yield and maturity; short-term
investments that have a maturity of 60 days or less
are valued at cost plus accreted discount, or
minus amortized premium, as applicable; (c) dividend
income is recorded on the ex dividend date and
interest income is recorded on the
accrual basis; (d) the specific identification method
is used in calculating gains or losses on the
sale of securities; (e) management fees and direct
expenses are charged to each Portfolio; general
fund expenses are allocated on the basis of
relative net assets; (f) dividends and distributions
to shareholders are recorded by the Fund on the ex-
dividend date; and (g) each Portfolio intends to
comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to
distribute all of its taxable income to its
shareholders; therefore, no provision for Federal
income tax has been made.
(2)Management Agreement and Payments to Affiliated
Persons SBMFM, acts as investment manager to the
Fund. The
Income and Growth, U.S. Government/High
Quality
Securities and Reserve Account Portfolios pay
SBMFM a management fee calculated at an annual rate
of 0.60%, 0.45%, and
0.45% on average daily net assets,
respectively. This fee is calculated daily and
paid monthly.
Smith Barney Inc., a subsidiary of Smith Barney
Holdings Inc., acts as Distributor of Fund shares
and primary broker for its portfolio transactions.
For the year ended December 31, 1994, Smith
Barney Inc. was paid brokerage commissions of
$11,730. All officers and one trustee of the Fund
are employees of Smith Barney Inc.
SMITH BARNEY VARIABLE ACCOUNT FUNDS
Notes to Financial Statements
(continued) December 31,
1994
(3)Investment Transactions
During the year ended December 31, 1994, the aggregate
cost of purchases and proceeds from sales (including
maturities, but excluding short term securities) of
investments were as follows:
Purchases Sales
Proceeds Portfolio
Income and Growth Portfolio
Common stocks, preferred stocks
and convertible debentures $11,511,380
$16,040,809
U.S. Government/High Quality Securities Portfolio
U.S. Government and Government
Agency obligations 2,625,388
1,896,406
Reserve Account Portfolio
U.S. Government and Government
Agency obligations 1,207,656
1,355,195
At December 31, 1994, the net unrealized
appreciation (depreciation) of investments for
Federal income tax purposes consisted of the
following:
Income U.S. Gov't/
and High Quality
Reserve Growth
Securities Account
Portfolio Portfolio
Portfolio
Gross unrealized appreciation $ 2,290,302 $14,951 $
1,468
Gross unrealized depreciation (1,583,146) (104,821)
(7,809)
Net unrealized appreciation/(depreciation) $
707,156 $(89,870) $(6,341)
At December 31, 1994, the U.S. Government High Quality
Portfolio had net capital loss carryovers of $40,214
available to offset future capital gains
through December 31, 2002. To the extent that
these carryover losses are used to offset capital
gains, it is probable that the gains so offset will
not be distributed.
(4)Repurchase Agreements
The Fund purchases (and its custodian takes
possession of) U.S. Government securities 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 daily maintenance of the market value of
the collateral in amounts at least equal to the
repurchase price.
SMITH BARNEY VARIABLE ACCOUNT
FUNDS Financial Highlights
(for a share of beneficial interest in each series outstanding throughout
each period):
Incom Distr
Ratios
e ibuti to
From ons
Averag Inves e
Net
tment Assets
Opera
tions
Year Net Net Net Total Divid Distri Total Net Tota Net
Expens Net
Port
Ended Asse Inves Reali Incom ends bution Distri Asse l
Asse es(1)
Inve
foli
t tment zed e from s from bution t Retu ts
stme o
Valu Incom and From Net Net s Valu rn End
nt Turn
e e Unrea Inves Inves Realiz e, of
Inco
over
Begi lized tment tment ed End Year
me
Rate
nnin Gain Opera Incom Gains of (000
g of (Loss tions e Year
's)
Year ) on
Inves
tment
INCOME
AND
GROWTH
PORTFOL
IO
1994 $14. $0.39 $(0.8 $(0.4 $(0.3 $(1.02 $(1.41 $13. (3.1 $27,
2.49
40.4
93 6) 7) 9) ) ) 05 2)% 484 0.75% %
1%
1993 14.3 0.57 2.02 2.59 (0.57 (1.45) (2.02) 14.9 18.6 30,6
0.75
3.59 70.3
6 ) 3 1 38 9
1992 13.7 0.49 1.09 1.58 (0.50 (0.48) (0.98) 14.3 11.4 26,5
0.84
3.43 57.4
6 ) 6 8 01 9
1991 10.9 0.59 2.82 3.41 (0.58 -- (0.58) 13.7 31.3
23,7 0.61
4.61 31.8
3 ) 6 4
64 6
1990 12.6 0.64 (1.70 (1.06 (0.67 -- (0.67) 10.9 (8.3 16,8
0.50
5.86 17.2
6 ) ) ) 3 7) 19 7
U.S.
GOVERNM
ENT/HIG
H
QUALITY
SECURIT
IES
PORTFOL
IO
1994 13.3 0.84 (0.89 (0.05 (0.84 -- (0.84) 12.4 (0.3 4,83
0.76 5.87 36.3
5 ) ) ) 6 5) 8
3
1993 13.4 0.88 (0.08 0.80 (0.87 (0.02) (0.89) 13.3 5.91 5,45
0.74 6.09 4.06
4 ) ) 5 0
1992 13.4 0.88 0.05 0.93 (0.89 (0.05) (0.94) 13.4 6.91 5,51
0.93 6.34 11.1
5 ) 4 6
0
1991 12.7 0.93 0.67 1.60 (0.87 (0.02) (0.89) 13.4 12.5 4,88
0.67 7.05 12.4
4 ) 5 8 3
2
1990 12.5 0.83 0.19 1.02 (0.82 -- (0.82) 12.7 8.11 3,60
0.50 8.31 5.69
4 ) 4 0
RESERVE
ACCOUNT
PORTFOL
IO
1994 12.7 0.59 (0.34 0.25 (0.58 (0.03) (0.61) 12.3 1.99 2,52
0.86 4.77 81.2
5 ) ) 9 8
8
1993 12.8 0.69 (0.10 0.59 (0.69 (0.01) (0.70) 12.7 4.59 2,61
0.98 4.90 --
6 ) ) 5 5
1992 13.0 0.78 (0.15 0.63 (0.78 (0.07) (0.85) 12.8 4.82 2,97
1.01 5.41 18.4
8 ) ) 6 4
1
1991 12.6 0.86 0.48 1.34 (0.89 (0.03) (0.92) 13.0 10.6 3,13
0.65 6.61 23.9
6 ) 8 4 2
0
1990 12.5 0.93 0.11 1.04 (0.93 -- (0.93) 12.6 8.30 2,74
0.50 7.66 7.65
5 ) 6 0
(1) The Manager waived all or a portion of its fees as follows: $0.03
per share (0.24% of average net assets) in 1991 and $0.04 per share (0.35%
of a
average net assets) in 1990 with respect to the Income and Growth
Portfolio:
$0.02 per share (0.10%) in 1992, $0.04 per share (0.35%) in 1991 and
$0.05 per share (0.45%) in 1990 with respect to the U.S. Government/High
Quality Securities Portfolio; and $0.01 per share (0.05%) in 1993, $0.03
per share (0.34%) in 1992, $0.6 per share (0.45%) in 1991 and $0.05 per
share (0.45%) in 1990 with respect to the Reserve Account Portfolio,
subject to a Voluntary waiver of the fee to the extent that the aggregate
expense of any Portfolio exceed 1% of the average daily net assets for any
year.
Independent Auditors' Report
The Shareholders and Trustees of
Smith Barney Variable Account Funds:
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of the Income and Growth, U.S.
Government/High Quality Securities and the Reserve Account Portfolios of
Smith Barney Variable Account Funds as of December 31, 1994, the related
statements of operations for the year then ended the statements of
changes in net assets for each of the years in the two-year period then
ended and the financial highlights for each of the years in the five-year
period then ended. These financial statements and financial highlights
are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements
and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1994, by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position
of the Income and Growth, U.S. Government/High Quality Securities and
the Reserve Account Portfolios of Smith Barney Variable Account Funds as
of December 31, 1994, the results of their operations for the year then
ended, the changes in their net assets for each of the years in the two-
year period then ended and the financial highlights for each of the years
in the fiveyear period then ended, in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick
February 17, 1995
PART C Other Information
Item 24. Financial Statements and Exhibits
Location In:
(a) Financial Statements
Part A Part B
Annual and
Semi-Annual
Report
Statements of Assets and Liabilities
-- *
Statements of Operations -- *
Statements of Changes in Net Assets-- *
Notes to Financial Statements -- *
_________________________________
*See the Annual Report and Semi-Annual Report to
Shareholders which is incorporated by reference in
the Statement of Additional Information.
All other statements and schedules are omitted
because they are not applicable or the required
information is shown in the financial statements or
notes thereto.
(b) Exhibits
(1)Declaration of Trust dated as of December
18, 1986 is incorporated herein by reference to
Exhibit 1 to Pre-Effective Amendment No. 1 to
the Registration Statement N. 33-10839.
(2)Bylaws of the Trust are incorporated by
reference to Exhibit 2 to Pre-Effective
Amendment
No. 4.
(3)Not applicable.
(4)Not applicable.
(5) (a) Management Agreement between the
Income & Growth Portfolio and Smith, Barney
Advisers, Inc. is incorporated by reference to
Exhibit 5(a)(i) to Pre-Effective Amendment No.
4. (b) Management Agreement between
U.S.
Government/High Quality Securities Portfolio
and Smith, Barney Advisers, Inc. by reference
to Exhibit 5(a)(ii) to Pre-Effective Amendment
No. 4.
(c) Management Agreement between
Reserve Account Portfolio and Smith, Barney
Advisers, Inc. is incorporated by reference to
Exhibit (5)(a)(iii) to Pre-Effective Amendment
No. 4.
(d) Subadvisory Agreement between
Smith, Barney Advisers, Inc. and Smith Barney,
Harris Upham & Co. Incorporated is
incorporated by reference to Exhibit (5)(b) to
Pre-Effective Amendment No. 4.
(6)Distribution Agreement between Smith Barney
Variable Account Funds and Smith Barney, Harris
Upham & Co. Incorporated is incorporated by
reference to Exhibit 6(a) to Pre-Effective
Amendment No. 4.
(7)Not applicable.
(8)Custodian Agreement between Registrant and
Provident National Bank is incorporated herein
by reference to Exhibit 8 to Pre-Effective
Amendment No. 4.
(9)Transfer Agency Agreement between Registrant
and Provident Financial Processing Corp. is
incorporated herein by reference to Exhibit 9 to
Pre-Effective Amendment No. 4.
(10) (a) Opinion of Sullivan & Cromwell
is incorporated by reference to Pre-Effective
Amendment No. 1.
(b) Opinion of Gaston & Snow is
incorporated herein by reference to Exhibit 10
to Pre-Effective Amendment No. 4.
(11) (i) Auditors' Report
(ii) Auditors' Consent
(12) Not applicable.
(13) Subscription Agreement between the Fund
and
Smith, Barney Advisers, Inc. dated June 27,
1989 is incorporated herein by reference to
Exhibit 13 to Pre-Effective Amendment No. 4.
(14) Not applicable.
(15) Not applicable.
Item 25. Persons Controlled by or under Common
Control with Registrant
The Registrant is not controlled directly or
indirectly by any person. Information with
respect to the Registrant's investment manager is
set forth under the caption "Management" in the
prospectus included in Part A of this Amendment
to the Registration Statement on Form N-1A.
Item 26. Number of Holders of Securities
Number of Record
Holders Title of Class on April 10, 1995
Income and Growth Portfolio 2
U.S. Government/High Quality Securities Portfolio
1
Reserve Account Portfolio 1
Item 27. Indemnification
Reference is made to ARTICLE V of Registrant's
Declaration of Trust for a complete statement of its
terms. Section 52. of ARTICLE V provides: "No Trustee,
officer, employee or agent of the Trust shall be liable to
the Trust, its Shareholders, or to any Shareholder,
Trustee, officer, employee or agent thereof for any action
or failure
to act (including without limitation the failure to compel
in any way
any former or acting Trustee to redress any breach of
trust) except for his own bad faith, willful
misfeasance, gross negligence or reckless disregard of
his or its duties." Emphasis added.
Item 28. Business and other Connections of Investment
Adviser
See the material under the caption "Management of the
Fund" included in Part A (Prospectus) of this
Registration Statement and the material appearing under
the caption "Management Agreement" included in Part B
(Statement of Additional Information) of this
Registration Statement.
Information as to the Directors and Officers of Smith
Barney Mutual Funds Management Inc. is included in its
Form ADV (File No. 801-8314), filed with the Commission,
which is incorporated herein by reference thereto.
Item 29. Principal Underwriters
(a) Smith Barney Inc. ("Smith Barney ") also
acts as principal underwriter for the Smith
Barney Money Funds, Inc.; Smith Barney Municipal
Money Market Fund, Inc.; Smith Barney Muni Funds;
Smith Barney Funds, Inc.; Smith Barney World
Funds, Inc.; Smith Barney Variable Account
Funds; Smith Barney/Travelers Series Fund
Inc.; Smith Barney Intermediate Municipal Fund,
Inc.; Smith Barney Municipal Fund, Inc.; High
Income Opportunity Fund Inc.; Greenwich
Street California Municipal Fund Inc.; The
Inefficient-Market Fund Inc.; Smith Barney
Investment Funds, Inc.; Smith Barney Adjustable
Rate Government Income Fund; Smith Barney
Income Funds; Smith Barney Massachusetts
Municipals Fund; Smith Barney Small
Capitalization Fund; Zenix Income Fund Inc;
Smith Barney Arizona Municipals Fund Inc.;
Smith Barney Principal Return Fund;
Smith
Barney 1990s Fund; Municipal High Income
Fund Inc.; Pacific Corinthian Variable
Annuity Fund; The Trust for TRAK
Investments; Smith Barney Series Fund; Smith
Barney Income Trust; Smith Barney
Aggressive Growth
Fund Inc.; Smith Barney Appreciation
Fund Inc.; Smith Barney California
Municipals Fund Inc.; Smith Barney
Fundamental Value Fund Inc.; Smith
Barney Managed Governments Fund Inc.;
Smith Barney Managed Municipals Fund Inc.;
Smith Barney New Jersey Municipals Fund
Inc.; Smith Barney Precious Metals and
Minerals Fund Inc.; Smith Barney
Investment Funds Inc.; Smith Barney FMA
(R) Trust; The Italy Fund Inc.; Smith
Barney Telecommunications Trust; Managed
Municipals Portfolio Inc.; Managed
Municipals Portfolio II Inc.; Managed High
Income Portfolio Inc. Smith Barney Managed
Growth Fund.
(b) The information
required by this Item 29 with respect to each
director and
officer of Smith Barney is incorporated by
reference to Schedule A of Form BD filed by
Smith Barney pursuant to the Securities
Exchange Act of 1934 (SEC File No. 8-8177)
(c)not applicable
Item 30. Location of Accounts and
Records
PNC Bank,
National Association, 17th and Chestnut Streets,
Philadelphia, Pennsylvania 19103, and The
Shareholder Services
Group, Inc., 53 State Street, Boston, Massachusetts
02109, will maintain the custodian and the
shareholder servicing agent records, respectively,
required by Section 31 (a).
All other
records required by Section 31 (a) are maintained at
the offices of the Registrant at 388 Greenwich
Street, New York, New York 10013 (and preserved for
the periods specified by Rule 31a-2).
Item 31. Management Services
not applicable
Item 32. Undertakings
(a)Not Applicable
(b)Not Applicable
(c)Registrant undertakes to furnish
each person to whom a prospectus is delivered with a copy
of
Registrants latest report to shareholders, upon request
and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act
of 1933 and the Investment Company Act of 1940, the
Registrant certifies that it meets all of the
requirements for effectiveness of this Post-Effective
Amendment to the Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and
has duly caused this Post Effective Amendment to its
Registration Statement to be signed on its behalf
by the undersigned, and where applicable, the true
and lawful attorney-in-fact, thereto duly authorized, in
the City of New York and State of New York on the 22nd
day of December 1995.
SMITH
BARNEY VARIABLE ACCOUNT FUNDS
BY /s/ Heath
B. McLendon
Heath
B. McLendon
Chairman of
the Board
and Chief
Executive Officer
Pursuant to the requirements of the Securities Act
of 1933, this Post-Effective Amendment to the
Registration Statement has been signed below by the
following persons in the capacities and on the date
indicated.
Signatures Title
Date
/s/ Heath B.
McLendon
Chairman of the Board December 22, 1995
(Heath B. McLendon) and Chief Executive Officer
/s/ Jessica
Bibliowicz
President December 22, 1995
(Jessica Bibliowicz)
Joseph H. Fleiss* Trustee
December
22, 1995 (Joseph H. Fleiss)
Donald R. Foley* Trustee
December
22, 1995
(Donald R. Foley)
Trustee
(Paul Hardin)
Francis P. Martin* Trustee
December
22, 1995 (Francis P. Martin)
Roderick C. Rasmussen*
Trustee
December 22, 1995
(Roderick C. Rasmussen)
John P. Toolan* Trustee
December
22, 1995 (John P. Toolan)
C. Richard Youngdahl* Trustee
December
22, 1995
(C. Richard Youngdahl)
/s/ Lewis E. Daidone Treasurer
and
Principal December 22, 1995
(Lewis E. Daidone) Financial Officer
*By:/s/ Christina T. Sydor December
22,
1995
Christina T. Sydor
Pursuant to Power of Attorney
EXHIBIT INDEX
Exhibit No. Exhibit Page Number
(11) (i) Auditor's Report
(ii) Auditor's Consent
Independent Auditors' Consent
To the Shareholders and Trustees of
Smith Barney Variable Account Funds:
We consent to the use of our report dated February 17, 1995
with respect to the Portfolios listed below of Smith Barney
Variable Account Funds incorporated herein by reference and
to the references to our Firm under the headings "Financial
Highlights" in the Prospectus and "Independent Auditors" in
the Statement of Additional Information.
Portfolios
Income and Growth Portfolio
U.S. Government/High Quality Securities Portfolio
Reserve Account Portfolio
KPMG PEAT MARWICK LLP
New York, New York
December 22, 1995
